Speculation - Key Factor in Oil Prices. Russia Seeking to Freeze Production at Capacity in Doha (Analysis)

April 12, 2016

"Real Time" on Tsargrad TV with host Yury Pranko


Translated by Kristina Kharlova

 

Video transcript (10:30 - 25:00)


Guests: 

Sergey Chizhov, President of Russian Gas Union

Konstantin Simonov, General director of National Energy Security fund


Konstantin Simonov: Second half of the year might turn out more comfortable for the oil market. January prices were too low. We have to take into account not only our (Russia's) wishes, but also the US factor. We must understand that most shale projects are now below break even point, and these are not just our estimates. I have not seen any Western analysis were it was below $45. Our estimates are higher: $53-55. 

You cannot produce a product below break even for a long time.

They are thinking about what will happen to their own [oil] industry. Their production has grown by more than 200 million tons in the last few years. I don't think they want to increase it by that much in order to shrink it.

None of the major oil producers like the current situation. The Saudis don't like it. Although we are told they have huge reserves, but they are shrinking. It's a warring country. Iran doesn't like it. Therefore the price should get closer to $45-50.

Last year Russia produced 534 million tons. The US produced more. In the last few years US production grew from 300 to 500+ million tons. If you follow the American system, we produce 11+ million barrels a day, and about the same in America. In 5 years the increase is 1.5 times.

Sergey Chizhov: Everyone used to talk about the gas revolution, forgetting about the shale oil revolution in the US.

The new volume of oil production was an unpleasant surprise for us and others. We expected the prices and oil supplies to remain comfortable for us. After the January events, I think we are now observing a positive dynamic.

We can expect $45 in the first quarter, $50 - in the second quarter. Not sure about $55, this will depend on any surprises in financial markets.

Host: This is an important point. When we are talking about oil futures - it is a financial instrument and not a physical volume. The market is in the expectation mode before Doha meeting. Is the price rise purely speculative? 

Konstantin Simonov: Oil prices always depend on two factors. There are two expert camps, who argue with each other. The first camp says oil is a regular product and it depends on supply and demand. The second one says oil is not a regular product, as all the commodity products. Since 95% of transactions is in oil futures, we have to take into account the speculative factor. 

I always belonged to the second camp, but the pressure from the first camp was so strong that I am used to explaining it from their paradigm. What I said earlier was an attempt to analyze it from their perspective, from which we can see that cheap oil at $30 is not profitable for the US. Why the US? Why do people tend to frown when we are talking about the speculative factor? Because everyone understands that most of the money comes from American investment funds. When we talk about speculators we are talking about the US. So people tend to get up in arms: "Now you are getting into conspiracy theories! Rothschilds! Rockefellers...!" But this is a real factor, because we know the volume of money circulating on the futures market vs the real oil market.

Host: Does it mean we will be shedding tears on April 17th?

Konstantin Simonov: What matters is not what the participants of the conference do, but what they say... Even if they don't sign or freeze anything significant, what matters is that they say the same thing. We need to send a counselor there who will instruct them what to say. All they need to say is we agreed and we will get together again. The main thing is how they present it so that the market speculators will have an adequate reaction. 

If a Saudi prince will come out later and say "we want solar panels", or the new Iranian president says "we don't agree", then it will go back to the old craziness. However, there have been many conflicting statements so far, but the market is still growing because there is an expectation that something will happen. The main task is to continue the trend of searching for compromise. The worst scenario is to say we didn't agree on anything.

Host: Are there any real, not financial or psychological reasons for optimism, like demand in China or the US, or stimulating domestic demand?

Sergey Chizhov: We are in a balancing state. On one hand Chinese index started growing for the first time in recent days... I don't think anything dramatic will happen in this time frame, and if there will be no 'counselor' there, we may be disappointed... 

Host: So there are no real reasons?

Sergey Chizhov: In my opinion, no.

Konstantin Simonov: Look, we are dealing with a product for which demand is growing. It has even increased last year, may be not as fast as in the 90's or the 2000's. Psychologically people think oil is an outdated product, for which demand is falling every year. This is not true. 

Many experts say China's demand is falling. They say China grew by 9% before and now by 6%, therefore it's falling.  What do you mean - falling? It is growing by 6%.  As far as supply, the situation is difficult. US ministry of energy forecasts the loss of 800 thousand barrels a day.

