Here in Israel, the world sort of floats in limbo over the Pesach week; and so I thought that perhaps I would not post until the holiday was over. But life does go on, and I’ve decided to write.
But before I move to the serious matters calling for attention, let me share this lighthearted video for Pesach, done by the students of the Technion (a top notch university – Israel Institute of Technology) in Haifa, specifically for Pesach:
Then, moving on, and hoping your spirits have been lifted…
I’m seeing a huge number of commentaries regarding the Iran situation, and obviously cannot share any significant portion of them.
Actually, what I am finding most interesting is the way in which Obama is walking back several of his positions of last week. This is, of course, in response to severe criticism that has been directed at the framework agreement with Iran and at his hard-nosed attitude. I will come back to this.
Whatever my other disagreements and disappointments with Bibi Netanyahu, I continue to salute him for speaking out on the Iran issue. There are those (writing in some of those commentaries) who think he’s wasting his breath because no one is listening. I disagree. He has affected the dialogue on Iran and modeled a forthright approach.
Yesterday, Bibi asked some particularly pertinent questions (the deal is so full of holes there are always more questions):
“Why doesn’t the framework address Iran’s intercontinental ballistic missile program whose sole purpose is to carry nuclear payloads?” (Emphasis added)
And…”What is to stop Iran from using the over one hundred billion dollars that will be unfrozen as part of this agreement to fund aggression and terror in Iraq, Syria, Lebanon, Yemen and elsewhere?”
Hmm…That first question is particularly pertinent, as Iran aims to develop intercontinental ballistic missiles that reach the US.
Joining Bibi in his forthright approach have been members of his government, such as Yuval Steinitz.
And I am pleased that Israel is is not alone in criticizing the agreement.
There are Arab nations highly critical of Obama, although their criticisms are less direct than Israel’s. See Khaled Abu Toameh’s piece on this:
“Arab leaders and heads of state were polite enough not to voice public criticism of the agreement when President Barack Obama phoned them to inform them about it. But this has not stopped Arab politicians, political analysts and columnists reflecting government thinking in the Arab world from lashing out at what they describe as ‘Obama’s bad and dangerous deal with Iran.’”
Most significantly, there are key members of Congress speaking out.
Right after the framework deal was announced, Senator Mark Kirk (R-IL) blasted it in no uncertain terms (emphasis added):
”Neville Chamberlain got a lot of more out of Hitler than Wendy Sherman [State Department negotiator] got out of Iran,” he declared.
There’s nothing for Iranians to do but go at breakneck speed to a nuclear weapon. We’re moving straight to forcing Israel to clean up this mess … when the West does nothing, Israel over and over has done something….we shouldn’t force our best ally in the region to clean up the mess.”
A man who pulls no punches.
On April 14, the Senate Foreign Relations Committee will be voting on the Iran Nuclear Agreement Review Act of 2015, which would require the Obama administration to submit the final nuclear deal with Iran to Congress for review and approval.
Committee Chair, Senator Bob Corker (R-Tenn.) said on Sunday that ”it’s very important that Congress is in the middle of this, understanding, teasing out, asking those important questions.”
Then on Monday, Senate majority leader Mitch McConnell stated that:
“We cannot forget that Iran is pursuing a full-spectrum campaign to expand its sphere of influence in the greater Middle East.
“The administration needs to explain to the Congress and the American people why an interim agreement should result in reduced pressure on the world’s leading state sponsor of terror.”
It is a matter of certainty that Obama will veto this bill, and so 67 votes supporting it are needed to override that veto. Senator Corker has indicated that there are already 65 who will be voting in favor. Two more votes are necessary.
And so, please! contact your Senator without delay. If you are certain that he or she will be voting for this bill, offer thanks and express your understanding of how important this is. If you are in doubt as to whether your Senator will be supporting the bill, urge that he or she do so. Say it is a matter of critical importance, and that you will be watching.
Now, as to the Obama walkback: nothing is more astonishing (and disingenuous!) than his new, improved stance on Israel. In an interview with Tom Friedman on Sunday, he declared that:
“It’s been a hard period. It has been personally difficult for me to hear” accusations that “this administration has not done everything it could to look out for Israel’s interest…if anybody messes with Israel, America will be there.”
This is best read on an empty stomach. What would be personally difficult for most of us would be to swallow this self-serving drivel. But I imagine that, unfortunately, there are some who will buy it.
