A game of cutthroat

The Clint Eastwood movie “The Good, the Bad and the Ugly” ended in a three way shoot out, a game of cutthroat to the death.  Trump, Muhammad bin Salman, and Putin are playing their own version right now, over oil.  They are the three big dogs in the world oil industry, each fiercely protective of their country’s interest.  Each determined to be the winner, and the others the losers.

It’s a complicated game.  Deception is the key.  Make both of your opponents believe you are their friend, while trying to take advantage of both of them.  There is no room for friendship in this game, only stark national self interest.

Putin is playing the weakest hand, and an unstated reality is that the Saudis and the Americans have worked together strategically for 70 years.  They would prefer to maintain that relationship.

So they have to figure out a way to screw the Russians.  The easy way is for Trump to put a tariff on all oil, except from Alberta.  That leaves the Saudis and the Russians to fight it out between them.

Putin loses that war, and our number two geopolitical foe has his head handed to him.  Marginal oil producers around the world are driven out of business, and our shale industry, healthy and intact, proceeds to provide the USA with energy dominance.

All the President needs to do is impose the tariff.

The investment opportunity of a lifetime

I encourage my loyal readers to read the following, published earlier today at Oilprice.com:

The greatest trade in decades,

The return of the super contango.

I’ve been closely following the oil industry for four decades, and Nordic American Tanker (NAT) and DHT Holdings (DHT) are the best bets I’ve ever seen.  Don’t take my word for it.  Check them out.

I first got into the market when I was 14.  I had about $175, and I didn’t want to settle for bank interest.  My Aunt Mary took me to meet a rich old man, Mr. Gelleher, who was the father of her deceased boy friend.  He was a retired executive from Libby.  He said one word.




We need a tariff on oil

(This appears in today’s American Thinker.)

Oil tankers are used to store oil, as well as transport it.  Rates for these tankers are brokered, and right now they’re going through the roof.  The world is rapidly running out of storage space for crude.  By June it could well be full up.  At that point, some producers are going to have to shut down.  You can’t pump it if you don’t have any place to put it.

The Saudis, of course, know all this, and you can bet your bottom dollar they won’t be forced to shut down their production.  They’re paying top dollar for the dwindling number of tankers still available.  The Saudis don’t care how much it costs.  They’re going to drive other producers out of business.  Period.  Money doesn’t matter.

They are strutting their stuff, the big dog of the oil patch, and they have mind boggling amounts of money.  The 34 year old boss, Mohammad Bin Salman, is the new kid on the block.  He’ll be in power for 40 years.  He can take the long view, and in the long run he wants all the world to know what kind of a man they’re dealing with.  A badass, just like his grandfather.  A guy who can’t be intimidated, a guy who doesn’t make threats that he doesn’t back up.

The main Saudi target is the American shale industry, but I doubt President Trump will allow that to happen.  We want to be not only energy independent, but energy dominant.  That requires a healthy shale industry.  Trump will impose a tariff on oil, getting the American, protected, market back up to reasonable levels  —  above $35 a barrel.  Americans who are still driving will still be getting inexpensive gas.  And most Americans aren’t driving, so they won’t care.

Once the Saudis have driven other foreign production out of business, they’ll end the price war, and the President can remove the tariff.  With an intact shale industry, we will always be energy independent.

The last time the Saudis really put the screws to the other oil producers was in the early 80’s.   I remember it well.  I was in the state legislature of Alaska, an oil dependent state, and economy.  They drove the price on the spot market down to $8 a barrel.  Alaska was going broke.

And so were the Russians, who got 90% of their hard currency from selling oil.  Their oil revenue collapsed, they couldn’t possibly afford an arms race, and they were forced to cut a deal with President Reagan.

This was all part of the Reagan administration’s plan.  In one of his very first acts after assuming office, the new President used all his good will and political capital to push an arms sale to Saudi Arabia through Congress.  It just squeaked through the Senate, 53-47.

Israel was extremely angry about this sale, and used all its influence in Congress to defeat it.  The Saudis were acquiring AWACS planes, which would give them early warning of an air strike from Israel.  With AWACS deployed against it, the Israeli Air Force lost the element of surprise.

Strangely enough, shortly after the Saudis took delivery of their AWACS, and got it up and running, they announced a price war.  The other world producers were not doing their share in holding down production, so the Saudis were going to give them a lesson they would never forget.  They flooded the world with oil, and broke the back of the Soviet Union.

Don’t underestimate Mohammad Bin Salman.  He’s out to prove himself, and he knows how to do it.  It’s a family tradition.

Fritz Pettyjohn was a State Senator and State Representative from 1983-1991.

{The world is running out of oil tankers, and the companies that own them are engaged in a merry bout of price gouging.  For stocks like NAT and DHT the oil glut is a bonanza.}






Step up, Cuomo

It’s time for Gov. Andrew Cuomo, the de facto leader of the Democratic party, to take the next bipartisan step toward economic recovery.  The stimulus bill is not enough.  In addition, we need to spend a trillion dollars on critically needed infrastructure improvement.  New York’s needs, in particular, are urgent.

On Wednesday Sleepy Joe Biden declared for an infrastructure bill, pointing out that, “It’s a way to generate growth”.  But his idea of infrastructure is the Green New Deal, an environmental boondoggle.

New York, like the rest of the country, doesn’t need windmills.  It needs $150 billion for mass transit, railroads, airports, highways, bridges and tunnels.

Cuomo needs to ask President Trump to sit down with him and put together a plan to help New York.  If Cuomo leads, other Governors, and the Democrats in Congress, will follow, and the next step toward economic recovery can be taken.

Cuomo, and the Democrats, must swallow their pride and give Trump what he’s always wanted, a chance to build.  It’s what he knows, does, and enjoys the best.

This may help Trump get reelected.  But political considerations cannot guide policy in a war, or a crisis.  We’re all in this together.  And if we can get out of this recession quickly, there will be plenty of credit for all.