This page has been archived and commenting is disabled.
Why Russia’s Unfazed By Falling Oil Prices
Submitted by Marin Katusa via Casey Research,
Oil is not quite as powerful a weapon against modern-day Russia as one might think.
By arguing that the slump in oil prices will finish off Russia just like it did the Soviet Union, Ambrose Evans-Pritchard, writing in the Daily Telegraph, is forgetting how far Russia has come since those dark days.
It is true that the USSR couldn’t cope with falling oil revenues and that Saudi Arabia is credited with helping to break up the former empire by dramatically increasing oil production from 2 million to 10 million barrels per day in 1985.
And sanctions could make it harder for Russian firms to access Western know-how, and ultimately affect Russia’s oil output.
But that’s only if they drag on for years—which is doubtful, given the price the EU is already paying. A cut in global oil supply—and stronger global growth—will likely rebalance the oil market in the meantime.
A measure of Russia’s improved prospects is that the population is growing again for the first time since 1992. In fact, sanctions notwithstanding, Russia’s finances look pretty stable for now.
Russia has only about $678 billion in foreign debt, which it’s been vigorously paying down from the high of $732 billion reached at the end of 2013. (The US debt to foreigners has passed $6 trillion, and it’s growing.) It’s running a record-high budget surplus and a positive balance of payments. And it’s circumventing the dollar through trade deals. Even after spending $60 billion propping up companies starved of dollar liquidity, Russia has nearly $375 billion of foreign reserves.
Although GDP growth has slowed from 2012’s torrid 4.25% pace, it’s still projected to come in at 1%, no worse than 2013.
Furious about being locked out of SWIFT—the Society for Worldwide Interbank Financial Telecommunication, which helps facilitate international financial transactions—Putin has also ordered the Russian central bank to proceed with building its own national payment settlement system as an alternative.
Then there’s “Project Double Eagle,” which will enable trade partners to price oil in gold. That will allow users to move away from the dollar (and the euro), and conduct their business in something physical and more substantial than fiat money—and Russia’s fellow BRICS nations (Brazil, India, China and South Africa) are cheering it on.
So, perhaps there’s method in Putin’s madness. Russia has not only substantially increased gold production but is stockpiling the stuff, doubling its reserves between 2008 and 2014.
It’s true that the country’s budget was based on oil prices of $96 per barrel. With oil sinking below $70, that hurts for certain. But Russia will survive. It will do some belt-tightening. And it gets a boost from the falling ruble—which is down 25% against the dollar just since the end of September—because that helps to offset losses from cheaper oil.
Russian oil companies earn dollars abroad for their exports, but spend rubles domestically. That means that their extraction budgets remain unaffected and, additionally, it ensures that government tax receipts won’t drop precipitously. Production actually rose to 10.6 million barrels per day in September, close to the highest monthly figure since the collapse of the Soviet Union. Russia’s 8 million barrels of daily export account for 15% of the total oil moving in world markets.
Ironically, Obama’s sanctions could have worse consequences for the US. If Russia ramps up production in order to raise revenues, that will lead to an even bigger fall in oil prices. And one of the primary victims will be US shale production. US fracking operations—which are more costly than conventional Russian (or Saudi) drilling—begin to get uneconomical below $70 per barrel. If the price drops to $60, many US unconventional wells will have to shut down and imports will rise once again.
Thus, the slide in oil prices threatens American energy independence and emboldens rather than weakens Russia.
Meanwhile, Russia forges ahead with exploration and infrastructure development. Putin just inked a 25-year oil deal with China that includes the construction of a brand new 3,000-mile pipeline. And he’s sending fleets of nuclear-powered icebreakers into the Arctic to stake out more reserves, along with troops to protect them.
While Americans are counting the few dollars they’ll save on gasoline now and spend on gifts this Christmas, Putin is counting all the billions he’ll make when oil rebounds.
Russia may or may not be losing the current battle. But no matter what Evans-Pritchard may think, Putin has no intention of losing the war—in fact, he’s the only one who really understands what the ultimate prize for winning it is.
As my new book, The Colder War, makes clear, the geopolitics of energy—especially the struggle between Russia and the US—is the single most important force in the world today.
Putin’s not going to spare any effort to come out on top, and the smart money isn’t betting against him. This would not mark the first time he has been wounded and come back stronger.
»
- 48439 reads
- Printer-friendly version
- Send to friend
- advertisements -
If the US gov was behind the price collapse, they certainly have shot themselves in the foot. Frackers will go bust and the largest supplier to the US, Canadian tar sands, will start to wind down. A new energy dependent America will have to go to the Saudis, Venezuela or, oops!, Russia for more oil.
But the US doesn't need more oil. Demand for oil in the US is falling.
US is still a net consumer and will be for many years, even with shale.
Someone in the Middle East wants the USA to be permanently dependent on Middle Eastern oil, so we always fight wars there on their behalf, and it isn’t Saudi Arabia.
How convenient.
Why is this website trying so hard to convince me that low oil prices are worse for the US than for Russia?
It's not.
You just have an exaggerated sense of self importance.
The self importance thing is quite true, but that really has nothing to do with the obvious bias of this site at times. A simple "It's merely pandering to one of its intended audiences" would have sufficed...You know, if you could think that hard.
It's just money. Digits in a computer.
"Stronger global growth"
Don't hold your breath.
