The Russian economy (catch all)

[Dayuhan]

Dayuhan--all good points but then is this big but---initially when the Crimea started Russia was talking about needing a 95 base price, then as the Ukraine hit it was talking about a price of 104 and the last three days as been in the 114 range.

Given the extent of the change over a very limited time, and given that we've no access to the process by which these numbers were generated and we've no idea what agendas are being pursued by the people announcing the numbers... take them all with multiple grains of salt.

Certainly lower oil prices will cause economic stress, but there's little reason to expect that stress to change Russian policy on the Ukraine, or on anything else.

Then there was a press release yesterday stating they could absorb all financial hits by using the cash flow on oil/gas that is coming in--BUT that has been long planned for other things they have designed it to be used for---appears to me to be just one big Ponzi scheme simply moving the money around and appearing to be fifthly rich.

I generally give Russian press releases about as much credence as I give to yesterday's toilet paper. That Ponzi scheme is of course quite common, and while it eventually catches up, do you think it will catch up soon enough to have an impact on events in the Ukraine?

Then yesterday a short tweet came out of eastern Europe indicating that the Urals fields are in fact in a major decline and will be by 2017 producing nowhere close to what they are now--that is why the heavy new push into the Artic region.

Twitter is not generally a vehicle for serious analysis, and unless it links to credibly sourced material such things are generally best ignored. The Russian oil industry does of course face major problems across the board, and those will be exacerbated if prices stay below $100, but that picture has been analyzed to death and there's little reason to suggest sudden or recent changes in the picture. It's a big problem that Moscow will have to deal with, but again it's far from certain that it will affect Russian policy in the Ukraine.

And the sanctions yesterday were designed to do exactly that limit and or stop any further Artic development because Russia needs western tech of that type of drilling and this is the kicker--all oil/gas services companies of the west were in fact told yesterday to stop work in Russia---which Russia relies on heavily for their field maintenance.

It will be interesting to see what they do. They may decide to go fro broke, take what they want in the Ukraine and impose a fait accomplii, knowing that sanctions will degrade over time once the deed is done. They may also turn to China, though brother Han drives a hard bargain and gives nothing away: the quid pro quo will probably be painful.

#Russia could see its $19B surplus become a deficit by end of 2014, as oil prices continue to slide.

Certainly true, but as all Americans know, governments routinely operate at deficits for many years. Again, a problem for Moscow but not necessarily a problem that will make them less aggressive. They could turn more aggressive, if they decide that a bit of jingoistic fervor will provide a distraction from economic issues.

IMO--there is an unusual effect going on right now in the sour oil side of the house---virtually low to no demand and a continuing sliding price base that sees no bottom yet.

On what evidence? I see nothing really unusual, and nothing that's at all specific to "sour crude" or to Russian exports. Demand is there, of course, it's just somewhat below expectations. US production is up, the fear factor in Iraq is receding, and Libya seems to be pumping again, despite the mess. Normal ups and downs, really. Some producers, Russia among them, made some unsupportable estimates of the cash they'd have available, and will pay a price. It will hit a lot of producers harder than it hits Russia: keep an eye on Nigeria and Venezuela, in particular.

[OUTLAW 09]

Given the extent of the change over a very limited time, and given that we've no access to the process by which these numbers were generated and we've no idea what agendas are being pursued by the people announcing the numbers... take them all with multiple grains of salt.

Certainly lower oil prices will cause economic stress, but there's little reason to expect that stress to change Russian policy on the Ukraine, or on anything else.



I generally give Russian press releases about as much credence as I give to yesterday's toilet paper. That Ponzi scheme is of course quite common, and while it eventually catches up, do you think it will catch up soon enough to have an impact on events in the Ukraine?



Twitter is not generally a vehicle for serious analysis, and unless it links to credibly sourced material such things are generally best ignored. The Russian oil industry does of course face major problems across the board, and those will be exacerbated if prices stay below $100, but that picture has been analyzed to death and there's little reason to suggest sudden or recent changes in the picture. It's a big problem that Moscow will have to deal with, but again it's far from certain that it will affect Russian policy in the Ukraine.



