Who Is Behind the Oil War and How Low Will the Price of Crude Go in 2015?

The Gilmer Free Press

Who is to blame for the staggering collapse of the price of oil?  Is it the Saudis?  Is it the United States?  Are Saudi Arabia and the U.S. government working together to hurt Russia?  And if this oil war continues, how far will the price of oil end up falling in 2015?  As you will see below, some analysts believe that it could ultimately go below 20 dollars a barrel.  If we see anything even close to that, the U.S. economy could lose millions of good paying jobs, billions of dollars of energy bonds could default and we could see trillions of dollars of derivatives related to the energy industry implode.  The global financial system is already extremely vulnerable, and purposely causing the price of oil to crash is one of the most deflationary things that you could possibly do.  Whoever is behind this oil war is playing with fire, and by the end of this coming year the entire planet could be dealing with the consequences.

Ever since the price of oil started falling, people have been pointing fingers at the Saudis.  And without a doubt, the Saudis have manipulated the price of oil before in order to achieve geopolitical goals.  The following is an excerpt from a recent article by Andrew Topf

We don’t have to look too far back in history to see Saudi Arabia, the world’s largest oil exporter and producer, using the oil price to achieve its foreign policy objectives. In 1973, Egyptian President Anwar Sadat convinced Saudi King Faisal to cut production and raise prices, then to go as far as embargoing oil exports, all with the goal of punishing the United States for supporting Israel against the Arab states. It worked. The “oil price shock” quadrupled prices.

It happened again in 1986, when Saudi Arabia-led OPEC allowed prices to drop precipitously, and then in 1990, when the Saudis sent prices plummeting as a way of taking out Russia, which was seen as a threat to their oil supremacy. In 1998, they succeeded. When the oil price was halved from $25 to $12, Russia defaulted on its debt.

The Saudis and other OPEC members have, of course, used the oil price for the obverse effect, that is, suppressing production to keep prices artificially high and member states swimming in “petrodollars”. In 2008, oil peaked at $147 a barrel.

Turning to the current price drop, the Saudis and OPEC have a vested interest in taking out higher-cost competitors, such as US shale oil producers, who will certainly be hurt by the lower price. Even before the price drop, the Saudis were selling their oil to China at a discount. OPEC’s refusal on Nov. 27 to cut production seemed like the baldest evidence yet that the oil price drop was really an oil price war between Saudi Arabia and the US.

If the Saudis wanted to stabilize the price of oil, they could do that immediately by announcing a production cutback.

The fact that they have chosen not to do this says volumes.

In addition to wanting to harm U.S. shale producers, some believe that the Saudis are determined to crush Iran.  This next excerpt comes from a recent Daily Mail article

Above all, Saudi Arabia and its Gulf allies see Iran — a bitter religious and political opponent — as their main regional adversary.

They know that Iran, dominated by the Shia Muslim sect, supports a resentful underclass of more than a million under-privileged and angry Shia people living in the gulf peninsula — a potential uprising waiting to happen against the Saudi regime.

The Saudis, who are overwhelmingly Sunni Muslims, also loathe the way Iran supports President Assad’s regime in Syria — with which the Iranians have a religious affiliation. They also know that Iran, its economy plagued by corruption and crippled by Western sanctions, desperately needs the oil price to rise. And they have no intention of helping out.

The fact is that the Saudis remain in a strong position because oil is cheap to produce there, and the country has such vast reserves. It can withstand a year — or three — of low oil prices.

There are others out there that are fully convinced that the Saudis and the U.S. are actually colluding to drive down the price of oil, and that their real goal is to destroy Russia.

In fact, Venezuela’s President Nicolas Maduro openly promoted this theory during a recent speech on Venezuelan national television

“Did you know there’s an oil war? And the war has an objective: to destroy Russia,” he said in a speech to state businessmen carried live on state TV.

“It’s a strategically planned war … also aimed at Venezuela, to try and destroy our revolution and cause an economic collapse,” he added, accusing the United States of trying to flood the market with shale oil.

Venezuela and Russia, which both have fractious ties with Washington, are widely considered the nations hardest hit by the global oil price fall.

And as I discussed just the other day, Russian President Vladimir Putin seems to agree with this theory…

“We all see the lowering of oil prices. There’s lots of talk about what’s causing it. Could it be an agreement between the U.S. and Saudi Arabia to punish Iran and affect the economies of Russia and Venezuela? It could.”

Without a doubt, Obama wants to “punish” Russia for what has been going on in Ukraine.  Going after oil is one of the best ways to do that.  And if the U.S. shale industry gets hurt in the process, that is a bonus for the radical environmentalists in Obama’s administration.

