The Brics grouping has long been distinguished by a consistent failure to live up to potential. The internal contradictions are crippling:
Divergent interests between members make it difficult to develop any shared policies. Brazil, Russia and South Africa are commodity exporters; India and China are importers. Brazil, India and South Africa are democracies; Russia and China only pretend to be. And India and China, as everyone knows, don’t exactly see eye to eye on anything. This year, the bloc has decided to take the bold step of enhancing those internal divisions manifold by admitting five new members: Ethiopia, Egypt, Iran, Saudi Arabia, and the United Arab Emirates. It was supposed to be six; but Argentina’s new president declared, in his usual restrained manner, that he had no intention of “allying with communists” and so won’t get a second Latin American member. Brics made up for that by admitting four members from that tranquil zone of stability and co-operation, the Middle East, and a fifth, Ethiopia, that’s barely a year out of a devastating civil war. More importantly, while the Emiratis and the Saudis are partners, and Riyadh appears happy to give the regime in Cairo billions to stay friendly, Iran and Saudi Arabia have spent the past decade or so struggling for influence in the region. Iran backs the Houthi rebels in Yemen, for example, against whom Saudi Arabia has fought a long and ineffectual war. And there is anger in Ethiopia over the government’s silence on the years of abuse (and, allegedly, “mass killings”) that human rights groups say Saudi border guards have inflicted on Ethiopian migrants. Far from papering over existing cracks in the Brics grouping, the the addition of new members has just increased the number of disputes. It may be hard to see how a group that has always struggled to get much done will be able to create anything substantive if they don’t even like each other. Still, with the addition of the new members, there are a couple of domains that bear watching. There’s a chance that, in these very specific fields, Brics + might prove to be unusually effective. One is infrastructure finance. The only real institution it has managed to build is the Shanghai-based New Development Bank. The “Brics bank,” which is currently led by former Brazilian president Dilma Roussef, has a mandate to lend to infrastructure projects that the rest of the multilateral architecture ignores. One of the few things the existing Brics members do agree on is that emerging economies need more project finance. Plus, they want that cash disbursed according to norms designed locally, not in the West. Of the two Beijing-backed financial institutions, the Asian Infrastructure Investment Bank is better capitalized and has been a more effective lender than the NDB. That may be because the AIIB picked up several Western partners with deeper pockets than China’s Brics peers, as well as partners with legacy, Western-led multilateral development banks. The NDB, meanwhile, has not always managed to offer competitive rates to possible borrowers. The very makeup of this alliance can work against its in-house bank. After the Russian invasion of Ukraine, it struggled to comply with the West’s various financial sanctions on one of its founding members. Shortly thereafter, Fitch downgraded it from AA+ to AA. (AIIB, in comparison, is rated AAA by the same agency.) The NDB’s management hopes that the addition of Saudi Arabia and the UAE prefigures an infusion of capital from the petrostates’ ample treasuries. The NDB can help with another thing that Iran, Russia, Brazil, the Saudis, and multiple other members of Brics + have in common: a dislike of the dollar. Forget all the “de-dollarization” talk — as anyone buying oil from Russia or Iran can confirm, we’re still very distant from a world in which trading nations can avoid dealing in dollars. But one thing the NDB does well is creating long-term loans denominated in the developing world’s own currencies. Almost a quarter of its loans are in the local-currency format that these governments far prefer. They aren’t a threat to dollar dominance. But they are a first step towards creating separate, smaller pipelines of cash that aren’t subject to, say, US sanctions. For the current Brics president, that’s a big priority. The Russian Federation took over leadership on Jan. 1, and we should expect Moscow’s priorities to dominate the expanded grouping’s initial agenda. Russia buys drones from Iran, collaborates with the Saudis on oil prices, and is building a nuclear reactor that will provide 10% of Egypt’s power. Brics ’s doubling in size won’t make it a more coherent threat to the West. It might, however, reduce the West’s leverage over countries like Russia or Iran. And, with wars blazing in both Gaza and Ukraine, that’s no small thing.
