Russia's Rouble Collapsing as Oil Prices in Freefall

As the price of oil plummeted to below $60 a barrel on increased Saudi production, Russia's already sluggish economy took a significant hit when Russia's central bank announced they would increase the key interest rate from 10.5% to 17% in a drastic move announced earlier this week.

The move was done in part to halt the Russian Ruble's drastic slide against the Dollar and Euro- as of Wednesday afternoon, the Ruble was trading at just over 60 to the dollar [down from 68 prior to interest rate hikes- NANESB!] and just under 75 to the Euro.

Although Russia has been on the receiving end of lukewarm sanctions from the USA and European Union after Russia annexed the Crimea and parts of eastern Ukraine, it's apparent that the recently plummeting energy prices have played a role in Russia's latest economic crisis.

This leaves Putin with the difficult choice of trying to prop up the mostly resource-based Russian economy or continue his costly military campaign against the Ukraine [I'm of two minds on this- while I'm glad Putin's finally reeling after attacking a neighboring country unprovoked, let's also keep in mind that no matter how dangerous and belligerent a Kremlin flush with petrodollars was the Eastern Europe, an unstable Russia that feels it has nothing left to lose may end up being more dangerous to the region. Also, who's to say the contagion would be confined exclusively to Russia?- NANESB!].

A financial joke devised to poke fun at Putin comes true http://t.co/WNRH5tkHFo pic.twitter.com/3DigQSw7Qt

— The Political Hat (@ThePoliticalHat) December 16, 2014

Over the last several weeks, the implied rationale behind Saudi Arabia's increase in production was that they were attempting to undermine the fracking boom in the US and Canada, temporarily saturating the global market with cheap oil and making the labor intensive practice unprofitable for North American companies. While this strategy would mean the Saudis would lose money in the short-term, they would (in theory) benefit in the long run from reduced competition from oil shale in west Texas and North Dakota.

However, others have theorized that Russia was the intended target of a clandestine Saudi economic attack all along. With President Obama ignoring his own self-declared 'Red Line' in Syria and seeking rapprochement with Iran- despite the Islamic Republic's stated desire to obtain nuclear weapons- the Arabian kingdom has decided to act unilaterally and go after Syria and Iran's benefactor in Russia economically. If that is the case, then undercutting Russia's state-run Gazprom by flooding the global marketplace with cheap oil has proven devastatingly effective so far- moreso than tepid the tepid sanctions levied on Russia after invading the eastern Ukraine.

Whether it's to undercut Russia or the fracking boom in the USA, the Saudi strategy is sure to cause problems among other OPEC members who are just as reliant on oil as Russia and may not be able to ride out low prices like the House of Saud. Even more problematic for some OPEC nations such as Iran and Venezuela is that Russia is their primary benefactor.

The move by Russia's Central Bank comes a little over a month after Russia and China agreed to a lucrative $300B energy deal which would give China's quasi-state run China National Petroleum Corp a partial stake in west Siberian oil and gas fields. In October, China and Russia had signed an agreement to swap nearly $100B of currency, so China may be on the hook as well if the Ruble continues its collapse.

The rate increase has also triggered bickering amid Putin's inner circle and prompted many Russians swarming markets to buy goods before the prices went up.

Saudi Prince- US Shale Oil Could Undermine Kingdom, OPEC Nations

A Saudi prince and business investor has warned that the kingdom and other OPEC members that their economies were under a growing threat from the 'fracking revolution' in the USA that has shaken up the energy landscape in recent years.

Prince Alwaleed bin Talal, the country’s best-known global investor, said the business model of Middle East oil exporters risks unravelling rich industrial states find ways of cutting demand. “Our country is facing a threat with the continuation of its near-complete reliance on oil: 92% of the budget for this year depends on oil,” he said in a letter to Saudi oil minister Ali Al-Naimi.

Opec admits that new output from hydraulic “fracking” could chip away its dominant position in the market but the group is more worried about recession in Europe and a hard landing in China.

Prince Alwaleed said oil demand from OECD rich states is in “continuous decline”, and the Saudis will not be able to ratchet up their output from 12.5m to 15m barrels per day (bpd) to cover growing budget costs. “It is necessary to diversify sources of revenue, establish a clear vision, and start implementing it immediately,” he said.

A report last month by Leonardo Maugeri at Harvard University said US shale oil output could triple to 5m bpd by 2017, turning America into the world’s top producer once again.

If shale does deliver on its promise and keeps prices low for decades, it will be a mortal threat to OPEC states that rely on oil revenue to cover social spending and placate fast-growing populations.

