Archives for November 2014

RT’s correspondent Murad Gazdiev spoke with OPEC ministers before they went into closed door meetings.

The Venezuelan foreign minister said his country is ready to support a five percent production cut across OPEC.

Kuwait says it is fine with prices at $60 per barrel.

The oil minister from Nigeria said that some of the OPEC members weren’t being driven by economics, but are after political objectives.

A decision to cut or not will have a big effect on energy markets worldwide, as OPEC produces more than 40 percent of the world’s oil.

Low oil prices help big importers like China and India because petroleum products become cheaper, but hurt exporting countries because billions in revenue are lost. Oil prices also affect currencies, such as the Russian ruble, which, in tandem with oil, has lost more than 30 percent since June.

A decision is expected to be announced at 4:00pm in Vienna, and a live feed is available.

Spendy Shale

North American shale as the biggest threat to Saudi Arabia and OPEC dominance, according to Handjani. High prices allow shale to be profitable, whereas the Saudis can produce barrels for just pennies.

The US shale boom, which began in 2008, has increased US crude output by 60 percent, posing a threat to major oil exporter Saudi Arabia, which produces 16 percent of global oil. US production is ready to soon overtake the Saudis, which they could see as encroachment.

Unlike oil from the Gulf States, US shale is expensive, and becomes unprofitable below $70-80 per barrel, according to different analysis.

“US production, which has been a real game changer, doesn’t really work when the oil price goes down. Therefore I think the Saudis and the Arab Gulf States want to keep the price of oil hovering around $70 to keep the US uneconomical at the moment,” Handjani said.

Low oil prices help big importers like China and India because petroleum products become cheaper, but hurt exporting countries because billions in lost revenue.

“I don’t necessarily see a price war going on yet, but I see that producers are in line to break the back of US production,” Handjani said.

Low prices not only hurt the US market, but also countries like Russia which have oil reserves in hard to extract places- such as the Arctic- which are more expensive to produce.

Oil prices also affect currencies, such as the Russian ruble, which, in tandem with oil, has lost more than 30 percent since June.

Oil companies have an interest in developing new technologies and areas, which becomes less likely as profitability falls.

Article source: http://rt.com/business/209375-opec-cut-vienna-meeting/

READ MORE: Fitch names oil exporters ‘vulnerable’ to credit downgrades if weak prices persist

While lower oil prices are hitting some of the OPEC member states like Iran and Venezuela, there are certain winners from the cheaper commodity, like China, the world’s second biggest oil consumer, and India. If prices go up, some emerging economies could start contracting, Hirs explained in an interview with RT.

“If they [OPEC – Ed.] raise the price of oil and its sends these economies into a recession, that would lead to a lower demand of oil and could create a worldwide effect of lowering prices even later next year, and lowering demand,” he said.

#OPEC breakfast. This is what you get when the oil price falls below $80. pic.twitter.com/4rhmCBIUJd

— Jonah Hull (@jonahhull) November 27, 2014

The US dollar has been steadily rising over the last year and a half. As oil is the biggest commodity traded worldwide in dollars that means oil has become more expensive for OPEC’s major Asian customers Hirs said. He believes OPEC began to let the price fall in order to keep these economies from falling into recession.

READ MORE: Ruble-yuan settlements will cut energy sales in US dollars – Putin

The prices of oil are being driven down primarily by intense shale oil exploration in the US which has added about four million barrels per day since 2008. Another factor is easing the sanctions against Iran and its gradual return to the world oil market, as well as the growing production from Libya and Iraq.

“A simple increase of just one percent of supply can drive the price of oil down 25%,” the expert explained.

Within OPEC certainly there are a lot of differences, because the organization is divided into two camps. On the one hand there are the rich Gulf States which have built themselves huge capital that they can fall back on when the oil price plunges. The poorer states, such as Latin American and African countries, depend on the price of oil being a certain value.

READ MORE: Saudi Arabia to keep politics out of OPEC, will let market stabilize price

“OPEC has got to decide, if they want to do a production cut and increase the price of oil, and what that will do to the economies of their best customers,” Ed Hirs concluded.

