Wednesday, August 26, 2015

Rig Count

700 rigs still drilling in the U.S. (glass half full...)

If you read Michael Hudson in the post below he says,
"in the aftermath of when the bubble burst in 2008, that all of the growth in the economy has only been in the financial sector,"

Well last year you can see from the chart that rig count was over 1,500 and in 2008 (if you look it up) there were less than 400 oil rigs in operation.

Since 2008 the U.S. domestic production of crude has increased by 4 million bbls per day or so (again, if you look it up.)

Last time I checked, the petroleum sector was not in the financial sector.

What planet is the ideological boob Hudson living on?

Hudson's comments here are very disrespectful to all of the hard work our fellow citizens have been doing in and around the oil patch to war against what had become a very high monopoly rent the OPEC nations had been able to impose on us in the 2008 era, when crude went to the $150 range.

All of these of our fellow citizens hard work  for the last 7 years has contributed the most to our nation's being able to now achieve much improved real terms of trade that is reflected in the current strong USD.

The USD is stronger today because a bunch of our fellow citizens went to back breaking knuckle busting work against the oil cartel and made it so; not because USDs have become harder to get or any other nonsense QTM theories.

We owe these of our fellow citizens our gratitude not our ignorance.


Ryan Harris said...
This comment has been removed by the author.
mike norman said...


Not to mention 107k units of domestic auto production that went up to 338k units today. Or, 345k of housing starts that went up to 1.2 million today. And countless other items of real production. WTF???

He is most definitely an ideological boob. And he's grossly enamored by his own self-importance. "Too many things going on" to come on my podcast. Like what?

Ignacio said...

That is like asking the initial years of the USA to not establish merchantilist policies and bend to the crown interests (a colony in everything but name, even with the recently gained independence back then).

In the case of occupied nations like Germany and Japan it may make sense, after all they are already developed, they shouldn't beggar-thy-neighbour to import demand and export deflation. But asking developing nations to establish policies that would hurt their technological and industrial development (like the IMF wants them to) is hypocrite.

China is either going to have it's revenge from the very lasting damage of the Opium wars or devolve into chaos once again. On the other side it would be beneficial, in real terms, to stop USA of sucking world resources like there is no tomorrow (!) while giving away paper to national oligarchies in the developing countries.

SA on the other side, is a special case... Consider that abusive advantage an stipend, there is so much geopolitical noise going on oil supply right now, but one thing that must be remembered is that the unholy evil alliance between wahabbists in SA and Washington hasn't broken down (yet, not completely anyway). Low oil prices have not much to do with 'USA efforts' (which started financing while high oil prices at low interests rates) as Matt puts it here, as for SA efforts to keep supply up even when demand is contracting swiftly.

Peter Pan said...

Sorry, where is Hudson saying this? All I see are Twitter posts.

Peter Pan said...

The real problem is that we’re still in the aftermath of when the bubble burst in 2008, that all of the growth in the economy has only been in the financial sector, in the monopolies—only for the 1 percent. It’s as if there are two economies, and that of the 99 percent has not grown. The American economy is still in a debt deflation. So the real problem is, stocks have doubled in price since 2008, but the economy, for most people, certainly who listen to your show, hasn’t grown at all.

I think he's referring to the growth in wealth or median net worth. That's what's usually meant by "two economies". It's from the perspective of workers and non-owners.
America still has a manufacturing industry, but it's share of employment and of GDP has been declining. It's good if the oil industry can buck that trend, but how well does that reduce the inequality between labour and capital?

John said...

Matt: "...war against what had become a very high monopoly rent the OPEC nations had been able to impose on us in the 2008 era, when crude went to the $150 range."

That isn't right. The US is imposing these prices, not OPEC. The OPEC nations are US client states whose major role is to tailor the oil price to US interests. Declassified documents from the Pentagon and State Department bear this out. The oil price is manipulated to the benefit of the US over its rivals, and the profits are recycled through Wall Street and the military-industrial sector.

Without all the manipulation by client states, the real price of oil could be anything up to $200 a barrel. As is, energy prices have very little to do with demand and supply. Like most important markets, the one for energy is rigged.