It will be interesting to see what they do. They may decide to go fro broke, take what they want in the Ukraine and impose a fait accomplii, knowing that sanctions will degrade over time once the deed is done. They may also turn to China, though brother Han drives a hard bargain and gives nothing away: the quid pro quo will probably be painful.



Certainly true, but as all Americans know, governments routinely operate at deficits for many years. Again, a problem for Moscow but not necessarily a problem that will make them less aggressive. They could turn more aggressive, if they decide that a bit of jingoistic fervor will provide a distraction from economic issues.



On what evidence? I see nothing really unusual, and nothing that's at all specific to "sour crude" or to Russian exports. Demand is there, of course, it's just somewhat below expectations. US production is up, the fear factor in Iraq is receding, and Libya seems to be pumping again, despite the mess. Normal ups and downs, really. Some producers, Russia among them, made some unsupportable estimates of the cash they'd have available, and will pay a price. It will hit a lot of producers harder than it hits Russia: keep an eye on Nigeria and Venezuela, in particular.

Dayuhan----here is the continued slide to now 95 per barrel for Ural sour.

You would be surprised what comes via twitter these days including oil information.

This came via twitter--pic is the pricing slide in chart form and you must admit there seems to be no bottom right now:

Urals Crude at $ 95.34 today.

pic.twitter.com/qifuQ0lO0e

There are a couple of things in play right now that are contributing---number one is the high US production that is flowing straight to the US refineries which are designed to handle mainly sour thus a slumping need for Urals sour rught now in the US---production does not seem to have been reduced by Qatar/UAE and the KSA and that is leading to an oversupply right now and 2) there seems to be a general slump in demand for what ever reason.

The Swedes are saying it it hits 93 by say next Tuesday Wednesday then there is in fact no bottom until the 85-88 ranges which could in fact happen by the week after next.

That is a major problem for Russian finances especially in the face of this latest round of sanctions.

Rostnef is asking the Russian CB for a bailout of over 46B just to get through until the end of 2014 and the sanctioned banks are standing in line as well.

Seems the Ponzi scheme is clamoring for money and the CB is the only place to get it since the finance markets have been cut off.

[Dayuhan]

You would be surprised what comes via twitter these days including oil information.

This came via twitter--pic is the pricing slide in chart form and you must admit there seems to be no bottom right now:

Urals Crude at $ 95.34 today.

pic.twitter.com/qifuQ0lO0e

As usual with stuff flying around on Twitter, this is suspect: there's no indicated source for the data and no actual transactions cited. The figures would represent a very large deviation from the normal Brent/Urals price spread, and that alone makes them questionable.

When you see a referemce to a specific transaction: i.e. a Urals cargo in the Baltic or Mediterranean sold on x day at dated Brent minus y... then you know the actual price, what people are paying instead of what someone says they are paying. I would not trust such information via Twitter, unless linked to a credible source.

There are a couple of things in play right now that are contributing---number one is the high US production that is flowing straight to the US refineries which are designed to handle mainly sour thus a slumping need for Urals sour rught now in the US

The US was never a significant buyer of Russian oil; domestic production is primarily displacing Venezuelan and Nigerian production. That oil will go somewhere of course, and will compete with Russian oil for buyers.

---production does not seem to have been reduced by Qatar/UAE and the KSA and that is leading to an oversupply right now and 2) there seems to be a general slump in demand for what ever reason.

The Saudis have cut 400k bbl/day. It's not clear how far they are willing to go. So far OPEC seems to be treating it as normal fluctuation, no special meetings to discuss production cuts or any similar indications of alarm.

The Swedes are saying it it hits 93 by say next Tuesday Wednesday then there is in fact no bottom until the 85-88 ranges which could in fact happen by the week after next.

Which Swedes? Again, don't take it seriously unless specific transaction data is reported.

That is a major problem for Russian finances especially in the face of this latest round of sanctions.

Yes, it is, though the extent of the problem remains difficult to quantify. That still leaves the question of how any of this relates to the Ukraine. I don't see Putin backing down just because he suddenly has an unanticipated money problem: it might even make him more aggressive. It's not as if backing down in the Ukraine will push oil prices back up again. The oil price problem and the woeful state of the Russian oil industry will be there no matter what happens in the Ukraine, so it's hard to see it as a major influence on the decision making process there.