Thus, the slide in oil prices threatens America .... and emboldens rather than weakens Russia.
ROTFL
And in our next piece casey research will share their latest and greatest - Venezuelan bolivar? Buy Buy Buy!
It may seem counter-intuitive to those without extremely high IQs, but a plummeting oil price is actually a major boon for Maduro's Venezuela! Infact, if the oil price drops enough Maduro may just snub his nose at O'bungler and take over the entire world! Smart money knows, trust.
The lower the price of oil, the better for all us serfs.
Less money out = a bigger stack.
Fuck Obama, Putin, and all their pet oil companies too!
Ingroup morality is strong with Bunz.
That form of bias goes back millions of years. It is hard-wired, while objective thinking is very recent.
The last time that Saudi Arabia jacked up Oil Production the former USSR was engaged in it's own Empire Building scheme and locked into a War in Afghanistan.
Furthermore the USSR was engaged in ramping up Military Expenditures for equipment to fight a Hot War with the USA...one that did not happen.
Heavily overextended by Afghani Operations and the expenses of Weaponizing, compounded with the glut of Oil on World Markets, the USSR failed.
But, today, the Russian Federation is not engaged in War. She has a lot of capital. She is not in an active Arms Race with the USA.
For Putin's Russian Federation, IT IS DIFFERENT THIS TIME. The circumstances have changed.
It is the United States that is engaged in an Afghanistan War.
It is the United States that is spending ever increasing Military Budgets.
It is the United States that is having their Oil Industry brought to its knees.
Now this collapsed the Soviet Union. Just what does it foretell of the United States' future?
Yes Obama's plan is working out quite well. If the frackers cannot economically produce Oil then the Keystone Pipeline issue becomes rather...er...oh...How can I write this so that you may understand it???
Yeah. I have got it.
MOOT. THE ISSUE IS MOOT. THERE IS NO NEED FOR THE KEYSTONE. EVERYTHING IS WORKING ACCORDING TO HIS PLAN OF AMERICA'S DESTRUCTION..
Russia isn't in an arms race? Maybe you should check their defense budget. Even the official Russian budget numbers show that from 2008 to 2016 it is on pace to increase by more than 200%.
however they are winning the only war they are fighting.
the u.s. on the other hand . . . .
Which has zero meaning without hard numbers to go with the %'s.
Former budget vs current budget. Give me the numbers & I can figure the % for myself. I never trust anyone who only wants to talk in percentages.
Don't worry. The US will survive without fracking. If it doesn't survive, that will be because of a run on the dollar.
<<<the obvious bias of this site at times.>>>
It looks like a bias for some. For those with an IQ above room temperature is the other side of the herd mentality.
Yes.
A different herd is still a herd.
True. But at least this herd shopped around first, before settling for MSM narrative. We may not be infallible, but we have a little more judgment than the rest.
astute
You are right. This site has a lot of pro-Russian posting and a lot of anti-U.S. posting.
It is not a matter of pro or anti. ZH as a rule punches through the govt propaganda that is driving this country into a ditch. Whether you like Russia or not there is absolutely no reason for our country to be stuck in the middle of a conflict between Russia and Ukraine. Bad enough that it was started by our psychopathic office holders with our tax money, but they don't even know when it's time to back off and tend to problems at home. Our cities are burning, our social fabric is tearing, but our DC morons still have the time to goad NATO into a fight with Russia.
Yes, there's a lot of pro-west propaganda going on in the mainstream media which this site exposes, but on the other hand it appears unduly uncritical of the propaganda from "the other side". This place sounds a lot like Russia Today on some articles. How about treating both "sides" of the coin with a grain of salt? Just following and believing the other side doesn't make you smarter or less uncritical.
This article rightfully points out that eveything isn't as bad as it appears in Russia, but ends up swinging completely to the other side of the pendulum, making it nearly worthless in its contribution.
A few things to consider. Much of the more complex extraction processes for oil is done with western companies and technology. Much of the more recently found oil reserves in Russia are reliant on western extraction technology. These guys get paid in $.
Paying for domestic goods and services with Rubles may mean a certain independence of currency exchanges, but people forget we're living in a globalised world. Having to import various goods that are part of a supply chain at greatly increased prices, causes cost-push inflation. Even if you're simply selling potatoes. Those trucks, tractors, computers and other products will eventually create higher costs, even if they are only marginal as in this example.
Inflation will make it more difficult to avoid wage hikes, even if Russians are reknown for their capability to suffer. Russia's industry is extremely commodity based. Machinery, tools, electronics etc are nearly all imported. It is not simply a case of shifting production to local sources. I always hear the argument of great opportunities for local industries such as vehicle production. Yeah, maybe, in 10 years of sustained pressure. But until then cars/ car parts will be imported at exchange rate prices.
I don't see some kind of catastrophic collapse and /or political change, but neither do I see Russia's economy being unscathed by the latest development. I'm projecting a major recession.
russia will buy them from china. like the u.s. does.
I think the author plainly stated that the longer low oil prices remain low, the worse for the Russian economy. He also says that they won't remain low long enough to bankrupt Russia. On the other hand, the bankruptcies are already starting for seme tied to the U.S. shale industry.
