Tangibles, Yet Again.

A little piece of news today. 

At a time of weak economic growth and increased market volatility, analysts are getting more bullish on gold. According to Bank of America, the precious metal is headed 78 percent higher, to hit $3,000 per ounce in 18 months.“As economic output contracts sharply, fiscal outlays surge, and central bank balance sheets double, fiat currencies could come under pressure. And investors will aim for gold,” the bank’s analysts said, adding that the US Federal Reserve has provided enough momentum to propel investment demand and prices higher. They have warned that the Federal Reserve’s balance sheet as a percentage of GDP could rise 20 percent to 40 percent this year. They’ve also pointed out that the Fed “Can’t print gold.”

You gotta love this fancy BS "financial" lingo: "momentum", "economic output", "investment demand". What a load of a contrived BS. To put it in simpler words--paper, from dollars to all kinds of "paper gold" (certificates, not physical gold) and stocks are worthless because they are.... well, papers which merely reflect the mood of moneyed class, which, while being moneyed, is not very bright, to put it mildly, and believes in all kinds of fairy tales about "financial markets". But once crapola begins to hit the fan in earnest one needs to "hide" whatever "investment"--yeah, let's call greed and speculation that--one has accumulated in something which will not be burned, literally and figuratively, in the furnace of financial voodoo going off the ritual script completely. 

Now, The Donald in a futile attempts to keep his "promise" to resurrect a corpse of a deceased US shale oil, and reading this fresh news:

(Bloomberg) -- An historic crash in crude prices is driving U.S. shale into full-on retreat with operators halting new drilling and shutting in old wells, moves that could cut output by 20% for the world’s biggest producer of oil and leave thousands of workers unemployed. For shale companies, the price of West Texas Intermediate crude went from hunker-down-and-ride-it-out mode to crisis mode in just a few days, with many now unsure whether there will even be a market for their oil. Some 1.75 million barrels a day is at immediate risk of shutting down while the number of new wells being brought online is forecast to plunge almost 90% by the end of the year, according to IHS Markit Ltd.

Decided to employ his old (and only) trick in an attempt to "raise the price" and ordered:

WASHINGTON (AP) — President Donald Trump said Wednesday that he has ordered the Navy to “shoot down and destroy” any Iranian gunboats that harass U.S. ships, a directive that comes a week after the Navy reported a group of Iranian boats made “dangerous and harassing approaches” to American vessels in the Persian Gulf. Trump did not cite a specific event in his tweet or provide details. The White House had no immediate comment. The U.S. Navy’s Bahrain-based 5th Fleet referred questions about the tweet to the Pentagon, and the Pentagon referred questions to the White House.

Boy, you have to admire Donald's insouciance, that he has put US Navy professionals into stupor because "shooting down" gunboats requires a rather vivid imagination and a strict diet of fantasy novels for a long time in order to exist in the world of flying ships, magical spells and alternative realities. This is not to mention the fact that there are some practices in the maritime law, such as following other ships in neutral waters (I know, been there, done that), which are by no means forbidden and, in fact, are normal practice, like this, with Royal Navy's frigate shadowing Russian navy's corvettes: 

Of course, definition of "harassment" is a tricky one, but what do ya know, one has to do what one has to do trying to raise the price by any means. There is, however, a larger picture begins to emerge since the question of "who is winning" in oil war is not even on the agenda anymore, albeit Canadian oil analysts arrive to this conclusion:

North American producers are getting crushed as a flood of oil is expected to keep prices depressed for longer.RBC Capital Markets expects U.S. shale production to fall 1.5 million barrels per day. The bank says that the producers it is tracking have slashed 2020 investments by more than US$70 billion (about 30 per cent of total) since the beginning of March.“Meanwhile, temporary production shut-ins are already underway amid refinery run cuts due to collapsing refined product demand and ballooning storage levels,” RBC said. “We expect U.S. refinery utilization rates to fall from about 70 per cent currently to 60 per cent — and potentially further — as the second-quarter unfold.” 

No, the issue is broader, especially when one considers those funny statements from Saudis about Russia "being a part of the family" and that "families always overcome quarrels", just google that, the issue is US financial "empire" is at stake. Indeed, when one has these kind of forecasts:

All told, North American production could contract by 2.64 million bpd this year, with OPEC shut-ins at around 575,000 bpd, according to data gleaned from RBC and Rystad. “As storage fills up, countries are being forced to shut-in production on a large scale to counteract a theoretical oversupply of 21 million bpd in 2Q20,” said Rystad Energy senior oil market analyst Teodora Cowie. 

