The Oil Export Ban

capture-20150915-134910It’s always fascinating to see how things unfold in this country in terms of politics and money and most recently, oil. For decades, there has been a ban on oil exports. When profits begin tanking, we start hearing the big oil players complain about the unfairness of it all. That complaining has finally resulted in Congress opting to lift the four-decades old ban.  On the surface, that’s reasonable; but going a bit deeper, is the cure worse than the ailment?

What Got Us Here?

First, it’s important to know a few of the “minor” details (according to those supporting the lift) that got us to this point. Keep in mind it’s the long term repercussions that are going to haunt us. This is increasingly clear with these latest moves:

Note: I realize a lot of this is not on the evening news. God love the mainstream media – it has its hands full letting us know how many times Donald Trump sneezes over the course of a day. Power on, MSM, power on! (Yes, it’s ridiculous.)

China’s Imports

China is one of the world’s biggest oil importers. Sixty percent of the oil it uses is imported from other countries. This is important because:

In October, China will launch its own oil benchmark using its own currency. China and Russia are both ditching the dollar. It will compete with London’s Brent and our West Texas Intermediate (WTI) benchmarks. It has its challenges, according to Reuters, “If China’s crude futures don’t immediately attract enough liquidity and markets are still as volatile as now, then traders could get really burned and would quickly stop trading Chinese crude futures.” If China was in as bad shape as everyone insists, why would it risk the new ploy? Just as the U.S. has manipulated our stock market for years, so has China manipulated its own. Things are never as they truly seem on some Dow ticker.

OPEC Scores

Last week, I wrote that there was no way OPEC was going to change its tactic on production because it had come too far to back out now (despite those insisting it had no choice but to ease its production). We learned that today not only has it NOT considered cutting production, but it’s getting ready to double down. In its monthly report, it said, “In North America, there are signs that U.S. production has started to respond to reduced investment and activity. Indeed, all eyes are on how quickly U.S. production falls.” Score one for OPEC. This move has annihilated what’s left of the still-expensive U.S. shale industry.

The Export Ban

Those are two very big reasons why many of the oil companies want the export ban lifted. But what happens if this goes through and the ban is lifted?

First, if the Fed finally makes a move and raises interest, it makes the exports moot. The U.S. will not be able to compete with the other countries because it will increase the value of the U.S. dollar. It will also send oil prices tanking yet again – which by now, the damage is so heavy, the exports aren’t going to do much to improve the situation anyway and will likely result in more job losses.

And by the way – how many countries, in this current environment, are going to turn to the U.S. anyway? The Obama presidency has pissed the world off over the past seven years. Iran has wasted no time buttering up other countries to buy its oil when the inevitable lifts of the sanctions occur. And as for us, we’ve spent the past few weeks sweet-talking Greece (yes, Greece) into not allowing Russia in its airspace to deliver equipment to Syria. It’s insane: Russia was Greece’s only “BFF” during the difficult months it faced earlier this year. Do you really think this tiny country is going to say, “Yeah, Obama. No problem” after the love affair it developed with Russia recently? No. The answer is no.

There’s one caveat: there exists a small possibility that even a small rate hike can result in global financial unrest, making oil the least of the world’s problems. The reality is no matter what the Fed does, there are going to be financial repercussions both here at home and around the world.

One recent study released in July by Consumers and Refiners United for Domestic Energy, or CRUDE, finds that the cure of the export is going to be worse than the disease: “Allowing the export of crude would cause domestic gasoline, jet fuel, diesel, and heating oil prices to increase, in addition to other negative impacts like increasing the United States’ trade imbalance.” It also reads, “American consumers and businesses will take a major hit if Congress lifts export restrictions.” You can read the entirety of the report here.

And yes, there are many who say this is simply not true. You may know them: BP, Chevron, Exxon, etc. They care little about what happens to the smaller oil companies, which are opposed to the end of the ban. These smaller American oil companies rely on this ban for their success. This would result in layoffs in an entirely new area of the energy sector that had been somewhat protected over the past year.

Finally, and this is important. We keep seeing the unemployment rate dropping, even though most of us are looking around and wondering who’s finagling the numbers? There’s no way the job market is improving and in fact, it’s deeply troubled, even if the government won’t admit it. Maybe there’s a reason why:

Instead of “laying off” employees, many companies and most certainly within the oil industry, are instead issuing “furloughs”. This results in the same thing as layoffs: it eases the payrolls of struggling companies without it affecting their employment numbers. In other words, they’ve found a way to lay off without cutting the number of employees, which makes Obama happy: he’s vehemently opposed to the entire oil industry anyway, but it’s a win-win for him: he gets to tout the lower unemployment numbers while also keeping up his not-so-secretive dislike of the oil industry. This is going to come back and bite some in the most uncomfortable way possible.

