Singapore - Oil prices fell in Asia on Thursday as dealers anticipated Gulf members of the Organisation of the Petroleum Exporting Countries (Opec) cartel to reject production cuts unless they are guaranteed market share, analysts said.
US benchmark West Texas Intermediate for December fell 12 cents to $74.46 while Brent crude for January was down 4c at $78.06 in mid-morning trade.
"The market is keenly watching the outcome of the Opec meeting next week," said Sanjeev Gupta, head of the Asia-Pacific oil and gas practice at business consultancy EY.
Analysts say the stance of Gulf nations within Opec will be crucial for a positive decision on reducing supplies to boost prices, which have fallen by a third of their value since June.
Saudi Arabia, Qatar, the United Arab Emirates and Kuwait together pump a total 16.2 million barrels per day, or 52% of the 12-member cartel's total output.
They account for two-thirds of the group's exports, according to figures from Opec and other agencies.
"It is extremely unlikely for Gulf states to accept output cuts unless other OPEC members take the initiative... They need assurances other Opec or non-OpecC producers won't fill the gap," Kuwaiti oil expert Kamel al-Harami told AFP.
"It is not in the interest of the Gulf states to cut output because they risk losing highly valuable market share," the former oil executive said.
Opec members Venezuela, Ecuador and Iran have so far indicated a preference for an output reduction in order to defend prices.
Dealers are also digesting a mixed US stockpiles report.
The Department of Energy said Thursday commercial crude reserves rose by a surprising 2.6 million barrels, instead of the 1.0 million drop expected by analysts.
Stocks of distillates including heating fuel fell by 2.1 million barrels, more than analysts' estimate of a 1.4 million decline.
Australia - a major exporter of both metallurgical and thermal coal - wouldsuffer from the reduced demand for coal.
Oil and coal demand will plummet - and natural gas demand will soar - over the next few decades, even without last week's climate change deal between China and the US, according to research from Citi.
And if it is assumed that China and the US will meet their 2030 emission targets, "far-reaching reassessment" of long-term fossil fuel values would be required.
"But with existing policies, current market dynamics in China and the United States should still affect trillions of dollars of oil, gas and coal demand already," said the research, entitled "A New Climate Order".
"Existing (carbon reduction) policies and subdued market conditions could lead to lower demand from 2015 to 2030 in the order of US$1.3 trillion for oil and as much as $US1.6 trillion for coal.
"In contrast, the likely rise in gas demand could be worth $US1.3 trillion."
Under these existing policies, Australia - a major exporter of both metallurgical and thermal coal - will suffer from the reduced demand for coal.
But Liquefied Natural Gas - for which Australia is expected to be the world's major exporter by 2019 - will increase in demand.
Oil demand would slow, said the Citi research, "as fuel efficiency improves and alternative vehicles become more available". Coal demand would slow unless new technology was widely implemented that could reduce emissions from coal-fired generation.
But for gas, "demand growth accelerates due to fuel-switching, mostly in the power sector, but also (due to) some inroads in other sectors."
LONDON: In a world where slumping oil prices and weak economic growth are triggering fears of a deflationary spiral, especially in Europe, investors are picking out firms that stand to benefit from that testing environment.
Companies such as UK transport operator National Express , airlines Lufthansa and Air France-KLM and even some large consumer-goods groups like Nestle have all been singled out as beneficiaries of so-called “good deflation”, as fuel and other commodities get cheaper and perk up profits.
Deflation is not a zero-sum game: a widespread trend of falling prices would cast a pall across all sectors and push consumers to delay spending. US Treasury Secretary Jack Lew this week warned that European policymakers needed to do more to avoid a Japan-style “lost decade” of low growth.
But for now, with consumer spending in relatively good shape and the prospect of an interest-rate hike in the US buoying recovery hopes, some believe “good” deflation has the edge.
“The consumer is in good shape, the oil price is expected to be a bit lower and the dollar is going to remain strong. There are stocks that will benefit,” said Chris White, head of UK equities at Premier Asset Management.
National Express, which operates coach and bus routes everywhere from Coventry to Marrakesh, reported a 15 percent rise in profits before tax in the third quarter and stands to benefit from being able to cut the cost of fuel-price contracts, White said.
U.S. crude edged lower towards $75 a barrel in early Asian trade on Tuesday, as oil prices struggle to find a floor ahead of next week's critical OPEC meeting.
U.S. crude for December delivery was down 21 cents at $75.43 a barrel by 0056 GMT. The front-month contract settled 18 cents lower on Monday and has fallen 30 percent since late-June, when it reached a year-high of $107.73 a barrel.
