Imperial Folly Brings Russia And Germany Together

The Empire of Whiners simply can"t get enough when it comes to huff, puff and pout as the Empire of Sanctions.

With an Orwellian 99% majority that would delight the Kim dynasty in North Korea, the "representative democracy" Capitol Hill has bulldozed its latest House/Senate sanctions package, aimed mostly at Russia, but also targeting Iran and North Korea.

The White House"s announcement - late Friday afternoon in the middle of summer - that President Trump has approved and will sign the bill was literally buried in the news cycle amidst the proverbial 24/7 Russia-gate related hysteria.   

Trump will be required to justify to Congress, in writing, any initiative to ease sanctions on Russia. And Congress is entitled to launch an automatic review of any such initiative.

Translation; the death knell of any possibility for the White House to reset relations with Russia. Congress in fact is just ratifying the ongoing Russia demonization campaign orchestrated by the neocon and neoliberalcon deep state/War Party establishment.

Economic war has been declared against Russia for at least three years now. The difference is this latest package also declares economic war against Europe, especially Germany.

That centers on the energy front, by demonizing the implementation of the Nord Stream 2 gas pipeline and forcing the EU to buy US natural gas.

Make no mistake; the EU leadership will counterpunch. Jean-Claude Juncker, president of the European Commission (EC), put it mildly when he said, "America first cannot mean that Europe"s interests come last."

On the Russia front, what the Empire of Sanctions faces does not even qualify as a hollow victory. Kommersant has reported that Moscow, among other actions, will retaliate by banning all American IT companies and all US agricultural products from the Russian market, as well as exporting titanium to Boeing (30% of which comes from Russia).

On the Russia-China strategic partnership front, trying to restrict Russia-EU energy deals will only allow more currency swaps between the ruble and the yuan; a key plank of the post-US dollar multipolar world.  

And then there"s the possible, major game-changer; the German front.

The Fools on the Hill

Even without considering the stellar historical record of Washington not only meddling but bombing and regime-changing vast swathes of the planet — from Iraq and Libya to the current threats against Iran, Venezuela and North Korea — the Russia-gate hysteria about meddling in the 2016 US presidential election is a non-story, by now thoroughly debunked.

The heart of the matter is, once again, energy wars.

According to a Middle East-based US energy source not hostage to the Beltway consensus, "the message in these sanctions is the EU has no future unless it buys US natural gas to cut out Russia. To deny Russia the natural gas market of the EU was the goal behind the just lost war in Syria to put the Qatar-Saudi Arabia-Syria-Turkey-EU pipeline in and the opening to Iran for an Iran-Iraq-Syria-Turkey-EU pipeline. None of these plans worked."

The source adds as evidence the 2014 oil price war against Russia, orchestrated by "the dumping of Gulf States" surplus oil or reserve capacity on the world market. Since this has failed to bring Russia to its knees, the destruction of the Russian natural gas market in the EU has become a national priority for the United States."

As it stands, 30% of all EU oil and natural gas imports come from Russia. In parallel, the Russia-China energy partnership is being progressively enhanced. Russia is already geared to increase oil and gas exports to China and Asia as a whole.

The leadership in Berlin is now convinced that Washington is jeopardizing Germany"s energy diversification/energy security via the  sanctions war. Russian natural gas and oil is secured by overland routes and is not dependent on the oceans, which, as the energy source stresses, "are no longer under United States control. If Russia in response to United States belligerency drops an Iron Curtain over Europe, and redirects all its natural gas and oil exports to China and Asia, Europe will be utterly dependent on largely insecure sources of natural gas and oil such as the Middle East and Africa."

And that bring us to the "nuclear" possibility in the horizon; a Germany-Russia alignment in a Reinsurance Treaty, as first established by Bismarck. CIA-related US Think Tankland is now actively discussing the possibility.    

Another US business/political source, also a practitioner of thinking outside the (Beltway) box, stresses, "this is what it"s all about. That is the true goal of Russia, and the United States has fallen into the trap. The United States has had enough of Germany and what it considers dumping of German products on the United States through rigged currency. They are now threatening Germany with sanctions, and there is nothing Germany can do with the EU on their back facing vetoes from Poland, who is giving them trouble once again. The fools in Congress are really going after Germany, and throwing Germany in the arms of Russia."

The US as the New Carthage

A possible Germany-Russia alliance, as I"ve written before, rounds up the China/Russia/Germany entente capable of reorganizing the entire Eurasian land mass.