Prince Alwaleed was ranked by Forbes magazine as the world's 6th richest man at one point and is most infamous for his comments urging that the United States "should re-examine its policies in the Middle East and adopt a more balanced stance toward the Palestinian cause" just weeks after the September 11th, 2001 terrorist attacks. Then-mayor Rudy Giuliani and other New York officials rejected a $10 million donation from Alwaleed after his remarks.

A trio of Dakota, Missouri Valley & Western units approach the Canadian Pacific interchange in Flaxton, ND as a recently-constructed oil pump works in the foreground in November 2012. Steven M Welch photo.

Hydraulic fracture drilling- also known as hydrofracking or fracking- uses a mix of water and chemically treated sand or 'mud' that's injected into the ground to get to otherwise inaccessible deposits of oil or natural gas. The 'Shale revolution'- as some have called it- has led to the formation of oil boomtowns in North Dakota and breathed new life into Rust Belt towns in Pennsylvania and Ohio. This in turn has led to increased manufacturing for components, mining for 'frac sand' and rail activity moving the supplies into the oilfields and the oil out and to refineries.

Drilling for natural gas in Pennsylvania's Marcellus Shale has become particularly contentious recently, with environmentalists and movie stars weighing in on the purported dangers of fracking to groundwater supplies [although some wells were contaminated decades before fracking began in the area- NANESB!]. A 2012 movie titled Promised Land starring Matt Damon as an energy company representative who has a change of heart after being sent to a struggling Pennsylvania town to secure leases for wells was financed in part by the United Arab Emirates- another OPEC member.

The shale revolution isn't just limited to the United States or Canada, either. Earlier this year, there was a massive oil discovery in Australia's outback while fracking for both natural gas and oil began in Argentina in April. Energy companies believe that Poland may contain central Europe's largest reserves of natural gas, and development of that could reduce Europe's dependence on the Russian energy giant Gazprom. Meanwhile, data from the British Geological Survey indicates that the UK's own shale gas reserves are nearly twice the size of original estimates.

Anti-Fracking Movie Starring Matt Damon Bankrolled in Part by OPEC-Member United Arab Emirates

A new drama starring Matt Damon as a smooth-talking natural gas company official who attempts to purchase drilling rights from local residents in a rural Pennsylvania town is already generating buzz, but it has nothing to do with what takes place on-screen.

The movie Promised Land supposedly dramatizes the dangers involved in the drilling process known as hydrofracking- a local environmentalist seeks to thwart Damon and his company's attempts to drill in the area. To hardly any one's surprise, the local schoolteacher and environmentalist who raises the alarm regarding hydrofracking is portrayed in a positive manner while I suspect Damon's gas company official will be portrayed as manipulative and unethical- at least until his change of heart where he falls in love with a local woman.

Pretty standard Hollywood 'We-Liberals-and-Environmentalists-know-whats-best-for-you-rubes-in-flyover-country' boilerplate so far, right? With its December release, there's even Oscar talk for Promised Land all while bringing the ongoing debate over fracking front and center.

Only it was recently discovered that the film has received considerable financial backing from the United Arab Emirates- a member of OPEC and among the top 10 oil producing nations in the world.

The film was produced “in association with” Image Media Abu Dhabi, a subsidiary of Abu Dhabi Media, as first reported by the Heritage Foundation. Abu Dhabi Media is wholly owned by the government of the United Arab Emirates, a small but extremely wealthy federation of absolute monarchies along the southern coast of the Persian Gulf.

Very obviously, the UAE has an interest in slowing down the expansion of hydraulic fracking that has created an energy boom in the United States.

This would not be the first American film that would've received financial backing from Image Media Abu Dubai- other titles include The Help, Contagion and The Crazies among others.

Locations for filming Promised Land include the city of Pittsburgh as well as Westmoreland and Armstrong counties in Western Pennsylvania. A group of Armstrong county residents, upset at what they claim were the filmmakers using false pretenses to film in the area, started up a Facebook page called Armstrong County Promised Land Pride. Visitors to the page are greeted with the following succinct message: "They filmed this movie in our backyard. They said it would be fair to drilling. It's not. We're pissed."

Fracking opponents claim that the process injects massive quantities of hazardous chemicals into the groundwater and that hydrofracking can cause tap water to burst into flame and caused last year's magnitude 5.8 earthquake in Mineral, VA that was felt up and down the East Coast- even though the nearest natural gas well was hundreds of miles away.

The movie is loosely based on events in Dimock, PA where a handful of local residents had claimed drilling from nearby wells had contaminated their groundwater. However, after analysis by Pennsylvania's environmental agency and the EPA, the water was deemed safe to drink by the EPA this summer.

The real-life events in Dimock have reportedly prompted a hasty re-write of the Promised Land script. Of course this is where Hollywood decided to double down on the stupid in typical Hollywood fashion.

according to sources close to the movie, they’ve come up with a solution — suggest that anti-fracking fraudsters are really secret agents employed by the fossil-fuel industry to discredit the environmental movement.