Venezuela's President Nicolas Maduro said on Monday that a special global meeting was being planned "very soon" between OPEC and non-OPEC nations to discuss global oil prices.
Foreign Minister Rafael Ramirez of the cash-strapped OPEC member also said the oil cartel will increase coordination in the face of the fall in oil prices.
UNITED NATIONS, United States: A UN report is recommending the seizure of all oil tanker trucks leaving militant-controlled territory in Iraq and Syria to cut off millions of dollars from crude sales now bankrolling the militants.
The UN's Al-Qaeda Monitoring Team is also proposing an embargo on flights taking off or landing in territory seized by the Islamic State (IS) group and its allies to prevent them from moving assets and possibly weapons.
The report obtained by AFP on Monday (Nov 17) will be discussed at an upcoming meeting of the Security Council called to follow up on a resolution aimed at choking off financing to IS fighters and the Al-Qaeda-linked Al-Nusra Front in Syria. Australian Foreign Minister Julie Bishop will be chairing the special meeting on Wednesday to ramp up international efforts to confront the militant threat from Iraq and Syria.
The 15-member council in August adopted a resolution to cut off sources of financing and the flow of foreign fighters to Iraq and Syria, warning that countries that trade in oil with the militants could face sanctions.
IS earns an estimated US$850,000 to US$1.65 million per day from oil sales through private middlemen who operate a fleet of trucks through smuggling routes, the report said. While it did not specify which smuggling routes should be targeted, Turkey has been singled out as a major transit point for the oil deliveries, with trucks often returning to Iraq or Syria with refined products.
"Sanctions measures cannot prevent this trade entirely," the report said but it added that "disrupting the tanker trucks available to IS and its allied smuggling networks (is) a point of vulnerability."
The eight-member team proposed that the Security Council ask all-member states bordering militant-controlled territory to "promptly seize all oil tanker-trucks and their loads that originate or seek entry into" those areas.
The experts also identified a growing risk from the plundering of artefacts, especially from archaeological sites and proposed a worldwide ban on the trading of antiquities from Syria and Iraq. IS has earned cash by taxing looters of the art objects, but the report did not give an estimate for the earnings from this trade.
Sen. Mary Landrieu, D-La., told reporters that she has enough votes to pass a bill to build the Keystone XL oil sands pipeline, which comes up for a vote Tuesday.
Asked whether the vote count was still at 59 — one shy of the 60 needed to blow up a filibuster — Landrieu said, "It's not."
"I feel very comfortable," Landrieu said in the Capitol, with a smile. "It may be more [than 60]."
There's few senators still in play for the bill from Landrieu and Sen. John Hoeven, R-N.D., which comes on the heels of the House last week passing identical legislation sponsored by Rep. Bill Cassidy, R-La., Landrieu's Dec. 6 runoff opponent.
It's a bill that's rife with electoral politics. Landrieu has portrayed herself as a dealmaker in the upper chamber while national Republican organizations have said she's ineffective, in part because a May attempt to bring up the same legislation failed.
Sen. Angus King, I-Maine, told reporters he's still leaning toward voting against the bill. "You'll know when we get to the K's," King said of his upcoming vote.
Sen. Chris Coons, D-Del., said he's also leaning no, but that he hasn't fully made up his mind. His spokesman, Ian Koski, tweeted Monday evening that, "Sen. Coons cares a lot about Sen. Landrieu. OF COURSE he’s still listening to her. Still, no reason to believe his position has changed."
Senate Majority Whip Dick Durbin, D-Ill., also remains a question mark. He didn't say whether he would support the bill during a Sunday appearance on CNN's "State of the Union," though he said that President Obama should have "the opportunity to use his authority on a timely basis."
Obama has hinted that he would veto the bill because it would circumvent an ongoing review at the State Department. The application to build the Canada-to-Texas pipeline has been in the federal government's hands more than six years.
"With respect to Keystone, I’ve said consistently — and I think I repeated in Burma, but I guess I’ve got to answer it once more — we’re going to let the process play itself out. And the determination will be made in the first instance by the Secretary of State," Obama said during a Monday press conference at the G20 summit in Brisbane, Australia.
But the White House has not issued an official stance on the Keystone XL bill, despite releasing official statements on several other bills coming up this week in Congress.
Hoeven said there were still some undecided votes, but noted he only had a firm 59 behind the legislation.
"We've got 59 announced. I think we'll get there, yeah. But we won't know until the vote," Hoeven said, without detailing who might swing behind the bill.
The ramming is "another reminder of the lengths governments will go to protect the oil industry from peaceful protesters," says Greenpeace. (Photo: Screenshot/Greenpeace Spain Video)
Greenpeace activists were wounded Saturday in what appears to be the deliberate ramming of their boats by Spanish Navy vessels during a non-violent direct action against oil drilling in the Canary Islands.
