Yves here. Stocks around the world took a nosedive today, due to WTI sliding to under $30 a barrel, as well as disappointing earnings announcements from Chevron and BP, along with a warning from Standard & Poors.
But the bigger cause of the sour mood which apparently swept from oil stocks into the broader market, was that a rumored deal among Russia, Iran, and the Saudis is nowhere near as imminent as the hype of last week would have investors believe. And there’s an obvious reason why.
As we indicated last year, when Saudi Arabia embarked on its oil-price-cutting strategy, which is what refusing to reduce production to support prices amounted to, it looked like a masterstroke. It had several sets of opponents in its crosshairs. The firs was US frackers, who posed an intermediate-term threat if the shale boom and resulting government subsidies supported the construction of LNG transport facilities (which on a cold-blooded economic calculation are not justifiable given that under the old normal, shale production would have peaked around 2022 and started declining gradually, then more sharply around 2030, and that assumed no curbs due to earthquakes or water supply impact). Second was clean energy, which becomes much less attractive if conventional energy becomes cheap. Third was Saudi Arabia’s geopolitical opponents, most important Russia and iran.
Recall that the Western media went all in on the story of Russian vulnerability. In 2015, Europe tightened sanctions, and the Western leaders were in barely-veiled terms calling for regime change in Russia, on the premise that Putin could not survive the one-two punch of low oil prices and foreign sanction.
Here we are, in 2016, with barely an acknowledgment of that period. Not only did the Europeans overestimate Putin’s vulnerability, but the Saudis badly underestimated theirs.
It’s impossible to know what scenarios the Saudi officialdom ran, but it appears their downside case was not that much more dire than that of conventional wisdom as of early 2015: that oil prices would be low for the first half of 2015, and would recover to more or less their former level in the second half of the year. One has to think the Saudis allowed for some overshoot in terms of what then would have been seen as a dire scenario, say oil below $60 for nine months.
In other words, the Saudis simply did not anticipate that both government and private producers had the same incentives: to keep pumping because they needed the revenues so badly. And the deterioration of the Chinese economy and lousy fundamentals in Europe mean that low oil prices haven’t led to an upswing in consumption to offset the surplus supply.
And they further underestimated the staying power of some of those players. As John Dizard pointed out early on, US shale players would keep going as long as they had access to funding (and they also got adept about cost reduction, in cutting back at higher cost sites and increasing output at ones with better economics). And even though oil is an important export for Russia, it is far more diverse an economy than is widely understood and much closer to being an autarky than one-trick-pony Saudi Arabia.
So the severity and probable extended duration of low oil prices has blown back on Saudi Arabia in a very nasty way, particularly since its government and society have become very dependent on a high level of oil revenues.
Russia and Iran are thus able to exploit the fact that the Saudis are hoist on their own petard. They won’t do an oil deal unless they also get a deal on Syria. That is something the Saudis will find very hard to swallow. But all that Russia and Iran have to do is stand pat. The Saudis can’t take protracted budgetary hemorrhaging and they know that. But it may nevertheless take time for the Saudis to swallow their pride and make the necessary concessions (and figure out how to make them look like peace with honor). And the longer this impasse persists, the more Mr. Market will continue to fret.
#1
The Soddies are likely looking for a face saving way out. If the non-OPEC oil producers agree to make (token) cuts in production then the Soddies could declare victory and start ratcheting down their own production.
Funny how you haven't heard a peep from the peak oil crowd.
Posted by: Sven the pelter ||
02/04/2016 11:02 Comments ||
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[GatestoneInstitute] Key points:
o N24 television has reported that up to 50% of "asylum seekers" have gone into hiding and their whereabouts are unknown. They presumably include economic migrants and others who are trying to avoid deportation if or when their asylum applications are rejected.
o Tens of thousands of migrants destroyed their passports and other identity documents before arriving in Germany. It may take years for German authorities to determine the true identities of these people and their countries of origin.
o Even if Germany sends these individuals back to the countries where they first entered the EU (usually Greece, Hungary or Italia), with a borderless Europe, migrants can easily make their way back to Germany.
o German authorities are downplaying migrant lawlessness, apparently to avoid fueling anti-immigration sentiment.
So far it is mostly purse snatching. But there have been an awful lot of purses snatched.
o Migrants are still coming to Germany at the rate of about 2,000 per day.
During the height of winter, when the Mediterranean waters are rough, and the land routes inhospitable. Spring comes in less than two months.
o "Eight to ten million migrants are still on the way." -- Development Minister Gerd Muller.
[DAWN] IT is unbecoming of a leader of a democracy to talk in a way that is insensitive. Despite the tragedy that befell the protesting PIA employees, when two of their colleagues were killed on Tuesday, Prime Minister Nawaz Sharif ... served two non-consecutive terms as prime minister, heads the Pakistain Moslem League (Nawaz). Noted for his spectacular corruption, the 1998 Pak nuclear test, border war with India, and for being tossed by General Musharraf... adopted a hostile approach towards the union protesters. In close proximity were some of his ministers who echoed his tone and practically equated PIA union protesters with 'enemies of the state' and warned that they may lose their jobs. All this at a time when workers were insecure about employment and on a day when they were absorbing the shock of the law-enforcement action against them and the death of their comrades. Whatever one's own opinion of the unions, the protesters and the health of the airline may be, allowing peaceful demonstrators to be killed or injured is a grave tragedy and should be acknowledged as such by the leadership.
