American Shale Oil In High Demand

The narrative a while back was that the world would face a shortage of heavy crude because sanctions on Iran and Venezuela had reduced production and exports. Some also implied that shale oil would fill up U.S. storage because American refiners were designed to process the heavy, high sulfur crudes from Venezuela, Saudi Arabia, and the like.

But the light, sweet crude is in high demand for export, and that appetite is likely to continue to grow with the implementation of IMO 2020 around the corner, going into effect January 1st. Freight rates from the U.S. Gulf to Europe have surged to record highs.

Equinor ASA and Unipec, the trading arm of China's top refiner Sinopec, have provisionally chartered Aframax tankers for $60,700 per day, an increase of almost 30 percent in a week, a new record high, according to shipbroker Poten & Partners. Aframax tankers are the “workhorse” of the U.S.-Europe oil trade, which has risen more than 60 percent in 2019 compared to 2018.

The EPIC pipeline began service in August. It has the capacity to deliver 400,000 b/d from the Permian Basin to terminals on the Gulf Coast. The new Cactus II pipeline system also started shipping crude oil in August. It has the capacity to deliver 670,000 b/d of crude oil from the Permian.

And the Gray Oak pipeline began service in November and will be capable of delivering 900,000 b/d at capacity. This new takeaway capacity will effectively reduce the production breakeven costs of substantial Permian crude oil because the pipeline charges are significantly lower than trucking costs.

This should provide stimulus to shale oil production growth, which had slowed due to takeaway pipeline capacity constraints.

Exports Rising
U.S. crude oil exports averaged 3.412 million barrels per day for the weeks ending December 13, 2019. Crude oil exports were 33 percent higher than the same weeks last year. But in the year-to-date, exports are over 50 percent higher.

Exports of crude oil and petroleum products have surged to almost 9 million barrels per day. This makes the United States the largest petroleum exporting country in the world.

Net oil imports have recently dropped below zero, making the U.S. a net oil exporter for the first time in modern history. As a result, the U.S. economy is no longer vulnerable overall to a spike in oil prices, though such a development would hurt consumers while helping domestic oil producers.

The U.S. balance of payments and trade would not be adversely impacted. This is a positive tailwind for the value of the U.S. dollar.

It also has political and defense spending implications. For example, following the attacks on Saudi Arabia in September, President Trump did not put the U.S. military at risk to defend KSA. He also did not counter-attack Iran on behalf of Saudi Arabia. The Crown Prince of Saudi Arabia reportedly began talks with Iran to defuse the situation, something the Kingdom did not have to try when the U.S. felt obligated to protect its oil supply for economic reasons.

Conclusions
The U.S. shale revolution is being re-booted by the opening up of new pipes in the second half of 2019. Given strong foreign demand and lower effective breakeven costs, a new surge may be in the works. Market observers who saw growth slowing may be in for a wake-up call over the coming six months when the new economic conditions take hold.

Check back to see my next post!

Best,
Robert Boslego
INO.com Contributor - Energies

The Inevitability of Dramatic Inflation

By Jeff Thomas

No one is very concerned about inflation right now and that’s understandable. Although inflation exists in some sectors of the economy, the present subject of discussion is deflation. Any depression is inherently deflationary since spending is curtailed, which drives prices down.

Since 2008, despite all the fudged reports emanating from governments, much of the world has been in a depression since 2008 and remains in one. This will continue until such time as there is a true cleansing of the system – a step the leaders of each jurisdiction have avoided as much as possible, choosing instead to extend the party as long as possible before the inevitable collapse occurs.

Since deflation is the problem that’s staring us in the face now, most economic discussion deals with it. But, historically, when deflation occurs, governments do everything they can do reverse the problem and return to inflation.

To the average person, one type of ‘flation is as bad as another type of ‘flation – he merely hopes for economic stability. And so the effort by governments to not only accept inflation but to recommend its existence as policy seems odd. But then, governments (and banks) benefit from inflation. People can only be taxed so much before they rebel, but inflation acts as a hidden tax and most people don’t recognise that it’s not the number of currency units one possesses that matters, but what level of purchasing power they have. Inflation allows the individual to retain his currency notes, but devalues them so they buy him less in goods and services. Inflation is the unperceived tax.

