“Snowmageddon 2016”

Day 3:

Listen, everyone. This started out fun. We took a Go-Kart out in the blizzard, drove a tractor, made a snow cave… the whole nine. But now cabin fever is setting in, so please forgive me if I sound distracted, but I’m trying to keep my eyes on other house members.

They look hungry, and supplies are running low. We could have a “Donner Party” situation on our hands here.

Cars are buried. No plow in sight. Snow to my waist.

Chances of losing the dog in the 10-foot-tall drifts: High.

Children are crying outside because it’s too deep to sled.

The only perk of this snowstorm is the potential short-term rally in oil prices, as stateside demand for heating oil might boost overall oil demand.

Day 4:

Just last week, I wrote to you from the sunny beaches of Florida. 

Today’s conditions could not be further from the lovely sun and sands. Instead, I write to you from the aftermath of a whiteout blizzard. Our household has “hunkered down” for almost a week now, waiting out the record-breaking storm, Jonas.

What began as tempered excitement has now led to restlessness and discomfort. I’m actually a bit disappointed that I couldn’t make it to the office today.

I thought this storm would be something like this:

Unfortunately, it’s turning out to be more like this: 

(Yes, folks, I’m living in The Revenant.)

Still no plow.

Walked two miles to a local convenience store for a supply re-up. Journey was uphill… both ways.

Household tension is growing, and there is mounting unrest.

If I hear one more news anchor say “hunker down,” I’m going to blow a gasket.

Oil prices aren’t benefiting either, so the one possible perk of this storm is null and void at this point. There was a slight bump last week, but (spoiler alert) it didn’t last.

Day 5:

Just like household morale, oil prices fell again Monday, down another 5% and continuing the 12-year lows.

I’m not usually a fan of pointing fingers or making accusations, but oil prices since the middle of 2014 are a direct result of Saudi action and their refusal to cut back production.

In failing to do so, the world’s number one oil producer has purposefully worsened conditions of oversupply. Global lack of demand exacerbates this situation even further.

“We’re not going to withdraw our production to make way for others.”

The chairman of Saudi Arabian Oil Co., Khalid al-Falih, made a fairly bold statement as well, saying that Aramco “can withstand low oil prices for a long, long time, and hasn’t cut investment in new oil production.”

(Tough guy, huh?)

Al-Falih has also brushed off threats from renewable energy and the COP21 deal to cut carbon emissions, basically denying the future impact that battery-powered cars will have on oil demand.

This should lead investors to believe that the Saudis have very little or no intention of reversing the oversupply trend. In fact, it seems like they actually might plan to increase production beyond the already record-level rate.

The Oil Wars

At this point, the world needs to start seriously questioning Saudi motivations and what the regime has up its sleeve.

We should also be questioning how long OPEC and large non-OPEC countries will continue without coming to an agreement about production and how this resistance will likely culminate in a regime overthrow.

A convincing case can be made for Russian and Iranian motivations to oust the Saudi regime, as laid out in a recent Wall Street Journal editorial over the weekend. 

The only way oil prices can possibly experience a revival is if OPEC countries (read: Saudi Arabia) can negotiate an agreement with non-OPEC countries (read: Russia).

It’s not likely, but it needs to happen.

As of December 2015, Russia is producing an average of 10.83 million barrels of oil per day — amounting to 12% of the world’s oil supply.

The vice president of one of Russia’s largest oil producers also made a statement this morning, urging Russian officials to start working with OPEC to cut oil supplies:

“In my opinion, if such a political decision is taken, Russia should jointly work with OPEC to cut supply to the market… It’s better to sell one barrel of oil at $50 than two barrels at $30.” — Leonid Fedun

Unfortunately, “severe weather conditions” have prevented a Russian production cut. Russia has also declared that they, like Saudi Arabia, expect the global market to rebalance on its own.

On the flip side, OPEC has consistently said it would agree to cuts if other producers (like Russia) also joined in the effort.

The Iraqi government has already committed to taking 300,000 to 500,000 bpd out of the market, but only if others agree to do the same.

Let’s get to brass tacks here, people.

Can’t we all just be adults about it? Because as the situation currently stands, the Saudis are cutting off their noses to spite their face, and it seems like Russia is doing the same.

(“Severe weather conditions?” Please. Every weather condition is severe in Russia.)

What we really have here is bad blood, and it’s getting in the way of sound economic policy.

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