Iraqi production grew in March, in February there was a terrorist attack, and oil fell. Iraq is hard to predict. 

As far as the number of 540 million tons a year... We [Russia], Qatar, Venezuela and Saudi Arabia as you know made an agreement in February to freeze production at January 11, 2016 level. This number is not random. On that day we reached our daily national record. If you annualize this record, you will discover that we can still increase production by 2%. If we used to extract 534 million tons, 2% is 10 million tons.  We can easily extract 545 million without breaking this agreement. Our ceiling is 545. In March we grew by 3.1%. 

Host: Does it mean we continue increasing capacity?

Konstantin Simonov: It means we were lucky. We hit capacity at the moment when we were supposed to decrease it and freeze it. If our production is not growing, lets make a nice gesture and say its not growing 'due to international agreements'. 

Host: Will there be a drop in production below 540?

Konstantin Simonov: Yes, under any circumstances. The limit has been reached. We cannot increase capacity even if we change our investment policy and tax law. The national record of USSR was reached in 1987 and dropped since due to withdrawal of investments from the industry prior to the fall of USSR, not related to the 90's factor. Communist party bureaucrats said: "You are breaking records, what are you talking about?" Today's ministry of finance bureaucrats have the same mentality - "You are breaking records!" They are not thinking 5 years ahead. 

Host: This is a dangerous trend.

Konstantin Simonov: Of course!

***

Part 2: Russian Gas. Coming soon!

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Rosneft is Bigger at London, Gazprom - at Moscow Stock Exchange

April 12, 2016

Tsargrad

Translated by Kristina Kharlova


Rosneft capitalization has surpassed the capitalization of the largest Russian gas monopoly at London stock exchange on Monday. Rosneft cost $51,083 million while Gazprom - $50,898 million. 

Gazprom is holding on to its leading position in ruble equivalent at the Moscow stock market  at 3,449 billion rubles, Rosneft - 3,419 billion rubles.  In the last 12 months Gazprom depreciated by 1.5%, while Rosneft appreciated by 26%. 

The gas monopoly lost the title of the most expensive Russian company. 




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Oil and Putin's Golden Silence

A PRAISE TO SILENCE, WHICH IS CALLED GOLDEN FOR A REASON

Khazin.ru

Translated by Kristina Kharlova

By Alexander Hurshudov
(Oil industry analyst)



Upon careful examination of the circumstances it turns out that as a result of a long period of inaction, Russia significantly strengthened its position in the oil market. Using flexible diplomacy, it is now capable of offering OPEC new forms of cooperation. It seems to me that this is not a coincidence, but a strategy developed and adopted 1.5 years ago.


Many years ago,  a little sketch from the field of psychology caught my eye. Here it is:

Humans have two simplicities and two difficulties.
First simplicity: first talks, then thinks.
Second simplicity: says what he thinks.
The first difficulty: thinks one thing and says another.
The second difficulty: thinks a lot, but says nothing.

Today you don't often observe smart silence. Such a volume wagging tongues is tirelessly yapping away that you want to caulk your ears. The more pleasant it is to observe how a kind pause is more powerful than the most seemingly compelling talk.

I admit, a year ago, when oil prices convulsively twitched around $50, I was expecting energetic steps from our authorities. It was clear that without concerted action of OPEC the fall cannot be stopped, but Russia could make the first step and propose production cuts. However, neither the President nor the Prime Minister paid special attention to the problem, as if a budget hole sucking financial reserves didn't keep growing. And energy minister Alexander Novak even said something in the spirit that the price level is acceptable to Russia, and even if it will be lower – we will survive.

But since then almost a year has passed. Let's compare the situation: what was THEN and what is NOW.

THEN (in June) Russia extracted 10.3 million barrels of oil a day. NOW – 10.91 million

THEN Saudi Arabia extracted 10.56 million barrels/day. NOW - 10.18 million 

THEN the United States extracted 9.61 million barrels/day. NOW – 9.01 million

Iran THEN promised after the lifting of sanctions immediately to put out 500 thousand barrels/day of additional oil. NOW – in three months it managed to increase production by only 230 thousand barrels/day.

THEN from Iraq and Syria busily passed huge convoys with stolen crude that was sold cheap on the black market. NOW our (and then American) aircraft closed this shop.