The US Federal Reserve has done a sterling job of exacting wealth from US citizens. Since it was created in 1913, it has devalued the dollar by roughly 97% and the dollar is now due for replacement. Through the creation of tremendous debt, the US, EU, and many other countries have created a condition that will result in deflation – the very condition that they most dread. There can be no question that they will do whatever it takes to reverse this trend and return to inflation. Indeed, this is their stated policy.

Former Fed Chairman Ben Bernanke is famous for his 2002 speech in which he said he would dump currency from helicopters if necessary when deflation occurred. Since that date, he has reconfirmed his commitment nearly every year, as has his successor, so there can be little doubt as to what the Fed will do to address deflation. Add to this the fact that the stock and bond markets are in bubbles of historic proportions, assuring the inevitability of crashes in the near future – events that will contribute greatly to deflation.

But, given the choice, wouldn’t we all prefer a bit of inflation to deflation? Yes, in this we would agree with the Fed and the ECB, but worse than either of these possibilities is that green eyed monster – hyperinflation. At present, we feel we’re so far away from this possibility that, for most people, it’s not even a question. Trouble is, hyperinflation, when it comes, comes very fast and is uncontrollable.

So, how does it happen?
Hyperinflation never occurs spontaneously. It always happens in essentially the same way when governments attempt to artificially manipulate currency. It has occurred on more than twenty occasions around the world in the last hundred years. The most recent occurrence is currently underway in Venezuela.

But a textbook example was the Weimar hyperinflation of 1922–1923. In that instance, the government, along with the central bank of Germany, was facing a collapsing economy, so they did the worst thing possible – they expanded the creation of currency in the belief that if people had more of the stuff, they would spend more and the economy would boom. Unfortunately, the money creation only resulted in rising prices, not greater wealth (True wealth is only created through the creation of more goods and services). 

So, they printed more. Then more again, and again, and again. With each printing, the problem worsened and the bankers and political leaders reasoned that if they could only print enough, the problem would be solved. It’s important to note that at no time did anyone (not the government, nor the banks, nor private industry, nor the unions) suggest that the printing itself was the problem.

Eventually, inflation became so dramatic that the German people realised that they were better off dumping reichsmarks in favour of goods. As soon as workers were paid, they’d buy anything – food, clothing, anything that wasn’t going up in price as rapidly as the reichsmark was going down.

It is at this point that inflation becomes hyperinflation. It’s never intended by anyone (least of all, governments) to occur but, once the population begins to think of money as something to get rid of instead of something to possess, the monster is born and it happens so quickly that a hamburger that costs $5 today may cost $50 three months later, $500 after a further month, and $5,000 the following week. Soon, a hamburger costs (quite literally) millions.

As hard as this is to imagine, this is what occurs in every case. And in every case, it culminates in a collapse of the monetary system. It’s generally accompanied by a collapse in commerce, riots, food shortages, and famine.

And so, of course, we hope that this time around the leaders of the US, EU, et al, will do the right thing and avoid this eventuality at all costs. Surely, the highly educated folks at the Fed and the ECB will learn from the mistakes of past leaders and not repeat the disastrous mistakes. Hopefully, this time it will be different.

And actually, this time it will be different, but not in the way we would hope. Rather than wait for the crashes and subsequent significant deflation to occur, the Fed and the ECB have already announced a plan to introduce negative interest rates. They describe this plan as being intended to discourage saving and force people to buy goods, causing the economy to boom...just as in Weimar Germany almost one hundred years ago.

But, as discussed above, this is never the outcome. Once a population discovers that dumping currency is preferable to holding it, the green-eyed monster comes knocking. So, are we around the corner from hyperinflation? No, I believe we have a little breathing time before that, but we’ll be spending that time dealing with the market crashes and deflation that generally come first (unless the leaders decide to pre-empt them by introducing negative interest rates very soon, which they may well do).

Well then, if hyperinflation is not yet a certainty, nor is it necessarily right around the corner, why bother thinking about it? The reason is that the triggering mechanism of hyperinflation is to be presented to us on a platter in the relatively near future. Its likelihood is now great enough that if we don’t prepare our lives for its eventuality, we’ll be amongst the casualties.