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There are almost 2,500 fossil fuel lobbyists at this year's Cop28 climate change summit in Dubai, more than four times as many as last year, according to an environmental analysis. The analysis from the Kick Big Polluters Out (KBPO) coalition examined the presence of delegates from the fossil fuel industry at the UN's flagship climate summit, which has come in for sustained criticism for its host's ties to oil and gas. KBPO found 2,456 fossil fuel lobbyists have been granted access to Cop28, despite reducing or phasing out oil and gas altogether being one of the main aims of climate scientists and leaders from around the world. If the fossil fuel lobby was a country, its numbers of delegates would only be beaten by Brazil, with more than 3,000 in attendance and the host United Arab Emirates with 4,400, KBPO said. Its analysis calculated the fossil fuel industry was given more passes to Cop28 than the combined passes of 10 of the countries across the world that are most vulnerable to climate change, and seven times the number given to delegates from indigenous people. 'Poisonous presence' Alexia Leclercq of the environmental non-profit Start:Empowerment said: "Big polluters’ poisonous presence has bogged us down for years, keeping us from advancing the pathways needed to keep fossil fuels in the ground. They are the reason Cop28 is clouded in a fog of climate denial, not climate reality.”
Cop28 has been dogged by criticism it is greenwashing the climate change summit. President of Cop28 Sultan Ahmed al-Jaber has allegedly been planning secret deals to vastly expand oil and gas production at the event, a direct contradiction of the aim of the event, which is for world leaders and scientists to agree a path to reducing greenhouse gas emissions. Mr al-Jaber, who is head of Abu Dhabi National Oil Company (Adnoc), the 12th largest oil-producing firm in the world, told chair of the Elders Mary Robinson in a contentious online exchange there is "no science" behind the aim of reducing fossil fuels if global warming is to be kept to 1.5C compared to the 1850-1900 age, in direct contradiction to the almost unanimous consensus of global scientists. Oil prices began to retreat on Thursday afternoon as it became clear that OPEC+ members were agreeing to voluntary cuts beginning in the new year, and that those cuts would be announced only by each member country instead of by the group as a whole.
OPEC+ announced during the full OPEC+ meeting on Thursday that because all the cuts agreed to today were voluntary, they would be announced not by the group, but by the individual member states. Immediately following the meeting’s kickoff, it was also announced that Brazil would join the OPEC+ group effective in January. Three weeks ago, OPEC’s Secretary General HE Haitham al-Ghais said that the group’s door was open should Brazil wish to join. Brazil has a goal of substantially increasing its crude oil production to become the world’s fourth-largest producer by 2030. In September, Brazil exported $3.92 billion in crude oil, while importing $681 million, according to OEC data. This level of exports is a 13% increase year over year, with China as the primary destination. Brent crude oil prices, which had been trading up around 1.5% during the JMMC meeting, sank to +0.16% on the day in the absence of an announced production strategy from the group’s leadership. WTI slipped into the red with a loss of 3.43% on the day following the full meeting. The specifics of what was agreed to for the first quarter of 2024 among the OPEC+ members:
Angola not only didn’t announce an additional voluntary cut, but it publicly rejected its current quota, and reiterated its proposal for a 1.18 million barrel quota beginning in January. It added that it will not stick to the new OPEC quota. Not including cut extensions from Saudi Arabia and Russia, the additional voluntary cuts beginning in January and carrying through to the end of March is 684,000 bpd. All together, the total voluntary cuts for the first quarter is 2.184 million bpd. The next OPEC+ meeting is scheduled for June 1, 2024. Ghana’s government is working on a new policy to buy oil products with gold rather than US dollar reserves, Vice President Mahamudu Bawumia has said on Facebook. The move, announced on Thursday, is meant to tackle dwindling foreign currency reserves coupled with demand for dollars by oil importers, which is weakening the local cedi and increasing living costs. Ghana’s Gross International Reserves stood at around $6.6bn at the end of September 2022, equating to less than three months of imports cover. That is down from around $9.7bn at the end of last year, according to the government. If implemented as planned for the first quarter of 2023, the new policy “will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency”, Bawumia said.