Article source: http://rt.com/business/209331-opec-oil-prices-recession/

Reuters / Andy Buchanan

Saudi Arabia’s oil minister said he believes the oil market will stabilize itself and raised the question why OPEC is expected to play a unilateral role in the global energy market, and not the US.

“The market will stabilize itself eventually,” Ali Al-Naimi,the country’s oil minister, told reporters on Wednesday ahead of Thursday’s OPEC meeting, Bloomberg News reported. Both American and European oil blends fell Wednesday afternoon. Brent Crude dropped below $78 per barrel and WTI dipped below $74 per barrel.

“Why should Saudi Arabia cut? The U.S. is a big producer too now. Should they cut?” Naimi asked. His comments come just hours ahead of OPEC talks in Vienna on Thursday to decide if they will curb oil supply in response to the weak demand that has spurred a more than 30 percent drop in barrel prices since June.

“This is not a crisis that requires us to panic … we have seen (prices) way lower,” UAE Oil Minister Suhail bin Mohammed al-Mazroui said in an interview with Reuters.

In 2008, the financial crisis forced OPEC to respond to oil prices that fell by more than $100 per barrel by cutting production, which slightly stabilized the market.

Saudi Arabia is the largest exporter of petroleum liquids in the world and is home to the world’s largest proved crude oil reserves, but the US is poised to overtake it in terms of petroleum product exports. Russia accounts for 14 percent of total world oil output.

“I think everyone needs to play a role in balancing the market, not OPEC unilaterally,” the UAE oil minister said.

The 12 ministers from the Organization of the Petroleum Exporting Countries meet tomorrow, but there is still great discord on how to face the problem of $78 per barrel oil, which for many members is financially crippling.

On Tuesday, Venezuela and Saudi Arabia met with non-OPEC members Mexico and Russia, but no consensus was reached on cutting output. Venezuela is eager to cut production, whereas Russia said it can sustain lower prices.

Saudi Arabia, Kuwait, Qatar and the United Arab Emirates are in a position to weather the weak prices, as they have billions saved up in state funds; however countries like Iran, Iraq, Libya Nigeria, Venezuela, and Ecuador are losing billions they don’t have with the price lull. Algeria has pushed for a production cut, and Angola is confident that a consensus will be reached. .

Iran, Iraq, and Libya may be exempt from cutting supplies since they don’t produce at full capacity anyway.

Article source: http://rt.com/business/209151-saudi-arabia-oil-stabilize/

Head of VTB Bank Andrey Kostin (RIA Novosti / Sergey Subbotin)

The US is putting pressure on Chinese and Arab banks, forbidding them to work with Russian sanctioned companies, says Andrey Kostin, head of Russia’s second biggest lender VTB.

“We have information on Arab countries, China, and others that US officials come, gather the heads of banks and say: “We will punish everyone who is under Russian sanctions,” said Kostin, after a meeting organized by the Stuttgart Chamber of Commerce in Germany.

“We need to take this into account. Nobody wants to become BNP Paribas”, he said, meaning the large French bank that was fined $9 billion for violating US sanctions against Cuba, Iran and Sudan.

However, Kostin believes Chinese credit organizations will provide financing for projects that interest them.

“The Chinese, on the one hand, will be cautious. Most Chinese banks have businesses in America as well,” said Kostin “They are more willing to finance transactions that are related to the financing of their own exports. And I don’t see any problems here.”

READ MORE: Russia-China trading settlements in yuan increases 800%

Kostin said the issue becomes more complicated when it comes to free financing. But overall, China, as well as Arab countries, remain Russia’s potential funding sources, even though they are being pressured.

Earlier in November, Kostin said he’s leaving open the possibility of VTB’s withdrawal from the London Stock Exchange. He believes its restrictions are tougher than the sanctions imposed by US. The bank is considering raising subordinated loans in the Asian markets.