Obama now feels so kindly disposed to Bibi that he is planning on inviting him to the White House after the coalition is formed.
Yes, this is the same Obama who refused to see Bibi when he came to address the Congress.
Elliot Abrams, Former US Deputy National Security Adviser, has penned a potent response to Obama’s hot air assurances to Israel (emphasis added):
“Several times in this interview the President went out of his way to suggest that he fully understands Israel’s security problems, but the full text suggests that he does not–because he believes that his statements that ‘if anybody messes with Israel, America will be there’ and would ‘stand by them’ actually solve any of those problems…
“What does ‘messes with Israel’ mean? No one has the slightest idea. The President unfortunately uses this kind of diction too often, dumbing down his rhetoric for some reason and leaving listeners confused. Today, Iran is sending arms and money to Hamas in Gaza, and has done so for years. Is that ‘messing with Israel?…Iranian Revolutionary Guards, along with Hezbollah troops, are in southern Syria now near the Golan. Is that ‘messing with Israel?’ And what does the President mean by ‘America will be there?’ With arms? With bandages? With the diplomatic protection his administration is now considering removing at the United Nations?”
At some level, Bibi has little choice but to accept this new approach at face value – i.e., he will have to go to the White House. It falls to him to spin it so that it is of maximum utility to Israel – perhaps extracting certain military guarantees. Unfortunately, the “two state” solution is likely to be at the top of Obama’s agenda when they meet. (And in coming days I’ll have much to say about that issue, which never dies.)
One of the most convoluted statements that has been offered by Obama on the benefits of the deal is this, from an NPR interview:
It is, he said “a relevant fear” that “in year 13, 14, 15, [the Iranians] would have advanced centrifuges that enrich uranium fairly rapidly, and at that point the breakout times would have shrunk almost down to zero.
“Keep in mind, though, currently, the breakout times are only about two to three months by our intelligence estimates. So essentially we’re purchasing for 13, 14, 15 years assurances that the breakout is at least a year…that if they decide to break the deal, kick out all the inspectors, break the seals and go for a bomb, we’d have over a year to respond. And we have those assurances for at least well over a decade.
“And then in years 13 and 14, it is possible that those breakout times would have been much shorter, but at that point we have much better ideas about what it is that their program involves. We have much more insight into their capabilities. And the option of a future president to take action if in fact they try to obtain a nuclear weapon is undiminished.”
Immediate and vociferous criticism followed this statement: The president, went the charge, has now admitted that the deal would not stop Iran from every getting a nuclear weapon, as promised. It would simply make it perhaps a bit more difficult for some 15 years, after which breakout would be close to zero.
Spokespersons for the White House argued that the “zero breakout time” the president referred to was only if there was no deal.
Our prime minister certainly isn’t buying this. Iran’s post-deal breakout time will be zero, he says. And with good reason:
Iran’s foreign minister, Javad Zarif, has now announced that once a deal is signed at the end of June, and sanctions are lifted, Iran will move over to using its most advanced centrifuges.
These are the IR8 centrifuges, which enrich uranium 20 times faster than the current IR-1 models, meaning they would radically reduce the breakout time needed for Iran to obtain a nuclear arsenal. (Emphasis added)
Dear friends, digest this information carefully. Be very afraid of where this is leading, and very furious at the president of the US, who has the gall to promote his deal.
The good news here – if there is any good news on this – is that there really is no deal. Not yet. And so there’s time to stop what Obama would like to achieve.
Bret Stephens, writing in the WSJ, tells us that:
”what the president calls ‘this verifiable deal’ fails the first test of verification—mutual agreement and clarity as to what, exactly, is in it….
“The deal cannot be verified,” he says, as “there are significant discrepancies between the U.S. and the Iranian versions of the deal.”
According to Steve Emerson’s Investigative Project on Terrorism, the French have still another version.
Times of Israel editor David Horovitz writes, in “The unfolding farce of Obama’s deal with Iran” that:
”Time and again, President Barack Obama and his indefatigable secretary of state promised that they and their P5+1 negotiating partners would not sign a bad deal with Iran on its nuclear weapons program.
“And, lo, they were as good as their word. They didn’t sign a bad framework deal in Lausanne, Switzerland, last week. They just agreed on one in principle, and left it unsigned, allowing for multiple conflicting interpretations.” (Emphasis added)
Of course, it is Obama’s deepest hope that this unsigned agreement will go through in one version or another (likely the version most satisfactory to Iran – regardless of what the president has told his people and the world), and become a signed deal by the end of June.