And increasing trade in local currencies between major players (as an example, find videos of Putin's visit to Kaliningrad and his stern demand to transfer all operations by ports into Rubles), plus parallel introduction of alternatives to SWIFT, all of it indicates that the world cannot run anymore on fairy tales but needs tangibles to find its new footing and for that, as they say, Petrodollar Delendum Est. I begin to believe that the plan for that was in place from the get go and was merely adjusted for the severity.  

A Very Short Post.

I am still in awe from many people who still exercise illusions that manipulating, OK, printing, currency, makes any difference--other than hyperinflation down the road, of course--for real economy in a sense that tangibles, allegedly, do not matter. Well, actually they do matter and "free market" delusion is taking a horrendous beating these last weeks. Judge for yourself:

(Reuters) - Energy traders bailed out of the expiring May U.S. oil futures contract in a frenzy on Monday, as the contract dropped by more than 70% to less than $5 a barrel and opening the widest gap ever between it and the next contract with storage rapidly filling. That yawning gap has opened because a glut of oil is heading towards the United States while demand has dropped by 30% due to the coronavirus pandemic. While oil-producing nations have agreed to cut output and major global oil companies are also trimming production, those cuts will not come quickly enough to avoid a massive clog in the next couple of weeks. As a result, futures traders, who would normally be able to shift from the expiring contract to the next, are finding few buyers for the expiring May contract to take delivery of barrels. As more traders dump the May contract, it has crashed, lately trading at $8 a barrel.

As I already stated many times before--I am not oil industry specialist, but I sure as hell, as do most people, understand the difference appearing between costs and prices. Fair, non-manipulated that is, prices. I understand desperation of a title in Oilprice's article: 

 Do U.S. Shale Drillers Deserve To Exist In Free Markets?

But can we really cut the BS and speak in broadsides? Where did they see "free markets"? What kind of a unicorn is this thing. A white board abstract taught in useless "economics" programs in universities? There are NO "free markets", there never was, only geopolitics, geoeconomics and bottom line. Bottom line now is that Saudis do not like US shale oil, Russians also do not like it. The rest are fantasies by journos from the US "economics" house of smoke and mirrors who have to now live with the reality of not just 2 million (or whatever was announced after OPEC++ meeting) bpds cuts but, it seems, more like... drum roll... half of US whole oil industry output. 

Of course, there is this way of printing a shitload of USD to "support" the industry but one cannot cheat economic laws which are supported by empirical evidence--you print more money, you begin to turn into Zimbabwe, simple as that. That is, unless you force the world to absorb your hyperinflation. Good luck doing it today, very few takers are out there, if not to count economically "soft" and poor third world. Or as FT notes: 

Bailing out the oil industry brings a fate worse than death. Whenever things went wrong growing up, my dad would tell me, “What doesn’t kill you only makes you stronger.” Dying was supposed to be the worst-case scenario. He never mentioned zombies. But that’s what a bailout for the oil industry would create: zombie companies that can’t earn the cost of staying in business, kept afloat with taxpayer dollars.

My question is, are they even capable to answer the main question of who the REAL zombie is. I know who and it is easily found in NYC at Wall Street. Good luck killing it, before it kills you.  

UPDATE: 

The May contract for U.S. West Texas intermediate crude oil (CL=F), which expires on Tuesday, dropped 93.5% to $1.19 per barrel as of 1:34 p.m. ET Monday, hitting a record low. The June contract for the commodity (CLM20.NYM) dropped 12.23% to $21.97 per barrel.

Where Are They Now.

We all know this old cliche'--one begins to recall some decades old TV show or film and then this question pops up regarding those actors who played our favorite heroes and what they are doing today. The Goddess of TV, the greatest mind of our time and moral compass of civilization, Oprah, even had a show titled "Where Are They Now?" Well, folks, today, it seems, the cycle of "where are they now" shrunk dramatically from decades to years, to weeks and even hours. And that is my question: where are those Bloomberg's, Russian liberda and other "experts" who even two days ago were spreading all kinds of BS about OPEC++ deal. This whole "where are they now" issue has, apart from very practical pure geopolitical and economics side, a huge academic issue--those are not "experts". Those are people who have some insights, often due to their social status, into rumors circulating on a fairly high level but have absolutely no professional apparatus to judge complex industrial processes, not to speak of a true systemic analysis. So, where are those "experts" now? Anyone cares?

