Gotti: Time to buy oil

From Gotti today:

When OPEC started the price war last year the Saudis expected that the US producers would fall over quickly — their costs were too high.

But they didn’t collapse because we now know that about 50 per cent of the US oil production was forward sold at high prices. These forward sales are rapidly running out and during the next few months if oil stays down we are set for extensive US closures and major loan losses.

But there will be a production cut, which makes the shorters nervous, and many who have made a fortune in the last year are saying that it is time to close out positions. As the oil price rises that short covering will gather momentum. The big snow dump on the US east coast accelerated the trend.

In the Middle East, the position of Russia has become vital. For Russian President Vladimir Putin there is a much wider agenda. He brackets oil with a new world order where Russia is a major player. The new order starts with Syria, where Russia has brought together Iran and Iraq to attack Islamic State. Putin wants to link the Syrian settlements to the current Ukraine sanctions. He is looking to form an oil cartel where Russia will be a pivotal player. But to achieve these goals he must involve the US-friendly Saudis.

One must always be sensitive to geopolitics in the oil market and you never know but this leaves me cold. What new oil block is this Russian-led entity? Iran and Saudi Arabia are at other’s throats in Yemen, Iraq, Syria and as far afield as Sudan, locked in a regional proxy war for hegemomic dominance. Iraq is still a US vassal even if it’s toying with Russian alliances, and Saudi is determined to squash US shale which will require a price in the $20 for many months not just a downside spike given cash costs are very low.

The US has masterfully played one against the other with its lifting of Iranian sanctions, has hobbled Russia as its Budget collapses and, in my view, will still be able sustain decent shale oil output over the cycle.

Putin is not some criminal genius. He’s the troubled head of a failing state. There is nothing in this that boosts oil that I can see.

Comments

  1. Yeah, buy oil but where you going to store it? Storage is filling fast. Can one remain solvent while cost of carry eats away at potential return.

  2. ” He’s the troubled head of a failing state”
    Get a grip ! Thank Dog for Putin -he’s reigned in the REAL World Terrorists the slimly murderous USA !

      • Well I’d welcome that – might even get some publicity for the cause. Don’t know about you but I’m sick of reading & hearing anti -Putin propaganda originating in the USA & blabbed endlessly by the dick heads from the ABC & SBS + ALL major Media. Disgusting untrue stuff just because Russia’s called their bluff.

  3. US Rig Count is down hugely. Flow from fracked wells diminishes rapidly after the first year or so, certainly by the end of year 2.
    http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-rigcountsoverview
    Area Last Count Count Change from Prior Count Date of Prior Count Change from Last Year Date of Last Year’s Count
    U.S. 22 January 2016 637 -13 15 January 2016 -996 23 January 2015
    Canada 22 January 2016 250 +23 15 January 2016 -182 23 January 2015
    International December 2015 1095 -14 November 2015 -218 December 2014

  4. “He’s the troubled head of a failing state. ”

    Based on what exactly? Your reading of mainstream Western media, which you claim is captured economically, but not politically? This really is a ridiculous pronouncement!

  5. “The US has masterfully played one against the other with its lifting of Iranian sanctions”

    Also another ridiculous assertion. Sanctions were leveled against Iran by the US after it, and its allies in the region (SA, and Israel) became increasingly concerned with Iran’s influence in the region – not because of some nuclear weapons program they largely abandoned in the early 2000’s after the US erroneously took care of Saddam for them.

    The lifting of sanctions on Iran did not suddenly happen because they made concessions over their nuclear program. It happened because Iran did not cave, even an inch in the face of crippling sanctions, and secondly because nations in need of trade and cash were beginning to circumvent the sanctions altogether. Russia with oil for goods swaps and re considerations of previous military contracts, China with financing deals, through new development initiatives, and other European nations doing business on the sly. This would make it very difficult for Washington to keep its Western European allies in line with respect to sanctions, when there is a market of 70 millions people they can’t tap in a time of economic malaise when to permanent members of the security council change course and effectively start ignoring the sanctions. The sanctions on Iran could have collapsed on their own. The ” negotiation” where the Iranians really gave up NOTHING was a face saving exercise for the USA.

    In this intermittent period, the neocon peanuts who actually want to go to war with Iran were largely constrained by the upper echelon of the military and intelligence apparatus, because they know an attack on Iran won’t be the same as Libya, Iraq, Afghanistan etc. Firstly they would face blow back from deeply ingrained Iranian foreign agents on US soil. Think potential attacks on critical infrastructure and civilians in many major cities. This would also happen in Europe. Not to mention a potential flood of literally millions and millions of refugees into Europe, and from a European perspective, for what gain to them?

    • I will add an ancillary benefit to the US, is that Iran get’s to supply Europe with oil. It reduces the stranglehold Russia has on that market. This is a factor, but it won’t stop Russia’s most important client (Germany) from flouting any EU energy legislation they don’t like, but would pressure smaller EU countries to adhere to when it comes to Russia energy supply.

  6. @ JC… NATO invasion of Libya looming. The neo-cons are just the new Jesuits with the ear of the new Pope and Imperial acolytes. They have updated by using Hegelian dialectic to justify the horrific crimes their mercenary bands perpetrate.

    Since Robert Gates left the US defence department they have lost control of these mercenaries who are trying to win territory for themselves now. Hopefully Russia will be able to unite most Arabs so they can control their own destinies.

    • “NATO invasion of Libya looming”

      MIC makes their own wars. Ship the actual Salafi terrorists boat loads of weapons, then aid them to dismember the country with a no fly zone. Result = Libya is no longer a functioning state, it is rubble, and awash with terrorists. Now the same foreign policy that destroyed it needs to invade it to get rid of the terrorists they armed, and bought into power. Welcome to USA foreign policy.

  7. US government has asked banks to mark the market their holdings on oil companies just to see what happens if they need to shift onto the books in the event of default. Currently all oil dept is held off books. This will lead to profit downgrades and eventual run on the banks and here comes GFC 2.0. At least there is some forethought into this from US officials.

  8. Highly recommend “The Colder War” by Marin Katusa for those interested in energy / Russia / Putin and investment opportunities. H&H is dead wrong in his glib assessment. Cheers John.