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Nordea Warns Of EU Recession And $150 Oil If Russia Retaliates
Authored by Thina Margrethe Saltvedt and Aurelija Augulyte of Nordea Bank,
- Russia as important oil as gas supplier to Europe
- Disruptions to Russian oil flows will have huge impact on oil prices
- Embittered political climate, oil prices at USD 150/barrel and high financial market uncertainty can tip EU back into recession
- Oil price spike and flight to safety a recipe for broad-based USD strengthening and lower global rates: three risk scenarios
- US shale oil or SPR release will not prevent oil price spike
Oil prices have increased by more than USD 2/barrel today as tension in Ukraine has escalated and raise concerns about the risks of disruption in Russian energy exports. There is a risk that the security situation in the east Ukraine will worsen even further ahead of the 25 May elections.
Memories have been awakened of episodes in 2006 and 2009 when Gazprom halted all Russian gas flows through Ukraine, amid pricing disputes, completely cutting off supplies to Southern Europe and partially other European countries. Not nearly as much attention has been paid to the risk of a disruption to the oil flows.
Russia is as important an oil exporter to Europe (of both crude and refined products) as it is a gas exporter, but unlike for gas, only a relatively small portion of its overall oil exports to Europe transit through Ukraine. Oil, in contrast to gas, is easy to store, ship and trade, which means that the markets more flexible and a single customer has less immediate scope for action. Nevertheless, the consequences of a cut in Russian oil supplies could be as rave since the oil global oil market has little back-up capacity to lean on, European commercial oil stocks are low and there is no real substitute for oil in the transportation sector (which accounts for more than 60% of total oil consumption worldwide).
As a result a halt in the oil deliveries from Russia to Europe will spark a sharp spike in oil prices and in a worst case scenario an oil crisis. A longer-lasting disruption to oil supplies and an extended period with high oil prices will curb the potential for Euro-zone economic growth and slow down growth in the global economy. If the oil price spike is accompanied by a sharp fall in confidence and financial players recede to safe havens, the impact on global growth and financial markets will be even more severe.
The questions are therefore how vulnerable the European oil market is to a halt in oil deliveries from Russia and whether the European economy can withstand a protracted period of high oil prices?
Brent oil and NBP gas prices will react sharply to supply disruptions
Disruptions to Russian oil flows will have big impact on prices
The sabre-rattling and threats will no doubt continue for a while, but so far tensions between Russia and the West over Ukraine have had minimal impact on physical oil balances. What if an escalation of the crisis in Ukraine, in a worst case scenario, leads to disruptions in the oil supplies from Russia to the EU as a consequence of for example a halt in oil deliveries via Ukraine, a halt in deliveries of oil and gas from Russia to EU as a retaliation of stricter sanction imposed by EU/US on Russia and attacks on infrastructure following increasing political turbulence – what would then be the effect on Brent oil prices and economic growth in the current tight oil market environment?
Any disruptions to the oil flows going from Russia to the European market will presumably have a big impact on oil prices, as commercial inventories are low (three major OCED 2013 year-end stock levels lowest in 10 years), the current European supply/demand balance remains tight and the world’s spare production capacity is fairly low. Supply outages remain severe in aggregate at roughly 3.5 mb/d in the MENA region alone, mostly in Iran, Iraq, Libya, Syria and Sudan (PIRA). Commercial stocks are not ample enough to weather significant ongoing physical supply disruptions and definitely not to withstand a curtailment of supply arising from a growing political dispute between Russia and the West.
A sharp rise in oil prices – if prices remain elevated for a period of time – will have a negative effect on economic growth and in a worst-case scenario push the EU back into recession. Clearly, higher oil prices and weaker growth in the EU will also have an impact on the growth potential of the global economy. How long a price spike will last, and thus the impact on the EU and the global economy, depends on the volumes held back from the market and the reason for the halt – whether the production/transportation infrastructure is damaged or the taps are turned off.
Three risk scenarios: a halt in oil deliveries from Russia – impact on oil prices and EU GDP growth
We have looked at three different scenarios and the potential effects on oil prices, economic growth, the EUR/USD cross and rates depending on the period and severity of the disruptions.