Some people, however, begin to speculate if Russia and KSA are "in the same boat" in relation to US Shale oil unfolding catastrophe:

OPEC may have reached a deal to cut 10 million bpd, but for many U.S. shale producers, it is too little, far too late. Much ado has been made about Saudi Arabia and Russia’s push to end their cooperation in the production cut deal a month ago, flooding the markets with oil at a perilous time. While some have suggested that it was a deliberate attempt to break the U.S. Shale industry that has run roughshod over the oil industry in the last few years, upsetting the market balance of the oil cartel. Both Saudi Arabia and Russia have outright denied the claim that is was a purposeful attack on the shale industry—a wise proclamation given shale’s fastidious ally, U.S. President Donald Trump, who has praised the shale industry that has served as the platform for America’s energy independence efforts.

I agree, much ado about nothing since reality always trumps (pun intended) wishful thinking. As the piece continues:

Those efforts have been wildly successful by any measuring stick, and for that reason, shale will not be allowed to die no matter what Saudi Arabia and Russia dish out. But that doesn’t mean that some of the weaker U.S. shale players won’t wither up and die along the way, drowning in extra crude inventory and debt, saddled with inefficiencies and a business that couldn’t make it at even $50 crude, and without the lifelines of increased oil demand or stimulus money. For shale players in this category, your days are numbered—all signs point to this inevitable conclusion.

The conclusion is indeed, inevitable, and it is the fact that Trump can do whatever he wants and print as much money as he wants, US shale is dead to the level which will keep the United States a net IMPORTER, not a net exporter of oil. Of course, the issue here is what's the deal with Saudi-Russian alleged "collusion". I don't think there is any collusion at all. Remember, unlike all kinds of "experts" none of who ever worked a day in a productive capacity, I openly and readily admit that I am NOT an expert in oil industry. But I also know that in any combination of relations between Russia and Saudi Arabia, even despite Saudis' importance as a oil superpower, Saudis' status (read my latest book) is too insignificant to have a fully independent position vis-a-vis Russia. In other words, as events since Vienna OPEC+ summit demonstrate, it is legitimate at this state that Saudis do not really have much agency in these oil wars being allowed to do only what they can (oversupplying the market, thus crushing prices), while being used by Russia for a much broader set of geopolitical objectives which are simply beyond the grasp of Saudis. 

This may explain the fact that starting from Mnuchin's sudden change of MO and meeting with Russian Ambassador Antonov on March 9, to Trump's and Pompeo's one after another phone calls to Moscow, to suddenly "funny" issues of Russian-American cooperation in space, to discussing sanctions (why?) and investments (that is a wowser) seems to point out to Washington having a reality dawning on them that not only "oil market" (most of it a fraud drowned in paper derivatives) is not going to be the same but the same applies to Russian-American relations, you know "strategic stability" and all that jazz. As was stated from the very onset of this oil crisis--Russia was ready to ride this out for years, in fact Russian budget recently was recalculated to the oil price of $20 per barrel. Yet, all this "expert" community, including people who cannot have a clue by definition (Kortunov, are you reading this) continued to deny a reality of Russia gigantic currency (and gold) reserves being engaged. Yes, Covid-19 did play a role and threw the curved ball of sorts, but it was not just for Russia, the United States had ball flying at her too. Meanwhile reality on the ground is dramatic and even Reuters can not hide it anymore:

Oil fields from Texas and New Mexico to Oklahoma and North Dakota are going quiet as drilling halts and tens of thousands of oil workers lose their livelihood. Fuel demand has plunged by as much as 30 million barrels per day (bpd) - or 30% - as efforts to fight the coronavirus pandemic have grounded aircraft, reduced vehicle usage and pushed economies worldwide toward recession.

