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Six or eight months is a long time. Some forget that some of us said that this was not about shale at all, that is just a convenient collateral consequence. Instead some said this over production is really about hammering Russia and Iran and the change of and keeping of power in Saudi. The goal may have been to try to bankrupt both of them and cripple their arms build up. The old king is dead, there is a new king and a new power succession plan. I still think it is about that, crippling the Shites and Russians and keeping power.

What some of us did not read correctly is the Saudi resolve to make this collapse of prices happen. I am one of those but I did figure they could finance the deficit for several years but I didn’t think they would or would need to. They are reportedly actually borrowing money to keep this up. Few noticed that they quietly REDUCED their prices again this weekend.

What some of us did not add to our calculus predicting that prices would rise by EOY was:

1. Shale held on longer than expected. The debt leverage of the shale drillers lasted longer than expected. They die hard and wishful thinking that this just could not be happening is a very strong force.
2. The frac / completion back log was bigger than expected
3. We did not expect the Saudis to be able to increase production as they have but instead thought they were near their maximum limit. I still believe they are pushing it very hard.
4. The shale decline has begin but about 4 to 6 months later than forecast and now we will see just how fast it goes. We are already almost down to where we were a year ago.
5. Did not figure Iran would be reentering soon but eventually and that the eventually would be too late to prevent a price spike. Also figured Iran oil is being sold somewhere even with the embargo

We did forecast that Russia would not sit still for the low prices nor would Iran... they are not. Their action will get worse toward the Sunnis. Saudi is scared and that is why they are sabre rattling. They want us to rattle with them and I pray we do not get more involved than we are.

I can’t figure what odungo will do or who he sides with.. the Syrian Rebel faction it seems; but is that to support ISIS or the rebels? I don’t know if he is Sunni or Shite but I’m pretty sure Jarret is Shite. Jarret would favor letting the Russians and Iran run wild. However, Assad is neither Shite nor Sunni really so there is no love lost for him by any of the white hut people or even by Iran. The guy with the head like a soup can, Assad, is also just collateral to the fracas and a useful idiot to the Russians and Iran. I think odungo is just pining for the death of the United States any way he can get it. Some of us said if they sow the wind they will reap a whirlwind. The storm clouds are rising. The invasion pathway is being cleared.

Consumption is up but not as much as the Saudis have increased production. World consumption is limited. You can only use, store and waste so much oil.

I know of two things I got right for sure:

1. Not everything that appears to be good is... low oil prices.
2. Low oil prices made the world a much more dangerous place. When there is plenty of money flowing there is peace.

Prices for oil will go up though it will probably not be because of orderly change in the supply and demand balance. I am now afraid it will be because my worst fears are being realized.... war clouds and then war. We will not only see a lurch in prices upward but also may see a shortage of supply again like we have not seen for more than 40 years.

I know with absolute certainty that this is the most confusing mess of politics and intrigue I think I have ever experienced and that I am more concerned about peace and safety than I have been in the last half a century.

What some of us did not read correctly is the Saudi resolve to make this collapse of prices happen.

What some forget the prices starrted falling while Saudi's were producing even less. They were not the cause, but the sustaining force in the price drop, along with driving it still lower.

They are reportedly actually borrowing money to keep this up.

In my opinion, since they still have massive cash reserves, they are borrowing now before their credit rating is slashed, preparing to be in this for a possible multiple years of negative cash flow.

3. We did not expect the Saudis to be able to increase production as they have but instead thought they were near their maximum limit. I still believe they are pushing it very hard.

The drill rig count in Saudi has significantly increased during the past year. They are taking advantage of reduced prices for rigs/labor and preparing for the long haul.

Thanks for the summary. I agree with your points and concerns.