Something Dark Emerges from the Tar Pits and Oil Sands, Destroying Crude Oil Price Rally

2017 Economic Forecast is looking like the mother of all storms

The crude oil price rally has been completely crushed, though I’ll admit I was wrong when I predicted crude oil prices would plummet in March or April as the perfect storm developed against oil prices. Instead, they rallied. In spite of that, I continued to believe my error was in timing and not in fact — not in the fact that a another harsh fall in oil prices was beating a path to our doors.


Crude oil prices beaten down by a storm still building


So, I continued to write articles about the forces building against oil prices, even in the face of a strong rally — a rally that many believed would set a new floor for oil for the remainder of 2016. That storm has, as of today, completely clawed back the post-March rally by taking crude oil prices back to a three month low and to where they stood at the start of the year as well. West Texas Intermediate just struck $42/barrel today.

That said, oil still has not gone back into the dark valley from which it came in the winter of oil’s discontent, and to which I said it would return.

I still believe the full strength of this storm is yet to be felt. So, my oil price prediction is that we hit $30/barrel again, before next March, but probably even by this fall. I have to state a caveat to that prediction … and not because I want to hedge my bet. I don’t like hedging my bets, as I prefer to hit them straight on the nose for a clear victory.

As stated in an earlier article, we have no way of knowing anymore what the Fed with its cloaked operations, liberal hand, and infinite money potential is doing at any moment to manipulate the price of the oil market in the same way it has admitted to doing with the stock market. Anytime the Fed sees oil bringing a serious gale against its heavily encumbered member banks, you can now be sure it will intervene to save the banks (at any cost). The Fed is loathe to let markets be markets and has become so deeply involved in market manipulation that there is no longer any basis for assuming any market will run as a truly free market. (But, if my prediction is wrong, I don’t know how I’ll be able to show it was for that reason.)

Nevertheless, I think forces are moving in that will ultimately blow everything outside of the Fed’s control. When we arrive at that inexorable day when all the oil tanks of the world — and all the tankers on land and sea — are full (as I’ve said we are likely to do and as appears to be more the case all the time), it will be hard for the Fed to manipulate the price of oil with nowhere to store the oil it buys. Reality finds a way to leak in or seep out … eventually.


Crude oil price storm develops a new front as gasoline storage backs up


One of the big drivers in the current price fall is the rise in the number of full tanks on the demand side of refineries. Refined gasoline is starting to back up to serious overflow levels. As things back up on the outflow end of refineries, inflow of crude to the refineries has to be slowed down, so tanks start backing up more on the refineries’ supply end, too.


For almost two years, the spotlight in the global oil market has been on a surplus of crude. The latest stumble in prices has shown that the glut [now] extends further…. Combined inventories held by industrialized nations of all forms of oil — from crude to refined products to natural gas liquids — reached a record of more than 3 billion barrels last month…. In the U.S., gasoline stockpiles were at the highest for the time of year since 1984 as record consumption failed to drain the glut refiners created when crude was cheap…. “It is the plight of oil products — in particular the light products such as gasoline — that is slowing the pace of total stock-draws even as crude stocks fall, and of the eventual re-balancing….” [US] gasoline supplies are so swollen that at least five tankers hauling the fuel to New York were turned away over the past few weeks…. Even China, the world’s biggest energy consumer, has been dumping excess gasoline overseas to alleviate swelling stockpiles at home. (Bloomberg)


Yes, you read that right. Gasoline stockpiles — right now at the peak season of gasoline demand — are at a thirty-year high! If we cannot work down the oversupply of gasoline during the summer peak demand when everyone in the highly populated northern hemisphere is traveling, what will happen as demand drops off in the fall?

Gasoline inventories have increased four out of the last five weeks at the very time when they should normally be going down due to the normal rise in demand.


“We are gradually shifting from a crude glut to a refined product one, particularly in gasoline,” Thomas Finlon, director of Energy Analytics Group said by phone “The gasoline production numbers in the United States are just astounding.” (EconMatters)


Why are production numbers astounding for gasoline? Because, with a glut that brings cheap crude oil prices, refineries are boiling out as much gasoline as possible — more than they can sell — to take advantage of those prices. That is creating a major backup problem on the demand side of refinery storage where the final products are held for sale. (In essence, if your crude oil tanks are full, produce as fast as you can in order to move that oil into your tanks of product for sale … until those tanks are full, too.)


The red dragon has too much fuel for its fire


The over-abundance of gasoline in storage is certainly not limited to the US. The Great Red Dragon is choking to death on fuel. China is practically dumping gasoline and diesel all over global markets as a result of a supply overbuild that is already at its limit throughout the Asian region.