There are yet others that see this oil war as being even more complicated.

Marin Katusa believes that this is actually a three-way war between OPEC, Russia and the United States…

“It’s a three-way oil war between OPEC, Russia and North American shale,” says Marin Katusa, author of “The Colder War,” and chief energy investment strategist at Casey Research.

Katusa doesn’t see production slowing in 2015: “We know that OPEC will not be cutting back production. They’re going to increase it. Russia has increased production to all-time highs.” With Russia and OPEC refusing to give up market share how will the shale industry compete?

Katusa thinks the longevity and staying power of the shale industry will keep it viable and profitable. “The versatility and the survivability of a lot of these shale producers will surprise people. I don’t see that the shale sector is going to collapse over night,” he says. Shale sweet spots like North Dakota’s Bakken region and Texas’ Eagle Ford area will help keep production levels up and output steady.

Whatever the true motivation for this oil war is, it does not appear that it is going to end any time soon.

And so that means that the price of oil is going to go lower.

How much lower?

One analyst recently told CNN that we could see the price of oil dip into the $30s next year…

Few saw the energy meltdown coming. Now that it’s here, industry analysts warn another move lower is possible as the momentum remains firmly to the downside.

“If this doesn’t hold, we could go back to price levels in late 2008 and early 2009 — down in the $30s. There’s no reason why it couldn’t happen,” said Darin Newsom, senior analyst at Telvent DTN.

Others are even more pessimistic.  For instance, Jeremy Warner of the Sydney Morning Herald, who correctly predicted that the price of oil would fall below $80 this year, is now forecasting that the price of oil could fall all the way down to $20 next year…

Revisiting the past year’s predictions is, for most columnists a frequently humbling experience. The howlers tend to far outweigh the successes. Yet, for a change, I can genuinely claim to have got my main call for markets – that oil would sink to $US80 a barrel or less – spot on, and for the right reasons, too.

Just in case you think I’m making it up, this is what I said 12 months ago: “My big prediction is for $US80 oil, from which much of the rest of my outlook for the coming year flows. It’s hard to overstate the significance of a much lower oil price – Brent at, say, $US80 a barrel, or perhaps lower still – yet this is a surprisingly likely prospect, the implications of which have been largely missed by mainstream economic forecasters.”

If on to a good thing, you might as well stick with it; so for the coming year, I’m doubling up on this forecast. Far from bouncing back to the post crisis “normal” of something over $US100 a barrel, as many oil traders seem to expect, my view is that the oil price will remain low for a long time, sinking to perhaps as little as $US20 a barrel over the coming year before recovering a little.

But even Warner’s chilling prediction is not the most bearish.

A technical analyst named Abigail Doolittle recently told CNBC that under a worst case scenario the price of oil could fall as low as $14 a barrel…

No one really saw 2014’s dramatic plunge in oil price coming, so it’s probably fair to say that any predictions about where it’s going from here fall somewhere between educated guesses and picking a number out of a hat.

In that light, it’s less than shocking to see one analyst making a case—albeit in a pure outlier sense—for a drop all the way below $14 a barrel.

Abigail Doolittle, who does business under the name Peak Theories Research, posits that current chart trends point to the possibility that crude has three downside target areas where it could find support—$44, $35 and the nightmare scenario of, yes, $13.65.

But the truth is that none of those scenarios need to happen in order for this oil war to absolutely devastate the U.S. economy and the U.S. financial system.

There is a very strong correlation between the price of oil and the performance of energy stocks and energy bonds.  But over the past couple of weeks this correlation has been broken.  The following chart comes from Zero Hedge

It is inevitable that at some point we will see energy stocks and energy bonds come back into line with the price of crude oil.

And it isn’t just energy stocks and bonds that we need to be concerned about.  There is only one other time in all of history when the price of oil has crashed by more than 50 dollars in less than a year.  That was in 2008 – just before the great financial crisis that erupted in the fall of that year.  For much, much more on this, please see my previous article entitled “Guess What Happened The Last Time The Price Of Oil Crashed Like This?…

Whether the price of oil crashed or not, we were already on the verge of massive financial troubles.

But the fact that the price of oil has collapsed makes all of our potential problems much, much worse.

As we enter 2015, keep an eye on energy stocks, energy bonds and listen for any mention of problems with derivatives.  The next great financial crisis is right around the corner, but most people will never see it coming until they are blindsided by it.

