Pass out the Coke and let’s teach the world to sing.
OK, I’m about to head to Vegas and put money on Leo DiCaprio winning an Oscar. Everything that you never expected to happen is about to happen. Love is in the air in Doha and the wine must be the stuff made for gods. Somehow we made it to the first stage of a recovery as the Saudis and Russia have agreed in principle on an “output freeze." It’s a lot like the line from the Black Eyed Peas song, “Humps”: “My humps, my humps, my lovely lady lumps…”
Nobody knows what it means, but it’s provocative and it gets the people going. Again, it’s a start and we shouldn’t be too pessimistic. If anyone cares to remember, all the pessimism about U.S. crude oil production ever getting to 9M b/d or staying up there after crude dropped below $50 last year. We should all have learned by now that this is a whole new game and anything is possible.
So far what we do know is that the two largest producers of crude oil are willing to cut back on production. Haters can go ahead and say that we’ll have to wait on Iran and Iraq or that compliance is an issue, but it’s the same old same old that we’ve seen before with OPEC cuts. It’s still up to the Saudis to cut back and lead by example, but with Russia in the mix it’s twice as likely to have an impact. Of course there are a lot more layers to this onion and all do bad for the United States.
See, not that we’re shipping out exports as fast as Beanie Boos, but as long as we stay up here as the number three producer in the world, we ought to be sending a message of compliance. The U.S. government can’t really control anything like those countries, so it might be that we have to shrug our shoulders. Bad form on our part, but that’s what you get with capitalism. Unfortunately with Mssr. Trump leading the GOP nomination, our image as a country of futurists doesn’t look like it includes foreign policy.
Now this is where it gets tricky my teeming millions. The idea of the Saudis and Russia working together for the greater good is a bit unsettling. That division between “us and them” that I’ve been talking about for the past year is getting as wide as the backside of Nicki Minaj. Somehow Russia has parlayed their strength and growth in oil the past decade into a major key in foreign policy.
Putin knew when he was first elected president in Russia in 2000 that this was a priority. Russian oil production then was just above 8M b/d and during his first eight years he has helped return all oil to the state and increased that number past 10M b/d. He managed to step out during the oil crash from 2008 to 2012, but has come back just in time to navigate that half of the world through these difficult times. Chances are he understands this oil business more than anyone is giving him credit for and if he can build an ally with Saudi Arabia and the other Arab nations, there’s a major shift coming.
For what it’s worth, we have to wonder what’s going to become of Iran here. Russia has always been more than happy to work with Iran, but Putin knows where to play favorites and this is a big swing. The United States may surely be headed to oil independence within North America and Latin America, but the oil that supplies the rest of the world is being re-shaped by an odd cartel that might look pretty scary when all is said and done.