Oil Price Scenarios: Russian oil export is cut by one-half
In all three scenarios we assume that Russian crude oil exports to Europe are cut by 50% or around 1.5mb/d. The GDP calculations are based on the International Monetary Fund GEM simulations.
Scenario 1: A short-term halt to oil deliveries lasting only two weeks, pushing oil prices up by 10-20% (from Q1 average at USD 108/barrel).
Scenario 2: one-half of Russian oil supplies to Europe is locked in, but this time for two quarters. Global spare capacity will fall to lows last seen in 2008 to 2.2% of global demand from the current 3.9%. We expect that Saudi Arabia’s spare capacity will compensate for some of the losses, but with a lag. Notably the ECB will not act against EUR/USD in this scenario, since it will see the advantages of a weaker EUR towards the USD for energy imports and increasing competitiveness for Euro-zone products and services abroad.
Scenario 3: oil supply disruptions are expected to lead to a cut in oil flows to Europe by 1.5m b/d and push oil prices up to USD 150/barrel. Saudi Arabia will increase production (the spare capacity buffer will fall), and the market situation will call for an IEA Strategic Petroleum Reserve (SPR) release (see box), but with a lag. As the market is concerned that the disruptions will be more severe than in scenario 2, the price spike is followed by a huge spike in risk aversion triggering a flight to safety by financial players away from risky assets, a widening of credit spreads – recipe for broad USD strengthening and we will likely see global rates go much lower. In this case the impact on the global economy would be much larger and the EU will most likely tip back into recession.
Potential impact of the three scenarios
The oil market is global and a sharp spike in Brent oil prices would of course raise prices of other crudes and oil products as well. Since Russia is one of the largest oil producers and exporters in the world with total exports of 7.1m b/d crude and products, it would be close to impossible to compensate for the full amount in the short to medium term if these barrels do not reach the market. Even a smaller volume, say 50% of the crude exported to Europe (the amount used in the scenarios above), would be very difficult to replace as the quality of the replacement needs to match.
Oil Price Spike: Three scenarios and impact on EURUSD
Embittering political climate and higher oil prices can push the EU back into recession
In the absence of Russian barrels, world oil prices would undoubtedly spike – causing economic pain for the large oil import-dependent countries such as the EU and reducing the growth potential of the world economy. An embittering political climate and an oil price spike would most likely be followed by a huge drop in market confidence, triggering a flight to safety in financial markets which in turn would magnify the impact on economic growth and push the EU back into recession.
As Russia and Europe remain closely linked as oil and economic trading partners, we do not see this as the outcome of the crisis. But the recent escalation of the conflict in Ukraine clearly increases the risk of a supply disruption materialising. The shock of the Crimean annexation should speed up the sluggish European decision-making process on energy storage, interconnection in the gas market, diversification of suppliers, liberalisation, shale gas production and efficiency measures especially on the transportation side.
Read the full story about the Europe/Russian oil interdependency, Ukraine as a traansit country for oil and the US shale oil production /SPR release will not prevent an oil price spike and see all the graphs in the PDF below:
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World economy collapses?
Blame Putin!
FINALLY! It's someone's other than Bush's fault.
No! Blame Canaduh! Blame Canaduh!
http://www.youtube.com/watch?v=bOR38552MJA
Serf's up, baby!!!
Putin doesn't even have to halt exports.
All he has to do is talk openly about an export ban and the algo's will do the rest.
Putin can drive the price up and rake in the money, simply by jawboning.
Jawboning is for losers having no other options remaining.
Well that explains today's Merkel and O talk. Thanks!
pods
too late........the game is in motion now and can't be stopped.....sit back an watch
There is a risk that the security situation in the east Ukraine will worsen even further ahead of the 25 May elections.
The entire reason for the conflict is to provide a valid reason for the cancellation of the 25 May elections.
Do you think the USSA wants to piss $5 billion down the toilet?
FUCK THE EU! They like it.
Funny, I got downvoted for saying the same thing. Congrats to the 5 people that figured it out.
Agreed; no different than Central Bankers....Losers, that is!
I don't think it will be quite that easy....
In time like that, the paper market decouples from the physical very quickly...
Yea, but Bush and Putin are both white!
That's the plan...
I don't get it. Considering they are in a depression, wouldn't a recession actually be an improvement?