The volume of China’s gasoline exports caught up with diesel last month as refiners dumped excess output in overseas markets to alleviate swelling stockpiles at home amid record domestic production. The world’s largest energy consumer more than doubled shipments in June compared with a year earlier…. The flood of shipments from China is exacerbating a glut of fuel across Asia, where processors are cutting operating rates as they grapple with a slump in refining margins…. (Bloomberg)

Dutch consultancy PJK International said that gasoline stocks held independently in the Amsterdam-Rotterdam-Antwerp (ARA) hub rose more than 12% to an all-time high. (Zero Hedge)


Earlier in the year, China ramped up refinery activity as much as possible in order to build gasoline and diesel inventory while the cost of crude was still in the basement. (Everyone wants to sop up as much cheap crude as they can.) However, China has apparently reached its limit on how much finished product it can store. So, both the supply side and the demand side of refinery storage in China is choked.

In late June, JP Morgan estimated that China had pretty well filled its strategic petroleum reserve tanks where it holds crude. Now, it appears to have filled its gasoline storage tanks on the other side of its refineries from the throughput of oil.


One of the pillars of oil’s recovery from the lowest price in 12 years may be on the verge of crumbling. (Bloomberg)


JPM estimates that, as soon as China has topped off their SPR to the brim, China will reduce its crude imports by 15%. (Recently, China has been the world’s largest petroleum importer.) No one knows what China’s maximum storage capacity is for either crude or gasoline, but JPM extrapolated last month that they are close to reaching their maximum based on what is known of their oil data. The rate at which they have suddenly started dumping gasoline on the market indicates their crude oil reserves are full and they are pushing oil through the refineries as quickly as possible and dumping it into the market on the other side at minimal margins as everything finally backs up to capacity from the oil wells to the gas-station pumps.

Demand in China for crude oil fell by 2.7% in May; but Chinese imports of crude fell by a mind-blowing 41% year on year.  That China is solving its backup by dumping refined products as exports is reflected in the fact that Chinese exports of refined petroleum products rose by 38% year-on-year in June, even as crude imports fell.

For the time being, pumping out gasoline as quickly as possible has kept China’s drop in imported crude to that 2.7%, but it’s creating a gasoline glut that is rapidly spreading across the globe. That is already choking China’s production and everyone else’s … all the way back to the pipes of the producers.

That all means we are much nearer that day when all the oil tanks in the world are full, which is extremely bearish for the prices of finished products and crude and should put more pressure on the margins of US refineries and oil producers alike. Certainly, China’s dumping of gasoline and diesel throughout Asia and Europe means that its imports of refined fuels from the US and other nations are nearly terminated for those nations that customarily exported finished petroleum products to China. The market is now saturated everywhere.


Worsening inventories in oversupply of crude oil


The backup at the outflow end is new, but there is nothing new about the backup in tanks at the inflow end of refineries where crude sits waiting to be turned into gasoline and other products. Inventories on the supply side remain swollen. At 520-million barrels, crude oil supply is more than ten percent higher than where it was this time last year when it began its catastrophic price march downhill.

That combination of supply and demand-side inventory has reached an all-time record of 2.08 billion barrels. Now that refineries have limited places to put the surplus fuels they are producing, they are spinning their wheels in the slick oil sands. Refiners, and not just producers (not always one and the same), are now suffering collapsing margins.

At the same time, we’re nearing another maintenance season, when production is always cut, but that didn’t have much effect last spring as I (and some others) thought it would; but will it help form the perfect storm now that the entire oil industry is starting to choke in overflow?


A dangerous new trend line in crude oil prices


Zero Hedge published the following graph that shows how crude oil prices fell and rose and fell in 2016 and how that almost exactly matches the pattern of 2015, only at lower price points along the journey:


2016 WTI crude oil prices fall, rise and fall to match the pattern of 2015.


Demand for crude oil typically falls off during the second half of summer. This year crude prices peaked (for the present, at least) in June and have since slid about 17%. Last summer crude prices also peaked in June, and then July broke their back. The summer before that (2014), crude oil peaked for the year in June and then prices fell off a cliff the rest of the year, dropping 50% by year’s end.

Oil producers are concerned by what is shaping up to look like a new trend in the oil market where prices rally until June and then crash the entire remainder of they year.