THEN everybody was expecting losses and panic among Russian oil companies. NOW it turned out that they didn't even reduce their investments. Goldman Sachs recently calculated that their cash flows INCREASED by $2 per barrel. Probably this is why the increase in excise duties on gasoline by 2 rubles went quietly and did not cause the corresponding growth in the price of gasoline.

THEN Russia held a position of modest observer at the OPEC. It was presented with conditions, almost ultimatums. NOW Russia, along with the most influential members of OPEC is organizing conferences and conducting confidential negotiations.

Turns out that all the major players in the oil market over the past year lost their trump card, but Russia has strengthened its position. Of course, not the last role here was played by the actions of our military in Syria and the success of our diplomacy. And all this was achieved without undue boasting, empty threats and smug statements. The man said – the man did [Russian idiom - FR].

Separately, I note that numerous negotiations with representatives of largest oil-exporting countries are conducted quietly, without any loud announcements. This greatly irritates opponents. Their traditional strategy of "divide and sweep" is suddenly in jeopardy; when there is no action, no hints, there is nothing to bark at, and then it may be too late... 

In order to regain control of the oil market, OPEC countries need a compromise, but it has been elusive. There was no such experience, and there was mutual irritation. The whole history of OPEC consists of sharp strong-willed decisions; take, for example, embargo on deliveries to Western countries in 1973. And Russia in recent years has accumulated rich experience of difficult compromises, and many now understand that it is able to offer OPEC a new strategy.

Therefore, the agreement on freezing oil production at January levels will be signed by all the participants of the conference. Without it there was no point to convene the conference. Fanned by Western media "differences" between Arabs and Iran are easily overcome, on the example of Iraq. War-torn for 12 years, under occupation and sectarian feuds Iraq is exempt from quota and produces as much oil as it can. It is easy to see that Iran is in a similar situation; also suffering from Western plundering. It is logical to give it the opportunity to recover to previous level of 4 million barrels/day, and then it can join the restrictions. Moreover, it will take at least two years.

However, the 'freeze' will not have a significant effect on the supply of oil. Because without it world production is falling, investments are reduced. For oil exporters it is important now to reach agreement, to make the first step to the development of clear rules. It is also important that new members could join negotiations; besides Russia, it may be Kazakhstan, Azerbaijan and (a nightmare for America!) Mexico.

Previously I often sounded quite unpleasant criticism of the leaders of the oil industry; they often lacked professionalism. However, the measured approached to the work with OPEC deserves the highest praise. I have reason to believe that this strategy was developed a year and a half ago, but I'll wait before presenting my evidence. Simply because silence is Golden.

The market does not understand the details of this behind-the-scenes struggle, but knows instinctively – there may be surprises. Therefore, last week Brent oil rebounded from the lower boundary of the mid-uptrend to $37.2 (see figure). Formally on Tuesday, the trend has been broken (traders call this "false breakout"), but then followed by rapid growth of 12.6%; the week closed at $41,89, contributed by favorable oil data.



Commercial oil reserves in the U.S. last week fell by 4.9 million barrels, weekly U.S. imports fell by 2.5 million barrels. Gasoline inventories rose by 1.4 million barrels, diesel - by 1.8 million barrels. This is normal, plants are producing gasoline-diesel fuel in anticipation of higher demand during the holiday season. Oil production according to operational data decreased by 14 thousand barrels/day, now it is 9,008 million barrels/day. The number of working drilling rigs in the U.S. continued to decline by 7 units to 443 units, and in Canada by 8 units, to 41 pieces. It seems there is nowhere to fall further, therefore next month I expect stabilization of the pace of drilling at these low levels.

Next week, Brent will again break through the resistance of $42.5, and with good news will fixate higher.

P.S. The forecast was justified unexpectedly quick: at 17:00 Moscow time Brent has broken through $ 42,5, touched $43 and bounced back. The next frontier is $45.



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ISIS-Turkey blood oil map

December 2, 2015

Vzglyad

Translated by Kristina Rus


The supply chain of ISIS Syrian oil to Turkey


Turkey's purchases of smuggled ISIS oil is one of the most important sources of terrorist financing, measuring in the hundreds of millions of dollars. "Vzglyad" paper created a diagram of the production, trade and transport of the black gold to Turkey, from which you can clearly see that the business is thriving: almost the entire Turkish-Syrian border is open for smuggling. 