In the end, this export ban being lifted may result in absolutely nothing changing. You don’t make big changes like this in the middle of a crisis, just as you don’t make decisions based on fear. If gas prices indeed begin to climb because of this ban being lifted, you can be sure the consumer “unknown factor” will most certainly reveal itself at the polls next year.


It’s Time for Geopolitical Crises to Become U.S. Priority

Never before have there been so many simultaneous problems around the world that the U.S. is either indifferent to or clueless that it’s even happening.

Going back just three weeks, take a look at what’s been unfolding right under our noses.

August 23– Iran unveiled a new surface-to-surface missile that can hit its targets with “pin-point accuracy” within a range of 310 miles. Its name is Fateh 313. Iranian President Rouhani had a message for the west, too, “We will buy, sell and develop any weapons we need and we will not ask for permission or abide by any resolution for that.” This comment was made during the unveiling ceremony on live TV. Rouhani then said not only had the missile been successfully and extensively tested, but that it’s headed into mass production.

Remember, the nuclear deal hasn’t been finalized, which, to Iran, means it’s under no obligation until capture-20150906-170659everyone’s signed off on it (and maybe not even then). While the politicians continue with their ongoing temper tantrums, this is what Iran’s been up to.

The same day Iran made its announcement, China conducted its fourth, and possibly final test of what some say is the most dangerous nuclear weapon developed to date. The DF-41 intercontinental ballistic missile, or ICBM, can easily hit the U.S. China is secretive; so much so that a year ago, the U.S. believed this phase of the development was only in the planning stages.

Also in late August, Russia and China conducted many military drills in the Sea of Japan. While it doesn’t take much to figure out the common denominator between these two countries, this bilateral naval exercise had one purpose: to warn the U.S. This isn’t the first time the two countries have come together; in fact, they’ve been performing these military exercises for years. The difference this time is they’ve ramped it up significantly. It’s been called an “unprecedented show of military cooperation”.

Late last week, we learned the final signatures are in place for that massive $400 billion gas and oil deal between Russia and China.

We all know about the Russian bombers coming within 45 miles of the west coast on the 4th of July. But two days ago, one of Russia’s vessels was seen off the coast of Georgia, right where our nuclear submarines are stationed. While Russia’s trolling the east coast, China has at least 5 ships off the Alaskan coast. Think about that for a second. Both our east and west coasts are being compromised by Russian and Chinese military.

Late Friday, there was talk of possible U.S. sanctions for China as early as this month. It’s no secret that China and Russia have hackers who quickly obtained the kind of information that could be catastrophic to Americans. The Los Angeles Times says the two are “aggressively aggregating and cross-indexing hacked U.S. computer databases—including security clearance applications, airline records and medical insurance forms—to identify U.S. intelligence officers and agents.”

Let’s not forget Syria. From Natasha Bertrand:

While the US has been selling the Iran deal to Congress, Iranian military mastermind Qassem Suleimani violated a UN travel ban by visiting Moscow to speak with officials.

Russia appears to be taking advantage of the fact that, while US officials condemn Assad’s barrel bombs, chlorine bombs, and strategy of acting as an air force for the Islamic State, the Obama Administration does not seem to be concerning itself with the Syrian regime.

The reality is these countries have already compromised us as a nation. China’s manipulating its own currency to the point that it affects our markets. Autopilot with wild fluctuations is one way to describe it. OPEC has accomplished its objectives to a large degree, as evidenced by tanking prices in the energy sector and both Russia and China are so close to our shores that it’s scary. As far as OPEC pulling back, don’t count on it. There is no way the cartel would have set this up only to bail at this late stage and when the grand plan is beginning to pay off. Saudi has something the U.S. doesn’t: cash. It can hold out far longer than they’d have us believe.

The Day the World Noticed

I can’t remember a more bizarre day than what we saw today. It’s, well, it’s just hard to even find a word that comes close to describing it. But let’s see if we can’t get it hammered out.

Before I even get into all of the strange and baffling nonsense, there is no way I’m letting the John Kerry circus freakshow slide. It would be criminal to not bring it full circle, even if it is likely the most embarrassing and jaw dropping decision ever made in politics and at the expense of our nation. Yeah, it’s that hokey. As bad as I hate flying, I’d have paid big money to have witnessed this first hand.