What's interesting is that even when the State Department and the Pentagon explain how the energy system does in fact work (client states doing what they're told by Washington) nobody paid any attention. In that sense, it's very much like when the Bank of England ran an uncharacteristic PR campaign to explain where money comes from (commercial banks), and absolutely no one, other than the usual endogenous money suspects, paid attention.

The State Department could run public information campaigns on television for ten years on how the US via its client states rigs the energy market and people will keep ignoring it because it's uncomfortable. Having battled through all the propaganda about how the monetary system, you'd think MMT people would be willing to analyse the energy sector with the same clear logic. Perhaps there is a limit to how many uncomfortable truths one is able to bear.

In that sense, blaming OPEC is the equivalent of making dire pronouncements about bond vigilantes. I don't always agree with Michael Hudson, but he understands how OPEC works and to whose benefit.

Dan Lynch said...

Who "worked" to produce oil? Dinosaurs.

Who benefits from fracking? Not the 99%, because oil prices are set by the Sauds.

Fracking was always a ponzi scheme fueled by low interest rates.

Matt Franko said...

Ok so you guys are saying that if none of these people would have been busting ass for the last 7 years to increase our domestic output by 4m bpd then the price would still be $40 today?

c'mon man!!!!

Ignacio said...

It has contributed to inventories while demand has contracted, so surely is has impacted the prices to some extend, but what extend? Fairly low probably. The part of the global consumption covered by US fracking is ridiculously low. So no, not in a hundred years, can US production raise explain the volatility in oil prices in the last year.

BTW even at current prices the mean prices hasn't stopped going up for the last decade. There hasn't been any fundamental change in production that explain the price drop, shale oil is not profitable below 80-85 USD (most of those rigs were planned and funded when oil prices were high).

If anything the major driver, long term, of lower commodity prices is the demography of developed nations and China. Although in the short term it can all be attributed to decrease in demand (poor state of the economy of the 99% of humanity) + increased pumping by SA for geopolitical reasons (in partnership with Washington).

Peter Pan said...

Perhaps when all is said and done, more money will have been made from the leases than from the actual oil and gas.

John said...

"Ok so you guys are saying that if none of these people would have been busting ass for the last 7 years to increase our domestic output by 4m bpd then the price would still be $40 today?"

Matt, that's irrelevant. Do oil workers work hard? Yes. Do farmers work hard? Yes. Do miners work hard? Yes. All of these people work harder than I ever have and hopefully ever will. If I worked a mere day on a farm or a rig or a mine it would probably kill me. So as much as I have enormous respect for these people, it is all irrelevant to how their respective sectors actually operate. The gigantic agribusiness firms receive massive state handouts, but the farmers who do the work barely make a living. Mining companies get enormous state privileges, but the miners barely make it to retirement age and, even if they do, have terrible health problems for whatever life they have left. And the energy sector is the biggest racket in history, which certainly doesn't serve those who risk life and limb to keep the lights on. To extend the analogy, local bank tellers work hard, but they don't set the price of money.

The price of oil is set by US client states. If you don't believe it, ask the frackers who've been put out of work by the OPEC decision to take oil prices down to near zero. The frackers may have been able to take the oil price down to $50, but the Saudis can take it down to $10 and then march it right back up to $150. That tells you the price isn't set by supply and demand. It is set by a bunch of dictators taking orders from Washington whose near term aim is to crush Russia, longterm aim to keep China on a manageable leash, and all the while keeping the EU and Japan from breaking free from US power. And through it all, ensure that the petrodollars are recycled through Wall Street and the military-industrial sector. It's a hard job to pull of at the best of times, even harder when you've got neoconservative fantasists and nitwits in charge.

Energy prices are geopolitical. They have nothing to do with how hard some regular joe is working in North Dakota. I respect, and have more in common with, the regular joe busting his ass in North Dakota, but that doesn't mean he sets the price of oil any more than my local wheat or dairy farmer sets the price of bread or milk. On the general contours, Michael Hudson has called it right for many years. On the details he makes mistakes, but the immediate minutiae is subject to so many factors it is near impossible to call.