READ MORE: Russia’s second biggest bank VTB may leave London Stock Exchange

In the summer Kostin also said the key goal of his bank is to increase the use of currencies other than the dollar.

READ MORE: Russian companies ‘de-dollarize’ and switch to yuan, other Asian currencies

Article source: http://rt.com/business/209063-china-arab-banks-pressure/

The US shale oil boom, coupled with weak demand from Europe and China, has led to a more than 30 percent drop in oil prices since June, and was trading at $78 Wednesday afternoon ahead of Thursday’s talks.

“I think there could be overriding geopolitical considerations. Another objective of OPEC, that all of us have heard, is that they want to remove some of the excess production out of the shale industry in the US,” said Worthington.

Crude output in the US is at a 50-year high having increased 60 percent since the onset of the fracking boom in 2008.

“US shale production is here to stay. I think it’s a massive, destabilizing influence, as we always thought it would be. The Saudis and the rest of the world are just going to have to deal with that,” Worthington added.

‘Backroom talks’

According to Worthington, one of the strongest geopolitical collusions is between OPEC member Saudi Arabia and non-OPEC member US.

“It’s a confluence of mutual beneficial interests with Saudi Arabia and the United States. Clearly, I think these guys are in backroom discussions,” Worthington said.

Saudi Arabia is the largest exporter of petroleum liquids in the world and is home to the world’s largest proved crude oil reserves, but the US is poised to overtake it. Russia accounts for 14 percent of the world total.

Moscow is particularly vulnerable to political plays by the US and Saudi Arabia, since they are one of the more vocal advocates of shifting away from exclusively using the dollar in oil pricing, which the US and OPEC agreed in 1971. This, according to Worthington, makes Russia a ‘target’ of the US.

READ MORE: Ruble-yuan settlements will cut energy sales in US dollars – Putin

Pressure from all sides

Within OPEC there is a wide range of what price countries need to sell their oil to balance their budgets. Kuwait can make money selling at $44 per barrel, whereas other members, like Iran, don’t see revenue unless prices are above $130 per barrel.

Venezuela, for example, is heavily pushing for a supply cut to alleviate financial pain.

On Tuesday, OPEC members Venezuela and Saudi Arabia met with non-OPEC members Mexico and Russia, to discuss cutting production, but the talks ended in stalemate.

READ MORE: Russia, Saudi Arabia, Mexico, Venezuela decide not to cut oil production

Before the meeting it was reported that Venezuela, along with Ecuador were considering cutting output. There were also reports that Russia would cut production, but the country’s Energy Minister Alexandre Novak denied them Wednesday.

Article source: http://rt.com/business/208979-opec-struggling-dinosaur-/

Platinum bars (Reuters / Michael Dalder)

Four major global firms are to appear in a New York court accused of manipulating platinum and palladium prices for eight years. The law suit is the first of its kind in US history.

Those accused include units of Goldman Sachs Group, the world’s biggest global investment bank, HSBC Holdings, Europe’s largest bank by market value, the metals unit of BASF SE (BAS) ), the world’s largest chemical company, and Standard Bank Group from South Africa, the world’s largest producer of platinum and second largest producer of palladium after Russia.

The plaintiffs claim the manipulations of precious metals prices, which is believed to have started in 2007, have cost purchasers millions of dollars, Reuters reports.

The companies have been sued for using insider information about client purchases and sale orders to profit from slight movements in the price of platinum group metals, be they used for jewelry or for industrial use, such as the production of automotive catalytic converters, fuel cells, etc.

The illegal sharing of customers’ data enabled the banks to undertake a “front-running” price manipulation, with the help of fabricating “spoof” orders, which is claimed violates US antitrust and commodities laws.

The suit was filed in the Manhattan Federal Court on Tuesday by Modern Settings LLC, a Florida-based maker of jewelry and police badges. All four defendant companies refused to comment on the issue.

Last year BASF’s metal unit generated €2.36 billion ($2.95 billion) revenue in precious metals trading, according to Reuters.