But it is the responsibility of every individual who can see past the president’s hype to the dangers looming large, to do everything possible to make sure it does not become a signed deal.
In the US, the most important vehicle for blocking Obama is Congress – a Congress that must be informed by its constituency of its urgent concern.
But it is also important to inform those Americans who may be buying what they are told. Write letters to the editor and Internet talkbacks on this issue. Speak to people.
In Israel, we must pray that our government will have the strength to do whatever must be done.
Tomorrow night is holiday again – the seventh and in Israel the last day of Pesach. (Outside of Israel, there is an eighth day.)
I want to end here with one of my very favorite songs, which I have shared before: Yehi Sheamda.
This video features Yaakov Shwekey and Yonatan Razel, who wrote the vocal arrangement, at the piano.
The words. The words are straight out of the Pesach Haggadah:
And so it has stood for our fathers and for us, that it wasn’t just one nation alone that rose up against us to destroy us, and The Holy One, Blessed is He, saves us from their hand.
A song of faith and of hope. Appropriate for this Pesach season, and for this time of threats to the Jewish people. Our history is a story of miracles. Let it be so now.
Once again, It’s time to present this week’s statuette of shame, The Golden Weasel!!
Every Tuesday, the Council nominates some of the slimiest, most despicable characters in public life for some deed of evil, cowardice or corruption they’ve performed. Then we vote to single out one particular Weasel for special mention, to whom we award the statuette of shame, our special, 100% plastic Golden Weasel. This week’s nominees were all disgusting, but the votes are in and we have our winner… the envelope please…
Male Bashing Leftist Cadre and U of VA President Teresa Sullivan!!
Don Surber: This Mustela academia arbitrarily suspended every fraternity and sorority at the University based solely on a music magazine’s ludicrous, unsourced story about a gang rape. She did so without a hearing or even any modicum of a nod to jurisprudence, even though her husband is listed as a “legal scholar” by Wikipedia. She did so despite Duke University’s witch hunt against its lacrosse team in 2006. But Teresa Sullivan has a lengthy career in the Mustela family, beginning as a student at the University of Michigan when she sucked up to its then-president, Clifton R. Wharton, Jr., as an intern. She climbed the ladder of college presidenting basically because she is a woman at a time when universities need women presidents because, hey, 60% of their students are. In 2012, the University of Virginia board tried to dump her, but then-Governor Bob McDonnell threatened to dump all the board members. He is now in prison for political corruption. Jann Wenner — our Mustela trustfund-hippietis — deserves an honorable mention, of course, but give her the Golden Weasel.
Yes, male bashing is indeed in season, with special thanks to The Federal Department of Education, Eric Holder and the Obama Justice Department, who pressured colleges across the nation to restrict a male student’s right to due process by using ‘preponderance of the evidence’ as the new, lower standard of proof instead of the higher ‘clear and convincing’ standard. And seeing whom runs academia these days, getting them to declare open season on college age males wasn’t a struggle at all.
So, when Rolling Stone began shopping for a made to order story to push their political agenda, the University of Virginia, with a president who was a veteran of the feminist culture wars was perfect. Rolling Stone found Jackie Coakley there, a long time radical feminist wannabe activist with her story of a fake gang rape and the next thing you know, the Leftist megaphone trumpeted it across America. Ms. Sullivan shut down all fraternity, innocent male students were publicly shamed and maligned and their fraternity house was vandalized, all wile Ms. Sullivan preened and posed for the press.
After the bogus narrative collapsed and went down in flames, Ms. Sullivan never once apologized to the fraternity or students involved, nor was there any disciplinary action against Jackie Coakly. In fact, many of the usual suspects are going out of their way to call the fake UVA gang rape story ‘fake but accurate’ ala’ Dan Rather, and to portray Jackie Coakley as the ultimate victim of this sordid affair.
So Ms. Sullivan, please step up and get your richly deserved Weasel. The real payoff, of course, will be in about a decade. Most savvy young men these days know better than to date a young woman who works with them or goes to the same college they do… the risks of being falsely labeled guilty of rape or sexual assault are simply too great. So, they’ll look elsewhere and two places where many young women used to meet suitable mates are largely disappearing. Scores of women between their late twenties and thirties who simply couldn’t find a man worth marrying will face single lives of loneliness and depression because of people like you and your agenda… now that’s Weaselness.