Richard said...

Ideological boob? I don't get it. Michael Hudson has plenty of attitude - but he is no 'boob'!

Matt Franko said...

US production and SALES are taking place here inside of a jurisdiction where the cartel is illegal... and US producers cant get the monopoly rents that the OPEC people can ...

iow if US crude producers are caught in collusion with each other conspiring to fix the offers made to the refiners, that is criminal here..

So if an external source offers @ $100 then a domestic source offers @ $99, then the refiners take the $99 as it is a better price...

I was recently told that no foreign oil is being refined in the Delaware basin these days.... those refiners are dealing with US upper midwest producers on price and it is coming in via rail... the systems are set up for the Bakken oil... its not perfect substitution...

Steel prices are still going down in USD terms for the US drillers... so that input price for them continues to fall... pipes, superstructures, etc...

Not saying the cartel doesnt exist but the opposite, the cartel exists but our producers are battling with it on price and production... with great success to this point...

Ignacio said...

Not saying the cartel doesnt exist but the opposite, the cartel exists but our producers are battling with it on price and production... with great success to this point...

Fracking cannot compete at current prices. You must not be aware of oil prices at origin Matt, they are 1/100 lower than in USA (ok, maybe an exaggeration, but they are orders of magnitude lower). This is not something that can be discussed, is a fact of the current state of engineering. Even if some costs are getting lower (steel) they are a fraction of what is the bulk of costs of a fracking oil rig.

The way fracking works and the way normal oil fields are exploited guarantees, physically, that fracking won't, ever, be able to compete on price. Ever. Is a matter of physics, is not something up for discussion. Not to say that: wages, environmental regulations (even though I guess they are not too strict in the good ol USA, but still), etc. are going to be way higher in a developed nation.

SA is keeping supply at current prices because they can and want (and because Washington wants, you cannot ignore that a few days ago there was the biggest arms dealing done EVER, and it was between guess who: SA and USA), the fracking industry is just an other bubble, and not that is blowing up a mini-housing bubble has been picking up (well not now, but for a while already) in certain areas. After all there is one thing USA cannot come short of: dollars.

A bit sad though that the only way to prop up the economy is financing certain sectors or schemes.

Matt Franko said...

"Matt, that's irrelevant. "

It is to Hudson too... he doenst even know it took place apparently....

Ideologues like him masquerading as a technocrat have no business opining on economic matters... those matters should be left to COMPETENT technocrats of which he is manifestly NOT if he makes a statement like this in public:

"in the aftermath of when the bubble burst in 2008, that all of the growth in the economy has only been in the financial sector, in the monopolies—only for the 1 percent. It’s as if there are two economies, and that of the 99 percent has not grown. "

Hey Michael: 99% in 2008 is STILL 99% in 2015!

And I think if you looked at it the financial sector has probably contracted since 2008... or is about back to where it was now 7 years later...

so I dont know where this guy gets his data... and he thinks percentages can change or something....

Tom Hickey said...

In the long run, energy availability (which determines price either through market forces or fixing) is the primary economic driver.

Just look at the historical chart of growth from the beginning of record keeping. Pretty flat until it goes exponential with the availability of energy and the technological ability to harness it to do work.

It's all about energy and technology that uses energy when it comes down to factors. That reduces to energy plus innovation.

Monetary economics is important especially since it is not well understood even by so-called experts. But the real action is in energy and technology.

Focusing overly on monetary economics can obscure that.

It's pretty clear that the US strategy is to control the global financial and energy systems, which ensures global dominance.

John said...

"It's pretty clear that the US strategy is to control the global financial and energy systems, which ensures global dominance."

Quite right. I don't know how this can be up for discussion. It's a stated aim! This stuff is far more obvious, since it is stated time and again by the State Department itself, than all the stuff about money. Why MMTers, who understand a far harder and more well camouflaged system, have a hard time grasping how a far simpler energy system works is baffling. JUST. READ. THE. DECLASSIFIED. DOCUMENTS. The Pentagon and the State Department are brutally honest in their depiction of what energy is and how it is to be used as an economic weapon against the EU, Japan and now China.