READ MORE: Banking breeds cheating for financial gain – Swiss researchers

Regulators around the world have been tightening the screws on the global banks over the manipulation with some of benchmark rates, such as rates on the foreign exchange markets and the inter-bank London Interbank Offered Rate (LIBOR).

In spring 2014 the Swiss regulator became the first to confirm it had uncovered illegal currency rate rigging by world’s leading financial organizations, Goldman Sachs, and HSBC included.

By November the world’s biggest banks had agreed to pay out $4.3 billion to settle an investigation into their alleged rigging of foreign exchange rates.

READ MORE: Banks fined record $4.3 bn for corrupting integrity of currency trading

Article source: http://rt.com/business/209023-metals-price-fixing-lawsuit/

Reuters / Hazir Reka

Air pollution, mainly from a small number of coal fired power stations in Germany and Eastern Europe, cost the EU up to €189 billion in 2012, according to a study by the European Environment Agency (EEA).

The scientists found that air pollution and greenhouse gasses cost Europe between €59 and €189 billion in 2012. €189 billion is roughly the same as the entire GDP of Finland. While between 2008 and 2012 air pollution cost anything between € 79 and €251 billion.

The research published Tuesday was designed for EU policy makers who may further tighten laws on air quality.

The report, called Costs of air pollution from European industrial facilities – an updated assessment, looked at the harm that air pollution can cause including hospital costs, lost work days, health problems, premature death, reduced agricultural yields and damage to buildings.

The study names and shames the big polluters. Of the 30 dirtiest facilities 26 are power stations, most of which were coal or lignite fired, in Germany and Eastern Europe.

But it is only a handful of plants, which are to blame. Fifty percent of the pollution came from just one percent of the 14,325 facilities examined between 2008 and 2012, while three quarters of the cost of damages came from the emissions of just four percent of plants.

But it was not only dirty old power stations that are to blame.

“While we all benefit from industry and power generation, this analysis shows that the technologies used by these plants impose hidden costs on our health and the environment. Industry is also only part of the picture – it is important to recognize that other sectors, primarily transport and agriculture, also contribute to poor air quality,” said Hans Bruyninckx, EEA Executive Director.

The report also found that the cost of damage has declined over the past five years in line with emissions. This was partly due to legislation, improved efficiency and the economic downturn.

But the report doesn’t examine if emissions are consistent with the legal requirements to operate. However it found that if Europe’s 1,500 large power stations further reduced their emissions they would make significant savings.

Article source: http://rt.com/business/208783-cost-eu-air-pollution/

EU Commission President Jean-Claude Junker (Reuters / Eric Vidal)

EU Commission President Jean-Claude Junker has unveiled a $390 billion (€315 billion) investment plan to stave off recession and jumpstart the sluggish European economy.

The European Commission plan will make billions of euros available for investment projects throughout the 28-nation bloc, with a heavy emphasis on financing for infrastructure, small businesses, education, youth employment, and telecoms.

Investment will for the most part be private; Juncker foresees €252 billion in new private money. The EU will provide €21 billion for a special fund to be managed by the European Investment Bank (EIB) which it will allow it to give out €63 billion in loans. Of the €21 billion, the Commission is putting up €8 billion from the EU budget and the EIB €5 billion.

Today we turn a page: We are adding the 3rd point of a virtuous triangle: An ambitious +realistic Investment Plan for Europe #investEU

— Jean-Claude Juncker (@JunckerEU) November 26, 2014

The liquidity drive will look to close the major gap in EU investment, which is currently €370 billion below pre-crisis norms.

“After years of fighting to restore our fiscal credibility and to promote reform, today we are adding the third point of a virtuous triangle: An ambitious, yet realistic ‘Investment Plan for Europe’. Europe needs a kick-start and today the Commission is supplying the jump cables,” Junker said in his speech to the parliament Wednesday.

Some hypothetical investment projects Juncker mentioned were new state of the art computers in a Greek classroom, new medical equipment in Italian hospitals, and electric motorways in France.

