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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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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Syrians? What Syrians!?

by Samer Hussein for Fort Russ

13th January, 2016

Recently, we've often been hearing the news about various people of alleged Syrian background, carrying out the acts of violence and terrorism throughout Europe. While it's true that some of the Syrian citizens indeed took up arms against their army and have committed crimes before eventually being forced to flee to Turkey where they were first sheltered and later sent to Europe, we must absolutely not ignore the fact that majority of the people who carrying “Syrian” passports and have entered Europe by boats in the last five months, are not even Syrians. Rather, they are Islamic extremists from Middle East, Asia and Europe, some of whom even brought even entire families with them (Uyghurs are a good example) and have been waging jihad in Syria against its army and its citizens. Because the Syrian army is constantly having gains and victories, the terrorists sooner or later had to flee Syria to Turkey, from where the majority of them also entered Syria. As we all know the terrorists in Syria (both, foreign and domestic) are supervised by the Turkish authorities. 

Mail Online journalist Nick Fagge, pictured, obtained passport for £1,300 

But now let's ask ourselves the very important question: how do we define the Syrian passport?

I say this because since January 2012, majority of all EU memberstates (including the countries affected by mass rape and terrorism) consider the so-called Syrian “opposition” as the sole legitimate political representative of the Syrian state and its people. As we all know that very same so-called “opposition” are printing their own passports with slightly different state symbols (notice the three stars in the coat of arms instead of two) in Qatar. Given the politics, could these be considered the Syrian passports by the mass media? Or maybe is it the fake Syrian passports that are being given to ISIS and other terrorists by Turkish authorities prior to entering Syria?

The false and fabricated news about Syrian people raping and murdering the people in Europe en masse and which are being spread by the mass media outlets, have already caused some inconvenience to the small Syrian community in Europe, otherwise known for being one of the very few Middle Eastern communities that is known for being well integrated and causing no trouble. The other day the Syrian Christian who has been living in Europe for decades and has never ever had any problems before, complained that her family were assaulted by locals for being Syrians, perhaps even by the same people who like millions of other Europeans share 7-years old photos from Afghanistan that allegedly represent the starvation in Madaya. The people are unfortunately too ignorant to know the truth and are blindly following the lies of the corporate media. 

The particular crisis has also revealed another thing: the complete failure of immigration policies, adopted by most EU memberstates. The corrupted politicians are now trying to sweep their deeds under the carpet and at the expense of the Syrian people. As if the staunch support for the so-called armed “opposition” and their islamist allies and the sanctions against Syria did not harm us already, we, the ones who have in recent years, if not decades, paid the highest price, both in terms of civilians and the military/security casualties to islamic terrorism, are now becoming its synonym.

A lot of people are now brainwashed and believe that we are some sort of a center for all islamic terrorism there is, while at the same time, they are ignoring what is actually going on in their own soil (and diplomatic circles). Take a look at London for example. In some areas, it is forbidden to drink alcohol or consume the non-halal food. This is, for example, not the case with Damascus. 

Where were all these masses back in 2012 when people from their own cities were blowing themselves up throughout Syria? Where were they when Maaloula, one of the earliest Christian places in the world where the language of Christ is still being spoken; was in the paws of the terrorists? Oh, they were relaxing on the beaches of Turkey, that very same Turkey that helped the terrorists enter Syria through its territory and is now sending them to Europe to commit even more rape and murder. 89% of all the terrorists that have either fallen or have been captured on the ground in Syria, turned out to be non-Syrians. At the same time only about 8% people who have entered European soil by boats in the last 5 months, are said to be Syrians. 

Saudi and ISIS ideologies are remarkably similar

The people of Europe need to wake up. The current crisis is the result of flawed and far too liberal immigration policies as well as strong economic and diplomatic ties to certain states (namely Turkey and Saudi Arabia, the “medieval” kingdom that is in many aspects similar to ISIS - notice the public executions).