Putin allegedly said about negotiating with the fudge packer in chief is like playing chess with a pigeon:
"It craps all over the board, knocks all the pieces over, then struts around like it won."
$150 oil will not help the US economy either.
Probably already slipped into a recession, within
this depression .Just can't tell from the damn lies,
and statistics we are fed.
Yes if oil hits $150, US recession will further deteriorate almost into depression like.
If oil hits $150 a bbl for an extended period of time Americans will be EATING each other.
Long Long Pig.
pods
? Is this 2x pigs, or 1x long pigs?
1x long pigs. There used to be a cannibalistic society that referred to the people they would eat as "long pig," because, apparently, that's what we taste like. I also saw an interview with a cannabal where the reporter, interviewing the guy in prison, asked what people tastes like. You should have seen the look on her face when he leaned towards her and said "You know what you'd taste like? Have you ever had a nice, juicy pork roast? I bet you won't be eating one for a while."
Thanks, had not heard that before. Depth of knowledge on this site never ceases to amaze me, education and entertainment all rolled into one.
One of the Rockafeller offspring went off to New Guinea to research cannibalism.
He was never heard from again.
Must have been tasty.
So, he was a Long Guinea Pig?
He was prix fix table d'hote Long New Guinea Pig.
I think that we Americans might start with our police first.
OINK OINK, BITCHEZ!
No, get to the politicians and bankers first. The cops won't defend them.
But is roid contaminated meat safe to eat?
the US oil reserve woild not change european or world prices - inventory too low and past reserve releases didnt affect prices very much
Both Russia and KSA will want to protect their long term growth markets in China so China will likely get first preference on oil shipments. KSA has built its own refinery operations in China so they will not starve those of raw product.
US oil consumption has trended down since 2008. Given the dismal employment picture in the FUCK THE EU suspect oil consumption down there as well. So if Russian supply is withdrawn the EU will be fighting over what's left on the global market and you can bet the speculators will see this coming and lock up the available supply and seek to drive the price as high as possible.
Kills the western economies but generates significant short term profit which is what life is all about.
This article is worthless without pictures.
http://newsroom.nordea.com/sv/files/2012/04/Thina-Saltvedt.jpg
Huh?
Maybe my expectations are higher, given how [naturally] beautiful my wife is...
She's got manhands.
pods
Thank God for that!
I don't think I could handle another female banker in the tradition of Lady Lagarde and Janet Yelling!
Battle royal is on. Limited goods (energy) vs. ample of toilet paper money. Higher energy prices will quickly make prices rise throughout the world economy, but the 99% don't have means to deal with this. Further economic contraction is carved in stone.
Amazing, I'm the first to up-arrow you. I don't know why people here still aren't figuring it out...
Economies of scale in reverse is going to be a bitch.
Replaceable with all the natural gas coming from US politicians
USD will Prevail with Rest of the Funny Money in West for long as I live. Just it won't worth the same ( not even close ) in near future!!
YOU ARE HERE --- May 2, 1914
... so is that why european ng prices are at near all time low?
And unemployment is astronomically low. "Prices" are only half the equation.
EDIT: "And unemployment is astronomically HIGH."
Got caught between thinking in terms of "employment" and "unemployment."
Low economic activity begets low demand.
no mention of gold. disappointing.
1) Assuming anyone believes that with oil at $100, Saudi Arabia isn't shipping every drop it can sell to capture that money (and thus has NO spare capacity) . . . even assuming that -- SA oil isn't interchangeable for Russian oil. Different qualities. Most new SA oil is very heavy, too. Not clear anything new they could ship could be refined. Overall lesson, oil that comes from one geology/geography doesn't have to look like oil from another geology/geography.
2) Similar problems with US shale as the miraculous replacement. Much of what is shipped isn't oil at all, and has lower ignition temperature (which is why rail cars are blowing up). Light tight oil, somewhat by definition, isn't heavy. Lots of gasoline. Not lots of diesel and kerosene -- aka trucks and jets.
3) Just in general look at the overall article and the thoughts associated therewith. Does this look like abundance to anyone?
Aw, come on! SA has an infinite amount of oil. They're just sitting on it (because we want it). Abiotic, or some time/space dimensional pipeline- oil forever! Oh, and they've got the unicorn market coralled too! </sarc>
Seer - Again with the "we're all gonna run out and then die" memo. This article is about a major player restricting supply causing scarcity and higher price.
