Monday, December 1, 2014

Oil at $40 a barrel- Russia and Turkey make an energy deal ???

Two Bloomberg articles: 1st  and  2nd

BTW: Oil is up today!:

Crude oil prices made a small gain with the January crude contract on the New York Mercantile Exchange ahead $1.46 to US$67.61 a barrel
Oil’s decline is proving to be the worst since the collapse of the financial system in 2008 and threatening to have the same global impact of falling prices three decades ago that led to the Mexican debt crisis and the end of the Soviet Union.
Russia, the world’s largest producer, can no longer rely on the same oil revenues to rescue an economy suffering from European and U.S. sanctions. Iran, also reeling from similar sanctions, will need to reduce subsidies that have partly insulated its growing population. Nigeria, fighting an Islamic insurgency, and Venezuela, crippled by failing political and economic policies, also rank among the biggest losers from the decision by the Organization of Petroleum Exporting Countries last week to let the force of the market determine what some experts say will be the first free-fall in decades.

“This is a big shock in Caracas, it’s a shock in Tehran, it’s a shock in Abuja,” Daniel Yergin, vice chairman of Englewood, Colorado-based consultant IHS Inc. and author of a Pulitzer Prize-winning history of oil, told Bloomberg Radio. “There’s a change in psychology. There’s going to be a higher degree of uncertainty.”
Never mentioned is how the drop in oil prices affects NATO cohorts such as Canada. Why?

Cheap Gasoline

Few expected the extent or speed of the U.S. oil resurgence.(? US oil resurgence?) As wildcatters unlocked new energy supplies, some oil exporters abroad failed to invest in diversifying their economies. Coddled by years of $100 crude, governments instead spent that windfall subsidizing everything from 5 cents-per-gallon gasoline to cheap housing that kept a growing population of underemployed citizens content.

Those handouts are now at risk.........- Handouts? Since the resources belong to the nation, how are they then handouts?
“If the governments aren’t able to spend to keep the kids off the streets they will go back to the streets, and we could start to see political disruption and upheaval,” ( I see,  so an NED uprising- A ‘spring’ of sorts. ) said Paul Stevens, distinguished fellow for energy, environment and resources at Chatham House in London, a U.K. policy group. “The majority of members of OPEC need well over $100 a barrel to balance their budgets. If they start cutting expenditure, this is likely to cause problems.”
Canadian Natural Resources Ltd. Chairman Murray Edwards said crude may sink as low as $30 a barrel before rebounding to stabilize at $70 to $75 a barrel, the Financial Post reported.

“Right now we’re seeing a price shock coming out of the meeting and it will be a couple of weeks until we see where the price really falls,” said Yergin. Officials “have to figure out where the new price range is, and that’s the drama that’s going to play out in the weeks ahead.”

Not All Suffer

To be sure, not all oil producers are suffering. The International Monetary Fund in October assessed the oil price different governments needed to balance their budgets. At one end were Kuwait, Qatar and the United Arab Emirates, which can break even with oil at about $70 a barrel. At the other extreme: Iran needs $136, and Venezuela and Nigeria $120. Russia can manage at $101 a barrel, the IMF said.

“Saudi Arabia, U.A.E. and Qatar can live with relatively lower oil prices for a while, but this isn’t the case for Iran, Iraq, Nigeria, Venezuela, Algeria and Angola,” said Marie-Claire Aoun, director of the energy center at the French Institute for International Relations in Paris. “Strong demographic pressure is feeding their energy and budgetary requirements. The price of crude is paramount for their economies because they have failed to diversify.”

Russia Vulnerable

“Russia in particular seems vulnerable,” said Allan von Mehren, chief analyst at Danske Banke A/S in Copenhagen. “A big decline in the oil price in 1997-98 was one factor causing pressure that eventually led to Russian default in August 1998.”

This is not 1998.

This Will Pass

While the country’s economy minister and some oil executives have warned of tough times ahead, President Vladimir Putin is sanguine, suggesting falling oil won’t force him to meet Western demands that he curb his country’s interference in Ukraine.

“Winter is coming and I am sure the market will come into balance again in the first quarter or toward the middle of next year,” he said Nov. 28 in Sochi.

Even before the price tumble, Iran’s oil exports were already crumbling because of sanctions imposed over its nuclear program. Production is at a 20-year low, exports have fallen by half since early 2012 to 1 million barrels a day, and the rial has plummeted 80 percent on the black market, says the IMF.

Lower oil may increase the pain on Iran’s population, though it may be insufficient to push its leaders to accept an end to the nuclear program, which they insist is peaceful.
‘Already Losing’
“The oil price decline is not a game changer for Iran,” said Suzanne Maloney, senior fellow at the Brookings Institution, a Washington-based research organization, who specializes on Iran. “The Iranians were already losing so many billions of dollars because of the sanctions that the oil price decline is just icing on the cake.”

While oil’s decline wrenches oil-rich nations that squandered the profits from recent high prices, the world economy overall may benefit. The Organization for Economic Cooperation and Development estimates a $20 drop in price adds 0.4 percentage point to growth of its members after two years. By knocking down inflation by 0.5 point over the same period, cheaper oil could also persuade central banks to either keep interest rates low or even add stimulus.