For their part, the protesters also need to realise that many people are getting weary of their tactics. They have proven their point by grounding the airline and should now work towards winding down their protests. Disrupting the lives of the people for too long may not win them the sympathy they see as crucial to their cause. They need to realise that the status quo has become untenable in PIA and a large effort is needed to rescue the national carrier before it collapses altogether, or becomes an even bigger burden on the taxpaying public than it already is. One of the demands that has been put forward by the union's joint action committee is that "PIA's employees be provided a chance to reform the airline". How are we expected to take this demand seriously? Do they have any plan or vision that goes beyond bravado or sloganeering to undertake such a massive task? What do they propose be done about the accumulated losses which have climbed to Rs300bn?
Cooler heads need to step in to save the situation from deteriorating further. The opposition parties should not see in this episode an opportunity to make political hay. The PTI thought it could ride the anger of the traders against a withholding tax and ended up looking foolish when the traders cut a deal with the government and wound down their protests. That mistake ought to be avoided. The need of the hour is for all political forces to urge calm and restraint, stop taking extreme positions, and work towards getting PIA back in the air once again rather than fan the flames of anger. As a first step, the government should refrain from applying the Essential Services Act to PIA. Instead, the focus should be on how to put the airline back on track. But that will not happen so long as bluster and bravado are calling all shots.
Posted by: Fred ||
02/04/2016 00:00 ||
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[4 views]
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[DAWN] THE chairman of the Council of Islamic Ideology, Mohammad Khan Sherani, has indicated the CCI was ready to review Section 295C of the Pakistain Penal Code if it received a request from the government. This statement comes at a time when a committee appointed by the federal government is already working on law reforms for the past one year or so.
By now, we all know that Section 295C in its existing form is prone to abuse and has led to serious miscarriage of justice in thousands of cases. Thus some significant changes to the substantive law, if not its outright repeal, and procedural aspects would only be reasonable.
The basic question is whether there is any justification to refer back the question of blasphemy to the CII when all available evidence points to the need for some obvious reform.
Continued on Page 49
Posted by: Fred ||
02/04/2016 00:00 ||
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Link ||
[6 views]
Top|| File under: Govt of Pakistan
#1
Isn't criticizing the blasphemy law blasphemy?
' Catch-22.
Posted by: Sven the pelter ||
02/04/2016 11:06 Comments ||
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Reuters reports that Bashal al-Assad's forces have made major advances behind a major Russian air offensive and are now poised to destroy the non-ISIS rebels opposing the Syrian government is rocking the foreign policy establishment. "After three days of intense fighting and aerial bombardment, regime forces, believed to include Iran-backed Shia militias, broke through to the formerly besieged regime enclaves of Nobul and Zahra."
...Apart from derailing the administration Syrian initiative, the return of Assad from political death behind the bombs of the Russian airforce calls into question the sincerity of president Obama's policy in the region. By contrast with the Russians it seems almost as if the administration were simply going through the motions of combat. The performance of the miniature, "rust bucket" Russian air force has formed an invidious baseline to what the USAF has achieved.
...Someone has to ask: what goal does America still have in the Middle East beyond defending the tattered political image of president Obama?
The real scandal in the Hillary Clinton emails are not the technical violations of security the administration has abetted, which Andrew McCarthy convincingly details. It is the mind-boggling incompetence manifested by the emails themselves. The offensive in Aleppo shows Obama has either gotten everything wrong or was dishonest to begin with.
#2
Richard F is a smart guy but he has some problems with this opinion piece.
1. At least part of Aleppo has been held by the Assad forces since the rebellion against Assad began. In fact, most of the time pro Assad forces held most of Aleppo. Thus when Assad forces make some incremental gains it is not "The Fall of Aleppo"
2. It certainly is true that the Free Syrian Army has taken a massive beating lately. However, given all the other forces in the battle (including anti Assad forces like ISIS and Al Nusra which also hate the FSA), the destruction of the FSA is inevitable in any case.
3. Which emails show incompetence in Syria? Richard doesn't mention which ones and so it is impossible to understand the basis of his 'real scandal' opinion.
Posted by: lord garth ||
02/04/2016 8:24 Comments ||
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A multi-volume chronology and reference guide set detailing three years of the Mexican Drug War between 2010 and 2012.
Rantburg.com and borderlandbeat.com correspondent and author Chris Covert presents his first non-fiction work detailing
the drug and gang related violence in Mexico.
Chris gives us Mexican press dispatches of drug and gang war violence
over three years, presented in a multi volume set intended to chronicle the death, violence and mayhem which has
dominated Mexico for six years.
Rantburg was assembled from recycled algorithms in the United States of America. No
trees were destroyed in the production of this weblog. We did hurt some, though. Sorry.