[Dayuhan]

PS to above:

Outlaw, I still think you're wildly overrating the importance of categorizing Russian oil as "sour". Urals is in fact a medium sour blend with API gravity of around 31.2 and sulfur content of 1.35%. That's comparable to Arab Light and other major blends and is pretty much within the operating range of most major refineries. As a distinction it doesn't really matter much. It won't price as high as the very light sweet product, but it's not dedicated to specific markets either.

This is quite different from, say, the extremely heavy and extremely sour product that dominates Venezuelan exports, which really does require specialized refining and transport. Fortunately for the US, Canada produces a very similar product from its tar sands, so US refineries designed specifically for Venezuelan oil have been able to use Canadian product. That of course is a problem for Venezuela, as their crude cannot just slot in anywhere.

Again, it's likely that oil prices will be below $100 for the medium term future, and this will put some hurt on the Russians. Whether or not that's going to affect their decision making process in the Ukraine is another question altogether.

[Dayuhan]

Some clips from the oil price discussion...

http://www.bloomberg.com/news/2014-0...d-in-aug-.html

Saudi Arabia will reduce by about 500,000 barrels a day in the fourth quarter and will make further decreases if prices slip further, Bloomberg oil strategist Julian Lee said today...

Crude prices should rebound above $100 in the next few months as Chinese demand rises, Nawal al-Fezaia, Kuwait’s governor to OPEC, told reporters in Kuwait today.

There’s no need for OPEC to cut output because prices will recover once demand for winter fuel increases, Thamir Al-Ghadhban, senior adviser to the Iraqi government and a former oil minister, said in a phone interview on Sept. 8.

OPEC ministers kept their output target unchanged at 30 million barrels a day on June 11 in Vienna. The group is scheduled to meet next on Nov. 27. Iranian Oil Minister Bijan Zanganeh said there’s no need for an emergency meeting, according to comments cited by state-run news agency Mehr today.

The group will probably refrain from making cuts unless crude falls below $90 a barrel, according to JBC Energy GmBH, a Vienna-based consultancy. Saudi Arabia may have “become a little more relaxed” about prices trading under $100 for a few months, JBC said in an e-mailed report today.

Obviously nobody knows for sure what will happen, but I wouldn't say there's a consensus on a long term price drop. It is true that NE Asian winter buying will become a factor in Oct, hard to say what impact that will have. Also hard to know how much the Saudis are willing to cut, what decision OPEC will make in Nov (or what the pricing environment will be in Nov), how Libyan and Iraqi production will hold up, etc. Lots of variables out there.

It's wort noting that when a country talks about the price needed to balance a budget, they are talking about the average price for that budget year, not the daily price. The average for 2014 is still well over $100, and it would take some time to skew that average down. A month or so in the $90 range would not do all that much damage. We'll see how far it falls and for how long.

Again, though, it's hard to see how any of this is likely to impact Russian decision making in the Ukraine.

[OUTLAW 09]

As usual with stuff flying around on Twitter, this is suspect: there's no indicated source for the data and no actual transactions cited. The figures would represent a very large deviation from the normal Brent/Urals price spread, and that alone makes them questionable.

When you see a referemce to a specific transaction: i.e. a Urals cargo in the Baltic or Mediterranean sold on x day at dated Brent minus y... then you know the actual price, what people are paying instead of what someone says they are paying. I would not trust such information via Twitter, unless linked to a credible source.



The US was never a significant buyer of Russian oil; domestic production is primarily displacing Venezuelan and Nigerian production. That oil will go somewhere of course, and will compete with Russian oil for buyers.



The Saudis have cut 400k bbl/day. It's not clear how far they are willing to go. So far OPEC seems to be treating it as normal fluctuation, no special meetings to discuss production cuts or any similar indications of alarm.



Which Swedes? Again, don't take it seriously unless specific transaction data is reported.