Nigerian Woes

As developed oil-importing nations benefit, some of the world’s poorest suffer. Nigeria’s authorities, which rely on oil for 75 percent of government revenue, have tightened monetary policy, devalued the naira and plan to cut public spending by 6 percent next year. Oil and gas account for 35 percent of Nigeria’s economic output and 90 percent of its exports, according to OPEC.
“The current drop in oil prices poses stark challenges for Nigeria’s external and fiscal accounts and puts heavy pressure on the exchange rate,” Oliver Masetti, an economist at Deutsche Bank AG, said in a report this month. “If oil prices remain at their current lows, Nigeria will face tough choices.”

Venezuelan Rioting

The country was paralyzed by deadly riots earlier this year after police repressed protests about spiraling inflation, shortages of consumer goods and worsening crime.

“The dire state of the economy is likely to trigger renewed social unrest, while it seems that the government is running out of hard currency,” Capital Economics, a London research firm, wrote in a Nov. 28 report.

Declining oil may force the government to take steps to avoid a default including devaluing the currency, cutting imports, raising domestic energy prices and cutting subsidies shipments to poorer countries in the region, according to Francisco Rodriguez, an economist at Bank of America Merrill Lynch.

“Though all these entail difficult choices, default is not an appealing alternative,” he said. “Were Venezuela to default, bondholders would almost surely move to attach the country’s refineries and oil shipments abroad.”

China Bailout?

In an address on state television Nov. 28, President Nicolas Maduro said Venezuela would maintain social spending while pledging to form a commission to identify unnecessary spending to cut. He also said he was sending the economy minister to China to discuss development projects.

Some Bloomberg bullshit:

Mexico shows how an oil nation can build new industries and avoid relying on one commodity. Falling crude demand and prices in the early 1980s helped send the nation into a debt crisis.

Oil’s share of Mexico’s exports fell to 13 percent in 2013 from 38 percent in 1990, even as total exports more than quadrupled. Electronics and cars now account for a greater share of the country’s shipments.

If everything was so swell in Mexico, why are so many Mexicans heading to the US?
Never mind that all the alleged new industry in Mexico are simply transplants from the US and Canada.
John (Juan) Deere comes to mind. Profitable Juan Deere closed up shop in Canada and ran like a deere to exploit ultra cheap labour in Mexico

Speaking of Russian energy deals.. Putin goes to Turkey

“The first and last thing there is to know about Turkey’s relationship with Russia is that 60 percent of Turkey’s natural gas imports come from Russia,” said Friedman by phone on Nov. 29. “Turkey can’t afford to follow the U.S. and EU-led efforts to squeeze Russia by cutting off trade, particularly with the instability on its own border, and with its lack of alternative options.”

Turkish Imports

Turkey, for many years a European Union accession country but not yet a full member, is outside the remit of economic sanctions against Russia imposed on account of the crisis in Ukraine. As a result, economic activity with Russia has surged at a time when neighboring states are unable to trade. October 2014 was the strongest month on record for imports to Turkey from Russia, according to a statement from the Turkey’s state institute of statistics.

The meeting is “the beginning of a good solid friendship between the two countries,” Atilla Yesilada, economist at GlobalSource Partners Inc. told Bloomberg TV. At the same time ‘political and diplomatic integration between the countries has limits, it runs into the wall of Turkey’s NATO membership and its status as an EU accession country,’’ he said.

Turkey as it stands today is not getting into the EU

Oil Drop

While Russia and Turkey are bound by common trade interests, one economic development that differentiates them is the recent plummet in the price of oil, which has pummeled exporter Russia while delivering an unexpected boon to Turkey.

The price for a barrel of Brent crude has fallen more than 27.5 percent in the last two months to $68.63, helping to heal Turkey’s trade imbalances and spurring the strongest stock market rally in the world this quarter.

 So stock market rally? US dollar huge increases? Continued low interest rates- which is good for bubble creation, as an example. Any ideas, anyone?


  1. karin et all in previous post, busy day today, but I will be back
    anon- it appears the GCC may have worked out the differences
    or at least the story goes

  2. At first blush, I assumed falling oil prices were aimed at Russia & Iran, but, who knows? I have no clue, except to say MY energy costs are lower...ben Thanks Penny.

    1. hey ben
      yup, Iran, Russia, Venezuela all on the hit list
      But as oil falls so does Canada's dollar and if it falls too low
      Unemployment will be on the rise

  3. As Putin remarked recently....the drop in oil prices spells the end for the fracking industry.... aka the west shooting itself in the foot.

  4. Following the meeting, Erdiş took the stage at the conference for his first public speech after 16 years in prison. “While I am speaking you today, they are trying to wield influence on me through the ‘telegram method.’ As you know, this means mind control,” he said, warning the crowd that any negative words from himself could be “the words of the telegramists who attack me to control my mind remotely.”

  5. As you said, all is definitely NOT well in Mexico!

  6. As you said, all is not well in Mexico: