Wednesday, February 15, 2012

U.S. oil and geopolitical analysts are cheering and early partying US "energy independence"....

U.S. oil and geopolitical analysts are cheering and early partying US "energy independence"....

Consider the latest news from the Middle East and North Africa, and one grasps why many U.S. oil and geopolitical analysts are cheering what they see as a prospect that the country will seriously trim its oil imports.

At the Financial Times, Javier Blas describes a drop in Saudi Arabia's pivotal capacity for bailing out the global oil market in a pinch, quoting a new report by the International Energy Agency; the IEA says natural oilfield decline has eroded Saudi's spare production capacity. Nearby in Iran, the stand-off with the West has resulted in a 15-percent risk premium on top of market oil prices, writes Bloomberg's Ayesha Daya; traders worry of a loss of much oil to the market should the tension escalate.

Meanwhile in Iraq, oil giant ExxonMobil -- hard-pressed like the rest of the industry to find new reserves -- has been barred from a new round of presumably world-class oil leases, reports the Wall Street Journal's Hassan Hafidh; Exxon is subject to this punishment for signing an independent oil deal with the northern Iraqi region of Kurdistan, with which Baghdad is in a long spat over revenue sharing.

And in northern Africa, Sudan has reportedly seized another 2.4 million barrels of oil from South Sudan, which continued a two-week-old halt to its 350,000-barrels-a-day of oil exports, writes Reuters, and an outbreak of fighting between the neighbors seems possible.

Against this exceptional Middle East turmoil -- events with reverberations around the world -- Lou Pugliaresi of the Washington-based Energy Policy Research Foundation tells me that in just five years, U.S. oil imports by sea are likely to fall to 4 million barrels a day, or less than half today's level (see slide eight). Pugliaresi credits a rise in oil production from far more predictable places -- a 1.5-million-barrel increase in U.S. unconventional oil production (oil shale and tight oil from North Dakota, Texas and elsewhere), plus more oil sands imports from Canada.

In so forecasting, Pugliaresi joins a critical mass of serious analysts who have found the same North American production trend line. I have expressed surprise about their crystal ball-gazing, since this forecast of plenty follows several years of precisely the opposite prognosis -- of difficult times in the oil patch -- and no head's up of a coming U.S. oil boom. Key data is missing from the analyses, those that I have seen anyway: None provides an oil price presumption underlying the higher forecast (when prices plunge, they play havoc with projections by making much oil uneconomic to produce); neither do they disclose their presumptions of oilfield decline, the natural annual drop in the volume of oil within a given patch (as with the Saudi decline noted above, when adjusted for a typical drop in oilfield performance -- often between 5 percent and 8 percent a year -- hoped-for production increases can be curtailed).

Another source of skepticism is that many of the analyses use politically charged descriptions such as "energy independence" to describe their findings, which inadvertently or not plays into base public emotions, and the partisan echo chamber in Washington. The non-partisan IEA for instance has released a similar but quieter report forecasting a U.S. oil production rise to 6.7 million barrels a day, tapering off to 6.1 million barrels a day through 2035.

Yet as suggested, one understands why Pugliaresi and the others appear to be animated: The U.S. suddenly would rely much more on stable supplies of its own and from Canada, and less on turbulent places such as the Middle East.

Other beneficial impact would follow as well: If U.S. oil production does rise significantly while consumption falls and efficiency rises, the combination would seriously moderate the world's largest pull on crude oil supplies. At the FT, Mansoor Mohiuddin argues that one result could be a shakeup in the U.S. economy and how traders (such as the New York oil traders pictured above) earn money betting on it, lowering the country's trade deficit and boosting the value of the dollar.

Caution remains in order. But one gets the early partying....

The utter Fraud underlying the Global Financial Crisis....
William K. Black is one of the US' leading experts on financial fraud in general, and on banking fraud in particular.

This is why you will rarely see him interviewed or even quoted in the mainstream media. And why he gains so little traction with the Congress and this Administration. He is an informed and honest voice, at a time when the status quo just does not want to hear it. They are caught in a credibility trap in which they can admit nothing, investigate nothing, without risking themselves and their 'good thing.'

