The Energy Price War of 2015

KAL Cartoon 2014. "Sheiks vs. Shale" Economist Cover

At the end of January just after Saudi King Abdullah died and power transitioned to King Salman, oil prices saw a slight uptick and closed just below $60 a barrel and natural gas closed at about $3 BTU. As noted in my previous article, Saudi Arabia and the United States are using this price war for their own reasons and are somewhat in conflict with each other. Saudi Arabia is trying to take out its competitors, both within OPEC and the U.S. shale industry. The United States is attempting to hurt the Russian economy and Vladimir Putin. Fortunately and unfortunately (depending on your perspective), both nations are achieving their goals in this price war.

Smaller U.S. energy companies did not hedge properly for these low prices and could face the consequences (even bankruptcy) before the summer. Permit requests in the Marcellus Shale are beginning to take a nosedive and North Dakota is not predicting billions in lost potential revenue for years to come. Larger U.S. energy companies will do just fine and either hedged properly or can absorb short term low levels. Newly elected Democrat Governor of Pennsylvania, Tom Wolf, recently signed an executive order banning new fracking operations within the commonwealth. New York has a similar ban. Voters in Denton, Texas also banned fracking in a recent referendum. Lawsuits are guaranteed to occur in at least the Pennsylvania and Texas cases. Many regions within the U.S. fracking industry can barely break even at $60 a barrel of oil, however, the industry would be optimal in the $75-$90 range, which is still fairly below the break even budgets for many OPEC nations and Russia which is over $100 a barrel.

The "biggest losers" in the price war will be African OPEC countries, Venezuela, and Russia, with the potential of massive political instability as a ripple effect. At a World Affairs Council of San Antonio meeting, Ambassador Roger Noriega predicted President Nicolas Maduro will not last beyond this spring as grocery stores are empty and the people are ready to riot in the streets. Ambassador Noriega does not think the police or military will intervene compared to how they acted and arrested/intimidated hundreds, if not thousands of people following the election of Maduro. Venezuela cannot afford these low fuel prices and Maduro's global trip begging for money from countries such as China was a failure.

The Arab Spring countries could also face another wave of protests as these nations need oil to be well beyond $100 a barrel to even somewhat function/recover from the former regime collapses. Another nation that needs higher energy prices is Nigeria as it struggles to combat Boko Haram (the ISIS of Africa) and is due for an election in February for President where the Muslim candidate, Muhammadu Buhari, will most likely defeat the incumbent Christian President Goodluck Jonathan. These price wars will cause regimes to collapse or institute massive policy changes before the fall and most likely cause a political vacuum potentially spanning across at least three continents.

Experts in the energy sector who have consulted with me over the past few months predict prices could go as low as $35 a barrel for oil in the summer months (a time when reserves are at their highest because of multiple factors) and still reach around $90 a barrel by December 2015. The problem is even if the $90 is reached in eleven months, it will be too late for many regimes. Saudi Arabia will eliminate some of its OPEC rivals and the U.S. industry will take a black-eye. The three unknown factors will be just how well the U.S. fairs during this time frame (along with Canada) and whether it can collapse OPEC and Saudi Arabia once and for all. The second factor will be how Russia survives a massive recession (and most likely a depression) because of energy. Putin is still very popular in Russia, yet that could begin to change this year. The last factor and most frightening is what will exactly happen to Venezuela and the African OPEC countries. A second "Arab Spring" may occur this year, giving another chance for radical groups to take even more land.

A Tie In The Electoral College: 269 Obama - 269 Romney

In a time of great divide in the United States, could we afford another 2000 Florida-like situation? Could it be possible that 2012 will be more controversial than 2000? While it is only July and we are 110+ days outside of the election (practically an eternity for America) there is the possibility that the next President of the United States will be chosen by the House of Representatives as neither President Barack Obama or Mitt Romney will earn the magic number of 270 delegates to secure the election. 

The 2012 election will most likely be chosen by 12 "swing" states of Colorado, Florida, Iowa, Michigan, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Pennsylvania, Virginia, and Wisconsin. Outside of those states, President Obama currently has the advantage meaning Mitt Romney will need about 2/3 of the remaining delegates if he is to win it all. So if Ohio or Florida is called early for Obama  on election night, he is virtually guaranteed a second term.