~~  Michael Snyder ~~

2014 Exposed the U.S. Myth of Equality Under the Law

The Gilmer Free Press

The description of the United States as the world’s policeman has always been laced with a heavy dose of irony and sarcasm. In democratic societies, the police are meant to uphold the law, but the U.S. has shown time and again that international legal conventions are not things to which the U.S. considers itself bound. From rejecting membership in the International Criminal Court to the invasion and occupation of Iraq to drone assassinations, the U.S. treats international legal frameworks like so many flies to be swatted away. This glaring double standard underlies much of the global animosity toward the U.S. in the post-9/11 era; while U.S. citizens accused of or subjected to criminal activity at home are entitled to their day in court, the rest of the world’s citizens are subject to U.S. power with little to no recourse to justice. In other words, the U.S. is a nation that respects the rule of law — but only within its own borders.

But 2014 has been a year in which the mythology of domestic U.S. legal egalitarianism — reinforced by the mantra of blind justice and a near religious reverence of the U.S. Constitution — was exposed as a pretense. As abroad, so at home: Some people are more equal than others.

News audiences confronted this reality, of course, in the aftermath of the shooting death of Michael Brown in Ferguson, Missouri. The killing of an unarmed African-American teenager by Darren Wilson, a white police officer, and the widespread protests after the decision not to indict Wilson became front-page news worldwide. The sense was that there were not two but three sets of rules in the U.S.: one for white killers, one for black killers and one for police officers who killed black suspects. The subsequent killing of African-American Eric Garner by Daniel Pantaleo, a white New York City police officer, compounded public recriminations. Pantaleo used a chokehold on Garner — a technique in violation of NYPD policy (revised during the inquiry into his death to a legal headlock); in addition, the entire incident was recorded, with a video showing Garner begging for his life and repeating the now iconic phrase “I can’t breathe” 11 times. Yet again, no charges were filed. 

The willingness of the U.S. to bend the law and condone the barbaric treatment of human beings
is grounded in differences of race, ethnicity or religion.

The Brown and Garner cases raised broader questions about the use of state violence and the application of U.S. law. So too has the continued use of the death penalty. Though the fundamentally discriminatory application of the death penalty over the years has been well documented, 2014 provided shocking examples of how barbaric certain U.S. states were willing to become in their desperation to execute convicts. The botched execution of Clayton Lockett in Oklahoma, for example, in which untested intravenous drugs were used on the inmate (with gruesome results that the prison warden called “a bloody mess”) suggested a U.S. legal system approaching the conduct of some of the most brutal authoritarian regimes. It is one of the more hypocritical aspects of U.S. law that the same system that puts people to death by strapping them to tables and injecting them with poison operates under an Eighth Amendment ban on the use of cruel and usual punishment — which also, incidentally, bans the use of torture.

Speaking of torture: As 2014 drew to a close, another bombshell was dropped with the release of the summary of the Senate Intelligence Committee report on torture by the Central Intelligence Agency. The use of torture by the U.S. government was well known, but the level of detail in the report as well as the public debate in the U.S. that followed made it a watershed. Of course, a great deal of these activities during the “war on terrorism” were conducted on behalf of the U.S. by compliant allies, hidden behind Orwellian terms such as “extraordinary rendition” (kidnapping) and “enhanced interrogation” (torture). But much of the torture noted in the report took place at the Guantánamo Bay detention camp, which both is and is not U.S. soil (depending on what suits the U.S. government at any given moment). Despite the fact that the United Nations Convention Against Torture was signed by President Ronald Reagan in 1988 and ratified in 1994, individuals were tortured at a U.S. military facility with the full knowledge and approval of George W. Bush’s White House. When confronted with the disturbing contents of the torture report, Americans were asked in multiple polls whether they felt torture — a violation of domestic and international law — was justified. The majority agreed that it was.

One thread ties together all these cases: The willingness of the U.S. to bend the law and condone the barbaric treatment of human beings is grounded in differences of race, ethnicity or religion. Police violence, the death penalty and torture are predominantly applied to nonwhites or non-Christians. How supportive would white Americans and lawmakers be of procedures such as “rectal rehydration” — a gruesome procedure that, according to the torture report, was applied to hunger-striking inmates — if they were performed on white Christians? How long would they would be to willing to tolerate routine police killings of unarmed white citizens?

2014 will be remembered for how the differences between international and domestic victims of U.S. power and between U.S. injustice abroad and at home became blurred. The U.S. has made much over the years of its “moral authority” on the international stage, but this year highlighted that, even at home, this authority is built on quicksand. 