The question is not whether the US controls the world energy system (I refuse to call it a market) but how does Washington achieve this aim and the consequences of its actions. Going after Russia, via Saudi oil price setting, has meant that the frackers have been thrown under the bus. That tells you how much Washington cares about the one growth area in the US economy. Washington has bigger sturgeon to fry. It also tells you how much the US cares about terrorism: the US-backed Saudis spend billions of dollars exporting their alien Salafi ideology and jihadi fighters around the Muslim world. US soldiers get thrown under the same bus as the frackers.

But looking on the bright side, $100 million Manhattan apartments are being bought by the Wall Street petrodollar recyclers. Anyone who sneers at this magnificent triumph is a godless anti-American Bolshevik who needs to be paid a visit by some all-American Delta Force capitalists or a drone. A drone is better. It's more expensive and the money finds its way into the right hands: General Dynamics, Lockheed Martin, Boeing, Northrop Grumman, etc, who are a cog in the Washington machine of global dominance and supercrony capitalism.

Matt Franko said...


Why is the IMF then telling the Saudis to implement austerity now with the oil price drop and them shifting over to deficits now?

Wouldnt the black helicopter people always want the price to be higher?

Why did they push it down to $40 when it was already at $100?

Wouldnt they have just left it at $100 or more?

Think it through.... what you are saying makes no sense... they want it low so they can put it back high? Why didnt they just leave it high? It was already there....

John said...

The IMF is ideologically devoted to austerity no matter who, what, where or why. Their cures for any malady are always the same: liberalise, privatise and deregulate. A country like Saudi Arabia can always choose to ignore the predictable advice coming from the IMF. The IMF isn't an independent think tank. It is made up of the vested interests of those who control it. There are countries who are in no position but to accept IMF diktats. Others can choose to implement IMF advice. When they do accept IMF advice it is because it is a convenient veil: they wished to liberalise, privatise and deregulate and they can blame or praise the IMF as the institution which engendered the change.

The oil price level is set to whatever is geopolitically helpful. Sometimes it's high, sometimes it's low. When it's set high, it is to hinder economic rivals (EU, Japan and now China) who are major energy importers. In any case, how high is too high if the money is recycled via Wall Street and the major US military contractors?

When it has been set low, like it has recently, it has been to put economic pressure on countries like Russia, which are becoming too independent for Washington's liking. Why would Kerry fly to Saudi Arabia to finalise the oil price drop, knowing full well that the US frackers would be bankrupted, and that in due course the Saudis will force the price back up? That does not make any sense at all, does it? Unless it is geopolitical, which it is as most observers agree, and that the drop was used to pressurise Russia and Iran. (For various reasons, Iran's made a deal with the US. Russia can't make a deal with the US, not one that isn't the total subservience Yeltsin offered. Since the US won't back down and Russia won't do as its told, it looks like this is the start of a new cold war.)

On the face of it, if we follow your reasoning, Kerry seems to care more for the House of Saud than the spluttering American economy. It doesn't help the US economy to kill off a major economic resource like fracking so as to end up with the high prices it had before the prices dropped. But that would be a superficial reading. Washington, via OPEC (that is the Saudis), could leave the price where it was, which would inadvertently help Russia, or it could force it down and put pressure on Russia and Iran (during the farcical "nuclear" talks).

You have to take into consideration that the oil price is a very blunt tool, but in conjunction with the World Bank, IMF, WTO and the world payments system, the US has enormous leverage over other economies. That is not to say that it is guaranteed to work, but for nearly seventy years it has worked remarkably well, and when the economic levers don't work, there's always the CIA and the US military to enforce Washington's diktats. But now there are major problems looming on the horizon. For example, China can't be bullied or has too much self-respect to follow orders from the white barbarians. With Russia and China developing an Asian trade bloc, this has become the major economic and strategic problem of the twenty-first century for policy makers in Washington. Rather than accept the inevitable, Washington has decided it won't go down without a fight, hence the artificial oil price drop.