Click to enlarge

ISIS Brand (by "Vzglyad")


$1,53 million per day - ISIS makes from selling oil

$25-45 per barrel - average oil price on ISIS markets


Oil production in Syria:

1995: 610,000 barrels per day

2010: 386,000 barrels per day

2011: 333,300 barrels per day

2012: 182,0000 barrels per day


Map

Pink: Territories under the control of the Syrian army

Grey: Territories under the control of the Islamic state

Green: Territories under the control of other terrorist groups

Yellow: Territories under the control of the Kurds

Second column icons: oil fields; oil refineries; oil markets

Third column: oil transport routes; contraband border crossings

Odessa stinks of oil. Blood oil?

e-news, November 28, 2015

Translated from Russian by Tom Winter, November 30, 2015

There's a smell of oil all over the World. But, especially in Odessa harbor, where it stinks. Stinks. It is natural. Imports of oil and oil products through the port of Odessa recently doubled. To be precise, up 150 and 220 percent, respectively. You can check online port authorities of Ukraine, which publishes the full official statistics.

What do these numbers mean against the background of the overall drop in cargo transfer, by almost a factor of four? Unknown. 

Just one thing is understood: at the complete collapse of its industry, Ukraine started consuming more oil. And certainly most of it came through the ports of the Black Sea, principally through Odessa. Overall leader: Odessa.

You could wonder long where those transferred barrels are disappearing, through what damaged pipelines, and what might be the further destination for the "black gold." Perhaps they're going to top off their storage tanks, but where are they going to find so many tanks? 

One might wonder indeed, in the face of all the idle Ukrainian oil refineries, but it takes no special grade of intellect to get this: the oil is not from Novorossia, rather from the side of the Bosporus, from the other side of the sea, where the charismatic Turks have discovered an original means of production on foreign soil. There's a name for it: fencing stolen goods.

There, under the screen of a civil war that morphed into an international conflict, bands of radical islamists, calling themselves a "state" selflessly pump oil from wells they have seized in Syria and Iraq. And Turkey has become one of the main consumers of this oil. There's so much of the stolen oil they've run out of places to put it; legalized ["laundered," we would say, if it was cash -- tr] it continues on its way around the world. Today, of all the Black Sea countries none is more apt for the further distribution of oil, than Ukraine.

In Odessa, in general, something is happening defies logical explanation. The biggest strategic region is living a mysterious life, where the law is the stream of consciousness of a dissolute Georgian, who had not recovered from a hangover. Where appointments can depend on an evening backgammon game, where the tariff commissioner is a girl, and who it is, that both conducts and covers this scheme, is also known.

Mikhail Saakashvili's partners don't change. And their fantasy is not large. But here is what they enjoy of Erdogan, as Saakashvili at first could not believe.
The East is a delicate matter. But where things are delicate, there, they can rip. So, in the language of diplomacy, there could resound a message of the contraceptive nature of certain political figures. [A metaphor, both crude and blunt, is omitted here. --tr.]

This is to say, at the end of the act the partners disappear without saying goodbye, and over the caravans of stolen oil hover very real Aerospace forces, transforming the dubious business of terrorists into a very dangerous occupation, where bankruptcy is indistinguishable from a funeral, which even relatives dare not attend.

After all, oil - it is not just oil. Just like human fingerprints, oils have their own unique chemical composition, that make it possible to ID where and when it appeared on the surface of the earth. It is possible to trace the entire path of the oil produced by the killing and the looting.

And it is terrible to imagine what will happen when they start finding out that the oil in the pipelines and the refineries of the country of victorious Maidan -- is the oil tainted with human blood.
_________________________________
For this story from the Turkish angle, see Blood oil and the RAK axis

Israel Shamir: What Can Christmas Trees Tell You About The Russian Economy

Israel Shamir for Komsomolskaya Pravda

Our columnist contemplates about what concerns commentators in December 2014.