Using gold would prevent the exchange rate from directly impacting fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil products, he explained. “The barter of gold for oil represents a major structural change,” he added. The proposed policy is uncommon. While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-producing nation receiving non-oil goods rather than the opposite. Ghana produces crude oil, but it has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017. Bawumia’s announcement was posted as Finance Minister Ken Ofori-Atta announced measures to cut spending and boost revenues in a bid to tackle a spiralling debt crisis. In a 2023 budget presentation to parliament on Thursday, Ofori-Atta warned that the West African nation was at high risk of debt distress and that the cedi’s depreciation was seriously affecting Ghana’s ability to manage its public debt. The government is negotiating a relief package with the International Monetary Fund as the cocoa, gold and oil-producing nation faces its worst economic crisis in a generation. Spanish oil company Repsol and Italy’s Eni will begin shipping Venezuelan oil to Europe as early as July, five people familiar with the matter told Reuters. This will resume the oil-for-debt swaps, which were suspended two years ago, when Washington intensified sanctions against Venezuela. The oil from Venezuela is intended to help Europe ease its dependence on Russian crude.
The president of Venezuela, Nicolás Maduro, confirmed in a televised press conference that the United States had authorized Chevron, Eni and Repsol to exploit their gas and oil deposits in Venezuela. “Steps are being taken, the first steps. About a week ago, the United States took small but significant steps by granting licenses to the US company Chevron, the Italian company ENI and Repsol,” he said. But while Chevron has been allowed to resume operation in the country, it has not yet been authorized to export oil to the US. The change in position comes after the US authorized European oil companies to operate in Venezuela in a bid to promote dialogue between Maduro and Venezuelan opposition groups. The green light from Washington to resume flows of oil from Venezuela to Europe could provide a symbolic boost for Maduro. US authorities communicated the news to the companies last month, but the details and the resale restrictions had not been communicated until now. The administration of US President Joe Biden hopes that Venezuelan crude oil will help Europe reduce its dependence on Russia and redirect some of Venezuela’s cargoes from China. The volume of oil expected to be supplied by Eni and Repsol from Venezuela is not large, according to one of the sources, who said that any impact on world oil prices will be modest. Eni and Repsol did not respond to requests for comment. Repsol’s financial exposure to Venezuela at the end of 2021 amounted to €298 million. According to the Spanish company’s 2021 financial statements, this amount includes: “the US dollar financing granted to the joint ventures Cardon IV, S.A. and Petroquiriquire, S.A., amounting to €166 million and €304 million, respectively, and trade receivables from [Venezuelan state-owned oil company PDVSA] Petróleos de Venezuela, S.A. amounting to €344 million [...] less provisions for liabilities and charges amounting to €500 million.” The European Union, this week, announced ambitious proposals to embargo the importation of Russian oil by the end of 2022. After teeth-pulling negotiations which have been met with strident objections from several member states, including Hungary and Slovakia, and public doubt over the impact of such measures, its Commission President Ursula Von Der Leyden declared that these measures would be gradually implemented throughout the course of the year. This didn’t reassure markets, with crude oil prices quickly rising above $114 per barrel as of Friday morning, and Moscow officials predicting that the bloc would still be buying Russian oil via third countries and intermediaries, a strategy that has allegedly been utilized by Iran under tough American sanctions. Despite marketing the measures as tough, for multiple reasons the EU is set to be the biggest loser of such an effort. The proposed embargo reveals a huge strategic vulnerability in its “energy security” – the ability of a state, or group of states, to secure access to energy resources when they are not capable of producing enough of their own. When you consider how many wars have been fought by the West purely over access to oil supplies, including two in Iraq, this is a big deal.
