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16 January 2016

Press review 16-01-2016 - The bottomless well

Five weeks ago I titled the review "Under 40 hangover", and here we are now at 29 $/b. Since the beginning of this year petroleum prices fell 25%, a fourth in just two weeks. The petroleum market resembles a bottomless well, the black stuff keeps flowing and prices seem to have lost all support. The press ignites with all kinds of dire forecasts, prices are going under 20 $/b, under 10 $/b, even negative prices are now possible. No one has yet predicted Brent to become an imaginary number, but it should happen soon.

As usual, one has to pierce through the barrage of sound-bites produced by the media to get a better sense of what is going on. Even though there are already some signs of declining petroleum extraction in North America, in general, the financial system keeps supporting the petroleum industry. Banks and investment funds fear more a sudden collapse of the energy tied bond market than the losses of selling petroleum below cost. The question is if by delaying the reckoning day, the financial industry is not creating an even worse problem?

CNBC
Oil credit crunch could be worse than the housing crisis
Mark Harrington, 14-01-2016

Oil and gas companies borrowed heavily when oil prices were soaring above $70 a barrel. But in the past 24 months, they've seen their values and cash flows erode ferociously as oil prices plunge — and that's made it hard for some to pay back that debt.

This could lead to a massive credit crunch like the one we saw in 2008. With our economy just getting back on its feet from the global 2008 financial crisis, timing could not be worse, especially in an election year. It makes you wonder: How could this happen again? Quite easily, as it turns out.

[...] Here are a few more gauges of the crisis to come: Since 2006, an additional $1 trillion of capital expenditures by just 59 companies has been spent on shale drilling and operations, according to oil-and-gas industry site OilPro.com. And another $1 trillion of energy-bond debt has gone on the books, according to the Bank for International Settlements. Energy-company bonds will sell off and create a pall of risk avoidance across all industries.
This strategy of supporting the petroleum industry can not go on forever, at some point banks themselves become at risk. Impairments related to petroleum and gas are already producing visible figures in the account books of some of the largest banks in the US. The reckoning day may not be that far off, these banks are closing on the point were the regulatory framework itself forces them to pull the carpet on the petroleum industry.
Financial Times
Big US banks reveal oil price damage
Ben McLannahan and Alistair Gray, 15-01-2016

Three of the biggest US banks revealed the damage wrought by a plunging oil price this week, disclosing big jumps in costs for bad energy loans and fears of contagion in other portfolios.

Citigroup, the fourth biggest by assets, said on Friday morning that it had recorded a 32 per cent rise in non-performing corporate loans in the fourth quarter from the previous year, mainly related to its North American energy book. Wells Fargo, the number three by assets, said net charges came to $831m in the period, up from $731m in the third, mainly due to oil and gas.

A day earlier JPMorgan Chase, the number one, said it was “watching closely” for spillover effects. If oil stayed around present levels of $30 a barrel, it said would be forced to add up to $750m to reserves this year — which is roughly one-third of the benefit it expects from higher net interest income.
This depressed petroleum price is also starting to show in consumption data. Particularly in China, where motorisation per capita is still considerably smaller than in the West, the hike in consumption is quite visible. China's petroleum consumption crossed over 11 Mb/d in 2015 and should get very close to 12 Mb/d by the end of 2016. Reader Dave Thomas notes that the past few months there have been various alternative media outlets contesting these figures. However, such claims are invariably put forth without evidence.
Financial Times
China commodity imports jump in December
Henry Sanderson, 13-01-2016

China imported a near record amount of commodities last month as prices for raw materials weakened to their lowest levels since the financial crisis.

Data released on Wednesday showed oil imports rose 9.3 per cent in December to the highest level, while copper imports increased 9.3 per cent to the second highest.

The data helped ease broader market concerns about the extent of the slowdown in China, which have pushed commodity prices to their lowest levels since the 1990s and led to one of the worst starts to the year for US stock markets.
Authur Berman conceded a long interview to Chris Martenson on the petroleum market worthy every bit. Authur is one of the most well informed people on petroleum production in the US.



Returning now the subject that opened last week's review, some important details have just emerged on the overthrowing and execution of Muhamar Kahdafi. None of this is entirelly surprising, but seeing it written down in real documents is one more reminder of how mainstream media are many times simply propaganda media.
Levant Report
New Hillary Emails Reveal Propaganda, Executions, Coveting Libyan Oil and Gold
Brad Hoff, 04-01-2016

The New Year’s Eve release of over 3000 new Hillary Clinton emails from the State Department has CNN abuzz over gossipy text messages, the “who gets to ride with Hillary” selection process set up by her staff, and how a “cute” Hillary photo fared on Facebook.