The Greenpeace activists were staging a peaceful protest against the oil ship Rowan Renaissance, owned by the company Repsol, which has been given the greenlight by Spain to drill for oil in the Fuerteventura and Lanzarote islands, located off the coast of Morocco. Island residents and international environmental organizations have vigorously opposed the oil exploration.
Activists approached the Rowan Renaissance via small boats when they were repeatedly rammed by a Spanish Navy dinghy. Matilda Brunetti, a 23-year-old Italian, can be heard in the video screaming as her leg is broken and she is knocked into the water. Brunetti was transported via a navy helicopter to a hospital and is in "good condition," according to Greenpeace. At least one other protester was treated for cuts. Greenpeace said the incident is "another reminder of the lengths governments will go to protect the oil industry from peaceful protesters."
Meanwhile, Greenpeace's Arctic Sunrise ship, which launched the smaller boats, held the drilling location before the drilling ship arrived. "It maintained the occupation, despite pressure from the authorities," says Greenpeace. The Arctic Sunrise remains "in the vicinity but outside the exclusion zone," the Guardianreported Monday.
This was the first protest launched by the Arctic Sunrise after it was held last year for over 300 days by Russia following a protest against drilling in the Arctic. Two people taking part in the Canary Islands protest were among the 30 activists and journalists detained by Russia.
ConocoPhillips (NYSE:COP) EVP Al J. Hirshberg bought 9,000 shares of the stock in a transaction that occurred on Thursday, November 13th. The stock was purchased at an average price of $69.95 per share, for a total transaction of $629,550.00. The transaction was disclosed in a filing with the SEC, which can be accessed through this link.
A number of analysts have recently weighed in on COP shares. Analysts at Argus cut their price target on shares of ConocoPhillips from $92.00 to $87.00 in a research note on Wednesday, November 5th. They now have a “buy” rating on the stock. Separately, analysts at Credit Agricole upgraded shares of ConocoPhillips from an “underperform” rating to a “buy” rating in a research note on Tuesday, November 4th. Finally, analysts at S&P Equity Research reiterated a “buy” rating on shares of ConocoPhillips in a research note on Friday, October 31st. Seven analysts have rated the stock with a hold rating and twelve have issued a buy rating to the company’s stock. The stock currently has a consensus rating of “Buy” and a consensus target price of $88.87.
Shares of ConocoPhillips (NYSE:COP) traded up 0.01% during mid-day trading on Monday, hitting $71.42. The stock had a trading volume of 4,632,701 shares. ConocoPhillips has a 1-year low of $62.74 and a 1-year high of $87.09. The stock’s 50-day moving average is $71.35 and its 200-day moving average is $78.78. The company has a market cap of $87.912 billion and a price-to-earnings ratio of 9.47.
ConocoPhillips (NYSE:COP) last posted its quarterly earnings results on Thursday, October 30th. The company reported $1.29 EPS for the quarter, beating the Thomson Reuters consensus estimate of $1.20 by $0.09. The company had revenue of $13.63 billion for the quarter, compared to the consensus estimate of $13.10 billion. During the same quarter in the prior year, the company posted
$1.47 earnings per share. Analysts expect that ConocoPhillips will post $5.89 EPS for the current fiscal year.
ConocoPhillips is an independent exploration and production (NYSE:COP) company, based on proved reserves and production of liquids and natural gas.
WASHINGTON (Reuters) - Halliburton Co will have a tough time convincing U.S. regulators to approve its $35 billion deal to buy smaller rival Baker Hughes Inc but could prevail with the right divestitures, antitrust experts said Monday.
The deal, if approved, would create an oil services behemoth that would overtake current No. 1 Schlumberger NV.
Halliburton and Baker Hughes, which have already reached out to the U.S. Department of Justice, will argue that the government should analyze the companies by business segment and identify overlaps, according to a person familiar with the deal.
If the merged company was found to have too much power in one area, assets could be sold to competitors to ensure no monopolies are created.
Halliburton has said it was ready to divest businesses that generate revenue of $7.5 billion. It also agreed to pay Baker Hughes $3.5 billion if the deal did not clear.
But the Justice Department could instead consider that customers that want to contract a range of oil services to a single company would only have two main choices, Schlumberger and the new merged company, if the deal were to go forward.
This option is increasingly attractive to oil
companies after the 2010 oil spill in the Gulf of Mexico because they want to be able to hold one company responsible in an accident, said two antitrust experts who know the industry.
"Many countries, national oil companies and majors want one throat to choke (if there is a spill), especially after the Gulf," said one of the experts.