For the EU, cutting off oil dependency continues to be a difficult step which will exacerbate already surging energy costs and inflation across the continent. How will the bloc find new supplies? And if so, surely relying more on other partners will bring new dangers? In the year 2020, 29% of the EU’s imported crude oil came from Russia, 9% from the US, 8% from Norway, 7% each from Saudi Arabia and the UK, and 6% apiece from Kazakhstan and Nigeria. The removal of the largest market, Russia, means the bloc now has to increase its imports from the others. The natural candidates of course are the Persian Gulf states. This means the EU’s strategic dependency on continued access to oil resources in the Middle East is drastically increased, raising the bargaining power and political leverage of these countries. However, all evidence so far points to OPEC states benefitting from higher prices and refusing to cooperate with Western demands to increase production. Economics are about supply and demand. If supply decreases, but demand remains high (given you can’t go without oil) then prices rise, and why would any seller in the world put their prices down when the customer has no alternative to your essential product? The fact Russia is part of OPEC+ further complicates things. As a result, the EU is making a huge mistake in its foreign policy and has no contingency plan or strategy to address this emerging problem. Currently, the bloc is determined to utilize Ukraine to try and impose a military defeat on Russia. In the meanwhile, it has also appointed itself as an “Indo-Pacific” power, showing little initiative to avoid being sucked into Washington’s confrontation with China in a region of the world it isn’t based in. This leaves the EU with the option of partnering up with India, but the 1.3-billion-strong nation is a net energy consumer, not a supplier – which is, coincidentally, another reason why attempts to undermine New Delhi’s ties with Moscow are likely to fail. This all places a gaping hole in the EU’s foreign policy when it comes to strategic “energy security”. While endeavouring to reduce “strategic dependence” on Russia, they are merely creating a patched-up dependency on other regions instead, opening the doors to new risks. For example, how is the EU’s disorientated policy on Iran, which has involved a nominal opposition to America’s unilateral “maximum pressure” program over the Iranian nuclear program, going to survive this crisis? Can the EU avoid having to resort to Iranian oil? And how, regardless of that, would the EU respond to Iran becoming stronger because of surging oil prices, despite all the American sanctions? That is before we even consider what happens if another major crisis or conflict in the Middle East emerges and disrupts oil supplies. What does the EU do if Iraq returns to a state of insurgency and civil war? Russia is too big of a critical global energy resource to be ignored, which is why EU sanctions will not deliver a knockout blow to the Russian economy. If the proposed ban is phased, then Russia continues to make more in the short term with the raised prices anyway. This only goes to show the EU is drastically weakening itself to appease the interests of a United States that wields disproportionate power over its strategic and foreign policies. For sure, America benefits from energy sanctions on Russia, but this comes at an aggravated price for European consumers. In this case, these sanctions will do more harm to the EU itself than they will to Russia. This will be as economically painful as it will be strategically disastrous. The bloc doesn’t have a concrete alternative in place and what’s worse, it has barely even contemplated such an alternative. This will leave the continent weaker, poorer and more vulnerable, threatening a terrifying repeat of the 1970s energy crisis, which given inflation data, is already well underway. Global energy prices are projected to rise dramatically, culminating in the biggest price jump in commodities in nearly half a century, the World Bank has warned. According to the bank’s April Commodity Markets Outlook report, global energy prices, which have already seen a dramatic surge due to ongoing Covid-19 lockdowns in China and the Russia-Ukraine conflict, are expected to surge by 50.5% in 2022.
“This amounts to the largest commodity shock we’ve experienced since the 1970s. As was the case then, the shock is being aggravated by a surge in restrictions in trade of food, fuel, and fertilizers,” the World Bank’s Vice President for Equitable Growth, Finance, and Institutions, Indermit Gill, said in a statement accompanying the report released last Tuesday. The report points out that sanctions imposed on Russia have undermined global trade in commodities, having triggered huge energy-price increases. Food prices are projected to increase by 22.9% this year as well, the most since 2008, as wheat prices jump 40% to record highs. That will put pressure on developing economies that rely on wheat imports, especially from Russia and Ukraine,” the World Bank said. Ukraine was expected to produce 10% of the world’s wheat in 2022, but the institution says anywhere from 25% to 50% of that production has been affected by the conflict. Meanwhile, metal prices are expected to grow by 16% before easing next year but will reportedly remain at elevated levels. According to the report, surging commodity prices have contributed to inflation levels not seen in more than 40 years in the US, and a record 7.5% jump in consumer prices in Europe. “These developments have started to raise the specter of stagflation. Policymakers should take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy,” Gill said.
Illarionov was also openly critical of the Russian government, saying that President Putin's "territorial ambitions, his imperial ambitions, are much more important than anything else, including the livelihood of the Russian population and of the financial situation in the country... even the financial state of the his government." The European Union has been discussing an oil embargo on Russia but has stopped short of imposing one because of its heavy dependence on the commodity, not to mention natural gas where the dependence is a lot heavier. Even so, officials in Brussels continue to discuss an oil embargo and, according to a Reuters report from Monday, it could become part of the next sanctions package, even though for some member states, such an embargo would constitute an "asymmetric shock".