Well, there it is.
Check back next Tuesday to see who next week’s nominees for Weasel of the Week are!
Make sure to tune in every Monday for the Watcher’s Forum and remember, every Wednesday, the Council has its weekly contest with the members nominating two posts each, one written by themselves and one written by someone from outside the group for consideration by the whole Council. The votes are cast by the Council and the results are posted on Friday morning.
It’s a weekly magazine of some of the best stuff written in the blogosphere and you won’t want to miss it… or any of the other fantabulous Watcher’s Council content.
By: Dan Doyle
The upstream oil and gas industry is not a black hole. There’s no mystery wrapped in an enigma here.
There are a lot of meetings with engineers, chemists and geologists. There’s a constantly evolving learning curve. And then there’s all the regulations and compliance. But all-in-all it’s pretty straight forward, that is, until the media gets a hold of it. That’s when it becomes complicated. It’s as though we are getting reports from the mysteries of the deep ocean or life in the great galaxies beyond. There is so much hyperbole and unsupported guesswork that investors don’t have a chance. So, in a small effort to set the record straight, let’s see if we can’t dispel some of the misinformation.
Misperception #1: Goldman Sachs knows what is going on. This is incorrect. Goldman Sachs should not be quoted extensively. They are notoriously wrong when forecasting tops and bottoms. What they are good at is jumping on the band wagon and stoking fires. Their forecasting always seems to be done through a rear view mirror and their calls for peaks and troughs are always overdone. Back in July 2014 when WTI was peaking, they were calling for more, even as the dollar was showing signs of strength (and we know what happened there) and as oil inventories were beginning to wash up over our ankles. And then when we are forming a bottom in January and retesting it in March, they were calling for a deeper bottom. And then there was 2008. Remember the calls for $150 and $200 oil from Goldman and Morgan Stanley? That was right before we went to $40 and then some. (To be fair, Ed Morse from Citi called the top but he overshot the bottom. We’re not going into the 20s).
Misperception #2: The “non-productive rigs” are the first to go. This statement is a little baffling because all drilling rigs are productive, some are just more efficient. H&P’s Flex 4 and Flex 5 rigs are state of the art. But these rigs are stacking up just as fast as the less efficient rigs that require more man hours but are not as expensive to contract. Have a drive past H&P’s Odessa yard. It’s stocked full of these Flex 4s. Rigs are enormous which makes them costly to move around. You’re not going to bring in a dozen or so tractor trailers and a few cranes for a rig move back to Texas or Oklahoma, and hire the same sized fleet to bring in the newest generation rig. The closer truth is that the ones that are running in particular areas—that have not been let go—will continue running in those areas. And what the oil companies are going to do is put pricing pressure on their driller for not having supplied the cat’s ass in the first place.
Misperception #3: Supply keeps coming on because of innovations in fracking. Yes, fracking has gotten much better in shale formations but the real advances are already baked in. What has been occurring over the last 24 months or so is that more sand is being run per stage and stage intervals are more densely packed. Other than some new chemistry and a few software updates, that is the bulk of it. There really is no smoking gun between well completions in July 2014 when oil was at $100 and now–9 months later–when oil has been cut in half.
Misperception #4: Fracking has not gotten exponentially more efficient resulting in outsized cost reductions. Yes and no, but more “no” than “yes.” The 600 lb gorilla in the room is competition. Fracking has gotten competitive, damned competitive. Five years ago fleet sizes were smaller and there were nowhere near as many players. But then came the boom and service companies did what they do best. They overbuilt. They were also cheered on by cheap and plentiful money because everyone, especially bankers and private equity, wanted in on this one. To get an idea of just how competitive the shale landscape has become, a stage in a 2012 Marcellus well fetched almost twice the same stage today. There have been multiple improvements in both design and implementation, but the heavy lifting on cheaper frack pricing has been competition.