Looking further, some of these 12 states are close in the polls, but have not been "swinging" in recent Presidential Elections. Pennsylvania has not gone to a Republican since 1988. While Mitt Romney is the type of Republican who could win the Keystone State and the GOP may have the best chance since 1988, a semi-popular Democrat (Sen. Bob Casey) is up for reelection against an unknown candidate Tom Smith. So if Obama can't ride the coattails of Senator Casey and win in my home state, I'm popping open the champagne bottle before the Mountain Time Zone is finished voting.

Wisconsin falls into the same category. While it was close in 2000 and 2004, the Democratic nominee has claimed the state in the past six Presidential elections. In order for the 269/269 scenario to work, this state needs to flip to Romney. If Governor Scott Walker can survive the recall and a recent poll shows Romney ahead 47% - 44%, the Badger State can turn red.

Obama appears to be semi-comfortably ahead in New Hampshire and is slightly ahead in Michigan according to most polls collected by Real Clear Politics. Iowa, the state that literally was the launchpad for Obama against Hillary Clinton in the primary (and supported him over McCain in November) will be tight on election night. Rasmussen Reports gives Romney the slight edge in Iowa.

Nevada went to Bush twice, but to Obama in 2008. The Nevada Republican Party is literally in a civil war between Ron Paul supporters and the state establishment. Because of this turmoil, I see Obama taking this state again. New Mexico and Colorado have become more liberal this past decade (although Gov. Susana Martinez (R-NM) needs to be the blueprint for the Republican Party to attract more Hispanic voters). Since Sen. Bennett (D-CO) survived the Tea Party wave of 2010, Obama should be able to claim two of the four corner states. 

North Carolina, the state hosting the Democratic National Convention. The host site can be kind a few months after the streamers and balloons leave, but I expect this state to be a disaster for the DNC. People are skipping the convention and the recent divide between the national party/local voters on some key issues will make the Tar Heels wear a Wolfpack Red in November.

Virginia. With the exception of Wisconsin, this could be the most controversial call in the map especially if North Carolina, Ohio, and Florida go to Romney because Virginia would be ignoring the regional/demographic trend [Note: If Wisconsin and Virginia are wrong on the map above, Mitt Romney earns 272 delegates].

Before Obama won the state in 2008, the last time Virginia danced with the left in a Presidential Election was all the way back in 1964 with President Johnson. The Real Clear Politics Average has Obama with a 3 point advantage over Romney (Rasmussen has the state tied, poll within the RCP link) and Virginia likes playing "bi-polar" politics. In other words: Virginia likes to vote for a Governor and President from a different party. 

In 2000, Virginia voted for President Bush, yet voted Mark Warner (D) as Governor in 2002. 2004 went to Bush again, but felt blue shortly thereafter as it voted for Tim Kaine (D) in 2006. Two years later, the state voted for President Obama and in 2010, (if you're following the trend) they overwhelmingly voted for the the Republican candidate, Bob McDonnell [Note: Virginia Governors are limited to one term]. So expect this bi-polar trend to continue giving this state to Obama in November.

If all that plays out, the Congressional races just became way more important because neither President Obama nor Mitt Romney acquire the needed 270 delegates. If that happens, the House Chamber votes (not individually, but by state) and whichever candidate gets 26 states, gets the Presidency. This could be extremely controversial because Obama could easily win Pennsylvania on election day, yet lose that state on the House vote because there are more Republicans than Democrats representing Pennsylvania. A similar event happened in the 1824 Presidential Election. This is unlikely to happen in 2012, but it is a possibility. 

-Christian N.

Map was created at: http://270towin.com

Ted Talks, Peter van Uhm: Why I chose a gun

Four Star General, Peter van Uhm, the highest ranking member of the Royal Netherlands Army, shares why sometimes you need to have a gun at Ted Talks, Amsterdam. Van Uhm said, “Sometimes only the gun can stand between good and evil,” He goes on further, “And that is why I took up the gun. Not to shoot, not to kill, not to destroy. But to stop those who would do evil. To protect the vulnerable. To defend democratic values.”

In the Dollar "We Don't" Trust

On Friday, Larry Kudlow wrote an article discussing the US Dollar. In his article, he writes: "We know that gold is soaring.