The Russia-China strategic partnership is extremely attractive to German business, as it smoothes access via the Belt and Road Initiative (BRI). According to the business/political source,

"the US is at war with China and Russia (but not Trump, our President) and Germany is having second thoughts about being nuclear cannon fodder for the US.

I have discussed this in Germany, and they are thinking of renewing the Reinsurance Treaty with Russia.

No one trusts this US Congress; it is considered a lunatic asylum. Merkel may be asked to leave for the leadership of the UN, and then the treaty would be signed. It will shake the world and end any thought of the United States being a global power, which it isn"t anymore."

The source adds, half in zest, "we think that Brzezinski died under the pressure of the realization that this was coming and that all his hatred of Russia and his life work to destroy them was becoming utterly undone."

So, in a sense, it"s "welcome to the 1930s all over again and the rise of nationalism in Europe. This time Germany will not make the mistakes of 1914 and 1941 but will stand against their traditional Anglo-Saxon enemies. The United States has truly become today"s Carthage and the disorder in Congress reflects the same stupidity of Carthage facing Rome. Legislators undermined their genius Hannibal as they are undermining the greatest president of the United States since Andrew Jackson. As Sophocles wrote in "Antigone", "God first makes mad those he wishes to destroy." This Congress is mad."

Why China's Strategic Petroleum Reserve Is All That Matters For OPEC

When OPEC sits down on Thursday, keeping the price of Brent above $50 (to avoid a budget catastrophe and social upheaval in Saudi Arabia) and below $60 (to prevent US production from going exponential), will be just one problem the cartel nations and various hangers-on will be desperate to solve. A much bigger one, literally, is the problem that led to this week"s OPEC meeting in the first place, and years of headache for OPEC and non-OPEC nations: a record global oil inventory glut.

The supply glut that began in mid-2014 has dumped almost one billion barrels of petroleum into global inventories. However, of this only 35–45% has ended up in transparent OECD tanks. For OPEC, that is all the matters - in the past, OPEC oil ministers have repeatedly referenced the level of OECD petroleum inventories relative to their five-year average as a gauge of the rebalancing. And, as ScotiaBank notes, those inventories were more than 280 Mbbl above their five-year average as of January and, while European stocks have been falling into a healthier range, the same cannot be said of industry stocks in the US, which despite declining for several weeks, are just below all time highs.

But forget OECD: an increasingly greater concern for OPEC is not the less than a third of above ground oil held in developed nations; it is the rest that is the big challenge. As ScotiaBank"s Rory Johnston points out in the following chart, the majority of the remainder was absorbed by China’s vast and growing strategic petroleum reserve (SPR), which means that "the lion’s share of functional—and thus needing to draw from an OPEC perspective—industry inventories remain in the OECD, and specifically in the US (chart 3)."

As we have explained on several occasions over the past year, China"s SPR is far more important to the global oil (im)balance and inventory glut than the less than a third of total oil produced since the summer of 2014 and stored. This is due to one main reason: while ScotiaBank is correct that any draws will likely come from OECD storage, it forgets the demand side of the equation.

Storage tanks in China"s strategic oil reserve complex in Zhoushan

One year ago, JPMorgan estimated that the daily build of China"s SPR, had grown at a breakneck pace, from 491Kbpd average in 2015 to a record 1.191MMbpd in 2016 through May, equivalent to roughly 15% of the country"s total crude oil imports.

More importantly, it was roughly a year ago when JPM calculated that China"s SPR was getting dangerously close to its estimated capacity, just over 500 million barrels.

JPM also made a forecast that based on its assumptions, Chinese oil imports would slide by roughly the amount that would have been going into the SPR starting in late 2016 as the reserve hit capacity. When that did not happen, there was much confusion among the commodity space, until in late September 2011, satellite imagery from Orbital Insight revealed that the total size of China"s SPR was vastly greater than previously estimated.

According to satellite images by  geospatial analytics startup Orbital Insight, China, has not only misrepresented how much oil it has stored, it has done so at a massive scale, with the real number dwarfing even JPM own estimate: the real amount of Chinese oil in storage, according to Orbital, was a whopping 600 million barrels as of May. Assuming JPM"s estimated rate of SPR accumulation of about 1mmbpd, the 600 million number as of May would have grown to well over 700 million barrels as of September. 

Orbital’s figure as first reported by Bloomberg, is well over two times larger than China’s official estimates for strategic petroleum reserves and for commercial stocks, said Orbital Chief Executive Officer James Crawford.