Yes, it is, though the extent of the problem remains difficult to quantify. That still leaves the question of how any of this relates to the Ukraine. I don't see Putin backing down just because he suddenly has an unanticipated money problem: it might even make him more aggressive. It's not as if backing down in the Ukraine will push oil prices back up again. The oil price problem and the woeful state of the Russian oil industry will be there no matter what happens in the Ukraine, so it's hard to see it as a major influence on the decision making process there.

Dayuhan--there you go again---what will it take for you to "actually see" 1) the price is falling and 2) the reasons why.

Right now in the Us a simple fact---a majority of all refineries are and were built to take source crude--why the pricing was cheaper and the US would then import from wherever the price was the cheapest--now with rather large amounts of US crude online and more coming the US refineries hast shifted away from imports to using inland sources---thus less of a demand from wherever the sources were.

You still have not convinced me that in fact the ME has lowered their production numbers which in fact with a lower US demand creates an over abundance thus ever lowering prices.

Lastly even official Russian sources indicating panic on their lowering cash inflows from sales actually match the net comments regardless of what you think about net comments and lack of validation support.

You do realize that 80% of all intelligence is open source and that often demands no validation process--it is there for all to see and analyze.

[OUTLAW 09]

Sechin expecting 1,5 trillion RB from Russia's Wealth Fund & Pension Fund

Here it comes:Russian Min. of Finance says Rosneft likely to get bailed out by State Wealth Fund http://www.newsru.com/finance/13sep2014/siluanov.html … via @LevShlosberg

[Dayuhan]

Dayuhan--there you go again---what will it take for you to "actually see" 1) the price is falling and 2) the reasons why.

We all see that the price has fallen. Whether this is in the range of normal fluctuation or the start of an extended decline remains to be seen. I certainly wouldn't assume either, there are many variables involved and many of them are not amenable to reliable prediction.

Right now in the Us a simple fact---a majority of all refineries are and were built to take source crude--why the pricing was cheaper and the US would then import from wherever the price was the cheapest--now with rather large amounts of US crude online and more coming the US refineries hast shifted away from imports to using inland sources---thus less of a demand from wherever the sources were.

Increased US production is certainly a factor. Whether it is sufficient in the medium to long term to compensate for decreasing production and potential political events elsewhere remains to be seen. Again, the price drop is in no way specific to "sour crude", it's across the board, and the oil displaced by US production is by no means all sour: the single biggest drop in US imports is the 73% decline in shipments of light, sweet Nigerian crude. What the Russians are exporting is only mildly on the sour side and is not especially heavy and would require no major modifications to refine: unlike Venezuelan, it poses no special technical challenges to transport or refine.

You still have not convinced me that in fact the ME has lowered their production numbers which in fact with a lower US demand creates an over abundance thus ever lowering prices.

The Saudi production cuts are established and on record, that's not under dispute. I would not expect OPEC as a whole to address the issue before their scheduled Nov meeting unless the price drops under $90.

The "ever lowering prices" expectation is not shared by most credible analysts, though it may fly around Twitter.

Lastly even official Russian sources indicating panic on their lowering cash inflows from sales actually match the net comments regardless of what you think about net comments and lack of validation support.

If you cherrypick the panic comments (social media and cherrypicking go together rather well, that's the impression you get. The price will have to stay under $100 for some time to drop the annual average to a seriously critical level. That may or may not happen: again, there will be a substantial acceleration in buying in Oct and Nov as the NE Asian consumers get their winter contracts in. Certainly a sustained period below $100 would put a lot of stress on the Russian economy, but I don't see credible analysts expecting that, so it remains largely a speculative possibility.

You do realize that 80% of all intelligence is open source and that often demands no validation process--it is there for all to see and analyze.

"Open source" encompasses a fairly wide range, no? If you believe what you read on Twitter, you'll never want for moonshine.

Again, though, what you're not addressing is the point that there's little reason why any of these oil issues would cause Putin to revise his policy in the Ukraine. If anything, these problems may make Russia even more aggressive. The decision to back down or push ahead in the Ukraine will have no impact on the oil price problem, which will be there no matter what happens in the Ukraine. A transient drop in oil prices will cause pain, but it will be manageable pain. An extended drop... who knows where that would go, but it's far from certain to happen.