Still, the Justice Department could conclude that the oil companies who do business with Schlumberger, Halliburton and Baker Hughes are big and sophisticated enough that they don't need government protection, said Andre Barlow, a veteran of the Justice Department now with Doyle,
Barlow and Mazard PLLC.
"In the past, the DOJ has considered buyer power and the sophistication of the buyers with regards to this particular industry," said Barlow, who expected the deal to be approved with significant divestitures.
Diana Moss of the American Antitrust Institute said that there were few companies providing comprehensive oil services. "I would hope that they (the government) would be aggressive in seeking to block it," she said.
Petrobras, the Brazilian oil company that delayed an earnings report amid a corruption investigation, cut its 2014 output growth target because of delays in securing platforms and licenses.
Production in Brazil will increase 5.5% to 6% this year, the Rio de Janeiro-based company said in a presentation on its website Nov. 17. That’s below the 7.5% annual output rise previously targeted by the company. The prior forecast allowed for 1 percentage point deviation above or below the goal.
Petrobras, which has tumbled 26% this year in Sao Paulo to trade close to an eight-month low, is the worst performer among major global oil producers in the past four years amid a multibillion-dollar laundering and bribery case dubbed Car Wash. The company has missed its annual production targets for 10 straight years on oil services equipment delays.
The lower-than-expected output forecast stems from delays in construction and delivery of the company’s platforms and the connection of some wells, Petrobras said in the presentation. The producer is also experiencing delays for license approvals, it said.
Petrobras is studying how to recover financial losses uncovered by the probe, CEO Maria das Gracas Foster said in a conference call today. Petrobras will set up a compliance division as it seeks to increase internal controls, she said.
The company expects to continue increasing fuel prices more frequently next year, helping to improve cash flow, Foster said. Petrobras has booked more than $44 billion in operational losses at its refining unit mainly from selling imported fuel at below-market prices since 2011.
The company said last week it would release unaudited third-quarter results on Dec. 12, a month later than originally scheduled, because of the corruption probe in Brazil involving a former head of refining.
Petrobras dropped 4.6% in Sao Paulo to 12.60 reais (US$4.85), the lowest since March 17.
The journey south for crude prices continued into the new week - ahead of the OPEC meeting on November 27.
OPEC is the cartel that controls a large chunk of the globe's production and as was the case at the tail end of last week, speculation is mounting over whether it will restrict supplies in a bid to prop up prices.
So far there has appeared little appetite to make this move.
The price of Brent crude, for January delivery next year, is still below the US$80 a barrel mark - at US$78.51 - down 0.92%.
The latest price fall on the commodity comes as Japan, a big importer, announced a surprise slip into recession, with its economy shrinking for the second quarter in a row.
Meanwhile, Saudi Arabia repeated its view that the oil price should be left to supply and demand.
Friday saw the consultancy - The International Energy Agency (IEA) - saying that the slump in prices was not done and dusted yet.
It says weak demand will continue and there will also be pressure on prices from the US shale gas boom. It reckons prices will continue to fall well into 2015.
KANSAS CITY, Mo., Nov 17, 2014 (BUSINESS WIRE) -- CorEnergy Infrastructure Trust, Inc. CORR, +0.55% (“CorEnergy”) today announced that it has entered into a definitive agreement to acquire the ownership and operations of the MoGas Pipeline System for $125 million in cash (the “Acquisition”). This 263-mile pipeline is a critical supplier of natural gas in and around the St. Louis region and to small municipalities throughout central Missouri.
CorEnergy intends to finance the acquisition cost with a combination of borrowings under its credit facility and with proceeds of our simultaneously announced public offering of common stock.
The key characteristics of the MoGas Pipeline System include:
Diversification towards a new segment of the energy value chain, with exposure to a long-haul natural gas pipeline serving end-user markets
Key interconnect receipt points on three natural gas transmission pipelines
Steady revenue stream backed by contracts with long-tenured, creditworthy customers
Stable history of both firm and interruptible contracted volumes
Pipeline assets are REIT qualifying under proposed IRS regulations
“We are pleased to add an interstate pipeline to our diversified portfolio of infrastructure assets used by utilities, storage terminal operators, and natural gas producers,” said David Schulte, Chief Executive Officer of CorEnergy. “Our Board of Directors has confirmed its intent to increase the dividend from $0.130 to $0.135 for the quarter ended March 31, 2015 (or $0.54 cents per share annualized) based upon management’s expectation that the increase is sustainable.”