The drought reason out in California and less cattle causing high beef prices grocked out for the last three months does have one grain of truth to it. But that wasnt the 98% cause of high beef prices.
I almost shit myself when Fox came out last week and added that it was "the drought AND exports to China". I almost shit myself they added most of the truth. The last piece is printing, IB's lining up at the discount window and ploughing the dough into commodities.
In 2009 Goldman Sachs leased oil tankers to store oil offshore. If I remember right it was 26 miles long. How big is a tanker, a little less than a quarter mile? Another example of a larger player witholding a commodity, creating scarcity to bid up price. Sorry Seer, I am now ignoring your one track, Malthusian commentaries.
CIO,
you keep repeating that meme.... Howver, the Bakken is legit oil, it has pretty much identical assays to WTI except for the ~5% of gunk left at the bottom of the cracking column balanced against a slightly higher naptha yield...
See page 23 here
http://inside.mines.edu/~jjechura/Refining/02_Feedstocks_&_Products.pdf
or here
http://www.coqa-inc.org/20110609_Mick.pdf
Now, the API > 45 condenstate out of the Utica, Marcellus and EFS on the other hand...
The Fed can print infinite amounts of any API grade you might want.
Actually, it can't....
And that is the ultimate problem...
Ooops!!
Forgot the /sarc
Must be the whiskey.
Don't know if you'll come back to this:
Went thru your links. Surprised they even existed because assays are usually not public. I am intrigued they quoted different amounts for distillate fraction from one assay to the other -- though maybe not because they change location of output so fast and no law says the assay from 10 miles away has to be the same. BTW WTI and LLS as yardsticks is shaky. Why not Libyan (that has 3X the diesel Arabian Light has).
Here's one for you:
http://www.freedocumentsearch.com/pdf/eagle-ford-crude-assay.html
Select the 2nd .pdf. A map of Texas EF play denoted by API.
Here is something for the EFS API map, admittedly from 2011...
http://coqa-inc.org/20110609_Leto.pdf
And do notice that there is real oil there, but not nearly as much as is made out to be....
You would do well to bookmark this
http://www.etc-cte.ec.gc.ca/databases/OilProperties/Default.aspx
the fed can combat that by halting its printing. of course, stocks crash along with oil.......
If Oil climbs to 150 its the best thing that could happen to the world economy.
The world has to move away from fossil; the faster the better, and we should have taken that train in 1979; if it hadn't been for Ronnie and Maggie, the catholic kings of slam dunk fiat bubbleonomics, with the Bushist/Clintonist/TBTF derelection of current financialista dystopia.
That which cannot be sustained, won't be.
Chill falak, it's all good...
All I know is the Desertec project estimated that the Sahel region alone could feed the world for its current energy needs. And, Solar is not the only renewable route.
The problem is storage and we need to go down that route fast.
The problems are storage and flux. In order for a certain number of people to maintain a certain quality of life, a certain amount of calories and resources must be consumed every single day.
"All I know is the Desertec project estimated that the Sahel region alone could feed the world for its current energy needs"
But that's an incomplete equation.
There's no time component. We "have enough" FOR HOW LONG? If we're talking about for TODAY, then, yes, I could probably sign up to that. But ten years down the road, when all other reserves are far in to their depletion stages?
The "problem" is that we're grounded in a system/belief/mindset that's based on the notion that we have an infinte world- perpetual growth is possible.
How do the democrats survive again?
Sometime sit yourself down and look at this:
1 square meter of surface area gets about 1000 watts from the sun. Good average rule of thumb.
Now do all the relevant unit conversions and figure out how many square meters and how many days of those square meters would get you 1 barrel of oil's energy (5.6 million BTUs).
Then when you're done, note that commercial solar panels are only 15% efficient. Plants are about 3-4% efficient converting sunshine to calorie energy.
Then sit back and realize what's coming.
Damnit Crash, I just talked the motherfucker down.
Falak, don't listen,
While plants may be "about 3-4% efficient converting sunshine to calorie energy", their Quantum efficiency is damn near 100%. In other words, every photon that actually gets adsorbed by a chlorophyll molecule is turned into one low potential electron. Come down and help us build that photo-voltaic cell!!!
haha
"Plants are about 3-4% efficient converting sunshine to calorie energy."