And we know the dollar is slumping. But, did you know that year-to-date, while the S&P 500 is up 18 percent—a great showing no doubt—gold is up even more.

The precious metal is up 21 percent. In other words, measured in true, gold-backed purchasing power, stocks have really done nothing this year. Zip. It is most disappointing... What we’re seeing right now is pretty close to what we witnessed in the 1970s—the rise in gold and inflation really cuts into the stock market.

So what’s the way out?

Well for starters, we need a stable dollar to stop inflationary pressures. And we also need lower tax rates to spur the economy, help it grow, and reduce unemployment."

He also goes on to mention, "In addition, the Treasury ought to get out there and buy these unwanted dollars in the marketplace. Just go out there and bid for them. And they need to stop printing so much debt from Congress. All this massive spending and borrowing is killing us. We need to be slashing tax rates on large and small businesses. There’s just no better place to begin job creation."

Full Article Here


I agree with Mr. Kudlow. With gold at its highest rate ever and considering that The Federal Reserve has DOUBLED the amount of US Dollars in circulation in one year, clearly inflation is coming.



This video was aired back in January, so the amount of money in circulation now is even higher. However, the money that The Federal Reserve printed approximately one year ago is just now starting to enter the market.

Two other nations in recent history have/had major inflation. One was the Weimar Republic (Germany) after World War I. According to PBS around 1920 "Milk went from 7 Marks per liter to 16." After 1920 "The printing presses ran, and once they began to run, they were hard to stop. The price increases began to be dizzying. Menus in cafes could not be revised quickly enough. A student at Freiburg University ordered a cup of coffee at a cafe. The price on the menu was 5,000 Marks....When the 1,000-billion Mark note came out, few bothered to collect the change when they spent it. By November 1923, with one dollar equal to one trillion Marks, the breakdown was complete. The currency had lost meaning."

The Germans printed more and more money without it being backed by gold, and destroyed their own currency. The other example is Zimbabwe. I was in Southern Africa this summer, mainly in South Africa, however I was near the border with Zimbabwe. I was given a legal tender of 50 billion Zimbabwe-Dollars. You need 100 billion Zimbabwe-Dollars to buy a soda. While I was there, I was told the Zimbabwe-Dollar collapsed because of inflation (and printing money) and Zimbabwe has since abandoned the currency.

Since 1973, our currency has not been backed by gold, and since we are printing money without anything that is backing it up, we are going to have inflation, as Mr. Kudlow mentions. People are trusting gold more than the US Dollar, this is why it is over $1,000 dollars an ounce. The only way we can stop this, before we go down the same path as the Weimar Republic or Zimbabwe, is to create jobs. The way to accomplish this is to lower taxes for businesses and make it lucrative for companies to be here.

Other nations are showing concerns about the U.S. Dollar, as well, our national debt, which is about 12 Trillion Dollars. Last Tuesday, The Independent Newspaper reported "Gulf Arab Nations are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar."

If the World thinks the dollar is no longer "the standard" when it comes to currencies, then we may have tough financial times ahead of us, and a new financial crisis, much worse than what we experienced a year ago.

If we don't stop printing more and more money, and unemployment keeps rising; prepare for massive inflation and a possibly a depression. I hope that I am wrong and that President Obama, along with the rest of our Government and The Federal Reserve, can solve these issues by creating new jobs, reducing unemployment numbers, and stopping our national debt from rising.

Christian

Note: this Article was made for one of my classes in school where we had to respond to an article.

Works Cited:
Amadeo, Kimberely. "History of the Gold Standard." About.com. Web. 10 Oct. 2009. .

Fisk, Robert. "The demise of the dollar." Independent UK. 06 Oct. 2009. Web. 10 Oct. 2009. .

Goodman, George. "The German Hyperinflation, 1923." PBS.org. PBS, 1981. Web. .

Http://www.usdebtclock.org/. Web. 10 Oct. 2009. .

Inconvenient Debt - Glenn Beck. Dir. Fox News. Perf. Glenn Beck. Url: http://www.youtube.com/watch?v=lNS8IY_Td14.
Independent UK Newspaper. Torn-Dollar. 2009. Photograph.

Kudlow, Larry. "Save the Greenback, Mr. President." CNBC. 09 Oct. 2009. Web. 10 Oct. 2009. .