Capt. Max is back...but this time he might be right in his opinions

to think that I might actually be agreeing with my arch nemesis! whooda thunk it?

[B]Oil imports feed glut[/B]

Capt. Max Hardberger

11/18/2015

An article in Bloomberg Business on Nov. 11 illustrates the power of the global economy and the futility of trying to staunch its flow. According to the article, even as the U.S. rig count tumbles and workboat operators lay-up more boats, oil imports are soaring.

Iraq, which according to the article is OPEC’s fastest-growing producer, has just loaded 19 million bbls. of crude into 10 ships destined for Gulf of Mexico ports, which the British would say is like sending coal to Newcastle (at one time the center of British coal mining). Why would U.S. refiners pay for transportation halfway around the world while U.S. oil output plummets? It’s because producing oil in Iraq is seven times cheaper than producing it in the U.S., according to Bloomberg. As a self-reinforcing phenomenon, U.S. buyers turn to cheaper foreign oil and U.S. drillers cut back, which makes U.S. oil more expensive and foreign oil even more attractive.

There is a security argument at play here as well. In any future armed conflict, the U.S. would have been wiser to have left its oil in the ground and purchased foreign oil while it was cheap and available. This may be the thinking behind the recent sales of SPR (Strategic Petroleum Reserve) holdings, the theory apparently being that with modern technology we can supply future military needs by pumping from our own soil. So in a purely strategic sense, U.S. policy should favor importing oil, but in an economic sense, every U.S. rig that gets stacked means hundreds of workers are out of work and the ripple effects that entails.

Although the situation is complex the answers are simple. One is to levy duties on foreign oil that would make U.S. oil competitive, but that approach, besides being hostile to the free market, drives up prices by restricting competition. The other is to cut U.S. drilling and production costs to the point that our oil becomes competitive again. Unfortunately, U.S. drillers and service companies that support them operate under such heavy legal and regulatory strictures that this is unlikely to happen.

So the availability of cheap foreign oil, coupled with the extremely low per-barrel cost of transporting crude in very large crude carriers (VLCCs) so big it has to navigate by the capes instead of through the Panama or Suez canals, may mean that the U.S. oil patch won’t recover any time soon. What to do about that, especially in this election cycle, could boil down to a question of public policy. Who gets the thumb on the scale, the U.S. oil industry or the U.S. consumer?

the problem is if he is right then the GoM is going to remain a barren wasteland for some time to come

[QUOTE=c.captain;173695]to think that I might actually be agreeing with my arch nemesis! whooda thunk it?

the problem is if he is right then the GoM is going to remain a barren wasteland for some time to come[/QUOTE]

Given that Iraq is willing to sell oil so cheaply his analysis seems spot on. Why pay 7x as much for US oil, and why not leave it in the ground until we can actually make money on it. I’m surprised Saudi Arabia kept up their pump rate when the rates fell. It seems like they would have been wiser to sell less oil for a higher price, especially when their oil supply will probably be one of the earlier to run out.

I agree, except Saudis argued they’d rather retain their market share in a low price environment than give it up. Makes sense kimd of since their oil is cheap to produce. oil is too complicated for a peon like me to fully understand though.

When a phony “maritime expert” and fiction writer throws shit against the wall in every issue of Workboat, every so often, some of it is bound to stick.

here is that article from Bloomberg News that “the Max” references…quite interesting

[B]OPEC Challenges Shale Afresh as Iraq Crude Floods U.S. Market
[/B]
Naomi Christie

November 10, 2015 — 4:01 PM PST

OPEC’s latest challenge to U.S. shale oil producers would be about two miles long, lined end to end, and weigh almost 3 million metric tons. It’s due to reach American ports this month.

Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November, ship-tracking and charters compiled by Bloomberg show. Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures.

The cargoes show how competition for sales among members of the Organization of Petroleum Exporting Countries is spilling out into global markets, intensifying competition with U.S. producers whose own output has retreated since summer. For tanker owners, it means rates for their ships are headed for the best quarter in seven years, fueled partly by the surge in one of the industry’s longest trade routes.

“In the longer term, we expect the U.S. to have to increase imports next year by some 500,000 barrels to 800,000 barrels a day year on year,” Steve Sawyer, the head of refining at FGE, a consultant in London. “Given our projections for Iraqi output, it could well come from here.”
Hunting for Buyers

Iraq, pumping the most since at least 1962 amid competition among OPEC nations to find buyers, is discounting prices to woo customers. The U.S. may increasingly become one of them after its own output dropped by as much as 500,000 barrels a day since June. An increase in trade between the two would boost tanker owners. Deliveries take at least 57 percent longer than for those to Asia, the most popular destination.