John Kerry showed up in France with none other than James Taylor. And then Taylor serenaded the entire nation with Kerry, in true roadie form, watching and wanting so bad to sing with him (you could just tell). Oh, and that woman? Talk about a completely awkward position of having to hold the mic as Taylor crooned “You’ve Got a Friend”. Never, ever, ever should a Democrat be allowed again to make fun of President Bush’s loose take on the English language.

This happened overnight, so it’s not exactly breaking news anymore; I won’t dwell on it. I will say, however, his quote made in Bulgaria that he intends “to share a big hug with Paris and express the affection of the American people for France and for our friends there who have been through a terrible time,” is already going in my Top 10 end of the year list.

And now, I’ll allow the video and the Twitterverse to wrap this up:

Here’s the video – fair warning: prepare yourself for 3 minutes and 39 seconds of sheer horrific deliciousness.

I’m telling y’all – this has Jen Psaki all over it.

Here are a few of the groovy tweets that have entertained me all day (and there are so many):

So, while that’s ridiculous and silly, there were other closer-to-reality-though-still-hokey events unfolding.

President Obama and British Prime Minister David Cameron shared a press conference today that began, typically, with a classic Obama pre-emptive strike or maybe he was establishing that whole bromance thingey:


And then, about thirty minutes in, he said:


OK, well, let’s see. Here’s the thing – there is so much wrong that it’s becoming increasingly difficult to see the light at the end of the tunnel in terms of jobs, the economy and everything else that supports this nation. So, with that in mind, I thought a bit of perspective might be good.

Ma, What’s for Supper?

More than 50 years ago, President Johnson earmarked $20 trillion to fight poverty in this nation. Under the Obama Administration, records are being broken and not in a good way. President Johnson would be disappointed:

47 million Americans receive food stamps. This is 13 million more than when he took office.

More than 50 million Americans are living below the poverty line.

His administration loves to tell the tale of how it pulled 12.6 million out of poverty since 2009. What it doesn’t tell is that another 13.5 fell into poverty.

One of the biggest indicators of whether a child will live in poverty is a matter of whether that child is born to single mothers. A whopping 42 percent of all babies born today are born in one-parent households.

Today, the New York Times reports:

Study Finds Widespread Poverty Among U.S. Public School Children

The Real Fear

And now, let’s get to the heart of the matter because trust me – this is the dirty little secret many are still trying to keep hidden away.

As we know, oil is taking a beating, what with OPEC calling the shots, Russia keeping its hand close and all of the repercussions that are now being felt, I’m surprised it took a few weeks for the tension to build.

United Arab Emirates Oil Minister Suhail bin Mohammed al-Mazroui gave comments at an energy conference in Abu Dhabi and said, “The strategy will not change,” noting also that he expected no sudden rebound and he believes these prices will actually stabilize for the next few years.

Energy shares are way down – last week, they lost 8 percent. The big players in the sector are all being downgraded, as oil continues its downward tumble. Take a look at the logistics –

Goldman Sachs nearly halved its three month forecast for Brent crude, from $80 to now $42 per barrel with assurances that prices would continue to stay low.

Also this week, Goldman Sachs made significant reductions in its targets for energy stocks.

Oceaneering International lowered its target price by $10 to $64, indicative of a massive 28 percent decline.

If that weren’t bad enough, RIG has lost nearly 67 percent of its value and is barely hanging on to its $16.10 share price.

Goodrich Petroleum CorpNASDAQ and Zacks have said it may be a stock worth dropping and noted, “The stock also has seen some pretty dismal trading lately, as the share price has dropped 23.9% in the past month.”

Regency Energy Partners was downgraded by analysts at Morgan Stanley. It’s now rated as “underweight”. That was announced today, right before a report was sent to investors and clients outlining the less than rosy news.

Morgan Stanley’s not the only one, though. Credit Suisse downgraded Regency from “outperform” to “neutral” and The Street downgraded from “buy” to “hold”. This all happened in the past few days.

Transocean Ltd. – Every analyst – 16 in total – have issued nothing better than a “hold’

So how does all of this look from a jobs perspective?

On Thursday, oilfield dominator Schlumberger announced it was letting go of a whopping 9,000 employees.

Dallas Federal Reserve reports it expects at least 128,000 lost jobs –in Texas alone – by mid-2015 “if West Texas Intermediate crude oil remains around $55.00 a barrel”. (Stocks closed today with WTI crude at $46.25 a barrel).

Also this week, U.S. Steel Corp, which makes the pipes and various tubes for the sector, and specifically for oilfield drilling, is laying off 142 people in Houston.

JPMorgan Chase’s U.S. economist says a recession in Texas is a strong possibility. Alberta, Canada is already preparing for a recession.