Who gets hurt most by this? I don't know, and neither do you. On a relative scale, however, Putin is much more secure facing a population in unhappy economic circumstances compared to U.S. leadership facing the same circumstances. It is still looks like a game of chess for him, and checkers for us. Could we have a bigger bunch of morally and mentally bankrupt bunch of buffoons runing the show here? Well, yes we could, and the shiny new Congress of 2015 will almost certainly prove it.
"Russian oil companies earn dollars abroad for their exports, but spend rubles domestically. That means that their extraction budgets remain unaffected and, additionally, it ensures that government tax receipts won’t drop precipitously. Production actually rose to 10.6 million barrels per day in September, close to the highest monthly figure since the collapse of the Soviet Union. Russia’s 8 million barrels of daily export account for 15% of the total oil moving in world markets."
Price of oil in rubles has risen from about 3000 to about 4600 rubles per barrel.
dup
A recession? Sure. The total economic collapse that Washington is hoping for? Probably not.
Well stated..
That would be because with regard to Russia the USA is full of shit.
This hurts for everybody, for Us For Russia, for europe, think as global game that every one was is own pieces and boards of different games and every one try to extrapolates the moves. earth gains because we are a self contained environment that has limited resources, and we humans are battling to survive, is not love or hate for russia or US is only facts, in my point of view US for survive want more influence, russia is defending his interests, and china also as a good deck of cards that we are not spoken in the moment, we all lose, but human race never learns, this is 1930/1910 all over again.
In the animal world, control of others is a powerful force for survival. Mankind has developed producing as a more successful form of survival.
At the present, the US views its survival as by controlling.
This hurts for everybody, for Us For Russia, for europe, think as global game that every one was is own pieces and boards of different games and every one try to extrapolates the moves. earth gains because we are a self contained environment that has limited resources, and we humans are battling to survive, is not love or hate for russia or US is only facts, in my point of view US for survive want more influence, russia is defending his interests, and china also as a good deck of cards that we are not spoken in the moment, we all lose, but human race never learns, this is 1930/1910 all over again.
Perhaps because the US has a lot invested in epensive unconventional oil; not so much in Russia which can increase output and remain profitable per barrel.
http://www.eia.gov/tools/faqs/faq.cfm?id=367&t=6
As you said some companies have methods too expensive. More companies will simply have to stop expanding and produce what they have. Overall, however, I don't think there is much worry yet.
I would love to see numbers on Russia. And I would also love an explanation on how increasing output does not increase costs while furthing the problem of lower prices.
Oh, OK, eia.gov. We all stand corrected, as we all know, .gov would never lie about the numbers to further their quest.
Right. Thanks for the useful input champ. Don't bother citing some other information source or anything. I know your waffles are waiting. You don't want them to get too warm before you eat them.
With all due respect BunzX3... Grow up
Your wasting your time fishing for an argument.
P.S. Rebut with an intelligent comment next time "Slugger"
Q: "I would also love an explanation on how increasing output does not increase costs while furthing the problem of lower price..."
A: Increasing output does increase costs, but only marginal costs and not fixed costs. This is achievable provided there is available capacity in the system e.g. increasing productivity, increasing production speed, working night shift, sweating your assets and people.
As only marginal costs increases, greater profit is achieved on this additional output, resulting in improved profitability overall...perhaps to breakeven or even profitable.
This is more challenging to achieve and sustain, and the associated cost is the sacrifice of reserves at lower profitability than desired...but it certainly is achievable.
For the same reason it tried very hard to convince everybody that Ukrainian people are Nazis and are not entitled to life, property or freedom. For the same reason it tried very hard to convince everybody that there is no *Russian army* in Crimeea, then that there is no *Russian army* in the rest of Ukraine. And no *Russian army* downed the civil aircraft flying at 10.000 meters over Ukraine. Or if it was *Russian army*, the blame lies to Ukraine because it is their territory, their responsibility. When it is convenient for Putin and his mafia style leadership.
The best definition for Putins Russia is "a mafia gas station with enforcers sent to force others buy its overpriced gas".
The beauty with the declining prices for energy is that it gives everybody more money to use on other things like investments, goods. Which is GOOD for the people and for the companies, in the countries where the economy works and produces value added goods and services.
The other side of this equation is that declining prices for oil mean declining prices for natural gas and other resources. There will be bancruptcies, there will be a lot of burned capital, but that's life. Some will buy fire-sale assets very cheap and wait for better prices and business. In the end working economies will adjust. Economies that don't work will face severe crises.
The Putin oligarchy may look tough, but it is powerful as long as it earns tons of money from its mafia business of selling resources and cheap working people as slave labour. And the alliance with China is not really an alliance because what China needs from Russia is cheap energy and <strong>land</strong>. Blink.
What western people admiring Putin don't really understand is that Russian-style Mafia states don't want rich, independent citizens. So they have a strategy toward crushing dissent that makes CIA, NSA and US Police forces feel kindergarthen level. While there is an oligarchy in Western countries too, the one in Russia is ruthless, because in Russia you can only be an oligarch or a dead oligarch knowing too much. The alternative is to be poor, a cheap slave while able to work and quickly discarded when not. You see Moscow or Sankt Petersburg rich zones as representing Russia, but you only see Russian 1 percenters. They are filthy rich even by Western standards, but this comes from extortions, mafia activities, dailight raiding other peoples properties hand in hand with autorities. What doesn't come from value added activities will dissapear in an instant when the head of the criminal enterprise is taken down.