Misperception #5: The Baker Hughes rig count has become irrelevant. Incorrect. The Baker Hughes rig count is always relevant. Remember, this was the weekly number that allowed us to hold a bottom at $43 in March. But because supply didn’t immediately go lockstep with the falling count, analysts lost patience. They are now theorizing that rigs are so “productive” that the count no longer carries the weight that it once did. That’s a tough position to take. We were at 1,600 rigs drilling for oil in October and we’re now at 800. There is some truth that E&Ps are now favoring sweet spots but that won’t make up for the 50% collapse in the count. Shale extraction resembles an industrial process more than it does wildcatting. There aren’t many dry holes with shale. Microseismic advances have put an end to that as have data rooms stuffed full of old well logs that chart the potential of shales. Thus, most shale wells drilled today have a much better chance of being economic than step out and exploratory wells of the past. There is no legitimate model for 800 rigs growing US production past 8.9 mm BOPD in the Lower 48. And because its shale, and because shale is “tight”, drilling must continue at a breakneck pace to grow production. Analysts looking for a more ‘spot on’ number should start following the activity of fuel distributors who run nonstop between depots and frack jobs. Watch their sales for a more immediate indication of future production.
Misperception #6: We are running out of storage space for crude. We’re not. We’re going to be OK. Volumes have increased, especially at the oft mentioned Cushing, but Cushing accounts for only about 10% of US storage. Other storage areas are up but nowhere near as much. The reason is that physical traders like to park their inventory close to market and Cushing gives them that proximity. Also, Cushing is not a dead end. There are large pipelines that connect it to the Gulf Coast where storage is more plentiful and not nearly as full. Additionally, large inventory draws will be coming shortly with the advent of warmer weather.
Misperception #7: Shale wells have a productive life of only a few years. The truth on this one is slowly being sorted out and commentators are finally getting it right. Shale lacks permeability. Which means it’s very “tight”. It requires a frack job to free up the oil and gas trapped in its pore space. Fracking creates and sustains permeability and permeability is the pathway to the wellbore. Like any tight formation, oil and gas production is front loaded, meaning that most production will come right after stimulation. This results in excellent up front results but production tails off quickly, maybe even falling as much as 75% in year one and settling into something less for the next 10 or 20 years. This is called the tail and the tail is profitable, but only if the flush pays for most of the well.
Misperception #8: You can turn shale on and off. That’s wrong. Shale takes time like any other industrial activity. Slowing down its progress is a bit like stopping a supertanker. You can do it, but you need a lot of room. Most drillers require contracts and breaking them can be painful. Sand can pile up at rail sidings and result in demurrages. Layoffs can take time. Regulatory penalties may force an operator into activity whether he wants activity or not. All this takes time to work out. And then there’s always the stronger balance sheets that will drill regardless of price or that will drill and create a “fracklog” which is a newly minted MBA speak for a backlog of wells to frack. There is no switch you can flip.
Misperception #9: Oil is inversely related to the dollar. It is. This was a head fake. It’s not a misperception. Match the DXY to Brent and WTI over the last 12 months. It’s a perfect divergence. You want to bet on oil, then bet on the Euro.
Misperception #10: OPEC is done. Maybe, but the Gulf Cooperation Council is not. Collectively, the 4 GCC members pump more than half of all OPEC production. They also have very low lifting costs and enormous cash reserves. Additionally, they have stamina and are going to maintain OPECs position of no cuts. There’s a long history of Russia or Venezuela filling reduced quotas. This time around the GCC is not going to let that happen. If Russia concedes there may be a cut in June. But it is looking unlikely even if they do. Look for Saudi Arabia to pick up market share.
Misperception #11: American shale producers are the new swing producers. No, their banks are.
Misperception #12: A deal with Iran will lower prices. Sort of. It will take Iran a year or two to add anything meaningful to our 93 MMBOPD global market but the fear of a nuclear Iran will create enough tension to offset the supply addition. Worries over a nuclear Iran, whether real or perceived, will create enough fear in the markets to more than counter balance the additional million barrels a day of supply that may come on.
In short, oil prices will increase as weekly EIA production numbers begin posting declines as we saw last week. Demand will increase. Inventories will start getting eaten into by midyear. Europe will contribute as will Asia and the Middle East. A shrinking Chinese market is still growing at 7% a year, and that market is much bigger now than when it was posting 10% yearly growth five years ago. Rich Kinder was right in calling the bottom in the low 40s and John Hofmeiser (former President of Shell Oil) and T. Boone Pickens are probably pretty close to being right with their call of $80 as the top in the next year or so. A solid $65 to $70 by year end is the more reasonable number and is just enough to hold off development of some offshore projects, oil sands work and a good amount of the non-core shale plays. A stronger dollar will also do its work here as will a Saudi Arabia hell bent on market share. There will be less and less for shorts to hold onto and very few will want to be stuck on the same side of the trade as the big investment banks.
By Dan Doyle for Oilprice.com
Hat Tip: Craig Miller