But historians of the 2011 NATO war in Libya will be sure to notice a few of the truly explosive confirmations contained in the new emails: admissions of rebel war crimes, special ops trainers inside Libya from nearly the start of protests, Al Qaeda embedded in the U.S. backed opposition, Western nations jockeying for access to Libyan oil, the nefarious origins of the absurd Viagra mass rape claim, and concern over Gaddafi’s gold and silver reserves threatening European currency.

[...] Though the French-proposed U.N. Security Council Resolution 1973 claimed the no-fly zone implemented over Libya was to protect civilians, an April 2011 email sent to Hillary with the subject line “France’s client and Qaddafi’s gold” tells of less noble ambitions.

The email identifies French President Nicholas Sarkozy as leading the attack on Libya with five specific purposes in mind: to obtain Libyan oil, ensure French influence in the region, increase Sarkozy’s reputation domestically, assert French military power, and to prevent Gaddafi’s influence in what is considered “Francophone Africa.”
And here is more insight on the way Daesh is operating in Libya, in essence trying to mimic the logistic and economic footholds it created in Iraq and Syria. This all encompassing war philosophy is possibly what is prompting a terrestrial intervention from Europe.
International Business Times
ISIS Moving In On Libya’s Oil Fields, Recruiting Engineers To Boost Revenue
Alessandria Masi, 15-01-2016

At least 47 people were killed, and dozens injured, in a truck bomb at a police training center in western Libya on Thursday. Aamaq, a media organization linked to the Islamic State group, said the militant organization was behind the“martyrdom operation” although the group has yet to claim responsibility. The attack comes days after ISIS launched its first operation on Es-Sidra, Libya's largest oil export port and took control of the surrounding region. But the biggest sign that the group is after Libya’s oil is a new document obtained by International Business Times, which reveals the terrorist organization is recruiting oil and gas engineers to work in Libya — the very same jobs that Mneina and his colleagues have been desperately searching for.

[...] The terrorist group has been active in Libya since last October, declaring three "wilayats," or states, within the country. ISIS has also begun governing by Shariah law in some areas, carrying out executions and arrests. Its three self-declared states are connected under one leader and coordinate their operations, according to a report from the Institute for the Study of War. However, each has its own media, military, training and recruitment operations.

The recent attack on Libya’s oil has all the hallmarks of ISIS’ strategy in the early stages of its rise in Iraq and Syria where, last month, the U.S. claimed that the international coalition’s airstrikes had succeeded in destroying 90 percent of ISIS’ oil export capacity — cutting off a major source of the group’s funding. Experts believe ISIS leadership in Syria planned the Sirte operation for months before executing the string of attacks on oil facilities.
Another gentle admission of a terrestrial operation in the making. Naturally, there is nothing even loosely resembling "Libyan armed forces" at this moment, and such thing will not emerge "within months".
DefenseNews
Report: Germany Mulls Sending 100 Troops to Train Libyan Army
09-01-2016

Germany is considering sending more than 100 troops to train the armed forces of Libya, which is in turmoil due to rival political administrations and Islamic State jihadist attacks, Der Spiegel magazine reported Saturday.

"According to internal (government) plans German soldiers could, along with Italian colleagues, within months begin training the Libyan armed forces," the news magazine said.

"This would involve 150-200 Bundeswehr (German armed forces) troops," Der Spiegel added. There was no comment from the defense ministry.
Vladimir Putin conceded a long interview to the German tabloid Bild, that was translated to English and published in two parts. It is interesting to see how all the gimmicks put up by European and American leaders to deride Russia have only bolstered Putin. His pragmatism in this interview is striking, especially when compared with the political correctness and uncompromising posture of modern European leaders.
Bild
"For me, it is not borders that matter" - Putin, the interview part I
Nikolaus Blome, Kai Diekmann and Daniel Biskup, 11-01-2016

BILD: Mr President, 25 years ago, we celebrated the end of the Cold War. Now we have just had a year of more crises and wars than ever before. What went so horribly wrong in the relationship between Russia and the West?

Vladimir Putin: That is the big question. We have done everything wrong. [...]

BILD: How difficult are the sanctions for Russia?