US rig count not staying down


Because this year’s earlier crude-oil price plunge crippled the US oil industry, the number of rigs drilling new wells began to drop, causing a drop in US crude-oil supplies (and, therefore, a rise in speculative oil prices); but as soon as prices started rising, rig count began to climb back up again. The US oil industry, in other words, is not willing to concede its loss of market share without further battles. Last week, the number of oil and gas rigs in the US jumped by fifteen, double the increase of the week before. So, the rate of rise is accelerating.

With a total US rig count of 462, that’s better than a 3% increase in just one month. Since May, oil and gas drilling rig count has risen by 56 rigs (a 14% increase). Still, rig count remains down by 414 rigs from where it was this time last year. At a total of 863 last year, the number was far below the all-time peak of 4,530 in 1981. This last March, the industry saw its all-time low in rig count.

The ramp-up of drilling is happening in oil fields that are profitable below $50/barrel. The moves are small by historic perspective, but, still, not in a direction that helps the price of oil if you’re a hurting oil company, hoping for salvation from a little price relief.


Damage to the US oil industry as a result of crude oil prices


To give you some idea of how significant damage from low crude oil prices has already been to the US oil industry, the world’s largest oil-field services company (Schlumberger Ltd.) laid off 16,000 workers so far this year as it surprised analysts lowest estimates in this quarter’s reporting with the size of its losses. Second-quarter losses were $2.16 billion, compared to a profit last year (also a lousy year) of $1.12 billion.


“In the second quarter market conditions worsened further in most parts of our global operations,” [Schlumberger CEO] Kibsgaard said in the statement. (NewsMax)


The world’s second-largest oil-field services provider has not faired well in 2016 either. Halliburton reported a 14-cents-per-share loss for the second quarter. Of course, both companies put as much positive spin on this as being “the bottom” as they could; but is that a real prediction or just CEOs trying to save their stocks from crashing harder with a positive spin?

If the oil surge is hitting the giants of industry this hard, imagine how this storm is pummeling the little guys.

Tightening the vice a little harder, Moody’s just announced that it will start to downgrade the credit ratings of oil producers who are too aggressive in expanding production capacity, given the market’s inability to absorb more capacity.

But it’s not just the oil industry that is feeling the pinch.

General Electric reported a drop in orders, led by oil and transportation decline. They are selling less of their heavy oil-field equipment. Less equipment is also being transported on trains at the same time that less oil is being transported inside the US (as the US cut back production while the Middle East seized market share as it aimed to do). That means fewer GE locomotives are being sold as well.

GE’s total orders feel by 16%, if one excludes the effects of global currency shifts and corporate acquisitions.

I don’t care a wit about greedy oil companies. In other words, I’m not playing a sad song on the fiddle while refineries and producers burn because I’m concerned they’re not making the fat profits they once made (and even taking losses in many cases now), but the fact is that their troubles are having a negative impact on the overall US economy. At the same time, we have not seen any great benefit in the terms of lower fuel prices (compared to the size of the oversupply), but that may change now that a gasoline glut is also building.


… and damage to US stocks


Naturally, oil industry stocks have declined along with oil prices over the past month, but the losses have an interesting reason for being. What has torn the top off the US stock-market rally in the past week has been oil producers hedging their bets in anticipation of a third crummy year for oil prices now that the end of 2016 is not looking as hopeful as the oil bulls thought it would. They’ve seized the day when stocks have been selling at better prices as an opportunity to sell stocks in order to raise cash and pay off debts.


“The producers have sold the hell out of this rally,” said Stephen Schork, president of Schork Group Inc., a consulting firm in Villanova, Pennsylvania…. U.S. oil and gas producers have been selling shares at record speed, using the cash to repay debt or buy oil and gas prospects, bolstering the asset side of the balance sheet. So far this year, companies have raised more than $16 billion in equity, according to data compiled by Bloomberg. “They’re trying to generate cash to stay alive and fight another day,” said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. “The producers know full well that the oil market is not out of the woods yet.” (Bloomberg)


Where will this storm the oil market carry us?


As I said at the start of the year ,when oil was in its steepest dive and people were speculating that Saudi Arabia and Russia would strike a deal to stop the crash, there was no chance of Saudi Arabia backing off. Saudi Arabia repeatedly made it clear to anyone who was listening that from this point forward the oil market would work itself out by who can produce the most oil the cheapest and claim the largest market share in a oily price and production war. Thus, I also announced the death of OPEC as a price driver a few months ago.

Saudi Arabia, which once controlled market prices by adjusting its own production, decided that the market will decide who the winners are because they are also in the best position to win a price war, having oil that comes at the lowest production costs.

Heavy industry is locking horns all over the world to fight for market share, and the battle is far from nearing resolution.