Even frivolous enterprises in the western world, like Penthouse empire or Facebook or Apple exist because they create added value that is asked by a lot of people, inside US and <strong>outside</strong> US. Every oligarch in Russia buys iPhones, has a FB account, buys Mercedes, BMW, Ferrary or other very expensive goods from the Western countries because Russia cannot create all these. It's about a society that cannot work well because a lot of mecanisms are broken.
Russian people are as smart and creative as any other people in the world. But when you are imprisoning good organizers and dissenters you are destroying creative forces that you need to advance. When you change legislation daily and the laws are not enforced, you create a really bad environment for business. When you keep your people at the slave level because you are affraid you may lose power, you really destroy your country by being uncompetitive. In the end you will invade some weak neighbours, you will kill some innocents, you will use threats, but the problem is with Putin Mafia state. It is natural that nobody will want to do business with you when you kill, imprison, steal, confiscate foreign owned property and declare all foreigners enemies of Russia. This is a bullshit that may impress a few naives, but not people that know the real stuff.
Waooo, that is quite thick. The spin is expected and obvious. As usual for Kievan Yatzi propaganda, too much to correct as it spreads fantasy nearly by the line.
That is one strange universe really, one that dismisses superposition of effects, or multiple causes leading to the same effects. It is all about a fabled past, a golden age where everything was honey and donkey milk, to an age of desperation and despair, all because of Putin. That is a good fairy tale but far from reality.
How to explain such a distortion in the capability of facing reality? Everything is fine until they run out of scapegoats for the negative consequences of their behavior. When the bill shows up to them, huh, suddenly, it turns into another story.
The situation looks more as if they have lost control over the systemics imposed by 'americanism' and have no other solution than keeping up the fraudulous facade of lies. Fantasy being fantasy, consistency is not required.
The rationalizations, fictional history which is constantly changing, blame shifting to Russians, dilution of responsibility, and expanding base of Banderatards, are the noxious weeds of Kievan Yatzi society.
bored
Perhaps you have a hard time reading and understanding what you read? This is an article submitted by a third-party author, not an original work of this blog (which is all ZH really is). That you don't already know that ZH is well-known for presenting alternative viewpoints (as compared to the mainstream propaganda factory) is also telling.
Sorry, that's a lot of words there...let me summarize it into something you can understand; you are an idiot.
"Someone in the Middle East wants the USA to be permanently dependent on Middle Eastern oil, so we always fight wars there on their behalf, and it isn’t Saudi Arabia."
I.e. West of Jordan, south of Lebanon. East of Mediterranean sea. Connect the dots.
VERY shrewd observation of the "Quis Bono" (Who Benefits?) analysis.
Thank you Casey Research (and ZH for posting this). The Russians are diversifying away from the West, the dollar, and the Euro while the "old school" thinking is that they are our bitches. This is about to boomerang on the regimes in DC and Brussels leaving a bankrupt, militarily weakened and inept NATO to deal with China and Russia achieiving supremacy in world affairs from Africa to Australasia and beyond to Argentina.
Too bad our leaders never played "Risk" to understand how this game really works....
you SIR, are a fuc*ing plant. Russia can not SURVIVE on 60 dollar oil anymore than it did on $8.00 oil. Go back and tell PUTIN his crap doen't float and yours doesn't either. His country will suffer and his head will be on a pike when all this is over. RUSSIANS are not stupid, Putin is and the jackasses who believe this crap are PLANTS for properganda. Tyler, get a grip on what you print ,..this is New York POST crap.
Meme Iamfurst
Member for 3 years 43 weeks?
That is weird.
I don't ever recall seeing your posts in all that time.
Now, what were you saying about plants for propaganda?
Heh, nice call HH
http://www.zerohedge.com/search/user_comments?name=Meme+Iamfurst
.
His associates call him Fern.
Ya know what I mean, Fern?
What the heck is "properganda". The proper way to ganda?
Perhaps you meant propaganda.
'Proper-ganda' ...you know, like that skinny Indian bloke speaking the Queen's English.
But unlike the self-centred, dormant plant who has woken from his slumber and opened his orifice 'dopey-arse'
You sir, still ride the short bus. Or think it is 1986 still. May I have some of your shrooms?
You don't have a clue sir.
Russia's oil production is capatalist based now. Not commi based.
Russia does not have to deal with the over regulation of the enviroment and the over regulation of worker safety. It boggles my mind how companies in Canada can make money when they have so many usless regulations.
Canadians make money in commodities production by being efficient doing it.
The cost per barrel of production for example at a major oil sand producer is less than $33.00/bbl.
This is due to implementing the highest available technology applications in every facet of production, and a highly trained/skilled workforce. What counts is barrels per manshift.
The cost of production of copper or nickel or zinc or gold are similarily low due to high productivity. what counts is tonnes or pounds or ounces per manshift.
Whenever the financial people want to sell you investment in commodity producers, find out the industry average of the productivity per person, then compare them to the best. It tells you who has fat and who run lean.
"The cost per barrel of production for example at a major oil sand producer is less than $33.00/bbl". I can confirm this is about the production cost figure. The biggest producer in the oil sand area is independently reported to produce for about 35$ a barrel.
If it costs $33/bbl to get oil in socialist, high-tax, hi-wage Canada, then that tells us that Russia can produce it at < $30/bbl.
How this affects their national Budget is another matter.
