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OPEC Members' Rift Summarized (In 1 Simple Chart)
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...
h/t @TheEconomist via @RANsquawk
So it appears Russia is now in the red.
But, And as Goldman Sachs notes, despite the great efforts of the Sauds and Obamas to bring down the House Of Putin, Russian bond and equity prices, and the fiscal and external balances, are now less vulnerable to oil price shocks:
we conclude that the recent decline in oil prices is unlikely to have been the main factor driving Russian asset prices given that:
(i) Russian assets have significantly underperformed those of other commodity-linked economies;
(ii) high-frequency correlations between Russian asset prices and the oil price had fallen to close to zero in the recent past;
(iii) with the Ruble now being flexible and the correlation between capital outflows and the oil price being highly positive, the oil price should matter less for the real economy than it did in the past.
With the exchange rate being flexible, the Russian authorities will be able to use monetary policy in particular but fiscal policy as well to counteract the impact of the terms of trade on growth. This should lower the correlation between bond prices and equity prices in times of sharp moves of oil prices.
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Need war with Iran
This piece is a raft of s@#t and makes no sense.
Russsia is the largest consumer market in Europe, as germany is now discovering as result of sanctions. Energy now accounts for only about 25% of Russia's economy and Russia has reserves and a trade surplus.
yeah except that's not true. Energy is 68% of Russia's income. And their 500B in reserves mean nothing when they spent $50 billion in a few months propping up the ruble. Putin is fucked.
http://www.eia.gov/todayinenergy/detail.cfm?id=17231
http://www.cbr.ru/eng/hd_base/default.aspx?Prtid=mrrf_m
Oil at sustained prices lower than $90 or $85 = game over for tar sands & fracking oil companies.
Maybe they'll both try to buy Russian Nat Gas to heat the water they need to produce oil.
We can buy from the Saudis at 80-85 for a long while, apparently. Russia is losing $15/barrel and Nat Gas is at a glut. US isn't in any kind of energy crisis. Energy is cheap because the party's over.
"yeah except that's not true."
I was referrin to GDP, which is the normal way of looking at a contry's economy. Energy is a part of the yellow quadrant on the right and is generally regarded as being about 25% of GDP. So, similar to the US, the largest part of the Russian economy is consumption and services.
http://mecometer.com/infographic/russia/gdp-composition-breakdown/
Russia also has substantial reserves, a trade surplus and is pretty much self-sufficient so cheap oil might cause them some temporary inconvenience but they are not going to collapse. The Russian people know all about temporary hardship in the common good for the longer-term. Unlike some other countries.
But, so is Saudi A. If their breakeven is $90, they will have to sell assets(Treasuries?). All this BS about Saudi Arabia taking out Russia and Iran when just a while ago Peak Oilers were saying SA's capacity had already topped out.
Oil is falling because of FED tapering. SA's breakeven will possibly force them to sell some of their Treasuries. Calling Belgium. Dr. Belgium to the ER!
US will fund Saudi's shortfalls and sell treasuries to compensate, which will allow the Fed to ramp QE back up when the truth becomes clear that they need to keep propping up the economy with QE. Low oil prices will also help the US economy as consumption will be cheaper, and that's what the US is best at. I expect this energy price drop to be prolonged.
$50 billion is around the price of running the Olympics- hardly enough to land Russia into the toilet;
Or compare with the $89.1 billion US cost for the Afghanistan adventure in fiscal year 2014.
Imagine the slingshot effect when this spring uncoils. The psychopaths have truly fucked up EVERYTHING with their manipulations and smokescreens and lies. 2015 is going to be one wild ride. Who will knock down the doors first? Which bankers will take swan dives? My popcorn is ready.
Not to mention nailgun rides.
There is a difference between income and exports...your graph shows that hydrocarbons account for 68% of Russian export...sounds about right. In a free market economy(or in the "real world" where you don't just print money) if your exports fall the logical thing is that your imports will fall and domestic production kicks up. Your second bit about the dollar...even if we assume that $50 billion went to just propping up the dollar(even though the Russian central bank only claims they used like 3 or something). This is as bad as it is going to get(everyone that wanted to pull out has already pulled out).
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No pain no capital gain
The chart is nonesense. Each country can produce X MOAR barrels at any price level and clear its budget needs. The thesis is valid, but the chart is BS.
Quick math question for you... If Iran sets their budget at $140 Brent and produces X number of barrels, how many do they need to produce at $85 dollar Brent to meet their budgetary needs?