If the German people could have known in 1922 what was coming in 1923, many could have saved their skins. Today, those who choose to internationalise their wealth (however large or small) and even themselves in anticipation of events will have the greatest insulation against the effects of hyperinflation. They have the greatest likelihood to not only survive, but thrive, as the world changes. Editor’s Note: Negative interest rates are an obvious sign of desperation. Central bankers are playing with fire and inviting a currency catastrophe, just like they have done so many times in the past.

The sad truth is most people have no idea what really happens when a currency collapses, let alone how to prepare…How will you protect your savings in the event of a currency crisis? Doug Casey just released video that will show you exactly how. Click here to watch it now.

The article The Inevitability of Dramatic Inflation was originally published at caseyresearch.com.

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This “Pig” Just Made a Massive Bet on Gold

By Dan Steinhart

Stan Druckenmiller is going big on gold.

Druckenmiller is one of the world’s most successful and respected traders. As a hedge fund manager from 1986 to 2010, he generated an incredible average annual return of 30%. Druckenmiller was also George Soros’s right hand man at Quantum, Soros’s famed hedge fund. Quantum’s now legendary 1992 trade shorting the British pound was Druckenmiller’s idea. It made Quantum about $1 billion. People say the trade “broke the Bank of England.”

Most professional investors preach diversification. But Druckenmiller says he’s successful because he’s not afraid to concentrate his bets when he really believes in a trade. He calls it “being a pig.” The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered.

I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere.

Druckenmiller just made a $300 million bet on gold…...

Druckenmiller’s fund recently bought $300 million worth of SPDR Gold Trust (GLD), an ETF that tracks the price of gold. It’s a huge bet, even for a big time trader like Druckenmiller. He put 20% of his fund’s money into this trade, and it’s his largest position. Druckenmiller seems to like gold for the same reasons Casey Research likes gold. He has harshly criticized the Federal Reserve for creating the frothy conditions that led to the 2008 financial crisis. And he says the Fed’s policies today are more reckless today than ever.

If you look at the real root cause behind the financial crisis, we’re doubling down. Our monetary policy is so much more reckless and so much more aggressively pushing the people in this room and everybody else out the risk curve that we’re doubling down on the same policy that really put us there…..The Fed cut interest rates to nearly zero after the financial crisis. This has encouraged all kinds of bad investing and reckless speculation. When the banks pay microscopic interest rates, people get desperate and pile into junk bonds, stocks, and real estate. This drives asset prices higher and higher.....which creates a lot of danger.

It also leads to depreciating paper currencies…which will eventually lead to much higher gold prices. In just the last year, the Japanese yen has dropped 18% versus the US dollar. The euro has dropped 17%...the Australian dollar has dropped 20%...and the Canadian dollar has dropped 17%. Regular readers know this is part of the “Currency Wars.” Governments are devaluing their currencies in an attempt to stoke their economies. Politicians think that making a currency cheaper (usually by printing more currency units) will provide an economic stimulus.It doesn’t work. If devaluing currencies were the path to prosperity, countries like Zimbabwe and Venezuela would be the richest countries on Earth…instead of economic basket cases.

Gold has been struggling....…

The price of gold has fallen 41% since hitting an all time high in August 2011. Druckenmiller’s huge bet indicates that he thinks the bottom is finally in. Druckenmiller has made a career out of getting big calls like this correct. We wouldn’t want to bet against him.

If you agree that gold is near its bottom, you could buy physical gold or shares of GLD like Druckenmiller. That could easily give you a 50-to-75% gain in the coming years. If you want a chance at much bigger gains, consider investing in gold stocks. Gold stocks are highly leveraged to the price of gold. In a bull market, gold stocks rise much more than the price of gold. It’s common for the best run gold companies to increase by 20-to-1 or even 30-to-1 during a gold bull market.

International Speculator is our advisory focused on the best small gold stocks with huge upside potential. Right now, gold stocks look like they’re near the end of one of the worst bear markets in history. In fact, gold stocks are cheaper today than they’ve been in at least twenty years…as we’ll show you in a moment.
International Speculator will teach you how to position yourself in the best gold stocks before the next bull market begins. 

Click here to read more about the opportunity we have to buy gold stocks today… at prices we probably won’t see again for another twenty years once the bull gets going.

The article This “Pig” Just Made a Massive Bet on Gold was originally published at caseyresearch.com.

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