It also means that the Ukes are paying little for their gas, thanks to tanking prices. So much for Russia holding them over a 'barrel'.
It's hard to say what the true extent of financial and economic damage is to Russia, but its overstating that they are "unfazed" by these prices.
Meme Iamfurst wrote:
"…Russia can not SURVIVE on 60 dollar oil…"
Russia prepares for $40 oilBusiness New Europe
1 December 2014
…Another assumption is that Russia will burn up its hard currency reserves defending the ruble. But this is not happening either. Russia spent about $200bn of its international reserves in 2009 defending the ruble and managing a 30% devaluation, keeping the exchange rate inside the ruble trading corridor.
This time round it has spent an estimated $100bn managing this devaluation down by a similar amount.. the CBR [Central Bank of Russia] is not spending its reserves, which stood at $420bn going into this crash, or 1.7 years of import cover, way above the three months economists recommend.
…During the worst of the 2008 crisis oil prices fell to around $40 and Russia bounced back from that without too much effort thanks to the devaluation effects and the recovery in the oil prices…
Unfortunately I don't think Putin has what it takes to beat the banksters and collapse the dollar. Unless, perhaps, that is what the banksters and TPTB secretly want so they can move on to the next phase of their NWO.
You are more than likely correct, but Russia has been getting quite chummy with China and together the could beat the banksters.
The USA is officially dead tonight. The GOP caved to King Oboma. What a joke. Putin at least protects the Russians from border invasion and cares for his people and country.
Not a Putin fan but yeah, gotta give him that much.
Go Team Red!!!
The Colder War:
https://www.youtube.com/watch?v=_njYUA3uurU
there is longer somewhere on utoob
And just when I thought Obama loved oil and gas.
why is is difficult to imagine that our government would pursue destructive policies when they haven't had a product one in years? And Obama has made no secret that he wanted the oil as well as coal to suffer. Admittedly he had hoped to raise costs to make them unaffordable, but this kills two birds with one stone, the death of oil and punish Russia.
I have had this opinion for a while.
The whole "green revolution" is crap and we all know it. It works at very high oil prices or less so with subsidies. But a certain body politic likes it. It provides footing to attack economic sources of energy (e.g. coal) and thus creates a political opportunity.
I feel this is cover for forcing economic energy sources (e.g. coal) into BK so they can restructure and the shitty liabilities like super fund sites, tons of sick/injured workers, and dangerous tailings ponds (to name a few) can be expunged from the balance sheet (or dumped on the govt). The emergent companies will be cheap, but hated, and will be slurped up by insiders at the lows.
Then, when they burst they "green energy" bubble, coal is going to be king again. Let's face it; the lights need to stay on and frack NG is not going to fly in 10 years. I am from the south and know far too many fat shit-bags who *NEED* their A/C to stay alive in the brutal summers. Just brown out the south for a summer or two and they will beg for thorium dust in their *ahem* gardens.
One ... big ... sham, but same as it always was I suppose.
Regards,
Cooter
EDIT: Took me almost two hours to respond, internet is poop up here in AK lately!
A few frackers will go bust, but the entire country is benefiting from the low prices. I think we can live with that! :-)
"A few", as in everyone who leveraged up to get into production? Uh yeah, that will be quite a bit more than "a few".....
Bob, even if all of the frackers went bust (which ain't gonna happen), that's nothing compared to stupendously low gas prices for all.
In fact, many other products will benefit as well, since almost everything has a fuel component to it. Even cheap Chinese Wal-Mart products get trucked to the store.
Low oil prices...ya gotta love it!!
Think of all the planes, cars, locomotives, trucks, boats, buildings, factories, etc. we can build and operate with all the money we're saving on energy. Think of all the people we can employ building and operating all that stuff. Low oil prices are unambiguously good for the U.S., and global, economy. There is no serious argument otherwise.
Wow, I didn't know oil gives you the magical ability to create a manufacturing base, consumer demand and skilled labour out of nothing! Effing trolls...
You didn't? Well, not having to pay a fortune for petroleum products creates capital for investing in supply, and it creates disposable income for demand. Now you know.
This is a typical, economist point of view, is not paper that builds bridges, is humans and machinery, is need time to put money in the real production, and china has production, and US in lack of some cheap manufacturing, this is good is for china.
Hey Genius,
i) The frakkers are kept alive by cheap credit and high oil prices. Oil collapses, they collapse, a large section of the junk bond market defaults. I have no idea if any of that is being used as collateral but I'd be surprised if not.
ii) the OPEC nations that demand USD are - essentially - fiscal extensions of the US government. They demand USD, spend some of it, and buy USTs with the remainder. What happens when consumers pay less oil 'tax'? The same thing whenever a government gets less tax - it has to spend less or raise the money somewhere else. Well, guess what - they just passed the cromnibus. So they ain't cutting back spending. But if OPEC are buying fewer USTs, what happens to yields? Oh yeah, they go up.
If oil stays down expect QE to restart. Unless you think they're going to let interest rates rise.
Because an incremental shift in buying by OPEC countries can roll the entire market for US treasuries? Unlikely. Interest rates are rising, but not because oil prices are falling.
BigJim
If oil stays down expect QE to restart.
