A person might think that oil prices would be fairly stable. Prices would set themselves at a level that would be high enough for the majority of producers, so that in total producers would provide enough–but not too much–oil for the world economy. The prices would be fairly affordable for consumers. And economies around the world would grow robustly with these oil supplies, plus other energy supplies. Unfortunately, it doesn’t seem to work that way recently. Here are at least a few of the issues involved.
If you want to hide something in plain view, exaggerate it to the point it becomes extreme and convert it to a conspiracy theory.
Saudi Arabia, it appears, had enough of shooting itself in the foot for its American 'partners', and has admitted for the first time that it slashed supply in September. As Bloomberg reports, OPEC’s biggest producer cut supply to mkt by 328k b/d in September to 9.36m b/d, from 9.688m b/d in August, according to a person with knowledge of Saudi Arabia’s oil policy. Prices in September were flat admit this supply cut which suggests along with the build in EIA inventories seen yesterday that Saudi Arabia may have also been forced by global demand weakness to cut supply through October also.
With the US Shale Oil industry up in arms, Venezuela screaming, and Russia awkwardly quiet (as the Ruble slides with the falling oil price stabilizing domestic inflows), the 'secret' Saudi-US oil deal that pressured prices for crude down to $80 (18-month lows today) has 'hurt' a lot of the world's producer nations. However, as Bloomberg reports, there is one nation that is very grateful. The number of supertankers sailing toward China’s ports surged to a nine-month high as over 80 very large crude carriers (VLCCs) - the industry’s biggest ships - sail toward the Asian country’s ports. At an average of 2 million barrels each, the 160 million barrels will help refill China's 727 million barrel SPR which it started in 2012.
The last 2 days have seen enormous volatility in the Saudi Riyal exchange rate, purportedly oil-related FX hedging programs as the SAR dropped to its lowest sicne Dec 2008, but the most extreme 'moves' were left to The Kingdon's top Muslim cleric. As The BBC reports, Sheikh Abdul Aziz al-Sheikh, the Grand Mufti of Saudi Arabia, exclaimed that Twitter is "the source of all evil and devastation". As the 12th most influential Muslim in the world, it perhaps matters that he says users were using Twitter to "promote lies, backbite and gossip and to slander Islam," but citizens of Saudi Arabia, who are some of the heaviest users of Twitter, did not appreciate his remarks, summe dup by one tweet, "People need an outlet to express themselves, to start to disclose what's hidden and drop the masks, without fear or commands, or censorship from anyone."
Alongside the CPI data released earlier which showed the smallest possible broad price increase, when considering that previously the BLS reported flat nominal hourly wages in September, it implied that real wages declined once again. Sure enough, in a separate report today, the BLS announced that real average hourly earnings (in constant 1982-1984 dollars) declined once again, this time from $10.34 to $10.32, a -0.2% drop from past month. This also means that since March, there has been just one month in which real hourly wages have increased, and that was mostly due to the outright deflationary print the BLS reported last month.
Saudi Arabia wants to use lower oil prices to pressure Russia to change its stance on Syria, to antagonize Iran, and to force US shale gas out of the market, Pepe Escobar explains the possible blowback...
"He's invincible. He beheads. He smuggles. He conquers. He's the ultimate jack-of-all-trades. No Tomahawk or Hellfire can touch him. He always gets what he wants; in Kobani; in Anbar province; with the House of Saud (which he wants to replace) trying to make Putin (who he wants to behead) suffer because of low oil prices..."
President Obama may have been busy golfing this weekend, and his brand new Ebola Czar may have had more pressing matters to attend than the White House's Saturday evening meeting on the US "response to domestic Ebola cases" (because clearly the Ebola Czar is superfluous at such Ebola-related events), but that doesn't mean that the administration will once again be caught with its pants down the next time an Ebola index patient is unveiled on US soil. Nope. In taking a page right out of America's response to the Ebola pandemic in... West Africa, where the US has dispatched several thousands troops to do, something, unclear what, earlier today, it was revealed that the U.S. military is forming a 30-person "quick-strike team", which according to CNN is "equipped to provide direct treatment to Ebola patients inside the United States, a Defense Department official told CNN's Barbara Starr on Sunday."
In late August, we drew the world's attention to the fact that ISIS had acquired three fighter jets when the Iraqi military ran away. Now, six weeks later, as Reuters reports, having been trained by Iraqi pilots who have joined Islamic State, a group monitoring the war said on Friday, saying it was the first time that the militant group had taken to the air.
"There is nothing good to say about the state of Venezuela’s economy, and this isn’t helping," warns Danske's Lars Christensen as tumbling prices for Venezuela’s oil are threatening to choke off funds (oil is 95% of exports) needed to pay debt.. and that is clear from the collapse of bond prices. The Maduro government desperately needs a rise in oil prices, but Saudi Arabia has so far rebuffed calls for an emergency meeting as it pursues a strategy of waiting out higher cost competitors. OPEC does not plan on meeting until Nov. 27. That is an eternity for a country that is beginning to unravel.
The US-Saudi "secret" plan that was supposed to crush Putin quickly turned sour when as we reported several days ago, one after another America's own shale plays, which recently entered a very sharp bear market, started appearing on various death watches (case in point today's MHR Second Lien refi which repriced from L+500 to L+750 in minutes). As a result, one wonders: did Obama realize that Russian "costs" which as everyone knows by now include a Eurpoean triple-dip recession, could also very soon include an insolvent US shale industry, and thus may be just a little too much, and, one further wonders, if he is the one who just tapped Saudi Arabia on the shoulder?
Theories abound why this is suddenly happening, after years of deceptive calm.
For the fourth consecutive night, futures attempted to storm higher, and were halted in their tracks when the USDJPY failed to rebound from the recalibrated 107 tractor beam, following a statement by the BOJ's former chief economist and executive director (until March 2013) who said that now is the time for the Bank of Japan to begin tapering. Needless to say, there could be no worse news to bailout and liquidity-addicted equities as the last thing a global rigged market can sustain now that QE is about to end in two weeks, is the BOJ also reducing its liquidity injections in the fungible world. This promptly took away spring in the ES' overnight bounce. Not helping matters is the continuing selloff in oil, which as we reported first yesterday, has hit the most oversold levels ever, is not helping and we can only imagine the margin calls the likes of Andy Hall and other commodity funds (ahem Bridgewater -3% in September due to "commodities") are suffering. But the nail in the coffin of the latest attempt by algos to bounce back was the news which hit two hours ago that a second Ebola case has been confirmed in Texas, and just as fears that the worst is over, had started to dissipate.
With oil prices crashing, as various OPEC members (cough Saudi Arabia cough) turn the screws on each other, we thought (after showing the US domestic pain) the following chart from The Economist would provide more context for which nations are feeling the most (and least) pain...