Growth in the EU has failed to recover after nearly six years of recession, and has left the continent with a huge public debt, high unemployment, and on the verge of deflation.

READ MORE: Eurozone inflation slumps to 5yr low risking triple-dip recession

So far, the European Central Bank has decided not to print money to fight its way out of the financial crisis as the US did with its monetary stimulus program.

“Money will not fall from the sky. We do not have a money printing machine,” Juncker said, emphasizing Europe will have to generate real investment, instead of just snapping its fingers and creating more debt.

The plan is based on three major pillars- first to create the new fund, then set up projects with the money, and then get rid of red tape and regulators in order for the projects to be carried out.

Juncker says the money is the “missing part of the puzzle” and the third point in the “virtuous” triangle of euro recovery.

Article source: http://rt.com/business/208983-eu-economy-plan-revive/

Reuters / Brendan McDermid

Bahrain, Angola, Venezuela, and Ecuador are the most vulnerable to sovereign credit rating downgrades if low oil prices continue through 2015, Fitch said in a report.

Ratings agency Fitch released a report Tuesday breaking down oil exporting countries into three rankings based on how well their economies are prepared to weather weak oil prices through 2015. The report looked at how quickly the domestic budget would erode under continued pressure in lost oil revenues.

Bahrain, Angola, Venezuela, and Ecuador were named as most vulnerable since they have most overestimated the price of oil when planning their budgets.

Low oil prices create less money for the national budget. This will affect the balance of payments in most countries, which could result in sovereign credit downgrades by the international rating agency.

While some OPEC countries are quite vulnerable to oil prices, Kuwait is not, as its “break even” oil price is below $60 per barrel, similar to non-OPEC countries Abu Dhabi and Norway.

Saudi Arabia, a heavyweight in OPEC decisions, has the largest fiscal surplus buffer, according to Fitch. Russia, which produces 14 percent of the world’s oil, is also in a similar position, as it has vast (more than $440 billion) in currency reserves.

OPEC members meet Thursday in Vienna to discuss reducing production to push back up oil prices, which have fallen more than 30 percent since mid-June levels, and are hovering near $80 per barrel, a 4-year low.

Article source: http://rt.com/business/208771-fitch-warns-oil-budget/

Reuters / Vitaliy Ankov

Most European countries have enough stocks to cover for “lost” gas from Russia should there be a major disruption. Hardest hit would be Slovakia, Austria, and Turkey as they rely on Russia for at least 15 percent of their energy needs, OECD experts say.

For Germany, Italy and Poland gas imports from Russia provide about 10 percent of their energy demand, the Organization for Economic Cooperation and Development (OECD) said Tuesday.

A possible shortage of gas from Russia to Europe through Ukraine will not substantially affect the price in the short term as the current level of stocks in European underground storage would cover the deficit for a year, OECD says.

Europe has about 130 billion cubic meters of stored gas ready fill any gap in Russian supplies.

However, OECD analysts say that if the disruption lasts longer than a year, the price of gas in some European countries would most likely rise.

According to the independent Bruegel think tank, this will boost the move to alternative energy sources; change the balance of energy provision, and lower power consumption. The deficit will partly be offset by more expensive LNG supplies and the replacement of gas with oil in the production of electricity and heating.

Even though Europe will be able to compensate for the shortage of gas, a lack of infrastructure for imports (LNG terminals or pipelines) could cause problems in some countries, and high gas prices can greatly affect certain industries.

Russia, Ukraine and the European Commission in late October agreed the so-called winter gas plan. It assumes the resumption of Russian gas supplies to Ukraine on condition of prepayment, the repayment of a multibillion dollar debt, and the guarantee of uninterrupted transit to Europe.

READ MORE: Russia, Ukraine agree on gas supplies until March 2015

About half the supplies currently running through Ukraine could be sent via alternative pipelines not working at full capacity. In 2012, 50% of gas exports from Russia to Europe went through Ukraine, or 15% of the European gas imports.

Article source: http://rt.com/business/208759-oecd-gas-russia-europe/