~~  Christian Christensen - Professor of journalism at Stockholm University in Sweden ~~

Shoot Down the Stupid Second Amendment

The Gilmer Free Press

What country fetishizes, lionizes, valorizes, idolizes, and sacralizes guns as much as does our United States? OK, possibly Mozambique–the only country with an AK47 on its flag, but really, it’s long past time to end this obsessive “My Precious” attachment of Americans to instruments of death.

This morning, December 25, 2014, of the nine top stories from U.S. Reuters, six were about shootings–four new ones and two about the national movement against shootings of citizens by police. This pandemic of sick violence, punctuated by mass killings of children, has gone on far far too long. It is long past time to repeal the stupid Second Amendment.

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The fate of the Second Amendment should have been sealed when the U.S. Supreme Court ruled in 2008 that past rulings by their predecessors were wrong, that in fact the amendment that provided for a “well regulated militia” really guaranteed every individual the right to own a gun. Wow. That is an interesting reading of the English language. What the Supremes have done is to not only warp the meaning and make it into twisted law, but to further prohibit states and local governments from declaring their places free of legal guns. The conservative court once again rules against the power of states, a principle that used to be associated with darn liberals who wanted to make sure everyone had the right to vote, for example, even though they weren’t properly white enough. Now when a city or state wants to outlaw firearms, too bad. The conservatives took away their powers and rights in favor of Big Brother.

The only logical path, given the clearly decided role of the Second Amendment, is to repeal it. American people are tired of mass shootings and police shootings and family fued shootings and sibling shootings and accidental toddler shootings and teen suicide by gun (highly popular).We are exhausted by the proliferation of death, of threats, of bloodshed, and by the NRA/gun industry moral garbage spewing forth every time someone challenges the ubiquity of guns.

Repeal the Stupid Second Amendment. Surround it, grab it, bring it in the back room, pull down the shades, and end it. OK, petition for it, get it on the ballot, and get it done by enough of the US populace, by enough people in enough states, to get it consigned to the dustbin of history.  Merry Christmas, people. Peace.

~~  Tom H. Hastings ~~

G-Comm™: Hoppy’s Commentary - WV Taxes: Progress, But Still A Ways to Go


Here’s another reason to celebrate the New Year. The final portion of West Virginia’s regressive Business Franchise Tax is coming off the books.

The state Legislature began phasing out that tax, as well as reducing the state’s Corporate Net Income Tax, in 2011.  Over the last five years the franchise tax has been reduced from .34% to zero while the corporate net has been brought down from 8.5% to 6.5%.

The 1999 Governor’s Commission on Fair Taxation’s comprehensive review of the state’s tax code called the franchise levy “anti-growth, anti-capital,” particularly for small businesses, that reduced the state’s competitiveness.

Governor Tomlin, who was the Senate President when the tax improvements were made a few years ago, was among those who supported the tax reductions

“The Business Franchise Tax, created in 1987, was one of the taxes that made it difficult for West Virginia to compete for new and expanding business,” Tomblin said in a statement Tuesday.  “Coupled with the reduction in the Corporate Net Income Tax and the dramatic decrease in workers’ compensation rates, these changes have helped our state secure additional investments and will continue to pay dividends now and for years to come.

The Governor is correct. The franchise tax was little more than a cash grab from business for the “privilege” of doing business in the state.  The corporate net was way too high.  The current rate, however, is closer to, or lower than, the rates of our surrounding states.

These reductions have prompted the non-partisan Tax Foundation to rank West Virginia as having the 21st best tax climate in the nation, a significant accomplishment for a state that struggles to present a business-friendly environment.

There’s more work to be done, however.  The personal property tax on inventory and machinery puts the state at a competitive disadvantage.  According to the Commission report, “The tax is complicated, difficult to enforce, inequitable and discriminatory in that only certain entities are typically monitored for compliance.

Also, the state’s Consumers Sales Tax is badly outdated.  It was added in 1931 as a tax on tangible goods, but over the years the economy has shifted from making things to providing services. Dozens of these services are exempt from the sales tax.  Ideally, this tax would be broader with a lower rate.

These additional tax changes should be right in the wheelhouse of the new Republican majority at the statehouse, but I’m not sure they want to tackle taxes in the session that begins in just two weeks.  GOP leaders know they need the revenue from the inventory tax to help balance a strained budget, and they haven’t likely had time to put together a complicated and controversial reform of the sales tax.

Governor Tomblin is rightfully crowing about the tax updates that have been made.  “I’m confident our state’s economy and business climate will continue to grow far in the future,” Tomblin said.  What he does not add is that we still have some unfinished business.

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