The narrative of a balanced oil market (in the second half of 2016) has so far been an illusion. (Reuters)


For more reading on this crude oil price war, see my previous article “Oil Market Snapshots — Will oil supply glut continue, what will happen with oil prices?” if you haven’t read it yet and consider the following books for tales of historic oil battles:


[amazon_image id=”0977079333″ link=”true” target=”_blank” size=”medium” ]Debt and Delusion: Central Bank Follies that Threaten Economic Disaster (Deluxe Edition)[/amazon_image][amazon_image id=”B00CMDPTA4″ link=”true” target=”_blank” size=”medium” ]The Prize – An Epic Quest for Oil; Money & Power[/amazon_image][amazon_image id=”B004S95I4M” link=”true” target=”_blank” size=”medium” ]Blood and Oil – The Middle East in World War I[/amazon_image][amazon_image id=”B00HKKX2L2″ link=”true” target=”_blank” size=”medium” ]Oil: Black Gold[/amazon_image][amazon_image id=”B01A7OLKHK” link=”true” target=”_blank” size=”medium” ]Frack Us[/amazon_image][amazon_image id=”B0037VY1ZO” link=”true” target=”_blank” size=”medium” ]Crude Independence[/amazon_image][amazon_image id=”B00DY2T6BA” link=”true” target=”_blank” size=”medium” ]Split Estate[/amazon_image]


  1. Ping from Jnrebels:

    Good article. Just discovered this blog, I will definitely continue to read future posts!

  2. Ping from Bill Sodomsky:

    Hi Dave,

    When bloggers write about energy matters, I’m all ears. The reason being, our Modern Industrial Society or should I say, life as WE know it, cannot exist without massive amounts of fossil fuel energy inputs. Forget about central bank madness, manipulated stock markets, bubble bond land, precious metals futures markets and the cast of corrupt political actors who pretend to be running things, energy issues” trump” everything. The shenanigans of the establishment, entertaining no doubt, tragic in their consequences, are simply symptomatic not causal. What we are in the throes of is “ENERGY DEFLATION.” No matter what the price, it’s always just beyond the reach of the marginal consumer. The world’s customers are broke. It doesn’t matter how much fiat the criminal bankers create and lend to their industrialist tycoons or political errand boys. It doesn’t matter how low interest rates go. None of this, including who gets into political power has any way of creating or finding new reservoirs of cheap oil. They’re all gone and what’s left is the unmanageable costly waste of industrial society and infrastructure built on the basis of never ending cheap energy sources. The oil companies are all insolvent because their customers can no longer retire their (oil companies) debts. The same goes for the entire industrial complex where the tycoons assumed massive amounts of credit with the expectations that there would always be a dumb customer to repay their debts. That’s no longer the case.

    The solution of course is to extend and pretend. Lend more to the bankrupt extractors, hold off on calling in the loans, falsify financial statements and of course lie to the public. None of which will locate cheap fossil fuels. Country after country succumbs to economic collapse by way of depreciated currencies, crushing interest costs, starvation, emigration, and finally… no rule of law. That’e where we’re headed because as energy goes, we go. Each and everyday the cost of extraction, refining, and transporting gets much higher. The low price of oil today does not reflect the costs involved in getting it, but the collapsing of the credit markets that filled in for what should of been commensurate returns. Tragically, Modern Industrial Society NEVER paid for itself. Most of everything it ever produced has ended up in landfill sites and ocean floors. It was the party to end all parties. An eye blink in the arc of man’s long historical footprint. Now, all that energy (collateral) is gone… never to return and what’s left is UN-REPAYABLE debts. Debts can only be repaid with more energy inputs, not currency because currency is simply a lien against future energy finds. From here on in, the price of oil will continue to fall as will our standard of living. It may briefly spike due to various forces but will never be able to remain high because if it did the entire economy would spiral in. Of course it will anyways because there are NO viable accessible replacements for cheap fossil fuels… NONE. What we are witnessing is the decline and fall of Modern Industrial Society.

    • Ping from Knave_Dave:

      Hi Bill,

      Welcome to the blog.

      What’s fascinating, as you describe it, is that I see we live in a day of peak oil but that it looks like nothing we thought peak oil would look like because peak oil also means peak supply, and that hardly fits the picture of oil beginning to run out — at least, not the picture many of us likely had in mind. How can you have too much if it is running out?

      I haven’t seen that until just recently with another article I read and now your comments. We’ve reached a point where demand grew very high as China developed, and supply became very high to meet it but at a high cost.