The MoGas Pipeline System
The MoGas Pipeline System is an approximately 263-mile interstate natural gas pipeline system which originates in northeast Missouri, and extends into western Illinois and central Missouri. The pipeline maintains receipt points with Mississippi River Transmission Corporation in eastern St. Louis and with Panhandle Eastern Pipe Line Company and Rockies Express Pipeline on the northern end of the system.
Primary customers are Laclede Gas Company and Ameren Missouri, both serving the St. Louis metropolitan area with local gas distribution services, and Omega Pipeline serving Ft. Leonard Wood in central Missouri. Omega Pipeline is a wholly owned subsidiary of CorEnergy. Transportation agreements are governed by FERC-approved natural gas tariffs.
In conjunction with the Acquisition, the Company has signed a commitment letter to amend and upsize its current $30 million revolving senior secured credit facility. The new revolving lines of credit have anticipated capacity of up to $93 million, consisting of $90 million at the parent entity level and $3 million at the subsidiary entity level. The Company expects to utilize borrowings under the credit facility, and the net proceeds of our simultaneously announced equity offering to fund the purchase price.
The transaction is expected to close in late November 2014.
BofA Merrill Lynch is acting as exclusive structuring advisor in connection with CorEnergy's energy infrastructure real asset strategy.
CorEnergy Infrastructure Trust, Inc. CORR, +0.55% primarily owns midstream and downstream U.S. energy infrastructure assets subject to long-term triple net participating leases. These assets include pipelines, storage tanks, transmission lines and gathering systems.
This press release contains certain statements that may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, included herein are "forward-looking statements." Although CorEnergy believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in CorEnergy’s reports that are filed with the Securities and Exchange Commission. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Other than as required by law, CorEnergy does not assume a duty to update any forward-looking statement. In particular, any distribution paid in the future to our stockholders will depend on the actual performance of CorEnergy, its costs of leverage and other operating expenses and will be subject to the approval of CorEnergy’s Board of Directors and compliance with leverage covenants.
The price of gasoline nationwide has now dropped 53 days in a row, automotive group AAA said Monday.
The national average price for a gallon of regular stood at $2.89, AAA said in its Daily Duel Gauge report. That's the lowest price since Dec. 2, 2010.
Nationally, the price has fallen 24 cents compared to a month ago and 32 cents compared to a year ago.
"The downward pressure on prices is expected to continue through the Thanksgiving holiday, meaning drivers are likely to be giving thanks for the cheapest seasonal prices since 2009 when the national average registered $2.63 on the holiday," AAA said in a statement.
The current average price in Wisconsin is $2.92. Among the state's metro areas, Milwaukee has the lowest average price at $2.87, down from $3.18 a month ago.
The average Milwaukee price has closely mirrored the national average since the price drop began.
A number of stations in the Milwaukee area are selling gas at $2.79 a gallon, according toMilwaukeeGasPrices.com.
Halliburton Co said on Monday it will buy Baker Hughes Inc for about $35 billion in cash and stock, creating an oilfield services behemoth to take on market leader Schlumberger NV as customers curb spending on falling oil prices.
Halliburton expressed confidence that the tie up of the No. 2 and No. 3 players in the services industry would clear regulatory hurdles, saying it was prepared to shed assets to mollify antitrust concerns that could arise .. The deal, the second biggest in the US energy sector this year, could create a company with more revenue than Schlumberger. With oil prices down by a third since June, demand for drilling services has slipped and stock prices across the energy sector have suffered. That has stoked chatter among executives and bankers about acquisition opportunities companies could take advantage of to weather the downturn.
Halliburton Chief Executive Dave Lesar said the combined entity would be more resilient and able to offer a wider suite of products globally.
"Stronger in any market condition is better," he told Reuters. "We are in a cyclical business."
Halliburton said it was ready to divest businesses that generate revenue of $7.5 billion to satisfy regulators and would pay Baker Hughes $3.5 billion if the deal was not cleared.
"At the end of the day, we wouldn't have done this deal if we didn't believe it was achievable from a regulatory standpoint," Lesar said on a conference call.
Baker Hughes shares rose nearly 11 per cent to $66.44 each on Monday, well short of Halliburton's offer of $80.69, based on Friday's close.
After a steep run up last week, Halliburton shares were down 8 per cent at $50.60. Schlumberger was up 0.6 per cent at $95.85. Talks between the two companies started over a month ago and came to a head on Friday when Halliburton threatened to replace Baker Hughes's board after its initial offer was rejected. Baker Hughes shareholders will get 1.12 Halliburton shares plus $19 in cash for every share held, and own 36 per cent of the combined company. Baker Hughes will get three seats on the combined company's 15-member board.
The combined company's 2013 revenue was $51.8 billion on a pro-forma basis, more than Schlumberger's $45.3 billion.