Dark snowless December in Moscow makes one feel blue. Liquid dirt under the tires, eternal traffic jams, early sunset and late dawn will bug anyone. Columnists and commentators - not only Westerners, but also the real patriots-vatniki are forecasting the coming of a fluffy Northern animal [which in Russian is synonymous with 'catastrophe']. The word with six stars, guesses Dmitry Glukhovsky, the inevitable Russian fate: "when oil crashes back to hell, when the sand house of our economy dries and cracks without oil, when the presumptuous alpine climber -ruble plunges into an icy abyss, we nod grimly to each other: Yes, this is what we were waiting for." And in "Komsomolskaya Pravda" my colleague Ulyana Escobeda was horrified: "The nineties are back." With their poverty and darned stockings. At a Christmas exhibit of small format "postcards" at the Literature Museum on Arbat, Alexander Shirnin depicted the approaching end as a rhino rushing towards us.

No, dear friends and readers. He is not rushing at us, it's us who are rushing. We are him - for them. Screams in the Western press and in social networks, the resolution 758, declaring war on Russia - these are the signs of a collapse, but the collapse not of Russia. All empires come to an end, the liberals like to say, and now comes the end of the liberal American Empire.

In the entire world, subservient to America - from riots in Ferguson to discontent in France, there is a growing anticipation of the collapse of the dollar pyramid. This is why there is so much anger on Capitol Hill. America only knows how to print dollars and saber-rattling, to blackmail and bribe politicians, to provoke conflicts and to bomb the defenseless. When was the last time you saw something made in America? It lives on credit, and its excessive debt of $17 trillion will bury it as soon as a leader emerges, able to resist it. Russia, the political leader of the BRICS and the majority of mankind, is close to overthrowing the American yoke.

The current American offensive resembles the Ardennes in December 1944, exactly 70 years ago, when seemingly defeated Reich struck a powerful blow and overran the Anglo-American troops. But these temporary successes did not change the result. The Reich fell, the American Empire will collapse as well. "America is dated and degraded" - wrote to me one of the leading American politicians, "Independent Russia is a remedy against the risks of a unipolar world. Many countries would not have achieved political independence, if not for the second pole of the time - the USSR. And now America can no longer rule, but can do a lot of damage at the end."

Russia is in good condition. Her captain is firmly holding the steering wheel. You can disagree with his domestic policies, but his skill in foreign policy is undeniable. He is supported by freedom-loving forces in the United States, Europe ... everywhere." In Latin America they almost worship him. Iran and China know his will. He is coping with falling oil prices, while the Soviet leaders could not.

Putin could not stop the falling oil prices. Demand for oil is declining due to the upcoming industrial crisis in Europe, but supply is growing, thanks to US shipments. But it is not that bad. The drop in prices can revive the industry not only in the West, but in Russia, provided that the government will not allow to raise the prices of petroleum products on the domestic market.

The ruble fell against the dollar - to the same extent as the oil, and this means that depreciation is intentional, and not out of control. If the ruble remained high and the oil - low, all Russian savings would have gone down a black hole. The fall in oil prices has its pros - otherwise the Russians could only lay on the [Russian] oven, like Emelia.

And so the ruble is too high. The problem of currency misalignment is that anything can be imported cheaper than produced at home. The New Year is coming, but this great North country is importing Christmas trees from Denmark and Holland. This means that the ruble is overvalued even after its fall. Until I see the Russian Christmas trees on sale at an affordable price - I will not believe that the ruble had collapsed.

The high ruble has generated thousands of small land-lords, and simply parasites, making a living by renting their apartments. They moved from Mitina to Goa, and their apartments got occupied by ten immigrant workers at a time. The fall of the ruble would at the same time send the workers home to their sunny republics, and save the owners of Moscow apartments from parasitism and cirrhosis.

The exhausting Ukrainian story has been put on a back burner, and will probably stay there for a while. And there is no reason to blame the Russian government. Moscow tried not to interfere in Ukrainian affairs, unlike the West, which interfered from the very beginning. A great success for Putin will be to put off a large full-scale war in Ukraine, at least until spring.

Sanctions and contra-sanctions brought new Russian products to the store shelves. Finally at the elite "Scarlet Sails" appeared local meats, local vegetables, Asian vegetables (much tastier then European). And this is very good. Even the famous jamon can be easily produced in Russia - we have pigs, cold climate, barns, and you don't need anything else.

It's not a catastrophe. Just a December pre-Christmas blues on a national scale, due to lack of sun and light. Nothing wrong with that - Christmas will pass, and the sun will return. Somewhere by March you will not even understand, while re-reading old entries - what scared you so much in December 2014?

Translated by Kristina Rus for FortRuss.blogspot.com