Putin: Concerning our possibilities on the international financial markets, the sanctions are severely harming Russia. But the biggest harm is currently caused by the decline of the prices for energy. We suffer dangerous revenue losses in our export of oil and gas, which we can partly compensate for elsewhere. But the whole thing also has a positive side: if you earn so many petrodollars – as we once did – that you can buy anything abroad, this slows down developments in your own country.

BILD: It is claimed that the Russian economy has suffered severely.

Putin: We are currently gradually stabilizing our economy. Last year, the gross domestic product had dropped by 3.8 per cent. Inflation is approximately 12.7 per cent. The trade balance, however, is still positive. For the first time in many years, we are exporting significantly more goods with a high added value, and we have more than 300 billion dollars in gold reserves. Several programs for modernizing the economy are being carried out.
At some point Putin accuses the European press of being too American-leaning in its reporting of Russian affairs. The Bild editors promptly deny such claim, but write the article in American English, and employ the schizophrenic units system used in that country. What an irony.
Bild
"We do not claim the Role of a Superpower" - Putin, the interview part II
Nikolaus Blome, Kai Diekmann and Daniel Biskup, 12-01-2016

Putin: [...] Our pilots do not bomb civil targets, except if you call the thousands of tanker trucks – virtually a living pipeline – a civil target. Those we bomb, yes, but so do the Americans and the French.

BILD: The Syrian President Assad bombs his own population and is responsible for many thousands of deaths. That is a fact. Is Assad your ally? If so, why?

Putin: That is a tricky question. I also think that President Assad has done much wrong over the course of this conflict. But the conflict would never have become so big if it had not been fueled by outside of Syria – with weapons, money, and fighters. Who is responsible for that? The Assad government, which is trying to hold the country together? Or the rebels who want to tear it apart and fight against this government?

BILD: What is Russia’s aim in the Syria conflict?

Putin: I can tell you what we do not want: we do not want Syria to end like Iraq or Libya. Look at Egypt: one has to praise President Sisi for taking over the responsibility and power in an emergency situation, in order to stabilize the country. Therefore one should try anything to support the legitimate rulers in Syria. But this does not mean that everything can just stay the same. Once the stabilization of the country has progressed, a constitutional reform has to follow, and then early presidential elections. Only the Syrian people can decide who should govern the country in the future.
So now for the brighter (not so dark?) side of things. In what electricity generation is concerned, renewable energies have clearly reached a maturity level that now allows various technologies to grow on their own merits: low cost, low environmental impact, scalability, dispense of fuel. But electricity is just one of the ways we use energy in our daily life.
Fortune
Clean Energy Got a Record $330 Billion in Investment Last Year
Katie Fehrenbacher , 14-01-2016

Despite the plunge in oil prices, investors and governments around the world put $330 billion into clean energy last year including solar farms and wind projects built on both land and sea, according to a new report.

The huge funding, as calculated by Bloomberg New Energy Finance, highlights the global shift by many countries to shift to cleaner energy and away from certain fossil fuels like coal.

The bulk of that funding (about $200 billion) went to industrial-sized projects that provide clean power to utilities. For example, power companies, banks, governments and other private investors funded a handful of large offshore wind farms off the coasts of England, China, and Germany last year. Investors also funded a big solar panel project in the U.S. Southwest and a large geothermal project in Turkey.
The past few weeks there has been a great deal of discussion on the web about the actual share of Linux in the world of computers. Unlike commercial operating systems, Linux does not force users to register with, and be tracked by, a vending company. Therefore, the amount of systems running today on Linux is actually unknown. However, adoption trends of Linux distribution like Ubuntu point to a far wider usership than the media usually states.
betanews
AT&T chooses Ubuntu Linux instead of Microsoft Windows
Brian Fagioli, 15-01-2016

While Linux's share of the desktop pie is still virtually nonexistent, it owns two arguably more important markets -- servers and smartphones. As PC sales decline dramatically, Android phones are continually a runaway market share leader. In other words, fewer people are buying Windows computers -- and likely spending less time using them -- while everyone and their mother are glued to their phones. And those phones are most likely powered by the Linux kernel.

Speaking of smartphones, one of the largest cellular providers is the venerable AT&T. While it sells many Linux-powered Android devices, it is now embracing the open source kernel in a new way. You see, the company has partnered with Canonical to utilize Ubuntu for cloud, network, and enterprise applications. That's right, AT&T did not choose Microsoft's Windows when exploring options. Canonical will provide continued engineering support too.
Have a pleasant weekend.