That's exactly what I expect. The real question is how long Russia can tolerate low prices. It's a race, basically -- can the US/EU/SA break Russia financially and economically before they break themselves, and before the BRICS can establish a viable alternative international financial regime to the petro-dollar. It's a war (albeit financial and economic) with all that that implies, including an unpredicable outcome...
Aww, did you leverage your firstborn chasing shale? You read ZH. You should have known better. Your loss is my gain and I did nothing to hurt you. Don't blame me but this is good for me and EVERY SINGLE PERSON I KNOW. And, I don't know a single banker or financier or "trader".
Is good day for main street.
Short term gain, long term pain.
Hey Amerikan dumbshit
how come you don't repeat the "Russia will soon default" idiocy you preached here, with all the evidence listed in the article?
I have no idea when Russia will default, Bob.
But default they will. It's in the Russian blood, and they like to do it frequently (5 times in the last 100 years).
Mississippi has quite a record too. Is it still shut out of Bond markets ?
Unfortunately your word alone doesn't convince me, Erich.
Or do you mean sometime in the next 100 years?
And why do you think default is necessarily bad for Russia? They get rid of their debt and come back stronger.
Might it be said that the first one that can default AND cause the rest to follow will be the winner?
Can you name USA defaults?
1971, when the US defaulted on what had remained of the gold standard. It wasn't called default though. In the 70s there was another severe currency crisis when the US most humiliatingly had to issue bonds denominated in deutschmarks and swiss francs ("Carter bonds").
The US is alreay bankrupt by any standard but will never technically default. Soon, i.e. in the next few years, nobody knows exactly when, the US$ will be part of a global currency reset. They will restructure/revalue/re-whatever, but they will not "default". Practically however it will feel like a 90% default for the savers.
Russia has been in the crosshairs of the NWO since the 19th century. WW1 was the planned takedown of four Empires including Russia and control of the Continent's money supply. Any defaults were the results of international central bankers and scammers. At the very top they don't even recognize sovereignty, the whole world is a board game. The Russians learned how ruthlessly they were treated by the NWO and have wised up a lot since then. As for Russian blood, it's a hell of a lot thicker and tougher than you think. Don't underestimate the Russians. If the DC idiots get the fight with Russia that they seem to really want they will be so sorry.
$500 B in leveraged loans and junk bonds in the shale fields right now
.
Yeah, keep up with the fantasy. It is indeed US citizen favorite.
This piece made me laugh.
You make me laugh too, Bob! :-)
You're a funny guy too, Michael Stockton of Rochester, NY.
"If the US gov was behind the price collapse, they certainly have shot themselves in the foot. Frackers will go bust and the largest supplier to the US, Canadian tar sands, will start to wind down. A new energy dependent America will have to go to the Saudis, Venezuela or, oops!, Russia for more oil."
Correct, but it is really the Zionist controlled CIA wing of power, not the "US gov," that is in control. The collapse of the shale bubble before the next "selection" in 2016 will assure neo-con hegemony over the DC US nation.
An American, not US subject.
hey, is this another thread where RTyler feather-fucks the "Russia always wins" chicken? I'd think he'd be out of chickens by now
No, this is Marin Katusa 'feather-fucking' the "Russia always wins" chicken. Don't you know what 'submitted by' means?
what's the difference? I don't see any, it's practically written for them... party line comrade
Actually such chickens are needed for ignorants and propaganda lovers so that they can actually see what is happening really keeping their hate and condescending nature aside .
Whoever or whatever was behind it, FM is no doubt correct that some frackers will go bust at current prices.
However, this is likely to be only temporary. The technology is still relatively new, it's constantly being improved and refined (sorry), and the US is the leader in this area. The break-even price for shale oil production has only one way to go.
Don't tell our rulers and the TBTF manipulators that Russia doesn't mind lower oil prices so much, I drive a lot and like the savings.
Not true. Russians in the know realize that oil is the only thing keeping them afloat.
Real Russians are getting pissed about the exchange rate and Saudis
Real Russians? As opposed to what? Bogus Russians? Ersatz Russians? Faux Russians?
As opposed to Americanskis telling us what Russians think
They're kind of like True Scotsmen.
Too bad Russia has no other natural resources to sell to captive markets, like natural gas...
Oh, Vlad 'minds' lower oil prices and flush-down-the-toilet ruble exchange rates, Bob. That's why he's apoplectic about 'currency manipulators' and begging capital to return to Russia.
PUTIN is hanging by the thread on his groin hair. He is TOAST. He will be remembered as the mad man who stuck the last knife in RUSSIAN's heartand put his nation into the stone age.
Is there something about a positive trade balance that you do not understand ?
Menwhile in Seppo land, they just recorded the biggest manufacturing trade deficit EVER
Wow, two posts in the same minute with a sentence starting with meanwhile. Albeit, one meanwhile had a typo.
That the US is about to flush itself down the toilet is a known fact for anybody but braindead trolls. Yet, until recently, there was still some glimmer of hope. However, with "Amerikan Partiot", "brunzbrunzbrunz", "MemeIamFart" being the last resort .GOV can muster it becomes clear that the US is a decaying cadaver already.
Meanwhile, back on planet Earth, Putin strikes new trade deals with India worth 20 billion.
Wow, two posts in the same minute with a sentence starting with meanwhile. Albeit, one meanwhile had a typo.
Sounds to me like he's well-motivated to make some changes.
AP, Try being an Equal Opportunity critic by looking at other economies that are in deeper trouble due to lower oil prices.