In the revised script, Damon exposes Krasinski as a fraud — only to realize that Krasinski’s character is working deep undercover for the oil industry to smear fracking opponents.

Hollywood is worried about declining theater audiences; it’s blaming the Internet and the recession. But the real problem might be closer to home.

Damon and Krasinski said they were making a movie that “defines us as a country” but then shoehorned ideology into a script — and when real-world events became a problem, they shoehorned in more ideology.

You see, instead of the noble well-intentioned environmentalist perhaps having some kind of a 'Mea Culpa' moment and the dire environmental consequences Kasinski's charachter warned about not taking place, in west coast liberal screenwriter-land, the anti-fracking advocates being wrong are purely the fault of the oil company who are disseminating misinformation to discredit opponents.

Instead of some ancillary plot where the cash-strapped townsfolk can now afford to save up for their kids' college education or put an elderly relative in a decent rest home- all while drinking and bathing with tapwater that doesn't burst into flames- the alarmist and false narrative spun by the environmentalists and celebrity anti-frackers has to be placed at the feet of the energy companies. I believe that is called 'chutzpah' in some parts of the world.

ExxonMobil Announces Significant Oil Find in Gulf of Mexico After Chaotic OPEC Meeting in Vienna

Oil giant ExxonMobil [NYSE- XOM] announced on Wednesday a major discovery in the Gulf of Mexico that could yield as much as 700 million barrels of oil.

Exxon began exploratory drilling at the Hadrian prospect in 2009. The company had finished two wells at the site, located about 250 miles off the Louisiana coast in 7,000 feet of water, and had a rig on location and an approved permit to drill a new well when operations were halted due to the temporary moratorium after the BP oil spill last year.

In March, federal regulators signed off on Exxon's revised permit to drill the new well in the Keathley Canyon area of the Gulf, the company's first approved under the new regulatory regime put in place after last year's spill. The new well extends about 23,000 feet below the sea surface, and the rig is continuing to drill deeper, said company spokesman Patrick McGinn.

"We estimate a recoverable resource of more than 700 million barrels of oil equivalent combined in our Keathley Canyon blocks," Steve Greenlee, president of ExxonMobil Exploration Company, said in a statement. "This is one of the largest discoveries in the Gulf of Mexico in the last decade. More than 85 percent of the resource is oil with additional upside potential."

The announcement came on the same day as a surprise announcement from the OPEC meetings in Vienna that the member states would leave production levels unchanged, causing a jump in oil prices.

OPEC officials said that because of a policy deadlock, the group will maintain present output ceilings with the option of meeting within the next three months to consider a hike.

"We are unable to reach consensus to ... raise our production," OPEC Secretary General Abdullah Al-Badri told reporters, in comments reflecting unusual tensions in the 12-nation Organization of the Petroleum Exporting Countries.

Saudi oil minister Ali Naimi called it "one of the worst meetings, we've ever had," while analysts covering OPEC for more than 20 years said they could not remember any other time that the normally closed group had admitted to such divisions in its ranks.

Some even saw the abortive meeting as a harbinger of demise for the organization, which produces more than a third of the world's petroleum.

"OPEC is ... on the point of break-up," said Marc Ostwald of Monument Securities. "A broader perspective is that the post World War II world order is fracturing in a spectacular fashion, be it the EU/Eurozone, the World Bank/IMF, (or) OPEC."

Other experts were less outspoken but agreed Wednesday's outcome would weaken the image of OPEC as a major regulator of oil markets.

The news caught markets by surprise, sending oil prices sharply higher. Benchmark crude for July delivery was up $1.25 to $100.34 per barrel in morning trading on the New York Mercantile Exchange after trading lower ahead of the OPEC meeting.

Saudi Arabia and other influential Gulf nations had pushed to increase production ceilings to calm markets and ease concerns that crude was overpriced for consumer nations struggling with their economies. Those opposed were led by Iran, the second-strongest producer within the Organization of the Petroleum Exporting Countries.

Oil minister Rafael Ramirez of Venezuela- like Iran, a price hawk - said there was a "very tight" discussion in OPEC, in comments to his nation's state media. Any production increase "could cause a collapse of our price," he added.

While the Saudis and the Iranians are frequently at loggerheads over pricing, past meetings normally fell in behind Saudi Arabia, which produces the lion's share of OPEC output. But this time, the Saudi-Iranian rivalry combined with major political and economic uncertainties to lead to deadlock.

Saudi Arabia, the United Arab Emirates, Kuwait, Algeria and Qatar were reportedly in favor of production increases while Iran, Venezuela, Angola, Ecuador and Iraq were opposed.