As oil prices rise and fall, rise and fall in an increasingly volatile fashion, Double Down asks Chris Cook if the three big oil majors — Saudi Arabia, Russia, and the US — are to blame. Chris says that, in fact, Wall Street is keeping oil prices where they are and that Trump has pivoted away from Obama's natural gas-based market and back toward big oil. The volatility in prices is also driven by the transitioning from a commodity-based economy to a services economy and there is naturally going to be a lot of turbulence during this period but that it is a bottom-up revolution, as seen in Africa, and will be better for it in the long run.
We also have China hoovering up all the cheap barrels of oil and so they can set an upper level on the price as they can remove bids from the market should they choose. Another reason to blame for oil market volatility is the Red Queen syndrome and the economics of the fracking industry where Schlumberger's CEO recently warned the shale plays are having to devote more and more of their CapEx toward replacing dying wells. Chris Cook compares the industry to Enron where 70 percent of the doomed company's revenues never existed but they funded themselves through pre-paid contracts. Shale oil is being funded in this manner directly via the Federal Reserve Bank.
Why else would banks lend to an asset class like shale where the decline rate is so precipitous and the answer is that they are lending to shale because they've already sold the production forward but who exactly is on the other side of those futures positions? It's Enron on a cosmic scale and the net effect is that the US is effectively on an oil standard; they've made the dollar convertible into shale reserves. Tune in to hear more of Chris Cook's riveting insights.
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