The price to extract oil in Iran is somewhere between $10-$15 per barrel. Any addition production is going to be from their most expensive sources, not their cheapest. Iran produced 3.2 mbpd in 2013 so let's stick with that for present production. At a haircut of $55/bbl off budgetary projection, they are shy 64 billion dollars. That translates out to an increased drilling rate of 2.9 mbpd to make the shortfall up by drilling more oil (assuming they're making $60 per bbl of oil at that price).
The Iranians can't drill that much oil and get it to market. They don't have the infrastructure necessary. With heavy foreign investment, Iran might be able to goose production up to 4.5 mbpd after a few years and at that point, the profit for that oil will be reduced by the need to satisfy their foreign capital partners. Even if the magic pixie fairies went off to the oil fields and physically got the oil out of the ground and to the export terminals, you couldn't dump another 2.9mbpd into the oil market without dropping prices even further and make the problem even worse.
You have an excellent career ahead of you as an economic advisor to the POTUS. Congrats.
It reminds me of the old saw: "We might be losing a little on each unit but we will make it up in volume."
I am sure he would deliver an interesting new thesis on cartel dynamics, marginal revenue curves and member cheating.
Um, won’t that extra production and supply cause the price to drop even more? Unfortunately that whole price inelasticity thing cuts both ways.
Listen.
Rumors are dangerous.
I feel sorry for Vlad, always getting fucked by the buck.
LISTEN
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The ruble is flexible now, free to drop like a rock. I'm sure the peasants won't mind returning to Soviet style deprivation.
Follow the money all the way to the next war - "Ilargi"
I expect that Western sanctions are prompting Russian Oligarchs to dump crude oil similar to how they dumped Russias massive stockpiles of Palladium dirt cheap after the breakup of the Soviet Union.
The next question would be, "who is buying this off the books oil"?
Competition would be best served if you put the scorpions in a cage and let them fight it out. Let's see whats under their dresses.
based on the chart, it appears that everything, including usd, oil price, and au price, had been changed, since the us left oil expot ban in june.
According to the graph then, the Quantity of Dollars in the sytem is always constant.
Which is wrong.
That is why the Fed exists, to create and extinguish EXCESS DOLLARS which affect world prices up or down
Of course, not distributed evenly either up or down.
Too much excess dollar created by the Fed, make the world avoid the dollar for real trade.
Too little, same thing.
But remember, the Fed creates only EXCESS DOLLARS. Real economy creates 95% of dollar reserves via commercial banks monetizing output as intermediaries
It is important to distinguish between marginal cost and breakeven budget price. I wonder what our balanced budget breakeven price would be? :-) That's right. We're a net importer of millions of barrels a day.
This could all backfire tremendously if Putin decides to take out Saudi export capacity (Ghawar field, oil terminal, pipelines, or oil tankers), whether directly or by supporting militants. Saudi Arabia and the US ate essentially waging economic war on Russia and trying to inflict maximum pain. If you were Putin, would you not try to take out its oil terminals? It would decapitate those trying to wage war with you and send oil prices sky high, solving your cash flow problem.
My point is this. We are playing VERY high stakes games where the outcome is anything but certain and I would argue likely to turn our badly for us (probably a lose lose for everyone).
High stakes, low-life government. Which is moar?
Reconsider your inclusive use of 'we.' The people behind this are control freaks - psychopaths - not rational - not thinking in a balanced way, with conscience and foresight. Everything they do is a knee-jerk reaction out of anger over the LOSS OF POWER that is the natural result of previous irrational decisions. I have some experience working with destroyers. They are consummate honorless backstabbers. There is no 'reasoning' or attempting to 'relate' or 'negotiate' with them. The healthiest thing you can do for yourself and your family is withdraw. Stand back, be prepared to defend yourself, and watch them self-destruct. The more they try to manipulate, the more things fall apart. It's always the same. They are their own worst enemies.
Goldman's BRIC fantasy land all is well in our "global" economies. Obama/EU successively beat Russia down with econ warfare, it's no brainer, they drove up inflation by attacking the Ruble, then attack oil revenue. The "shock" for Russia will be hyperinflation, pound for pound, the West did play payback well. Putin can't move much on this, cept proxy war Iran and the Saudi's.
Anyday now: http://gulfbusiness.com/2014/10/saudi-arabia-iran-swap-accusations-tensi...
Putin can unilaterally change the terms of sale for Russian gas to the EU.
Russian gas for Gold Bullion thanks.
Then who's got a problem coming into Winter?
Exactly! They'll stay warm either way.
Typical Goldman Street attitude. Money magic solves everything. Anything physical or real is worthless. Everything paper of virtual is priceless.
I have no problem with Russia or Mr. Putin. Obama should be impeached for sheer gross incompetence, if nothing else comes to mind in the U. S. House, for starting this war with Russia.