But Schlumberger's market capitalization of $122.6 billion is twice as large as the united company.
Credit Suisse and BofA Merrill Lynch advised Halliburton and Goldman, Sachs & Co advised Baker Hughes.
Refined soya oil prices were marginally higher by 0.26 per cent to Rs 579.70 per 10 kg in futures trading today as speculators created fresh positions, driven by improved demand in the spot market.
At the National Commodity and Derivatives Exchange, refined soya oil for delivery in November month edged higher by Rs 1.50, or 0.26 per cent to Rs 579.70 per 10 kg with an open interest of 18,745 lots.
The December contract traded lower by 35 paise, or 0.06 per cent to Rs 587.20 per 10 kg in 97,860 lots.
Analysts said apart from a better trend at spot market on pick up in demand in view of wedding season, restricted arrivals from producing regions led to the rise in refined soya oil prices at futures trade. Source: www.business-standard.com/article/pti-stories/refined-soya-oil-up-0-26-pc-in-futures-trade-on-spot-demand-114111700522_1.html?
Tokyo, 17 November (Argus) — Japanese trading house Itochu has agreed with India's Aegis Logistics to buy a 40pc stake in its Singapore-based LPG arm Aegis Group International (AGI) for $5.85mn.
AGI handles more than 700,000 t/yr of LPG shipped to India. The deal will give it a chance to assess the state of the Indian LPG market where demand is expected to hit more than 24mn t/yr in 2020 from a current 16mn t/yr, Itochu said.
Itochu currently handles around 5mn t/yr of LPG, which is mainly delivered to Asia-Pacific consumers such as Japan, South Korea, the Philippines, Indonesia, Thailand and Malaysia.
Russia poses the biggest security risk to world markets and will be the biggest loser from the drop in oil prices, according to a Bloomberg Global Poll of international investors.
Asked which of five possibilities posed the greatest risk to global financial markets, 52 percent of participants chose the Russia-Ukraine conflict. Twenty-six percent cited Islamic State, while Ebola barely registered with 5 percent. The U.S. was seen as the most likely beneficiary from lower crude prices.
Russia is being buffeted by the twin blows of sanctions and an oil-market selloff that threatens to hollow out its economy. While Russia is menacing Ukraine with tanks and sending its jets into foreign airspace, PresidentVladimir Putin said Nov. 14 that the drop in crude is potentially “catastrophic” for the world’s largest energy exporter.
“The Russia-Ukraine situation is more dangerous as we have a sovereign state, which is trying to increase its power by creating chaos both through threatening actions of war,” Mikael Simonsen, chief sales manager for cross asset sales at Nordea Bank in Helsinki and a poll respondent, said by e-mail. “This might impact the common thinking of how developed we are today, and impact the risk premium
The poll of 510 investors, analysts and traders who are Bloomberg subscribers was conducted Nov. 11-12 by Selzer & Co., a Des Moines, Iowa-based firm, and has a margin of error of plus or minus 4.3 percentage points.
Investors have been confronted by a series of geopolitical crises this year ranging from war in Eastern Europe to Ebola in Africa and persistent territorial tensions between China and its neighbors. In the past week alone, Russia moved warships toward Australia on the eve of a Group of 20 summit and announced plans to extend its long-range bomber patrols as far as the Gulf of Mexico.
MALACCA: There is definitely scope for the prices of RON95 petrol and diesel here to be reduced when global crude oil prices drop to between US$70 and US$75 (RM231 and RM248) per barrel, said Deputy Finance Minister Datuk Ahmad Maslan.
“If global crude prices drop to that range, then it would have crossed the current RM2.30 per litre price point, which is the subsidised price for RON95,” he said after a Goods and Services Tax (GST) briefing in Alor Gajah yesterday.
Crude oil price is hovering at around US$80 (RM260) per barrel this month.
“As informed earlier, RON95 petrol and diesel are both GST-exempt,” said Ahmad, who also clarified that the prices of residential property nationwide were expected to increase by between one and two percentage points upon the implementation of GST, and not three percentage points as said by Urban Wellbeing, Housing and Local Government Minister Datuk Abdul Rahman Dahlan earlier.
On former prime minister Tun Dr Mahathir Mohamad’s allegation that the Government’s BR1M (Bantuan Rakyat 1Malaysia) for the lower income people was a form of bribery, Ahmad said the assistance actually helped spur the economy.
“The majority of BR1M recipients spend on necessities, and this stimulates economic activities and benefits businesses,” said Ahmad.
Pointing to the many projects awarded to Class F contractors during Dr Mahathir’s tenure, Ahmad said “tens of thousands” benefited that time when they spent on material and manpower to complete projects that could involve up to 400 components each.