      So far, I don’t see that most customers are unable to pay the price or unwilling, as the demand remains strong; and I think people would pay for it even at the old and higher price. What I do see is that more conventional oil sources have seen their market share dry up as new technologies (fracking improvements) developed to meet the growing demand during a time in which OPEC sought to manipulate prices upward by reducing their own supply. That caused those working under the more conventional practices in oil-rich lands to lose market share BECAUSE the higher prices they manipulated through supply controls made more expensive technologies profitable. SO, more expensive technologies developed, converting the US from an oil-importing nation to an oil-exporting nation and into the world’s largest oil producer. By manipulating the supply of easily extracted oil, OPEC created a much more technical opponent that could soak up all new demand at the higher prices and still make a tidy profit.

      The loss of market share (as a percentage of an expanding market) started a price war, as the Saudis and others recognized their efforts to keep prices up were only giving entrance to other players who could soak up all expanding demand and still make a profit because of those high prices. They also came to see that the newer high-tech extraction methods that were developed to meet the rapidly increasing demand for oil were vulnerable because they don’t have the resiliency to compete against easier-to-access supplies. So, the Saudis started a price war.

      That, however, means the easy plays of oil will run out more quickly because the OPEC nations are pumping as fast as they can to soak up the expanded market.

      Where you are keenly perceptive, I think, is in tying the entire economy and monetary system to oil. Without energy, of which oil fills the main supply, there is no economy outside of physical labor energized by food. Our economy has developed so that it only functions under highly technical, energy-consuming platforms (like my website, which essentially exists as electrons that must be constantly supplied). They don’t necessarily require oil, but oil is a massive part of it.

      The danger there is that the economy cannot easily gear down. We seem to be nearing the limit of how efficient computers can be with energy (though there could be some biological platform breakthrough) and, at the same time, rapidly expanding our economy to where every little is dependent on a computer and usually on a lot of other energy — cars, refrigerators, cell phones. That technology has absorbed our economy.

      With oil, you have the secondary factor that I didn’t even get into, but which you kind of allude to: US money is now oil-based, not gold-based. We Nixon took us completely off the gold standard, he put us entirely on the oil standard, creating the petrodollar. It has value as the world’s ultimate trade currency only because the main players in the world have agreed to pay for oil in dollars, making dollars something of very high demand because they are needed by every nation, but their value has to be maintained by both need (need for oil) and credibility (security of the value). That need forces and soaks up the creation of lots of petrodollars.

      The price wars in oil, the political tensions with the US and the cracking up of national economies have contributed to a desire by some nations to end petrodollars. At the same time, other currencies have sunk in value in relation to the dollar, making oil (because it is priced in dollars), very expensive for those nations. I suppose is where you are saying the “consumer” is not able to pay the high price because the rise in value of the dollar against other currencies certainly contributes a lot to the fall in the price of oil as it has to seek a path to affordability in those nations. We’d pay the higher price here in the US; but in nations with falling currencies, it is too high. All of which increases pressure from other nations to do away with the petrodollar that shackles them by using alternatives, which they’ve begun to do.

      And, so, in the end, either oil price drops (what we’re seeing this year and the previous two years) or the dollar has to drop. I still believe those nations would pay more if they had to get the petrol, but they don’t have to for now because the Saudis and Iranians are intent upon pumping their little hearts out to sop up as much demand as possible, and Russia is rushing to stay in the game.

      We experienced the greatest century of cheap and rapid expansion because of cheap and abundant energy IN PART. We also achieved it for economic reasons that have played a bigger role — CHEAP AND EASY DEBT that would have happened even without oil; but I see your point that even the debt (here in the US) is tied to oil because we were able to finance it cheaply for a long time because of all those nations wanting to buy treasuries as a way of getting dollars to trade for oil. Buying without paying, however, would have been possible even if energy cost more. (When oil prices went way up, we just took out more debt everywhere.) Much of what we bought has no enduring quality, so we pass along debt and a world depleted of cheap energy.

      Thus, we see Bill Gates in advocating a turn toward more nuclear power. It is actually far less cheap than nearly everyone thinks. It simply as the advantage of postponing its highest cost for future generations who will pay for thousands of years to keep the waste contained and secure and deal with all leakage issues, all site clean-up issues and the expensive reactor mothballing that becomes necessary in less than a hundred years. It’s easy to keep those costs out of the equation because, “Ah, we’ll never see them. The people alive then can figure it out. Party on!”

      (I’m trying to think my way through some of this as I write because thinking of our money as being “on the oil standard,” as I call it, is new to me. Until that standard started showing cracks, I didn’t give it much thought.