He has done an impressive but somewhat lengthy interview with Russ Roberts of EconTalk. It is very informative, but would have benefited tremendously from some judicious editing.

I have to caution you in advance that it is somewhat lengthy, so it is best listened to when you have an extended quiet moment. Russ Roberts is a bright fellow, but in the first half he tends to interject himself quite a bit into the narrative, sometimes it seems not really listening well to what Wm. Black is saying. Perhaps he was having an ideaphoric day as do we all. I found it to be a little annoying at times. But he seems to calm down after a while.

But the interview is really a gem, because it explodes so many economic myths and urban legends about the financial crisis. Efficient markets hypothesis and the virtues of self-regulation are a joke. I think most of us who are not wedded to some ideological belief already know that, but Mr. Black puts a stake in that theory's vampiric heart.

Professional economists tend to make lousy public policy, because they have learned to think in theoretical models that only touch reality at statistical intervals. And those models often suppress and crush the significance out of crucial variables of problems that resist adequate measurement for the sake of mathematical expediency, whether it is the propensity of market participants to cheat and do foolish things, or in gravely underestimating fully priced risk and its dynamic consequences.

So we too often see economists in the media saying foolish things with a straight face, sometimes alas for pay in the manner of what they unfortunately are, but sometimes because, although they may be highly regarded and even esteemed, when it comes to the rough world of hard ball business and greed, they really are, as the kids are often wont to say, 'pwned noobs.'

Economics is a profession currently gasping in autoerotic asphyxiation, choking on intricately useless models and obfuscating jargon. I do not wish to dwell on their problems and challenges facing the hard-working and honest economists in reforming their profession because it plays a more supportive than primary role in the problems facing the world today. The economists, politicians, spokesmodels, and strategic analysts are merely the hired help, the servants, collaborators; the root of the problem is with the money masters themselves. If you wish to know who they are, then follow the money, if you can.

I think it is important to hear the clear voice of experience and reason in this matter, whether you like it or not, whether it suits your self-interest or political biases or not.

Why is this important? Because there is another financial crisis coming, and the monied interests and their banks will be serving up the same set of propaganda and demands, writ larger. So it now be a good time to unplug yourself from whatever media bubble machine you follow, so you may have at a least a slim chance of coming out of this intact.

You may listen or download the interview

"So, it's, I think, really naive to believe that any lender made loans because they thought it made politicians happy. Lenders made loans because it made individual lenders--I don't mean companies, I mean people--much, much wealthier. And they created those incentive structures not because they could care less about people...

...we think this actually is a story, driven overwhelmingly by what we call accounting control fraud; and we think no one much doubts that about the Enron era. And we think there is pretty good consensus on the Savings and Loan crisis as well, because of all the factual record. We had to go up against the best criminal defense lawyers in the world, and we got a 90% conviction rate.

Plus, we satisfied the economists that looked. I quoted from the National Commission, which was run by economists, that concluded that at the typical large failure, fraud was invariably present.

But if you go and read the economic literature on this crisis, you will find that Akerlof and Romer are cited for example in maybe, generously, 1 out of 100 articles that purport to discuss the causes of the crisis.

And you will see that fraud is virtually never discussed as even a potential major contributor. And that is poor; and that is really the tribal taboo that still exists in economics against any serious consideration of the word fraud."

Wm. K. Black

"...A baited banker thus desponds,
From his own hand foresees his fall,
They have his soul, who have his bonds;
'Tis like the writing on the wall.

How will the caitiff wretch be scared,
When first he finds himself awake
At the last trumpet, unprepared,
And all his grand account to make!

For in that universal call,
Few bankers will to heaven be mounters;
They'll cry, 'Ye shops, upon us fall!
Conceal and cover us, ye counters!'

When other hands the scales shall hold,
And they, in men's and angels' sight
Produced with all their bills and gold,
'Weigh'd in the balance and found light!'"

Jonathan Swift, The Run Upon the Bankers

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