The tanker industry’s biggest ships earned an average of almost $76,500 a day so far in the fourth quarter, which would be the highest since mid-2008 if maintained through year-end, according to data from Clarkson Plc, the world’s biggest shipbroker.

Shipowners have already seen the benefit of higher rates thanks in part to the longer-distance cargoes. Shares of Oslo-listed Frontline Ltd., led by billionaire John Fredriksen, rose 61 percent to $28.60 from the 2015 low in August. Euronav NV is up 25 percent from the year’s low in February.

Gulf of Mexico

The ships bringing the 19 million barrels include vessels that left Iraq’s Basra Oil Terminal and are currently signaling U.S. ports as their destination. There is also one vessel that went through Egypt’s Suez Canal and identified by shipbrokers as going to the U.S. All except one are very large crude carriers, the industry’s biggest vessels, sailing to terminals in the Gulf of Mexico.

The U.S. is pumping 450,000 barrels a day less crude than during the peak in June. If all that oil were replaced by supplies from Iraq, it would require about seven supertankers each month.

Iraq is among the least expensive places in the world to extract crude. Capital costs are about seven times cheaper than for light, tight oil suppliers in the U.S. when measured by fields’ daily plateau capacity, according to the International Energy Agency in Paris.

The Middle East country sells its crude at premiums or discounts to global benchmarks, competing for buyers with suppliers such as Saudi Arabia, the world’s biggest exporter. Iraq sold its Heavy grade at a discount of $5.85 a barrel to the appropriate benchmark for November, the biggest discount since it split the grade from Iraqi Light in May. Saudi Arabia sold at $1.25 below benchmark for November, cutting by a further 20 cents in December.

“It’s being priced much more aggressively,” said Dominic Haywood, an oil analyst at Energy Aspects Ltd. in London. “It’s being discounted so U.S. Gulf Coast refiners are more incentivized to take it.”

here’s something to contemplate that Darth Cheney’s hellbent desire to get all the Iraqi oil in 2003 only ended up freeing it to flood the market and drown his Halliburton along with everybody else in the business. If we had bottled it up in Iraq with more sanctions against Saddam none of this oversupply might even be happening (or at least the level of oversupply might be less)

Max Blowhard is not the only one who reads Bloomberg everyday.

Iraq needs to re-establish market share to absorb greatly improved production and is offering discounts to do it. No surprise there. It will be a similar story with Iran as sanctions are lifted.

The Mideast is so volitile that anything can happen rather quickly. Predictions are useless.

[QUOTE=c.captain;173713]here is that article from Bloomberg News that “the Max” references…quite interesting

here’s something to contemplate that Darth Cheney’s hellbent desire to get all the Iraqi oil in 2003 only ended up freeing it to flood the market and drown his Halliburton along with everybody else in the business. If we had bottled it up in Iraq with more sanctions against Saddam none of this oversupply might even be happening (or at least the level of oversupply might be less)[/QUOTE]

I was pointing out even then that we couldn’t take their oil, it would be pumped and sold on the global market with the profits going to Iraq. It’s retarded that anyone ever claimed that war was about oil…

[QUOTE=lm1883;173722]Who is pumping the oils and financing Iraqi oil sales. That war was only about oil.

Edit–Removed old link, better to use Wikipedia
Direct your attention to founders and owners[/QUOTE]

The best hope for the US oil worker is for the USA to quit protecting the dictators in Saudi Arabia, get OUT of the Middle East completely and let them wage war against each other like they so fervently want. The USA and its citizens would save billions and billions of military dollars that are now being used to protect oil interests and the bankers that bet on them, drilling would increase in stable parts of the world such as the USA and South America.

[QUOTE=lm1883;173722]Who is pumping the oils and financing Iraqi oil sales. That war was only about oil.

Edit–Removed old link, better to use Wikipedia
Direct your attention to founders and owners[/QUOTE]

Wikipedia claims it was nationalized in 1972. I expect the Iraq National Oil Company is owned by the Iraqi government.