Fitch Ratings said this week that low oil prices could affect “economic and revenue trends for certain cities, counties and school districts” in states that rely heavily on the sector.

Meanwhile, this also means that every other sector will feel the burn. Fitch explained that other “economically sensitive revenue at hotels, restaurants, retailers and construction will suffer”. Banks are bracing for debt defaults and investments are being cancelled already.

At least two contract drillers, Helmerich & Payne and Energy Services Corp. admit that clients are paying early termination fees to rescind contracts. Caterpillar is already warning of a lower forecast for 2015.

Bringing it Around

While the country braces for the bottom to fall out, unsure of whether it will or won’t and how it might or might not affect their families, Obama said not once, but at least twice today during the presser that the economy’s strong and that the U.S. and UK are rocking the good news wagon (you can read the entire transcript here). Clearly, that’s not true. And I’ve not even touched the whole free tuition, free widespread Wi-Fi and the increase in minimum wage and how he intends on paying for it. I’m sure, though, he’ll outline it all in his State of the Union address on Tuesday.

So, what now? Well, it’d be great if we could ask the president, but he’s hosting an exclusive party tonight with the cast of the film Selma, as well as the rapper Common and John Legend who were nominated for song of the year that links 1965 and 2014 using references to police brutality. This party is, I suppose, a consolation prize for not being nominated, even though the song and film were, well, both nominated for Oscars.

Now, before you get upset about taxpayer dollars being used to soothe bruised egos with a shindig at the White House, even as poverty ticks up and fears about the job market grow each minute, just remember, it’s not going to be anything near the $4 million we paid for the 17 day vacay to Hawaii last month. Or, at least, we hope it won’t.

Russia’s Gift to U.S: an Oily Turkey

Well, it took them awhile, but sure enough, all hell broke loose today at least on one front. Things got really interesting a week or so ago in the oil sector. No one really took it seriously for a couple of reasons. First, there are still folks hanging their hat on fracking. But more importantly, jobs in natural gas and oil were easier to find; money was being made. It made sense then. No one expected much from the other oil leaders and everyone damn sure underestimated Putin.

Note to Washington: Don’t call Putin an ass. He doesn’t like it and he’s not one to let it slide. Remember when Obama was hocking his kinder diplomacy mindset? Yeah. Turns out that wasn’t quite as sincere as he’d have you believe. And no, I don’t believe Putin is punishing Obama for a bit of name calling. I believe the world as a whole has had a bellyful of the arrogance of the Obama Administration. OPEC just called our bluff. Make no mistake – this gets worse before it gets better. Remember when Obama referred to Russia as a “regional” power and that Crimea only further weakened it? Oh and let’s not forget the now-infamous reference by John Kerry that Russia exhibited “backward behaviors out of the 19th century.  That’s just the tiny tip of the iceberg.

Russia’s Rules

I’ve said for weeks that Russia is the big winner in this latest oil scramble. And then it happened. Remember the South Stream project that’s been idle for awhile? Putin got a bellyful of that too – about the same time he got a bellyful of the Obama Administration is my guess. Russia abandoned that project and just went into business with Turkey. Remember, Turkey tried its best to gain a foothold in the sector, and now, Russia not only made it possible, but it managed to kick a colossal “Screw you” to Obama, the U.S. and the west as a whole. But Putin went further. He just created an entrance for southern Europe, too and he’s going to use the…wait for it…. infrastructure already built for South Stream in his diversion through Turkey. Do the math. Russia just kicked ass.

Mike Whitney said it best on Sunday:

Judging by the Obama administration’s silence on the topic–the gravity of the transaction is beginning to sink in…(this) latest move has caught US powerbrokers flat-footed and left them speechless. This is a scenario that no one had anticipated and, if it’s not handled correctly, could turn out to be a real nightmare. How can this happen? How can Putin waltz into Ankara, scribble his name on a few sheets of paper, and abscond with a key US ally right under Washington’s nose?  Isn’t there anyone at the White House who’s smart enough to anticipate a scenario like this?

But why the silence? Why hasn’t the White House issued a statement about the big Russian-Turkey gas deal that everyone’s talking about?

I’ll tell you why. It’s because they don’t know what the hell just hit them, that’s why. They were completely blindsided by the announcement and can’t quite figure out what it means… Let’s face it, Putin has really knocked it out of the park this time. Team Obama is clearly out of its league and has no idea of what’s going on. If Turkey turns eastward and joins the growing Russian bloc, US policymakers are going to have to scrap the better part of their strategic plans for the coming century.

Clearly, it’s taken the U.S. as a whole a few minutes to catch up with what’s happening. I guess a 200+ drop in the Dow can grab attention. It’s still not front and center, but it’s coming. This is about to become ichiban in world relations.