Anyway, clearly this is no market. It is perverse in the extreme to believe that the price can be $150 and within no time be $40 when nothing much has changed. What has changed is the Saudis *deciding* to force the price of oil down to hurt Russia and Iran. They would not do this without consulting the US. It isn't exactly news that the US keeps the House of Saud in power. The House of Saud, while not a puppet regime, on the whole does what it is told to do. Interests coincide.

All of this stuff about the energy system is not an opinion. This is what the State Department's and the Pentagon's internal reports describe and what former insiders have written in Foreign Affairs and the like.

Roger Erickson said...

Oh ... I thought you meant "rigged" count. :(

Of almost everything that matters.

Matt Franko said...


"the price can be $150 and within no time be $40 when nothing much has changed."

That is absurd we have increased production by 4m bpd and have expanded the use of fracturing and rail transport of crude.... that is a "change"...

Any qualified technocrat would have to see this.

Ryan Harris said...

"Fracking was always a ponzi scheme fueled by low interest rates. "

Texas produces about 50 million bbls per month more than it did in 2009

When drilling tailed off last year, production did not suddenly collapse as the progressive media said it would because it was all based on fuzzy math and fake reserves.

Production continued to rise.

What is more, the wells produce enormous amounts of oil for the first few months, usually enough to pay off all the drilling costs and more.

To top it off, they can be re-fracked for very little cost and double or even triple the initial reserves.

Surely some producers picked bad geology, others may have paid too much for land, drill rigs or employees at the peak, but that is the nature of commodity cycles where boom and busts are the norm.

John said...

The IEA estimates that in 2015 over 93 million bpd consumed. 4 million bpd is a good increase but it doesn't explain a near $100 drop. And then there is the quality of the North Dakota fracked oil and its transportation: is it really going to impinge that much on the global oil price(s)? That's not just unlikely, it's verging on the impossible. That's why all the energy analysts were saying the same thing: it's the Saudis.

Perhaps the Saudis were joined by one or two other Gulf states who are keeping a low profile and don't want to attract too much attention, having taken their unpopular marching orders from Washington. The Saudis are happy to attract attention and make it even more clear than has already been the case that their mad jihad to take down Iran will never end, whether through oil or through holy terrorism. Kerry could have been more circumspect, but he chose to send a visible message by physically going to Saudi Arabia. The message was clear to everyone: the US has instructed the Saudis to send the oil price through the floor and Russia will be crushed.

Leaving aside the environmental argument, the pity of it all is that no one in their right mind is now going to invest a single penny into fracking knowing that the Saudis can and will bankrupt you. And given the geopolitics, it won't take much for the Saudis to open the spigots full blast.

If and when Iraq comes on line, the Saudis may try to kneecap the Shia government in Baghdad by taking oil down into single figures. The Saudis are economic and religious fruitcakes who'll happily take the planet to the gates of hell, and they're doing it at the behest of Washington. Nearly as scary is the fact that so many huge investment funds have got staggering amounts of money invested in a respectable oil price. If this price doesn't change back to something closer to $100 per barrel, they're going to enter a world of hurt.

It's going to make for interesting viewing as Wall Street and the oil companies put the thumbscrews on Washington to do something about the oil price and find their bought and paid for politicians incapable of doing a damn thing. State interests will trump vested business interests, to the horror of the businesses involved. China and Russia must be brought to heel, no matter who suffers. After all, if China and Russia can't be brought to heel (which in all likelihood they won't), the US is finished as the hegemonic global power, and Wall Street and the huge US energy companies go down with it in any case. One way or another, it's gonna get very, very nasty.

Ryan Harris said...

"no one in their right mind is now going to invest a single penny into fracking knowing that the Saudis can and will bankrupt you"

Drilling continues at about half the pace it did last year. Productivity has improved though so half the rigs are producing more than half the amount of new production previously.

The US "all-in" cost of production is probably quite a bit lower than Saudis "all-in" cost now.