E.g. NORWAY and KSA -- both of which have a huge dependance on oil exports for their socialist largesse and pampered mouths to feed. The Russians... not so pampered.
Friendly advice: TRY to be balanced, lest you sound like a whackjob or a low grade troll.
I don't have much to add to that article, other than, It's damn sure plausible.
except for being locked out of SWIFT. not true.
Oil will be back to $80 by June.
Here's a re-post of one I did this morning, as stated, it was before my coffee...
It takes deep pockets to STAY in the oil business. Any chance that this time, it will just take out a bunch of the smaller companies/wildcatters, then to be swallowed up by the TBTF oil companies? It would follow the banking model.
Just a thought before my morning coffee, just a thought...
Reasonably likely side benefit to the whole thing.
You are correct.
I ask around couple guys in Oklahoma oil services and also producers...
big opinion that boom is killed and stomped, unless price recover quick.
Told much more credit pushed fracking this time than eighties patch...
already meetings with bankers and depradations, layoffs. cancellations, fraud, bankrupts
Little guys get it first, always
Yep, some pay-cuts hitting the offshore industry as well.
Either that or $50.
It will go to $50 before we get news of US producers shutting down. That will happen in the next month or so. After that happens, OPEC will cut production by 0.5 MBD by February. Oil prices will start to climb, and will reach $80 by June. Fed rate hike 0.25 in August. Place your bets on energy plays now.
And while we're at it, with production of oil and dollars falling, price of gold will fall to $1100. Let's say by end of 2015.
Soviet Union not finished because of lower oil price, but because of control economy which lead for something known like Monetary overhang and than agricultural(grain) production fall all connected with control economy. Russia will not go down with lower oil price. True, in H1 of 2015 will have negative GDP because trade balance will be lower than year earlier but so what? Japan from 2008 have triple-dip recession, UK very similar, look at EU, even USA have negative GDP. It's normal capitalism dynamic. Higher inflation will be problem, 10-14%(from 7%), but not disasters, budget will be balance because ruble is down, even in lower oil price Russia will not have budget problems. Export out of oil/gas sector will be benefit and import will be lower, because ruble fall.
And not only ruble fall, norwegian krone have similar path like ruble in this year, also highly correlated with oil price.
Yeah, our economy is so not control, that's why we're doing so great
High energy prices buoyed Russians' standard of living.
Low energy prices will cause them to fall.
Sorry to get all logical on ya! :-)
now now Seppo patriot
Russias economy is way more diverse then anyone is giving it credit for.
They make stand alone nuclear power plants for export.
they also make military equipment and passenger jets
They make some Russian cars like Zhiguli, Lada and Volga that no one wants to drive, too - which is why none are exported beyond former Soviet bloc states.
They also make some of the worst roads in the world.
If you go to Drom.ru, you'll see - if you can read Russian - that part of the standard form for selling vehicles, they ask the question "Prober Po Rossia?", which asks the question whether the vehicle has been driven in Russia.
Why do they care?
Because even Russians don't want vehicles that have been driven on Russian roads!
It's hilarious and sad at the same time....
Yes, they manufacture planes. trains, and automobiles. They have civilian and military nuclear power. They have vast territory and natural resources, including lots of water. The Russian territory is strategically situated between Europe and Asia. That makes them the only potential enemy with any real value, and by default that makes their "leader" the only one thats worthy of a daily two minute hate.
+1
But they're not the only "potential enemy with any real value"... lookin' at you China.
"...Russias economy is way more diverse then anyone is giving it credit for..."
Putin 2000 – 2014, Midterm Interim Results: Diversification, Modernization and the Role of the State in Russia’s economy
Awara
9 December 2014
The study reveals a range of impressive indicators on the development of the economy between 2000 and 2013 and the health of the Russian economy:
• The share of natural resources rents in GDP...
• Russian industrial production...
• Production of food has grown by 100% in 2000 – 2013.
• Production of cars has more than doubled...
• Russian exports have grown by almost 400%...
• Growth of exports of non-oil & gas goods has been 250%.
• Russia’s export growth has more than doubled...
• Oil & gas does not count for over 50% of state revenues as has been claimed...
Far from “relying” on oil & gas, the Russian government is engaged in massive investments in all sectors of the economy, biggest investments going to aviation, shipbuilding, manufacturing of high-value machinery and technological equipment...
They export almost nothing outside of raw commodities (very little refined commodities including refined food products despite large-scale agriculture especially wheat) and military equipment. Putin has tried all kind of different half-hearted initiatives but to say the Russian export economy is diverse isn't remotely factually true. Their services export revenue pales in comparison to other BRICs including India and China.
.
No need to apologize in advance. I mean, it's such a remote possibility.
Russia's revenue from oil ony accounts for 16% not 50% which many wishful ignorant think of . Shale is also facing an endurance test these days . Update bob .
Putin knows he can't lose this battle or Russia will be lost to the filthy maggots in the west.
If you're an American, it'd be fair to call you a traitor, Bob. Ya filthy maggot!
the traitors are the ones who support the filthy maggots in DC and on Wall Street. And you fuckstick
Seppo patriot is a plant
Define your version of traitor.
Well said. Pat Buchanan could have written it.
De-dollarization the key.
China/Russia partnership is huge, and the Middle East will sell to whoever shows up with a boat and money.