And for that the politicians are to blame, of course, not the Syrians.

~~~~~~~~~~~~~~~~~

Samer Hussein is a Syrian living in Slovenia. A law graduate, he has a vast interest in history and geopolitics, particularly of the Middle East.

Russian Strategy in the Arctic

August 20, 2015

Marat Ramazanov

PolitRussia.com

Translated for Fort Russ by the Soviet Bear

[PolitRussia is the first Russian analytical resource which accompanies its articles with short youtube version for a wider reach in social media]

Our country has consistently increased its influence in the Arctic int he recent times. The importance of this region is due to several factors. There are rich reserves of oil and gas on the continental shelf of the Arctic. It is important to control the region so our shores are safe from the navy of some country, very intrusive in terms of 'democratic values'. Not to forget our other strategic project related to the Arctic region — the Northern Sea route.

Russia has a right to a significant portion of the Arctic. And this right is based on the results of scientific research expeditions. For example, in 2007, our scientists studying the soil near the North pole, proved that the Lomonosov ridge is a continuation of the Siberian continental platform.

In addition to coastal areas, islands and waters, which are most relevant to Russia, there are places in the far North where our country also plays a role, such as Svalbard [Spitsbergen archipelago]. 

Geographically, the islands belong to Norway, but, according to the "Treaty of 1920", Russia has the right to carry out scientific research and commercial activities on the islands and in the adjacent territorial waters on equal terms with Norway. By the way, the second largest settlement on Svalbard — Barentsburg, is located in the Russian jurisdiction. There are the "Arktikugol" [meaning "Arctic Coal"] company, the Orthodox Church and, possibly, the northernmost statue of Lenin.

This year Deputy Prime Minister Dmitry Rogozin visited Barentsburg, which caused great dissatisfaction on the part of the leadership of Norway. The Scandinavians have even decided to restrict access to the archipelago for persons who are on the sanctions list of the European Union. What does Norway has to do with the EU is unclear, but the unanimity of the Western States in their negative attitude towards Russia is not surprising. By the way, the Norwegian decision contradicts the above Spitsbergen treaty. Our foreign ministry expressed protest. If the Norwegians decide to send military units to the territory of Spitsbergen, which is part of our country, it would be the de facto breach of the treaty and, probably, Russia will react differently.

Barentsburg

Military presence as a reliable argument

In order to be able to respond not only in vocal protest, we need to have some serious basis. For example, we should strengthen military capabilities in the Arctic, which is what Russia has recently been doing. The landing of paratroopers on ice has become a matter of habit. In 2015 paratroopers from Belarus and Tajikistan joined in the exercises in the harsh Northern conditions.

But we should not stop there. It is necessary to build new military ports. Yes, we need to upgrade the ones we already have. On the shores of the Arctic ocean we have ports (military and civilian) — Dixon, Pevek, Tiksi. They should be developed first of all.

It is important to constantly ensure that our country has the most advanced military equipment and weapons for use at extremely low temperatures. Fortunately, in recent times we have been doing fine in this regard. It would be nice for civil vehicles to be suitable for Arctic conditions too. Here, for example, UAZ "Patriot" was made suitable for use in the Arctic.


The importance of International law

Once our military superiority in the Arctic is ensured, we can proceed to the development of the region as a whole. The Federation Council has already prepared the concept of the law on development of the Arctic. To make other countries refrain from encroaching on the Russian Arctic, it is necessary to secure our right to it with international documents. In August this year, Russia has re-filed an application to the UN for the extension of the domain in the Arctic by the addition of the Lomonosov ridge and other areas of the shelf, which is a continuation of the mainland. Our first attempt to secure the Arctic areas for ourselves in international law was more than a dozen years ago. Then the bid also included the sea of Okhotsk. After the failure of our diplomats we decided to obtain the rights to these territories one by one. Let me remind you that the sea of Okhotsk was recognized exclusively Russian in 2014, Now is the turn of the Arctic.

Integrated control system of the Arctic

Speaking about the Arctic, it is worth mentioning the emerging integrated system of control of the region, which should appear before 2025. The system will include civil and military segments. Thanks to its operation, Russian military and civilian agencies will be always aware of developments in the Arctic region, and will be able to instantly react to any changes of interest or danger to our country.

Why is the control system being created so quickly? We have already answered this question: the Arctic is a region rich in hydrocarbons and of interest to many influential powers. Russia has to gain a foothold on the territory in the near future, because after 10 years the need for hydrocarbons in the world will grow. And only powerful military capabilities can discourage the “luminaries of democracy" to dictate terms in the Russian Arctic.

Foreign Minister of Donetsk Republic pledges to help Transnistria

Alexander Kofman and ambassador from South Ossetia to RF, D. Medoev

June 16, 2015

Ukraina.ru

Translated by Kristina Rus

Kofman: In case of attack on Transnistria we will help our brothers

The corresponding statement was made by the Minister of Foreign Affairs of Donetsk People's Republic, Alexander Kofman.

 He said that the Foreign Ministry of Donetsk in the event of Ukrainian aggression against Transnistria will react with diplomatic means, however, in the case of escalation Kiev should expect the reaction of the Ministry of Defense of DPR. 

"There are our brothers, and in the event of an attack on them, we will have to help them. I am sure that we will be able to do it. Unfortunately, I am sure that this escalation will take place. History shows that wherever Saakashvili is  appointed  — Tskhinvali (referring to the Georgian attack on Tskhinvali, the capital of South Ossetia) can not be avoided," - said Kofman. 

The diplomat also stressed that the Ukrainian authorities are making the Minsk format unsuitable for settlement of the conflict in Donbass. 

"In my opinion, it is a futile direction due to the fact that Ukraine continuously violates it, and it will not lead to anything positive. But this does not mean that we should not abide by it", — he explained. 

At the same time, the authorities of the Republic are preparing for further actions in case of its failure. If the Minsk format will be abandoned, DPR will activate efforts for the recognition of the republics, the relevant work is already underway, summarized Kofman.