      • Ping from Chris P:

        The reply was almost as good as the article. I have worked in the oil industry for 40 years, I have seen the ups and downs that come with any industry. George W pushed it hard to keep it going strong for the last part of his last term and I believe that the debt in the industry was really starting to heat up at that time. With Obama coming in, the Fed threw money heavily at the Oil companies to keep them going and for the administration they wanted high energy to help develop a new innovation in energy which as we all know is a long way off. Finally as the world economy started to sputter we say the debt hangover in the oil business come home to roost as we have seen in all of the economies around the world. Really the main point I’m trying to make is the oil business is a world economy in itself and has it’s own cycles. As with any cycle if you try to postpone it, it will be worse than if you just took the punishment. The downturns in profits for all multinational companies are way down and you see the big names laying of tens of thousands of people. I believe if you could put the article and Bill’s reply and your reply and just a dash of mine I think you could have a thesis. Thanks for the great stuff as always Dave. Good day.

        • Ping from Knave_Dave:

          I’ve thought about doing that because things get buried in the comments. I’d particularly be interested in hearing what you know about how the Fed juices the oil market. As you’ve seen, that is the main caveat I see to my prediction of $30 oil. I am certain the Fed won’t let oil prices go low enough to hurt their banks; and they solely control the petrodollar. I know, of course, that the Fed’s free money went to oil companies in the form of loans, but what I am wondering is if you have any knowledge of them directly meddling in the oil market.

          At whatever point oil becomes a serious threat to their member banks, they’ll intervene in that market. We have their own confessions that they deliberately juiced the stock market, so there is no reason to think they will not do the same in the global oil market.

          If you have any more insights into what the banks have done or are doing or any good links on peak oil, etc., please send them to me at postmaster at, and I’ll see if I can thread together an article on this. Likewise, with Bill.


          • Ping from Chris P:

            I wish I had some inside information that would give you a smoking gun but I don’t. I have seen for the last 15 to 20 years companies that really didn’t provide any production but were the debt laden babies spawned by the fed. Most of them are small names not recognized by the average joe but with the stock market and easy money they have bloomed up across the world in different sectors of the economy. To give the best example of one not in the energy sector is Deutche Bank, how could it have ever been possible for a company to have 50-70 trillion of junk hanging over their head and earnings crash through the basement by 98% but yet their stock price valuation represents a large cap company. We see that all over the world where finally the music has stopped and there are a bunch of companies trying to keep the music playing by getting more debt. I guess to keep from rambling when the debt bubble does fail like we all know it will then we will see true price discovery again. At that time I believe you will see oil under $10. If we look back to 1986 you can see then it went below $10 then, I believe that will be kind of pricey since we have a lot to reset in our inflated world. Most people don’t realize how cheap it is to extract oil. The most expensive thing is to find it, so if you can find it you are making billions by just pulling it out of the ground and selling it.

            Hope your day is blessed Dave

            • Ping from Knave_Dave:

              A good description of what I call the “zombie economy” — big corporations and governments that are just the walking dead. They may be big, but they may be dead, even though they’re still moving. The big caveat, of course, for both my prediction on crude oil prices and your, as one closer to the scene, is that the Fed will intervene in the market, rather than let banks collapse. I would love to see an insider come forward with stories of exactly how the Fed is bailing out the oil industry.

              There are no major free markets left in the world. Central banks now seek to manage all aspects of the economy by influencing purchase of bonds, issuance of credit, creation of money to save any market from falling that will crush its member banks. Since the actions of the Fed are completely cloaked by congressional law, it will take a brave soul to factually reveal anything that is going on behind the scenes. They’d have the weight of the full Obama administration against them.


            • Ping from Bill Sodomsky:

              Hi Dave,

              I attempted to send you a personal note as a follow up to your request for additional information on the topic. I don’t know where to get the proper contact specifics. I have saved the information in my email account but require an address from which I can send it to. I tried postmaster@the and it wouldn’t send. Please advise.

            • Ping from Knave_Dave:

              It should have. I see in this reply, you have a space between “the” and “great.” I wonder if you had the same space when you tried sending.

            • Ping from Ruy:

              It’s in Spanish but here is your evidence:
              It says that the Spanish Central Bank, with the acknowledgement of the ECB is buying corporate bonds of several large Spanish companies, one of them being REPSOL, our local oil major!
              Better than bailing out, just lending at no cost for them!

            • Ping from Knave_Dave:

              Thanks for the evidence. Since it is happening there, it is nearly certain to be happening in other nations, too.

              And welcome to the blog, Ruy.

        • Ping from steve jones:

          Here here! I always follow up with the comments section on this blog, generally they all very good, and getting more insights from Dave through his replies is priceless.

      • Ping from Donald Sergent:

        Uh, Dave, at last check, we were still importing 43% of our crude consumption

        • Ping from Knave_Dave:

          Yes, but we’re also exporting. Because oil’s a global market, companies buy wherever they get the best deal for their particular needs (payment schedule, delivery dates, costs/incentives, etc.). So, even if we produce all the oil we need, we’ll still import some while we export some.

          The link you provide gives some interesting data that you don’t here generally in the media when we read reports of US self-sufficiency now in oil. While it gives some additional insight, I have to disagree with the last part of the following conclusion a little:

          “The US became net product exporter in 2011, growing to 2.1 mb/d of net product exports in 2015.”

          That’s the part I’m talking about. We are a NET exporter of oil products. (Exporting crude, as you point out is a new market, recently opened by congress.) Where I disagree is with this statement:

          “However, imports and exports are totally different and cannot be swapped or offset against each other. Blending components for example are needed for the production of gasoline and are therefore a necessary refinery input. Thus, the product import dependency is still 800 kb/d”

          It’s said in the sense that we are still dependent upon importing 0.8 million barrels of crude per day in order to maintain our product exports; therefore, the author concludes we are not self-sufficient. However, when people talk about self-sufficient, they mean in terms of our own oil needs for use here in the country. Yes, we are self-sufficient. HOWEVER, if we want to make money by exporting 2.1 MILLION barrels of petroleum PRODUCTS per day, then, yes, we have to import 0.8 million barrels of crude per day to keep meeting that market. All that means is we do not produce enough crude to service the enormous external markets for petroleum products that we have begun to server in recent years (such as selling gasoline and diesel to central and south America). However, we produce more than enough crude to handle of our domestic fuel needs.

          That, at least, is how I understand the equation.

          Obviously, the more we improve sales of products outside the country, the more we will need to import crude to manufacture those products, but it all has nothing to do with our own nation’s needs — just opportunity to make money supplying the needs of other nations.


          • Ping from Donald Sergent:

            per the EIA: US Crude consumption in 2015 averaged 19.4 MBD vs production of 9.431 MBD
            so something is off

            • Ping from Knave_Dave:

              Whether the US is a net importer or net exporter of petroleum is too complex to really figure out because of the many ways petroleum changes form. If one stays with the data provided in your first link, the US produces 9.3 million barrels of crude per day and imports another 7.1 million barrels per day while exporting 0.5 million barrels per day. (According to the first and second charts.) Total number of barrels that the US processes through each day is, thus, 16.4 million whether it goes out as crude or as a petroleum byproduct. We have no idea at this point in the argument how much of that crude goes into petroleum products the US consumes versus how much of it goes into petroleum products that the US makes for other nations because we are a major petroleum product exporter. We just know that is how much crude, all told, the US imports and pumps.

              The next chart says that the US imports 43% of all the oil that it uses (but that is for all petroleum products, including the large amount of product that it sells outside of the country). From that simple point, that site then states “clearly this is not virtually self-sufficient in crude oil.” But, at that point in the development of the argument, that is an unsupported statement because the writer has not yet shown how much of that crude goes into petroleum products (gasoline, diesel, etc.) that the US does not need or use but rather sells to help other nations out with their petroleum-based needs. (Sells for money as its own objective, of course, but from the other nations’ perspective it is filling THEIR oil needs, not ours). We are, in other words, not dependent on most of that; others are. We benefit from the trade, of course.

              Then we come to to figure 4 that you reference for the EIA data. It simply shows the same information, but stacks imported crude oil on top of domestically produced crude oil. Total oil taken in and used by US refineries is, as stated above, about 16.4 million barrels a day. But the question remains, how much of that goes toward domestic consumption and how much goes back out of the country to other nations in the form of gasoline, diesel, jet fuel, etc.

              I’m not sure where you get the numbers for your last statement, though, as they don’t appear in the information you linked to. I’m guessing just a misprint, as the total in the figures that are given on that site from the EIA are 16.4 million barrels, and you have 19.4. The 16.4 is not for US crude “consumption,” per se, in that much of it ships back OUT of the country as refined product or as crude oil. It’s end use is not consumption here in the US.