Saudis wild card methinks. They've been bedfellows for way too long with US to move towards the East even if they want to because they know the US could topple the regime in a heartbeat. Saudis, et al. have to be very careful and play both sides. Dangerous times to be a sheik...
Oh sure, agreed, they will play both sides; however, they will sell to anyone.
If the balance of power in the region tips to Russia/China they will tell the U.S. to pound sand.
I can't wait until Russia and China have that SWIFT co-op in place. That is going to be a real "game changer" . You can travel anywhere in their jurisdiction and move liquid assets into their banking system with impunity.
I'm not saying Russia and China don't have problems... I'm saying it's only fun when a GAME has at least (2) players.
Russia’s fifth interest-rate increase this year failed to stem the ruble’s worst rout since 1998 as the central bank governor said a bigger move risked exposing the economy to a greater chance of recession.
The Bank of Russia increased its key rate to 10.5 percent from 9.5 percent, matching the median estimate of 34 economists surveyed by Bloomberg. The ruble fell to a record low, dropping as much as 1.6 percent. The central bank stands ready to take unorthodox steps if the situation worsens, Governor Elvira Nabiullina said after the decision, without elaborating.
Today’s move is “a spineless decision,” Vadim Bit-Avragim, who helps oversee about $4 billion at Kapital Asset Management LLC in Moscow, said by phone. “If the central bank’s goal was to defend the ruble, it would’ve raised rates by 2-3 percentage points.”
The central bank faces a balancing act as it manages an economy choked by sanctions and reeling from a depreciation that’s wiped out 41 percent of the currency’s value this year. The rate increase shows the narrowing options left to policy makers after they spent about $80 billion on defending the ruble and shifted to a free-floating exchange rate ahead of schedule last month.
Worst PerformerThe ruble is the world’s worst performer this year after Ukraine’s hryvnia among more than 170 global currencies tracked by Bloomberg. It traded 1.4 percent weaker at 55.60 per dollar at 6:12 p.m. in Moscow.
The central bank wasn’t trying to use a sharp rate move to sway the currency market, according to Nabiullina.
“Our main target is inflation,” she told reporters in Moscow. “We’re assessing risks for the economy. Our economy isn’t in the best condition” and a large rate increase “would have increased recession risk.”
The central bank has said it’s ready step in at any time to prop up the ruble amid the lowest oil prices since 2009. It spent ‘‘not much more than’’ $300 million on currency interventions today, according to Standard Bank.
The bank can use $85 billion for currency operations next year in case of a crisis scenario that puts crude at $60 a barrel, according to Nabiullina. Russia’s reserves fell $4.3 billion last week to $416.2 billion.
A weaker ruble, coupled with an increase in inflation expectations, ‘‘pose substantial’’ risks to price growth, the central bank said today.
‘Harsh’ Measures‘‘In case of further aggravation of inflation risks, the Bank of Russia will continue to raise the key rate,’’ policy makers said in the statement. ‘‘Accelerated consumer-price growth is driven by ruble depreciation in the second half of 2014.’’
The rate increase comes a week after President Vladimir Putin told the central bank and the government to take ‘‘harsh’’ coordinated measures to deter speculators and steady the currency market. The Investigative Committee said today in a statement that currency manipulation may be added to the criminal code.
The central bank has resorted to higher rates after Putin’s incursion into Ukraine’s Crimea in March, even as the economy of the world’s biggest energy exporter lurches toward its first recession since 2009. The central bank said today it estimates economic growth in 2015-2016 at ‘‘close to zero.” Inflation will be at about 10 percent by year-end, it predicted.
Price PressureThe central bank wants to slow inflation to its medium-term target of 4 percent. Consumer-price growth last month accelerated to 9.1 percent from a year earlier, the fastest since June 2011.
Prime Minister Dmitry Medvedev said yesterday the government is in talks with large companies to even out their sales of foreign revenue after urging exporters to convert more of their currency income to help stem the ruble’s tumble.
The central bank is calling for exporters to convert foreign revenue evenly and is in talks with banks and exporters on currency sales, Nabiullina said today. Ruble speculators contributed as much as 10 percentage points to this year’s drop in the ruble, she said.
Today’s decision “is not enough to stabilize the ruble and increases the risk of a full-scale currency crisis,” Piotr Matys, a currency strategist at Rabobank International in London, said by e-mail. “The central bank may intervene more aggressively on the market, but selling hard currency already proved to be an insufficient tool, as reflected in the worst ruble rout since the 1998 crisis.”
While the devaluation is eroding consumer purchasing power, a mainstay of Russia’s economic recovery since the 2008-2009 crisis, there’s no reason for a “special hysteria,” Medvedev said yesterday in an interview with Russian television.
“We all just need to be patient to make it through this difficult period and look to the future,” he said.
What's your point?
That Russia's good times are over, Bob.
better worry about your own country
you in terrible denial
worry about your OWN country, Bobbie. Been to the supermarket lately? How'z them food prices? Up up up and away. Paying medical insurance these days? How's them medical insurance rates? Up up up and away, huh Boobie? How much do you think the is inflation in USA is? 10% 12%? 15%?
Hard to find nutrition in Amer supermarket...
at many times costs of Russian wholesome food.
Waddling 30 year females with half weight of cart is plastic, wrappers and box..
two and three hundred check out one cart