“But for Datuk Seri Najib (Tun Razak), his way was giving cash to some seven million rakyat so that they can spend to spur the economy,” he said.
I filled up my tank last weekend before heading off on a road trip. When the gauge stopped at $35, I thought the pump had malfunctioned. Normally, it ends with the message, “please take out home equity loan” or “first-born required to work our car wash for six weeks.”
I was pleased to learn that the tally was not a mistake. Gas prices have fallen to a point where extraordinary financial strategies are no longer needed to support ground travel. The questions are: how long will this beneficence last? And looking beyond my own self-interest, is this a good thing for the world economy? The answers will depend on the actions of those on the other side of the energy equation.
A complicated set of circumstances is responsible for the decline in oil prices, which fell below $80 per barrel this week. On one side of the market, very sluggish growth in the eurozone and moderation in the pace of Chinese manufacturing have diminished global demand. Estimates call for only very modest increases in oil consumption over the next two years.
On the supply side, the American energy resurgence leads the list of factors adding to output. Libya, which rid itself of Colonel Muammar Qaddafi three years ago, has placed its production back on line. The West has limited Iran’s sale of oil on world markets to force negotiations over its nuclear program. There has been some talk of relaxing these restrictions, which would bring several hundred thousand additional barrels to market every day.
A renewal of sectarian tension among Shias, Sunnis, Kurds and others has made it extremely difficult for the Organization for Petroleum Exporting Countries (OPEC) to restrict output. Regimes need to curry favor by providing benefits to their people, and the progress of the Islamic State (ISIS) has raised the need for defense spending.
Saudi Arabia has traditionally served as the main enforcer within OPEC. It controls a third of the world’s reserves, and its share is among the highest quality. Saudi Arabia’s extraction costs are very modest. In the past, the Saudis have put pressure on others in the cartel by increasing output, driving prices down and thereby diminishing the profits derived from exceeding targets. The resulting financial pain leads miscreants to fall back into line.
Saudi Arabia has been especially displeased with Russia and Iran for supporting Syria and may seek retribution by using extraction as a weapon. Some also suspect that OPEC may be interested in taking some of the steam out of the American energy renaissance, which has reduced dependence on OPEC supply. But industry analysts suggest that most U.S. producers will remain profitable at $70 or $80 per barrel.
But there are two variables that Middle Eastern regimes focus on when it comes to energy prices. One is their extraction cost, which sets a breakeven point. But the other is the price required to generate sufficient revenue to ensure domestic tranquility and defend against outside insurgency. It is very difficult to mediate between the two.
To date, it appears that Saudi Arabia has neither increased nor decreased its supplies to address price developments. There is a critical OPEC meeting late this month, at which time the group will attempt to reconcile its array of conflicting priorities.
The current situation is having an impact far from the Fertile Crescent. Producers in Latin America, where nationalized oil companies are common, rely substantially on energy exports to generate revenue. Venezuela, in particular, may face upheaval if crude prices remain low. Nigeria, battling its own insurgency and facing a potential credit rating downgrade, will also be challenged. Iran will face substantial budget shortfalls if oil prices fail to recover.
No one stands to lose more than the Russians if oil prices sustain their recent descent. Already in recession, the Russian economy could contract by a further 1% in each of the next two years. Pushed into an uncomfortable economic corner, President Vladimir Putin may respond with renewed aggression; reports of increased military activity in Ukraine this week were particularly discouraging.
On the happier side of the equation are countries reliant on energy imports. Leading this list are Japan and the eurozone, two markets whose economies have been struggling and which would welcome the relief that falling fuel prices would offer consumers. The offset is that inflation targets in both places will become more difficult to achieve.
The price of oil has historically been the source of significant economic realignment. That influence seems undiminished today, even though supply-and-demand patterns have changed dramatically over the past generation.
One thing that has not changed is that the Middle East holds the key to market developments. The politics and economics of the Fertile Crescent have been complicated for millennia. The presence of vast crude reserves in the region and the associated attention from Western powers have only served to make things even more difficult to diagnose.
Watching upcoming developments will be critical. And we’ll need to think beyond our own fuel tanks to fully appreciate their consequences.
Pressure for Economic Adjustment Mounts in Brazil
Brazil finds itself fresh off the most hotly contested election in its modern history. It saw two separate challengers nearly unseat incumbent President Dilma Rousseff and end the 12-year rule of the left-leaning Worker’s Party (PT). Finding order and progress is now the challenge facing the country.
