As reported earlier, several hours ago Saudi Arabia announced that its 91-year-old King Abdullah had passed away, in the process setting off what may be a fascinating, and problematic, Saudi succession fight which impacts everything from oil, to markets to geopolitics, especially in the aftermath of the dramatic political coup in neighboring Yemen. As a reminder, it is Saudi Arabia whose insistence on not cutting oil production with the intent of hobbling the US shale industry has led to the splinter of OPEC, and to a Brent price south of $50. Which is why today's event and its implications will be analyzed under a microscope by everyone: from politicians to energy traders. Here, courtesy of Ecstrat's Emad Mostaque, is an initial take at succession, the likely impact on oil, then the Saudi market & currency and finally regional politics.
Greece's bailout program is not working. After receiving hundreds of billions of Euros in new loans to stave off a sovereign default, Greeks are on the verge of electing a new government that may throw Eurozone politics into turmoil. How things will play out in Greece and abroad is anybody’s guess. But it is important to consider the factors which have contributed to the current state of affairs.
World Leaders Demand "Central Bank Of Oil"; IMF Warns Price Drop Is Permanent; OPEC Expects "Rebound To Normal Soon"Submitted by Tyler Durden on 01/21/2015 10:17 -0500
Because nothing says 'stability' like a Central Bank in charge of things, the smartest richest men in the world have proclaimed in Davos this week that "we need a central bank of oil, like the central bank in financial world." As long as they are not Swiss, of course. Oil has been volatile today amid these calls for stability after Saudi Aramco comments on cutting projects (supply) sent prices higher, and was then talked back by the CEO bringing prices lower. Oman - the largest non-OPEC Middle East oil producer - blasted that "we have created volatility," noting it was having a "really difficult time," and that's "bad for business," demanding OPEC slow production. But it was The IMF that sparked the greatest concerns as it warned oil producers to treat this oil price drop as permanent noting that they expect these economies to lose $300 billion. only to be contradicted by OPEC's al-Badri who noted "oil prices will rebound back to normal soon."
Oh the irony. You just have to laugh when you see this closed, autocratic regime scramble to build a neo-feudal wall in order to protect itself from radical terrorists of its own creation. Instead of building this Medieval monstrosity, you’d think the Saudis might want to figure out who amongst them had funded ISIS in the first place, but that would make too much sense.
For Sale To The Highest Bidder – How Middle Eastern Governments Are Buying Off The US Political ProcessSubmitted by Tyler Durden on 01/13/2015 23:15 -0500
The quaint notion that the U.S. political system remotely resembles either a Republic or a Democracy should have been abandoned long ago. Any lingering illusions were surely extinguished last year, when an academic study empirically proved that the USA is nothing more than a corrupt oligarchy...
Despite Saudi prince bin Talal's explanations of the imbalances between supply and demand being the prime driver of lower oil prices, we thought a look at just where that over-supply is coming from might provide some context into the 'shale oil war'. As the following chart shows, since the start of 2014, rig counts in Saudi Arabia, Kuwait, and UAE have surged (just as they did in the mid-2000s). As of this week, US rig counts are now at 14 month lows as it appears clear that the core OPEC producers are intent on drowning the shale oil industry in excess supply.
"We’ve read a lot of silly articles since oil prices started falling about how U.S. shale plays can break-even at whatever the latest, lowest price of oil happens to be. Doesn’t anyone realize that the investment banks that do the research behind these articles have a vested interest in making people believe that the companies they’ve put billions of dollars into won’t go broke because prices have fallen? This is total propaganda."
Remember when shortly after ISIS' stunning and rapid ascent to power it was revealed that a key reason for the terrorist organization's blistering success were the M-1 Abrams tanks, armored transport trucks, Howitzers and countless Humvees made in the US, sold to Iraq and subsequently captured by ISIS? It appears that the US has decided to restock ISIS, if only indirectly. As Matthew Aid's Strategypage.com discloses, the US is now selling a whopping 170 M-1 tanks to Iraq in order to restock the 40 lost to ISIS last summer, and then some. And since ISIS will promptly recapture a substantial portion of this latest batch, the US now appears to have found a fully covert, backdoor ISIS-restocking supply channel: one where Iraq pays to US military contrators (using US taxpayer aid money) such as General Dynamics, and subsequently the inventory mysteriosuly finds its way to barbaian, headcutting terrorists.
As a new year begins, it is easy to consider that the prospects for freedom in America and in many other parts of the world to seem dim. After all, government continues to grow bigger and more intrusive, along with tax burdens that siphon off vast amounts of private wealth. Extrapolating these trends out for the foreseeable future, it would seem that the chances for winning liberty are highly unlikely. There is only one problem with this pessimistic forecast: the future is unpredictable and apparent trends do change.
Since June, the U.S. military has been slowly stockpiling massive amounts of its gear coming out of Afghanistan at a depot in Kuwait adjacent to a bustling commercial port, in preparation for ultimately shipping it across the border into Iraq for an allied offensive against the Islamic State group, US News reports. Air Force Maj. Gen. Rowayne “Wayne” Schatz admitted, "from June to December, we’ve worked a lot on moving items into Kuwait," including 3,100 vehicles, most of them MRAPs. While the military stands by President Barack Obama’s repeated pledge that he will not put U.S. combat forces on the ground, an increasing number of U.S. troops has slowly trickled back into Iraq.
The 40%-plus drop in oil prices over the past 6 months has garnered a lot of attention recently, most of it focused on the economic stimulus lower oil prices should provide the global economy, the impact on currency and fixed-income markets, and the increase in economic pain suffered by exporters such as Iran and Russia. However, based on historical data, the potential increase in geopolitical tail risk that lower oil prices may represent is an overlooked consequence that, while low probability, would have an outsize impact on the global economy.
Most commentators remain in a state of denial about the enormity of the price fall underway. Some, failing to understand the powerful forces now unleashed, even believe prices may quickly recover. Our view is that oil prices are likely to continue falling to $50/bbl and probably lower in H1 2015, in the absence of OPEC cutbacks or other supply disruption. Critically, China’s slowdown under President Xi’s New Normal economic policy means its demand growth will be a fraction of that seen in the past. This will create a demand shock equivalent to the supply shock seen in 1973 during the Arab oil boycott. Today's ageing Boomers mean that demand is weakening at a time when the world faces an energy supply glut. This will effectively reverse the 1973 position and lead to the arrival of a deflationary mindset.... Prices have so far fallen $40/bbl from $105/bbl since we first argued in mid-August that a Great Unwinding was now underway. And there have been no production cutbacks around the world in response, or sudden jumps in demand. So prices may well need to fall the same amount again.
The epic melt-up in US equities stalled "surprisingly" exactly as Europe closed and the EURJPY-pumpathon, VIX-dumpathon instantly reversed... because it's not rigged at all. The other driver - a dead-cat bounce in Crude - has also stalled as Kuwait's oil minister confirmed no new OPEC meeting until June (hardly good for oil expectations of a production cut any time soon with in OPEC). 5Y5Y inflation breakevens continue to free-fall in US, Japan, and Europe.
Dubai's Financial Market General Index is now down 40% since the peak in oil prices in June this year. For now, only Qatar is clinging to gains year-to-date as the rest of the Middle Eastern equity markets give up 30-60% gains from mid-year and tumble to negative. Dubai and Abu Dhabi alone are down over 8% since Friday. Saudi Arabia is down 7.3% today - the biggest drop in 6 years.