[OUTLAW 09]

Dayuhan---And sanctions do not work? By the way this is taken Dayuhan from social media---have you seen anything reported by the standard media yet on the items mentioned below--that is the power and speed of social media.

Siluanov's comments imply that any financial assistance to Rosneft & Novatek is likely to be a fraction of the amount requested by Rosneft and this does not include the six banks hit who are also asking for financial support to survive through to the end of 2014--and sanctions are not working?--then the sinking income from oil/gas and where does it then stop financially for the Russian CB?

NOTE: Rosneft must pay back at the end of 2014 almost 46B in credit lines and long term bank loans/bonds.

Russian companies have been playing the great Ponzi scheme of where is the pea by taking out large western bank loans on virtually no interest charges in order to hold onto their own capital--normal for businesses, but now for some reason those billions they are suppose to have had in their bank accounts seem to not be there---wonder what personal bank account in the UK or Switzerland they are sitting in?

Siluanov: Russia is ready to support sanctions-hit energy companies #Rosneft & #Novatek from its National Wealth Fund
http://www.reuters.com/article/2014/...0RE0B420140913 …

NOTE: There is talk of over 70% of the National Wealth Fund being given to Rosneft--so much for future Russian pension raises. But then this comment late yesterday.

Siliuanov: "It's been decided so far not to unseal the remaining 40% [of NWF]. This is our strategic reserve"
http://rbth.com/news/2014/09/13/rosn...4_-_39756.html …

[Dayuhan]

Dayuhan---And sanctions do not work?

They work if they accomplish their goal... have they? Only if the Russians back away in the Ukraine, and that doesn't seem to be happening.

By the way this is taken Dayuhan from social media---have you seen anything reported by the standard media yet on the items mentioned below--that is the power and speed of social media.

Rumors always spread fast. They don't always turn out to be true.

Siluanov's comments imply that any financial assistance to Rosneft & Novatek is likely to be a fraction of the amount requested by Rosneft and this does not include the six banks hit who are also asking for financial support to survive through to the end of 2014--and sanctions are not working?--then the sinking income from oil/gas and where does it then stop financially for the Russian CB?

Again, sanctions have only "worked" if they change Russian policy on the Ukraine, which is what they were intended to do.

Hard to know when, or if, it stops. If oil prices bounce back they can probably get through it pretty much intact. They still have all sorts of problems to deal with, but those aren't caused by sanctions and their impact on the geostrategic equation is not predictable. It is by no means certain that financial stress at home will make Russia less aggressive toward its neighbors.

[OUTLAW 09]

Dayuhan--since you do not like comments from social media---then is an official one from the RIA---from the horses mouth but take it with a grain of salt for the following reason--remember I mentioned the Ponzi scheme ie where is the pea under the walnut shell game---there have been some serious Russian economists commenting on the oil price and they indicated a base of 114 was the correct calculating price for the Russian budget purposes up from this figure of 96 and not what was mentioned four weeks ago at a base price of 104.

During the beginning of the Crimea event Russia mentioned a base of 95 was needed now this number below.

The Russians are literally playing with the numbers---why---it is an old Cold War game of not letting the opposition know the real numbers so they cannot accurately gauge my economy--only I have the keys to the kingdom kind of thing going on.

MOSCOW, September 14 (RIA Novosti) - Russian Ministry of Finance closely follows the oil prices and will undertake measures in case the price for Urals oil falls significantly lower than the budgeted figures of $96 per barrel, Russian Finance Minister Anton Siluanov told journalists on Sunday.

"We will monitor the situation and react according to the situation," Siluanov promised, adding that the current decline of oil prices was caused by growth in Libyan oil production and beginning of export of the light crude oil from US.

"How will the situation unfold? Either the [global] economic growth will have to increase, causing the increase in demand for oil, or, if measures to regulate the oil market are once again not taken, there will be an excessive supply," said the Minister.

Dayuhan--this single comment from Siluanov is signaling a clear understanding that the Russian reality is sinking in as the world markets are in overabundance right now and for the coming year or so and he is right it is the US oil coming online---Libyan oil is a smokescreen and they never produced that much even in good years.