Some even proposed that Putin is exacting a revenge on the United States fro 1990s and 2000s. Possible? Possible, but how probable? Putin and his team do not seems as overcome with emotions in this matter, it is one thing to crush economies of the rabidly Russophobic Baltic states, totally another--to deal with superpower, however dysfunctional and largely ungovernable. In simpler words--we don't know the whole of a game, we observe only some partial manifestations of it and we surely do NOT have a massive and highly efficient, as events of the last 7 years demonstrated so dramatically, intelligence-analytical strategic forecasting apparatus at Putin's disposal. He knows what we don't and that makes the difference, a gigantic one. Is the United States being taught a lesson? Definitely possible, but for now I still stick to my proposition of superpowers' Noblesse Oblige because Russia is NOT interested in the US disintegrating or becoming completely ungovernable while having a vast arsenal of nuclear weapons on her territory. Yet, Saudis could be sacrificed in this game, in fact, Saudis' "cut" may happen "naturally" by the Kingdom disintegrating (which is a highly desirable outcome) and someone else taking control of oil fields, someone who is not used to driving Ferraris and living in mansions doing absolutely nothing of value. Is it possible? Absolutely, otherwise they wouldn't be desperately needing a truce:

DUBAI, April 14 (Reuters) - Saudi Arabia has resumed indirect talks with Yemen's Houthi movement to cement a faltering ceasefire, sources familiar with the discussions said, as the United Nations pushes for a de-escalation to prepare for a coronavirus outbreak. The Iran-aligned Houthis have yet to accept the nationwide truce prompted by the pandemic and announced by the Saudi-led coalition last week, and violence has continued on several frontlines.

Ah, Houthis, God bless your soul in your fair fight for freedom and democracy, wink, wink. If to remove, by force or by agreement, all those Pakistani, American, West European mercenaries from the front lines, I wonder how long will Riyadh defend itself against Houthis? But I am running ahead of myself here. 

Cognitive Dissonance.

You know, I stress it constantly, I am not an oil industry specialist but I can compare--you know, like I can tell the difference between black and white colors, I can also tell, most of the time, BS from truth. I am (semi)professionally involved in debunking Western media BS and here I go again. You already saw a Force 5 tornado of BS from US media on how Trump "brokered" the new deal and how Russia was "defeated". Here is an example from, who else, Bloomberg:

The ill-fated decision to face off against Saudi Arabia in early March was “a strategic mistake and now we’re paying the price, a much higher price than we could have paid,” said Andrey Kortunov, director of the Kremlin-founded Russian International Affairs Council. “This looks like a victory for the U.S., and Russia ends up a bigger loser than Saudi Arabia.”

Just one example of many. Who IS Mr. Kortunov and what RIAC is will talk about this later. Bloomberg also goes for the titles like this: 

Trump’s Oil Deal: The Inside Story of How a Price War Ended

And, in general, one is left to wonder what universe those people live in. I constantly repeat and I will reiterate that in modern world a profession of journalist or news handler is not a viable profession because it is based largely on a lack of any skills or well-trained analytical apparatus and is used primarily for propaganda purpose. The level of American journalism is well known and it is an Exhibit A of a serious case in cognitive dissonance, because in related news, very fresh, like an hour ago, one is forced to compare alternative and real universes.  

North America’s Oil Industry Is Shutting Off the Spigot. Energy producers are resorting to the desperate measure of shutting in productive oil wells.

It is understandable that in my case I could be accused of being biased, because I am Russian, and whatever else could be derived from this fact, but it is really difficult to accuse documented numbers of oil prices and radically anti-Russian outlet such as The Wall Street Journal in any desire to, for whatever reason, unnecessarily confirm a simple fact that US shale oil industry now has a noose around its neck. This is not to mention the fact that US shale oil is but one of few other objectives Russia pursues in her big game with the US and she has necessary cushion to play this game for a long time--time which neither US, let alone KSA, have. And here we come to Western media MO with opinions "from Russia". Let's take a look who US media draws its "opinions" from? Just one example out of many. 

For starters, let's get to RIAC. The first giveaway here is the year of its founding--2011. During Medvedev's Presidency and one after another failures of Russia's diplomacy starting from giving up Libya to being unable to stop the gang rape of Syria, yet still "integrating" with the West. In the end, enough to take a look at such people as Aven being on RIAC's board. So, in general, RIAC is a copy of a good ol' Western "think-tanks" whose real practical value approaches zero and which are involved deeply in doctrine mongering and are nothing but clubs of interests for people who think that they are good at something. RIAC is radically pro-western think-tank. Kortunov's biography is available at RIAC's site and reads exactly as a biography of any other American counterpart in US "think-tanks"--humanities degree (granted obtained at MGIMO), then white board "academic" career in fully discredited Institute of US and Canada, a teaching "tour" in the US, some "research" and writing of papers which lose any value even before they are published anywhere. It is obvious that Kortunov's "portrait" is that of a Russian "liberda" which is directly used by Western media and NGOs to distill opinions on matters of Russia's foreign and domestic policy  and present them as viable. Opinion "generators" for US media of this type which come to mind, of course, are Moscow Higher School of Economics (VShE), another zoo of confused globalists, rags such as Moscow Times, military "specialists" such as Pavel Falgnehauer, or creatures such as Masha Gessen among many others. So, you see how it works? 