Rousseff’s 51.6% to 48.4% margin victory is the narrowest in Brazil’s modern history. That her fragmented opposition rallied around Aecio Neves, whose privileged background turns off many voters, underscores the fact that Rousseff has much work to do as she prepares to begin her second term.
Brazil’s real gross domestic product (GDP) grew by 7.6% when Rousseff was elected in 2010; now, the economy is in recession. Under her mentor and predecessor Luis Inácio Lula da Silva, tight monetary policy kept inflation in check while strict adherence to budget targets instilled confidence in investors. Under Rousseff, expansive government spending has led to wider deficits and higher inflation. Increased intervention into the economy has damaged her reputation with investors.
Change is needed, and even the president’s allies are starting to acknowledge it. Culture Minister Marta Suplicy of the PT’s more-conservative wing captured the nation’s sentiment in her resignation letter to Rousseff earlier this week ahead of an expected cabinet shuffle:
“What all we Brazilians want now is that you should be enlightened in the choice of your new team, beginning with an experienced, independent and proven economics team, able to rescue confidence and credibility in your government and that, above all, will be committed to a new agenda of stability and growth for our country. This is what Brazil, today, anxiously awaits and hopes for.”
Since her victory, Rousseff has sent mixed signals. In her acceptance speech, she promised more dialogue and consensus with her opposition but failed to even mention her opponent Neves. Last week, she vowed to control inflation and trim public spending. Yet this week, Rousseff asked Congress to deduct all investments and tax exemptions from the key 2014 primary budget target (the balance of revenues and expenditures before debt payments), effectively lowering a goal that will be missed for the third straight year.
Yet there are some signs of hope. Last week, the government allowed state-owned oil giant Petrobras to raise its subsidized prices for gasoline and diesel fuel by 3% and 5%, respectively. Previously, the company was forced to sell at a loss as the government fought to keep inflation down ahead of elections.
Rousseff will need to do more to rebuild her credibility. Her biggest opportunity to do so will be in appointing a credible replacement for current Finance Minister Guido Mantega, who will leave the government before Rousseff’s next term begins on January 1.
The president’s relationship with Parliament will also determine her success (or failure). The Senate and House (Chamber) are highly fragmented, with 28 separate parties represented. Rousseff’s party holds just 15% and 14% of seats in the respective legislatures, making her highly dependent on cooperation from her allies.
If the government fails to heed the growing number of voices around her for change, Brazil risks losing its investment-grade ratings and stumbling through another four years of economic malaise. With the Olympics on the horizon in 2016, nothing short of a medal-winning performance will do.
Fed’s Inflation Target: Ceiling or Average?
Inflation-targeting as a technique to manage inflation was introduced 25 years ago by the central bank of New Zealand. The Federal Reserve joined this club only in January 2012, when it announced a 2.0% goal for inflation. This framework is three years old, but its interpretation is still a subject of debate whose conclusion will have a critical influence on the path of U.S. interest rates.
Several advanced countries face a low-inflation environment today and stand well below their targets, despite substantial amounts of monetary stimulus. In the United States, the Fed’s preferred inflation measure has fallen short of the target for most of the last four years.
Low inflation keeps real wages high and discourages firms from increasing their payrolls. Therefore, there is concern that if inflation is held to 2.0%, policy may not produce the desired outcome for the labor markets. Short-term rates are at their zero lower bound, so slightly higher inflation would have the effect of easing monetary policy.
It is with this is in mind that President Charles Evans of the Federal Reserve Bank of Chicago has expressed willingness to tolerate inflation above 2.0%, but with a 2.5% cap, until it is certain that raising interest rates would not damage the expansion. Noting that inflation has been allowed to undershoot its target for so long, Evans has suggested that a brief period above the target should not be viewed as a significant violation.
Evans has also observed that a short period of overshooting the current target would be less costly than acting prematurely. There is a confidence in his views that inflation can be dealt with as it arises, as opposed to pre-emptively. President Dennis Lockhart of the Atlanta Fed and President John Williams of the San Francisco Fed largely share this view. It is worthwhile to note that these three Fed officials will be voting members of the Federal Open Market Committee in 2015.
Inflation goals have already moved from ceilings to targets, to reach from either direction. At present, some want to take things further and consider them as averages to achieve over some length of time. Should this view prevail, we’ll have lower for quite a bit longer.
Carl Tannenbaum is the Chief Economist for Northern Trust. Prior to joining Northern Trust, Carl led a team at the Federal Reserve Bank of Chicago whose charter was to analyze financial risk, its implication for the broad economy and policy choices to address it.
The information herein is based on sources which The Northern Trust Company believes to be reliable, but we cannot warrant its accuracy or completeness. Such information is subject to change and is not intended to influence your investment decisions.