Brent Crude price
Posted by WARREN MOSLER on August 7th, 2012
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August 7th, 2012 at 11:15 am
If your theory about the Sauds controlling oil prices is correct, then I’d say they’re not trying to help the prez get reelected, as they normally would do. Maybe they don’t see the election making a difference, or maybe they prefer Romney ?
Or the Sauds may be struggling with local issues related to internal protests and Syria.
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WARREN MOSLER Reply:
August 7th, 2012 at 11:23 am
right, could be anything. they may not even have any excess capacity left and hence no way keep a lid on prices
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sdvan Reply:
August 7th, 2012 at 4:42 pm
@WARREN MOSLER, we have sent our whole navy over there. Why keep the princes in power if they don’t keep the oil flowing? Tony Perkins economic hitman reaching for his sniper rifle.
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Ed Rombach Reply:
August 7th, 2012 at 11:43 am
@Dan Lynch,
Don’t forget that war drums and economic sanctions leveled at Iran are also fueling the bid to oil and Obama and Romney are on the same page on this issue.
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WARREN MOSLER Reply:
August 7th, 2012 at 11:49 am
or, they lowered price, insiders covered shorts, then they hiked price
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RyanVMarkov Reply:
August 7th, 2012 at 12:17 pm
@WARREN MOSLER,
Isn’t this illegal inside trading?
y Reply:
August 11th, 2012 at 5:38 pm
illegal in saudi arabia, you mean?
LetsGetItDone Reply:
August 7th, 2012 at 1:05 pm
@Ed Rombach, Doesn’t matter for the election. If prices go up, O gets blamed. If they go down, he gets the credit. So, he ought to do whatever he can to constrain speculation and stop it from driving prices up further.
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Ed Rombach Reply:
August 9th, 2012 at 10:08 am
@LetsGetItDone,
As Commander in Chief, the biggest thing President Obama can do to constrain speculators from driving up the price of oil is to tone down his own war rhetoric and take the war drums away from the restless neo-con natives.
amanda knox Reply:
August 9th, 2012 at 10:38 am
@LetsGetItDone, o has to trick some of his supporters. After he wins election he is going to make this country proud! Healthcare and housing for poor. More tax on offshore rich. Alt energy investment. Jobs to build high speed trainsand repair bridges. New drone technology to secure oil and water resources for America!
Ivan Reply:
August 12th, 2012 at 4:51 pm
@LetsGetItDone, Interesting the desire to constrain speculation when it contributes to higher prices, but no desire to constrain speculation when it leads to lower prices. Without speculators, producers can’t hedge.
August 7th, 2012 at 11:57 am
Looks like it lines up pretty well with the “JPM inspired sell-off” earlier this year…. looks like on it’s way back up over $100 rsp,
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August 7th, 2012 at 1:17 pm
Warren:
Unrelated question:
I understand that when people pay taxes with old $20 bills, the bills are shredded. When taxes are paid with crisp $100′s, those bills are not shredded. What is the process for the bills finding their way back into circulation?
Question 2: The govt spends first, taxes 2nd, and “borrows” 3rd. Net net, they are in balance. To the extent that there is currency in circulation, are we not out of balance? What is the accounting for cash to get back into balance so that the Treasury isn’t running an overdraft at the Fed?
Thanks
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y Reply:
August 11th, 2012 at 5:40 pm
Banks swap reserves for cash with the central bank. It has nothing to do with the Treasury.
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Ivan Reply:
August 12th, 2012 at 4:46 pm
@y,
Doesn’t it indirectly in that aggregate spending, less aggregate tax, less Treasury debt equals zero? Reserves are ultimately the balances available for buying treasuries. If reserves are exchanged for currency, isn’t there an insufficient amount of reserves, and thus Treasuries, to balance the books?
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y Reply:
August 12th, 2012 at 5:30 pm
no. If a bank is short of reserves it borrows them or sells treasuries.
y Reply:
August 12th, 2012 at 5:31 pm
or it tries to attract deposits
Ivan Reply:
August 13th, 2012 at 3:11 pm
@Ivan, I think you’re just reshuffling the deck with no real change. The Fed buys treasuries from the private sector to move cash into circulation and everything remains in balance. It has to be a private sector/public sector transaction. It can’t be private/private or public/public.
August 7th, 2012 at 4:36 pm
Prince alaweed probably came here and read u warren then said damn the election cycle. Exports are a cost. Frak!!
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August 7th, 2012 at 7:44 pm
I don’t think there’s any doubt that Saudi Arabia is not autonomous( just ask prince Bandar). It is certainly controlled by the U.S. reliant on it’s “security deals”. Certain personal in Obama’s policy making clique think that the dollar needs “saving”. Oil is priced internationally in dollars. High oil = demand for dollars. Like most they bought into the “worthless dollar” propaganda and think they’re saving the dollar.
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walter Reply:
August 8th, 2012 at 4:35 pm
@steve m, I thought the relation was more: high oil + US a major net oil importer => makes dollar easier to get overseas and thus weaker dollar against other currencies.
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steve m Reply:
August 8th, 2012 at 9:04 pm
@walter,
except those dollars all come back to the U.S. Recycled through “sovereign funds” of monarch/dictator type countries. Buying bonds and outdated military equipment.
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August 8th, 2012 at 9:58 am
speaking of illegal manipulation; isn’t the following called fraud in other settings?
“moral suasion,” or the art of talking the markets up without actually doing anything, a practice that the Fed uses when it has few other choices.
(they can get in line behind Congresspeople?)
http://www.investorplace.com/2012/08/daily-stock-market-news-is-the-fed-trying-to-pull-one-over-on-investors/
“a comment by the non-voting president of the Boston Fed that the committee should embark on an aggressive bond-buying program, which would inject more cash into the system. ”
You’re kidding. That’s a regional Fed pres talking?
So frustrating. Maybe we should sue the entire gov for libel? Or have them committed?
Can someone send the Boston Fed pres a copy of the article MRW dredged up?
http://archive.org/details/NationalEconomyAndTheBankingSystemOfTheUnitedStates
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August 8th, 2012 at 4:58 pm
And somehow that spread between WTI and Brent is widening again. How to explain that?
We had a few days (better: moments) that it came down strongly, but we are now wider than before the announcement of the US pipeline reversal plan (Apr 17th with pipeline scheduled for June 1).
For 2 months out it was then something around $15 and today over $18.
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WARREN MOSLER Reply:
August 9th, 2012 at 6:53 am
note the backwardation in Brent due to near term supply issues/field shutdown schedule/etc.
so look at the spread a few months forward, thanks
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walter Reply:
August 9th, 2012 at 6:38 pm
@WARREN MOSLER, I meant, the spread 2 months forward was then (Apr) around 15$ and now $18. (looks like you misunderstood my phrase)
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August 9th, 2012 at 2:58 am
There are temporary constraints on Brent crude oil supply; this may be contributing to the widening spread between WTI and Brent. In my opinion the spread cannot rise much above $20 however because even inefficient physical arbitrage starts to become lucrative at such levels.
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http://www.calgaryherald.com/business/Buzzard+North+field+that+sets+world+price+Kemp/7059263/story.html
“Most scheduled maintenance and unforeseen production problems occur at field rather than system level. Because so much of Forties now comes from a single field, it has become much more sensitive than before to supply interruptions.
In September, planned maintenance will shut the field entirely. Buzzard’s contribution to Forties will fall to zero, slashing total output of the stream, and eliminating a key part of the benchmark entirely.
For the last couple of years, Buzzard’s production profile has therefore exercised a disproportionate impact on global oil prices.”
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http://in.reuters.com/article/2012/08/06/us-north-sea-oil-idINBRE8750E920120806
“Signs mount of North Sea oil supply drop in September
(Reuters) – Output from the North Sea’s second-largest crude oil stream is set to fall sharply in September, adding to signs of reduced supply from the home of the Brent benchmark used to price around two thirds of the world’s oil.”
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Saudi continues to have much less spare capacity than they pretend. They will not produce much more than 10 mbpd except in the event of acute physical shortages. Any Saudi production capacity above 10.5 mbpd is fictional spare capacity under normal circumstances.
The Iranian / Syrian tensions are not lessening. Sanctions continue tightening, and less Iranian oil is reaching the world market. The perception of ongoing geopolitical risk is helping pull the crude price back to a trading range, from the temporarily depressed levels of several weeks ago.
Global economic growth remains anemic and thus global crude oil demand growth remains anemic. Increasing tight oil production is offsetting declines in conventional crude production, leaving the demand on OPEC flat. Q3 and Q4 will be tight in terms of supply / demand balance, but absent increased growth, the world will probably escape a supply crisis / price spike this year. (Only because demand is not rising, not because of any meaningful supply cushion.)
The moment Europe works through its issues and economic growth finally accelerates, then the combination of unresolved geopolitical issues, prolonged negative real interest rates, ongoing central bank accommodation and lack of spare capacity / supply elasticity almost requires another oil supply crisis crude and speculative crude oil price spike.
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sdvan Reply:
August 9th, 2012 at 7:45 am
@scarmani, http://www.zerohedge.com/news/rosenberg-pending-trade-shock-and-q4s-0-gdp-growth
The negative trade shock will save Iran from ww3 just in time
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August 9th, 2012 at 3:50 am
it is called “Peak oil” and it will get worser and worser each year,
every year there is less and less oil left,
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ESM Reply:
August 9th, 2012 at 9:13 am
@DrDoom,
If by “oil left” you mean “recoverable oil”, then your statement is false.
In any case, case fossil fuels can satisfy our energy needs for the next 100 years, at least. Hopefully (and likely, given the accelerating pace of technological advance) by then, we will have developed new sources of energy and be well on our way to becoming a Type 1 Kardashev civilization. We’ve already got a Type 1 Kardashian civilization.
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sdvan Reply:
August 9th, 2012 at 9:35 am
R@ESM, nouriel roubini here with us! Awesome. I never knew it was OK Simpsons lawyer that spawned our modern civilization. I loved him in naked gun 22 1\2. All my ocean scientist friends at colleges in the gulf of Mexico assure me there is still lots of deep water oil to extract Dr. Roubini!
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Tom Hickey Reply:
August 9th, 2012 at 12:08 pm
@ESM,
We’ve already got a Type 1 Kardashian civilization.
ROFL
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