Just making sure that people consider that plants "make themselves," they don't require some wafer manufacturing plant (or whatever).
Nature's amazingly efficient when you add it all up.
It is. Just give it 80 million years and you get that 5.6 million BTUs. It's fucking magical.
They do however, require other resources and elements (S, O, P, N, Mg, etc) in the correct oxidation state (plants can't do anything with nitrogen gas - go look up how energy intensive the Haber bosch process is) as well as things like clean water.
If we cut the energy spoiling, we keep the comfort and storage is even with today 's technologies affordable.
Do you realize that all of us are minorities when compared to the bulk of all of humanity?
750 million folks in India live on $0.50/day (2/3 of the world's population lives on $3/day or less). WTF does "affordable" mean?
Oh, so in the down-voter thinks of himself as NOT a minority? You too are poor? Or, are you disputing the fact that there are a SHITLOAD of poor people on this planet that would NOT be able to afford the "solution?"
Karma.
And corn is a very heavy nitrogen feeder. We have something like 84 million acres dedicated to corn production in the US, and how much of that is used to produce ethanol for fuel? I'd be surprised if the total EROEI on that is greater than 1.
I doubt anyone is coming back to this thread, but anyway . . .
Just back from the gym. A rarity, stopped at McDs mostly for a DVD but while there . . .
Chicken McNuggets meal (med not large) plus fish sandwich (not the meal).
Damn near TEN FUCKING DOLLARS.
Jesus.
10 will seem CHEAP when u look back 2 years from now . . . . . :>(
Yes. I had thought about noting that they just don't come to be and to exist from no inputs. They are balanced within their environments: and if they get out of balance the environment "adjusts" them.
Water? Like, from the toilet?
"1 square meter of surface area gets about 1000 watts from the sun."
That is about 12 trillion watts per sq. mile per year, assuming full sun over 12 hours.
Plenty of sun - no reasonably efficient technology no matter how the left lie.
You're not a farmer are you?
If you intercept that solar energy from my dirt patch my soil microbes die or go in to hibernation. Crops don't grow. But, hey, you'll be able to power up your computer so you can spout party-pussy shit- it's ALL GOOD!
I was stating fact, we currently do not have the technology to make any efficient use of the trillions of watts of sun energy, despite the lies of the left and the billions of dollars the left blew on solar companies that go broke because the technology sucks.
Read the post pussy shit - it's all good.
Quit playing with labels and divides. I saw the "right" campaign for biofuels. My point here is that if you focus on one side of the coin you'll soon find yourself blindsided from the other side.
I'm trying to educate from the perspective of what everyone can relate to: Food (as in Food, Shelter and Water). By hammering on ideological memes you're only serving to distract from people's understanding of how things actually work.
..... well, then it's a good thing Solyndra is making solar energy panels to save our fossil fuel azzes....
Better start stacking - rows of 5-gallon gasoline containers.
Upside down - Diana Ross
http://www.youtube.com/watch?v=RrsGnz5QfLg (4:07)
Couldn't happen to a nicer bunch of folks, Barroso, Van Rompuy, Renn and the other eurocrats.
bullish for us equities...like everything else in the last 18 months
You mean 5 years?
Waterboard Wolfowitz with oil, on youtube, and see what happens.
Been a lurker for years. Only just started getting security certificate warnings when I come on ZH, checked the page info, godaddy and the registration name Christopher Yarworth comes up, who is that?
No one can afford $150 oil.
Behold the world of government subsidies.
The IMF hates these. It has made eliminating the nat gas subsidy in Ukraine a requirement for the loan. They did the same with oil in Egypt. Even Iran tried to end theirs.
Never delude yourself. TPTB understand the end of oil is coming. They know subsidies encourage consumption. They don't want you to afford it.
I don't sign onto the conspiracy folks who think govts want you to die. But they do know encouraging consumption smacks their trade balance, so if they can cut consumption while escaping any guilt for deaths that result, they are happy.