[QUOTE=Capt. Phoenix;173724]Wikipedia claims it was nationalized in 1972. I expect the Iraq National Oil Company is owned by the Iraqi government.[/QUOTE]

Iraq’s oil was nationalized but they don’t have the technology to get it out of the ground. Oddly enough there are people that can and have contracts with Iraq. They haven’t produced any to speak of yet though because…

[B]BP PLC[/B] (NYSE: BP) has a 38% working interest in the Rumaila field in southern Iraq. Rumaila is one of the five largest oil fields in the world and holds proved reserves of nearly 18 billion barrels. BP’s 2013 share of daily production from Rumaila was 39,000 barrels a day. BP operates in Iraq under a technical services contract that the company says is the functional equivalent of a production sharing agreement (PSA). In 2013, 15% of BP’s proved reserves were associated with its PSAs in nine countries, including Iraq. Out of daily production of more than 2 million barrels a day, BP’s Iraqi production is almost immaterial.

[B]Exxon Mobil Corp.[/B] (NYSE: XOM) holds leases on approximately 900,000 onshore acres and at the end of 2013 claimed a net 23.2 development wells in Iraq’s West Qurna field. The field holds about half the proved reserves of Rumaila, and last year Exxon sold all but 25% of its stake in the field to Petrochina and Indonesia’s Pertamina. Exxon receives a per barrel payment of $1.90 for every barrel it produces above 244,000 barrels a day. Exxon also has agreements with the Kurdistan Regional Government in northern Iraq to explore for oil. Exxon produces no oil in Kurdistan, but the region is very near the current fighting in the northern part of the country.
[B]
Occidental Petroleum Corp.[/B] ([FONT=inherit !important][FONT=inherit !important]NYSE[/FONT]: OXY) is part of a consortium that in 2010 signed a 20-year contract with Iraq’s South Oil Company to develop the 4-billion barrel Zubair field. The company’s share of production in 2013 was approximately 17,000 barrels a day, about 2% of its worldwide production.

[B]Chevron Corp.[/B] (NYSE: [FONT=inherit !important]CVX[/FONT]) holds an 80% stake and is the operator of the Qara Dagh block in the Kurdistan region of Iraq. The project is still in the exploratory phase and there is no production. Because of its commitments in Kurdistan, Chevron is banned from bidding on projects in the rest of Iraq.Oil field services companies could also be affected by the current fighting in Iraq. Schlumberger Ltd. (NYSE: SLB) posted nearly a quarter of its revenues in its Middle East & Asia sector, where revenues rose 23% year-over-year in 2013. [FONT=inherit !important]Halliburton Co[/FONT]. (NYSE: HAL) posted about 34% of its revenues from its Middle East & Asia sector, and the company experienced double-digit growth in all its operating groups in that sector. About 18% of Baker Hughes Inc.’s (NYSE: BHI) 2013 revenues came in its Middle East & Asia Pacific sector, a jump of 24% year-over-year. None of these companies breaks out its Iraqi exposure in any more detail.

[/FONT]

[QUOTE=lm1883;173729]Simply put, if think that war was about anything but oil, you are mistaken.[/QUOTE]

More specifically money and lots of it. Remember the golden rule; he with the gold rules. This sort of thing has been going on for centuries. The late great USMC General Smedley Butler , two time Congressional Medal of Honor recipient, summed up where the common folk figure into the scheme back in 1933.

Smedley Butler on Interventionism[I]-- Excerpt from a speech delivered in 1933, by Major General Smedley Butler, USMC.War is just a racket. A racket is best described, I believe, as something that is not what it seems to the majority of people. Only a small inside group knows what it is about. It is conducted for the benefit of the very few at the expense of the masses.I believe in adequate defense at the coastline and nothing else. If a nation comes over here to fight, then we’ll fight. The trouble with America is that when the dollar only earns 6 percent over here, then it gets restless and goes overseas to get 100 percent. Then the flag follows the dollar and the soldiers follow the flag.I wouldn’t go to war again as I have done to protect some lousy investment of the bankers. There are only two things we should fight for. One is the defense of our homes and the other is the Bill of Rights. War for any other reason is simply a racket.There isn’t a trick in the racketeering bag that the military gang is blind to. It has its “finger men” to point out enemies, its “muscle men” to destroy enemies, its “brain men” to plan war preparations, and a “Big Boss” Super-Nationalistic-Capitalism.It may seem odd for me, a military man to adopt such a comparison. Truthfulness compels me to. I spent thirty- three years and four months in active military service as a member of this country’s most agile military force, the Marine Corps. I served in all commissioned ranks from Second Lieutenant to Major-General. And during that period, I spent most of my time being a high class muscle- man for Big Business, for Wall Street and for the Bankers. In short, I was a racketeer, a gangster for capitalism.I suspected I was just part of a racket at the time. Now I am sure of it. Like all the members of the military profession, I never had a thought of my own until I left the service. My mental faculties remained in suspended animation while I obeyed the orders of higher-ups. This is typical with everyone in the military service.I helped make Mexico, especially Tampico, safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefits of Wall Street. The record of racketeering is long. I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-1912 (where have I heard that name before?). I brought light to the Dominican Republic for American sugar interests in 1916. In China I helped to see to it that Standard Oil went its way unmolested.During those years, I had, as the boys in the back room would say, a swell racket. Looking back on it, I feel that I could have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.