Wondering about OPEC? Here are the Founding Members as well as the current status of U.S. relations.

Republic of Iran – Last year, Obama insulted Iran to Israel Prime Minister Benjamin Netanyahu. That was a big mistake because in a CNN interview, Mohammad Javad Zarif, Iran’s Minister of Foreign Affairs said “I was rather disappointed that President Obama used language that was insulting to the Iranian people… You do not deal with another state with mutual respect by threatening them, by trying to intimidate them…the Iranian people react very, very negatively to such languages of threat and intimidation.”

Iraq – Iraq is now allowing Iran to join the battle against ISIS. It’s even teamed with Iran – without letting the U.S. in on that bit of information. Is it a big deal? Who knows…but why Iraq would not inform the U.S. is a bit disturbing. Wondering what’s being said? This one comment sums up how an unnamed government official sees the “late to the party” mindset of Iran: “We are aware of that. I wouldn’t say we’re necessarily concerned with it — we kind of have our eyes on it” Also, Syria is also flying alongside the U.S. and Iran in efforts of knocking ISIS out. Oh and by the way – Syria and Russia are getting cozy together these days. That’s the real take-away with that.

Kuwait – This is a tough one. Kuwait is home to slightly more than half of the global oil reserve. Not only that, Kuwait also holds more than a third of the world’s natural gas. Naturally, the U.S. benefits from a healthy relationship. We have troops there, and that’s not likely to change considering growing worries about Iran’s nuclear program. Most recently, Russia and Kuwait seem to be building their very own BFF relationship. And let’s be honest – those are usually the most dysfunctional kinds of friends.

Venezuela – Venezuela is most certainly not happy with the U.S. these days. We just hit them – HOURS AGO with sanctions. Oh, and here’s the irony: The Venezuela Defense of Human Rights and Civil Society Act directs President Obama to sanction against any current or former Venezuelan government official who violated the rights of ant-government protestors this year. That sort of puts a different spin on all of the protests that are ongoing in our own country, yes?

Qatar – This is one of those delicate relationships where both sides are a bit testy and always seem ready to stir trouble. You know the type – we have friends who thrive on the uncertainty of their relationships or marriages. It’s sick, I tell you, it’s sick. But – despite the fact that Hagel and Kerry both have done their level best to buy loyalty (including $11 billion arms package earlier this year), Qatar is still neck deep in its own dysfunctional love affair with Hamas. In fact, Hamas leader Khaled Masha was allowed to build his home in Qatar. Oh – and four words: humongous natural gas revenues.

The other OPEC countries include Libya, United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon and Angola.

Now What?

So what now? What can we expect right here in the U.S? Russia already signed a gas deal earlier this year with China, at which time Obama dismissed much the way you’d dismiss a lap dog yapping at your feet. This was exactly what the two countries expected: Obama to dismiss it. OPEC has dug in its collective heels. We’re quickly reaching that dreaded $50 per barrel oil price – and frankly, no one’s really sure what – if anything – can stop this. Bank of America released its annual report today and called the entire shooting match “catastrophic”.

And again, Russia called our bluff on the massive SWIFT (Society for Worldwide Interbank Financial Telecommunication) banking system by introducing its own interbank system. SWIFT is the series of numbers and formulas that accompanies every bank transfer in the world. It’s nested quite safely in Belgium, but always under U.S. control. We managed to get Iran kicked out of the system, but Russia? No need to worry about that. It just took control with its new system.

Besides, all of this is happening while Obama is bitching about the sun rising in the east and while Congress is grilling some little weasel about calling Americans stupid. Don’t get me wrong – I’m all for snatching a knot in his pompous ass, but seriously, anyone can bring a man to his knees in a controlled environment and with questions that have no answers. How ‘bout we just get back to the business of running this country, find some pride in our decisions and eliminate the whole “dumbass” title we’ve earned in recent years?

And there it is – we can sit atop our pedestals, order sanctions on countries’ governments even as we don’t allow our own citizens to do the same things and we can continue to tout shale and fracking and natural gas – even though the decision makers are the ones who know without the right numbers associated with oil, those new technologies are just too expensive to maintain, as David Hughes explains, “Fracking, the rapidly expanding technique for pulling natural gas out of the ground, may be worse for global warming than coal, ultimately very expensive, and not productive enough to make much of a difference in natural gas supply anyway.” Judgments are coming down every day that include bans on fracking anyway. There’s just not enough money to make it happen. And don’t even bother looking elsewhere for funding– it doesn’t exist. There’s no sugarcoating this one. Not this time.