I hate subsidies too. They skew the market, and make seem something is affordable, when in reality it isn't. For example, Ukrainian hryvna was pegged to the dollar for long periods of time, leading people to believe they earned more (in dollar equivalent) than they actually did. What was actually happening was that Central Bank of Ukraine was using its FX reserves to subsidize imported goods. It went on for a while, until situation became catastrophic in December 2013, when FX reserves were covering only about two and a half months of imports. Had it not been for Russia's $3 billion, Ukraine would have defaulted in Q1 2014. Also, indirect gas subsidies were too large a strain on the budget, incurring massive deficits (again covered by Central bank's FX reserves).
As for Egypt, it was once an oil exporting country, so they probably used the revenues from exports to subsidize internal consumption. Once the ELM (Export Land Model, by Jeffrey Brown, Dallas based geologist, aka "westexas") kicked in (around 2011), they had no other choice but to eliminate subsidies, for they had no revenues from exports to fund them, and no country is able to subsidize imports forever.
Several years ago II had a brief converstation with Brown about the ELM effects on energy. I think that he was the only one I'd run across that got the notion of "peak oil EXPORT."
Yes, I can. Just I need to get my Kids to Work!!
$150 oil, eh? I knew that super double burritto supreme I had was a bad idea going in.
If you see a politician this weekend, put a knife through their heart.
Do it for the children.
Amazing the markets have not in anyway priced this in, in either currency, PM's, or Stawks..........
What I suggest is that the markets have assumed a russian takeover of the Eastern Ukraine, anything less than that would be more bullish....
Russian peace keepers would secure the area within 48 hours (they start tomorrow morning by the way in my assessment), and by market open on Monday all will be calm, and bullish once again.
The only thing I think that would be bearish would be if this lingers and there is a "humanitarian tragedy" that would get NATO to act.... Then it will get interesting.... of course this could be the wests end game, and this is just a game of russian bear baiting.....
the market does not give a rats ass about Ukraine, never did. Except maybe to keep crude prices jacked up and scalp the sheeple.
Who cares about $150 oil if/when Russia retaliates. That might be the least of our worries. The fuckers still have 1000's of nukes. Stop pissing off the borderline-psycho-former-KGB colonel before he goes the Russian version of postal.
A famous FBI profiler repeatedly stated, "Behavior reflects personality." So if you compare the fudge packer in chief's behavior vs Putin's behavior, what would one conclude?
Pretty sure that it was decided long ago that 2015 will be a disaster year, one way or another ... everything else is just details.
This is absurd, imagine the other way around. even if the russsian oil supply is stopped to europe there are excess capacity in middle east, the libyan oil is coming to the market. i should say the other thing.. all the oil produced and exported are european oil bigges .. so they in an advantage & russia is the loser ...as far the oil shock is concerned. The european union know how to stop it.
People thinking that russian oil supply stoppage are stupid enough to not understand the oil market.
Libya oil has been 'coming to the market' for a long time now - they continue to be beseiged with terrorist acts - not exactly reliable, eh?
ME excess capacity might fill the shortage somewhat but there might be too long a delay in getting it there - and drawing on excess capacity will still drive prices up as risk factors take over.
Let's try something totally alien to our macho, testosterone-filled culture. Let's sit down and make a deal with the Russians.
http://www.forbes.com/sites/williampentland/2014/01/31/sorry-shale-iraq-...
http://www.worldenergyoutlook.org/iraq/
http://www.eia.gov/forecasts/steo/archives/Apr14.pdf
kindly note all the oil producers are eurpoean oil majors ... Just imagine .. the oil from lraq, libya, hitting the market ...
First... women wrote that report? blasphemy! women should be chained to the kitchen.
Second, 'great job' u Swedish bank... not really, u suck bags of dick all the way.
As a Norwegian, i'm ONE sec from launching my longboat for an 'eastern raid', u fcking pagan swedes! (jokes, love u long time... secretly)
We can't release the SPR because we already released the SPR for a non-emergency economic reason, and cash kickbacks
nothing like encouraging local renewables.
something all oil exporters want.
:)
Buy taco futures.
$150 oil and the world will consume 100 barrels a day.
The global economy is totally fucked already. Driving oil higher just hammers GDP even harder.
Bring it on.
PS: The EU economy has been fucked for years - EU recession? What the fuck do you call the last five years in the EU? A fucking picnic??