[/I]

[QUOTE=tengineer1;173723]drilling would increase in stable parts of the world such as the USA and South America.[/QUOTE]

when did South America become stable? Venezuela? Brazil? Ok, I’ll give you Mexico but their oil production is collapsing from incompetence and cronyism as we breathe

[QUOTE=c.captain;173738]when did South America become stable? Venezuela? Brazil? Ok, I’ll give you Mexico but their oil production is collapsing from incompetence and cronyism as we breathe[/QUOTE]
I was being generous and it is relative, S. America is more stable then the Middle East. So…that leaves N. America as the most stable of all. But the money is going to protect the M.E. because they can get the stuff out of the ground for less than $10/barrel. It’s all about the money.

Isn’t it always? Money, or some proxy for it.

And why the Saudis have kept their spigot wide open to protect market share, even with prices dropping like a stone, is no mystery: once again, it’s all about the money!

They have a single significant source for funding their treasury: oil, which has taken a serious beating in the commodities markets. Meanwhile, decade after decade, the Kingdom’s population soars. They have huge numbers of young men, and almost no work for them. Fertile ground for the jihadis to plant seeds of discontent in a country with a corrupt and repressive government.

The oil $$$ represents the Kingdom’s primary welfare program to, at least temporarily, continue buying off their angry and restive young men. They need that money to maintain control, and the money supply is shakier than ever.

They pump because they must, no matter the price. If they don’t they’re done. They’re not worried about the distant future nearly as much as running out of options in the present. And so they will continue to pump, until they can’t.

And, of course, this directly affects American mariners (among many others).

Interesting times, for sure. And without even a hint of a modern-day Gen. Butler to point out the ongoing dirty work of Empire.

[QUOTE=captjacksparrow;173746]Isn’t it always? Money, or some proxy for it.

And why the Saudis have kept their spigot wide open to protect market share, even with prices dropping like a stone, is no mystery: once again, it’s all about the money!

They have a single significant source for funding their treasury: oil, which has taken a serious beating in the commodities markets. Meanwhile, decade after decade, the Kingdom’s population soars. They have huge numbers of young men, and almost no work for them. Fertile ground for the jihadis to plant seeds of discontent in a country with a corrupt and repressive government.

The oil $$$ represents the Kingdom’s primary welfare program to, at least temporarily, continue buying off their angry and restive young men. They need that money to maintain control, and the money supply is shakier than ever.

They pump because they must, no matter the price. If they don’t they’re done. They’re not worried about the distant future nearly as much as running out of options in the present. And so they will continue to pump, until they can’t.

And, of course, this directly affects American mariners (among many others).

Interesting times, for sure. And without even a hint of a modern-day Gen. Butler to point out the ongoing dirty work of Empire.[/QUOTE]

Gen. Butler was a courageous man the likes of whom we do not currently have as now the ex-Generals become lobbyists or paid TV “experts”. For those that are interested in this true hero I suggest:


http://www.americanswhotellthetruth.org/portraits/major-general-smedley-butler

Were there men of his stature today the Jones Act would be well protected.

[QUOTE=tengineer1;173754]Gen. Butler was a courageous man the likes of whom we do not currently have as now the ex-Generals become lobbyists or paid TV “experts”. For those that are interested in this true hero I suggest:


http://www.americanswhotellthetruth.org/portraits/major-general-smedley-butler

Were there men of his stature today the Jones Act would be well protected.[/QUOTE]

The Jones Act is very well protected. Even more so after Paris. Nothing to worry about there.

[QUOTE=tugsailor;173761]The Jones Act is very well protected. Even more so after Paris. Nothing to worry about there.[/QUOTE]

Don’t bet on it. Paris has nothing to do with the quarterly profits. In 6 months no one will be talking about Paris.

Sad, but true. Regardless of the political flay-vah, the Dash-for-Cash has gradually become, now very openly, America’s new National Pastime. Particularly for those who hold or once held the public trust.

For those who care to get beyond the sound bites and “talking points” that have infected most forms of media, go ahead and try Gen. Butler’s short-but-sweet book: “War is a Racket” from which those quotes came from. You won’t be sorry, although you may become more cynical. But then, after all, these are cynical times.