              We are making huge amounts of product for other nations that don’t have sufficient refinery capacity to produce products for their own consumption (in some cases) or that simply buy from us from time to time to meet peak needs or because our price is better or whatever. In other words, a lot of crude oil gets imported from Mexico in order to be refined into gasoline that goes right back TO Mexico. It is not for our own consumption. Likewise, a lot of crude gets imported from Canada in order to be refined here and then gets exported back to Canada as gasoline or diesel for Canadian consumption. We’re just doing the refining for them. Thus, not all the oil we take in is consumed by us, even at the basic petroleum products level.

              Next step in the argument is to look at petroleum products where I made a mistake above. The US imports about 2.1 million barrels of petroleum product per day (figure 8) and exports about 4,25 million barrels of product per day (figures 9-11), which gives a net trade balance in refined products of about 2.15 million barrels of product per day going out of the country. We export twice as much finished product as what we take in. As noted in the article, the products taken in are not necessarily the same products that are going out. We may take in additives used to make fuel and, on the other hand, export coke. (Some of what we import is also coke.) They dismissively call that a waste product; but it’s all petroleum by-product that gets sold and used. Likewise, we may be importing finished lubricants for our use and exporting gasoline for other nations’ use, but the total off all of that is a net output of BASIC petroleum products going to other nations that is twice what we take in from other nations.

              Next, they have what appears to be their own mistake where they say “total product exports of 2.8 mb/d” when their own graphs consistently show total product exports of 4,250 mb/d. So, not sure what is up with that.

              As I parse the numbers given more carefully, it looks like we import 7.1 million barrels of crude oil per day plus 2.1 million barrels of petroleum products for total imports of 9.2 million in petroleum in some form. We then export 4.25 million in finished products and another 0.5 million in crude. So, that would appear to leave us exporting about 4.25 million less than what we take in, which should seem to make us still a net consumer. (That’s, if every basic petroleum product is being accounted for here, as I don’t see any gases accounted for, but maybe they are lumped under “other,” however “other” disappears entirely from exports on the graphs in the last couple of years, and gases that are byproducts of petroleum distillation don’t disappear. The charts seem to focus only on liquid products and coke.

              It’s easy to see there is a lot of room for playing with the numbers in terms of whether one considers us a net importer or net exporter of crude oil and petroleum products. How far does one go in breaking things down? The charts don’t tell anywhere near the full story because we have no way of knowing from the information provided how many products derived from oil wind up getting shipped out of the country and consumed in other countries as primary ingredients that form other products that ship out of the country, such as plastic that goes out of the country in raw form, fertilizers that go out of the country, dry chemicals that go out of the country, tires that go out of the country that are partially or entirely petroleum based. We’re only looking at what goes out of the country from refineries. Still, lets consider all of that “our consumption,” even though it is for products we export, as our economy is support by it, even though it is used by others.

              Then you have products made from those basic products such as cars that have a lot of plastic in them that get shipped out. Food that used the fertilizer that gets shipped out. My only reason for bringing those things up is that lot that is negatively said about US consumption is intended to make the US sound like a greedy consumer when so much of what we “consume” is really what we “CREATE” from oil that goes out to other nations for their consumption. As if that is not unquantifiable enough, there is the matter of how much oil gets turned into energy that is used to create those exported products. Some of the difference above in total petroleum imports and total exports would have to be that it takes huge amounts of petroleum energy to refine petroleum. So, some petroleum gets consumed to create energy to create the basic petroleum products that refineries ship out. I.e., you may take in 3 million barrels of crude and ship out 2.5 million barrels of gasoline, but that may be all that is left of the 3 million barrels after you create the energy needed to refine it and to transport it.

              My only point in bringing all that other massive amount of stuff into the equation is to say that often the US is degraded as being a greedy hog that eats up most of the world’s oil, and everyone forgets that it is “consuming” much of that oil to grow food for the rest of the world, ship fertilizers to the rest of world, send plastic products to the rest of the world. So, is it any wonder that we consume more petroleum than we export when we have to keep so much of it here in order to create those other products?

              Nevertheless, it appears from the info provided that we are taking in more crude and refinery products than we are exporting of the same; but some of that is loss from waste and energy used in making and transporting even those basic petroleum products for others to consume, which we wouldn’t have if we refined only for our own direct consumption.

              End of the day, we still appear to be at peak oil in that the oil we get takes more and more energy (cost) to get it out of the ground.

          • Ping from Donald Sergent:

            net product exports refers to refined product balance

            going back to the referenced article fig.4 the total as provided by the EIA total consumption is about 7 MBD HIGHER than domestic production

      • Ping from Donald Sergent:

        now, congress DID lift the crude export ban, but didn’t that have a lot to do with the new oil from the shale patch not being what the majority of our refineries were geared for?

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