As per reality, even Bloomberg had to publish later "attitude adjustment" piece:

“The scale of production cuts is a move in the right direction, but considering how badly demand is affected, it was never going to be significant enough to push the market closer to balance,” said Edward Bell, senior director for market economics at Emirates NBD PJSC in Dubai. “Is Russia going to cut production by 2.5 million barrels a day in two weeks? That’s a pretty steep ask.”

Remember this simple fact, everyone knows, that Russia is fine with the price of oil $30 per barrel, and she is happy as clam with $40 per barrel--prices which do not work for either Saudis or US. So what is the real target here? Obvious, having the US joining the emerging cartel and, in the end, Petrodollar. But as famous Mikhail Bulgakov's character of Professor Preobrazhensky from the Heart of a Dog used to say to his assistant, Dr. Bormenthal: "Don't read Soviet newspapers before lunch." You know what word to change in Preobrazhensky's advice in order to avoid a severe cognitive dissonance. 

Preliminary Results.

As you know, OPEC+ was "meeting" today (on-line) in discussion on oil production cuts and throughout the day all kinds of "sources" continued to feed disinformation on the size of possible cuts in attempts to manipulate market. At some point of time the rumor of cut of 20 mbds even circulated as an information from some source "close to negotiations", right. I am also a source close to negotiations about quotas for mining beryllium on Saturn. But here is what is known so far and it seems to be real:

OPEC has succeeded. On Thursday, the OPEC++ group agreed, in principle, to cut 10 million bpd in oil production, according to media. But will it be enough? Today’s oil prices suggest not. As oil inventories burst at the seams and threaten oil prices the world over, the oil markets have been riveted by the Organization of Petroleum Exporting Countries’ (OPEC) actions as it relates to potential production cuts. While many analysts doubted that the group, and various other states who agreed to sit down with OPEC to hash out a new market stabilization plan, would cut as much production as would be necessary to draw down inventories, the group’s actions have never been more crucial to the survival of the entire oil industry.

Of course it is not going to be enough, but enough for who? You know the answer. And, in the end, the issue for US shale oil is not resolved and yet another discussion on cuts will be held at G-20 meeting. US shale oil to survive needs the price of crude to be, by different estimates, way in excess of $45. And this is an "optimistic" threshold. I am not an oil expert, never pretended to be, but I don't see this happening. You can see oil prices (almost in real time) here. So, sober opinions of people around US oil have been making it to media.

Many analysts expect a deal to cut production would have to involve the United States. According to his spokeswoman, Secretary of Energy Dan Brouillette will participate in the G-20 meeting, “to discuss with his counterparts around the world the urgent need to restore calm to global energy markets.”

So, the glut which Saudis created is here to stay for a while. Just as a reminder: Russia's budget was written with $40 price per barrel in mind and since then it was updated for even lower price. Per Saudis? I already expressed my opinion on that earlier last month and I may only reiterate:

That may help to explain why Saudis are going nowhere, because, as I write for years, tangibles win in the long run, and even if to imagine that somehow Saudis will survive next 4 years without consuming their $500 billion worth of reserves (sure, and I am Clint Eastwood) in the economy which produces next to nothing, Russia's National Projects will be already in their full steam and those are ranging from cutting edge research, aerospace, machine-building complex and other things of which Saudis have very little understanding.

So, the story continues and who knows when it ends. WTI still dropped more than 2% as of writing this, while Mexico altogether refused any cuts and, in fact, boosts output. So, let the real experts in oil/energy market excavate this pile of contradictory information and make sense of it.

Meanwhile, frigate Admiral Goshkov continues to test 3M22 Zircon and departed three days ago for Belomor Naval Base to be loaded with Zircons (in Russian) to continue with tests. As TASS reports, 4 more test-launches should be conducted by the end of this year. In general, the events unfold with such speed that, as I predicted, they throw me constantly off the track while writing a preliminary outline for my new book--it is simply impossible to grab the tiger by the tail. I am trying, though.