To be sure, in late 2016 other skeptics started warning that even with the revised size estimates, China"s SPR was likely approaching capacity. Last September, the IEA warned that "recent pillars of demand growth China and India are wobbling." S&P Global Platts" Ernsberger, cited by CNBC, said that the slowdown in Chinese demand was worrying for major oil producers.

"The demand picture is very unsettling for OPEC and for all producers of crude and refined products (and this is seen most significantly in) the slowdown in growth in the Chinese market. China has returned more incremental demand for the oil market in the last five years than any other country in the world and more than almost any of the counties combine. But this year demand growth in China has stalled and that represents a significant change in the environment for producers both in OPEC and outside it."

Then 2016 came and went, and we find ourselves almost mid-way into 2017 and ask: has anything finally changed, and will all those predictions of an imminent Chinese SPR overflow finally prove accurate?

We don"t know just yet, but according to data released by the General Administration of Customs data on Tuesday, China"s oil stockpiling pace finally tumbled to 1.36mbpd in April, from 1.6mbpd in March, the sharpest decline in reserve accumulation in years, and in line with the recent slowdown from record oil imports. If indeed China is finally at capacity for the SPR, the SPR stocpiling is about to fall off as cliff this month.

In other words, all those forecasts that China"s SPR is almost full appear to be finally coming true, and at the worst possible time for OPEC, because if suddenly over 1 million in daily "demand" is pulled from the market, OPEC will suddenly find themselves with another huge glut now that Beijing is no longer waving it in. In fact, we contend that while OPEC"s decision on Thursday is fully priced in by the market, the only thing that matters for the future price of oil is how long until China halts SPR imports. Here, those who have faster access to commercial satellite imagery will be a distinct advantage over everybody else, even the momentum-chasing, headline scanning algos...

US To Sell 8 Million Barrels Of Oil From The Strategic Petroleum Reserve

Two weeks ago we previewed that the U.S. Department of Energy could begin to sell off some of its strategic petroleum reserve (SPR) as soon as January, the beginning of a multi-year process to shrink the nation’s stockpile of oil. Congress has authorized DOE to sell off $375.4 million worth of oil in its recent budget resolution. The DOE said that such a sale could be held in January 2017.

Part of the motivation to sell crude is to finance upkeep for the SPR itself. The reserves are held in salt caverns in Louisiana and Texas, setup decades ago in the aftermath of the Arab Oil Embargo in 1973. The SPR system can hold more than 700 million barrels of oil, the largest strategic stockpile in the world. The idea is that the SPR holds 90 days’ worth of oil supplies, which could be released in the event of a global outage. A release has only occurred a handful of times, such as the Persian Gulf War, Hurricane Katrina and the Arab Spring.

Some of the storage systems are rusting and corroding after decades of use. In September, the DOE issued a report to Congress, which came to a dire conclusion about the condition of the reserve. “This equipment today is near, at, or beyond the end of its design life,” the report said. The sale "will allow the Department to take necessary steps to increase the integrity and extend the life” of the reserve, a DOE spokesperson said in December after the budget resolution was passed.

In the past, the SPR has been viewed as a cornerstone of US energy security policy. As long as the U.S. had 3 months’ worth of supply, it could weather unexpected disruptions. The International Energy Agency was setup in the 1970s as well, and participating members – in addition to the U.S., the group includes Europe, Japan, Korea, Australia and New Zealand – also have pledged to hold a 90-day supply. However, U.S. policymakers no longer view the SPR is all that important. Even the more hawkish members of Congress have been lulled into a sense of security from the surge in U.S. oil production and the resulting crash in oil prices. The world is awash in oil, so why does the U.S. need to stockpile such a massive volume of oil at great expense? The ostensible reason of selling off oil from the SPR is to finance its maintenance to ensure its existence over the long-term, but if the Congress still truly believed in the importance of the SPR, they would have found funding elsewhere instead of reducing the stockpile.

In any event, the previously previewed sale is about to take place, and according to an announcement by the DOE, the US will offer to sell some 8 million barrels from the petroleum reserve. According to the notice of sale, the Energy Department is accepting bids on sweet crude oil until 2pm CT Jan. 17. The contracts will then awarded by the end of January, with early deliveries expected in February and other deliveries in March, April.

The sale includes:

• Up to 3m bbl from Bryan Mound


• Up to 3m bbl from Big Hill


• Up to 2m bbl from West Hackberry

It is unclear yet if the upcoming sale will pressure oil prices, or whether China - which unlike the US has been aggressively stockpiling oil for its own strategic petroleum reserve over the past year - will be the ultimate buyer.

Oil Market Analysis 1-2-2017 (Video)

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