While the discussions are ongoing, OPEC poured cold water on EU hopes for a quick replacement of Russian oil. Per another report by Reuters, the oil-producing cartel has told the EU it would not be able to fill the gap left by Russian barrels lost to an EU embargo. "We could potentially see the loss of more than 7 million barrels per day (bpd) of Russian oil and other liquids exports, resulting from current and future sanctions or other voluntary actions," the group's chief, Mohammad Barkindo, said in a speech seen by Reuters. "Considering the current demand outlook, it would be nearly impossible to replace a loss in volumes of this magnitude," Barkindo added. SpaceX and Tesla CEO Elon Musk called on Europe to restart its dormant nuclear power stations and expand its current energy output on Sunday amid Russia’s military conflict with Ukraine. In a series of Twitter posts, Musk wrote that it was “hopefully” now “extremely obvious that Europe should restart dormant nuclear power stations and increase power output of existing ones.” “This is *critical* to national and international security,” he warned as the West continues to sanction Russia over the Ukraine conflict. Musk also argued that nuclear energy was “vastly better for global warming than burning hydrocarbons,” and rejected radiation concerns by vowing to “eat locally grown food on TV” near nuclear power stations that the public considers to be “the worst.”
Despite Musk’s calls, it would likely take years for Europe to restart its nuclear power stations, which have gradually been shut down across the continent in favor of green energy commitments. Germany shut down half of its nuclear power plants in December as part of the country’s plan to phase out nuclear energy following the 2011 Fukushima nuclear disaster. In the same month, Belgium reached an agreement to close its nuclear power stations by 2025. France has remained one of the few European countries to stick with nuclear energy, with French President Emmanuel Macron announcing the construction of six new reactors last month. On Friday, Musk also called for the West to “increase oil & gas output immediately,” arguing that “extraordinary times demand extraordinary measures.” “Obviously, this would negatively affect Tesla, but sustainable energy solutions simply cannot react instantaneously to make up for Russian oil & gas exports,” he said
The US left more and more of the production to China, leaving them with a huge package of dollars. Those dollars were then invested in US government bonds, completing the circle again. China thus increasingly became the factory of the United States. Oil producers also saw the pile of dollars increase considerably. And there too, those dollars were reinvested in American government paper. It was a deal that everyone was relatively happy with until the financial crisis hit in 2008. The US started printing dollars en masse to save the banks and the economy and if you keep a large part of your reserves in this currency, like China, Saudi Arabia and Russia, you start to question the value of those assets.
Surely it cannot be that the Chinese mine raw materials, import energy and labor to produce goods and then be compensated with a stack of banknotes that the Federal Reserve creates at the touch of a button? And the Saudis and Russians also wondered whether it was such a good idea to pump up finite oil reserves in exchange for freshly printed dollars. The first cracks in the dollar's status as a reserve currency became visible. China, Saudi Arabia and Russia continued to export goods in exchange for dollars, but they were no longer willing to invest those dollars in US bonds. They saw the dollar out of business and turned to gold as a historical reserve asset. Dollars received from trade with the US were instantly converted to gold. Countries with dollar surpluses had expressed dissatisfaction with the Federal Reserve's loose monetary policy through massive gold purchases, but it seemed to make little impression on Americans. In fact, the US began to abuse the unique privilege of the world reserve currency in yet another way. The US started to use the dollar as a weapon by cutting off access to dollars from countries such as Iran, but also recently Russia. Lora Smith VIENNA, August 20 -- OPEC+ countries participating in the Vienna Agreement on the reduction of oil production fulfilled the terms of the agreement by 159% in July 2019, a source said after the meeting of the OPEC+ technical committee. "OPEC+ deal compliance percentage reaches 159% in July 2019," the source said. At the same time, OPEC countries complied with the agreement by 156%, and non-OPEC countries performed the agreement by 166%, the source added. Thus, in July the OPEC+ participants reduced production against October 2018 taken as the base level by 1.9 mln barrels per day, instead of early planned 1.2 mln barrels daily. In total, OPEC+ countries agreed to reduce oil production by 1.2 mln barrels per day by March 2020, including 812,000 barrels for OPEC countries and 383,000 barrels - non-OPEC countries. The main reduction quotas fall on the largest parties to the agreement - Russia and Saudi Arabia (228,000 barrels per day and 322,000 barrels per day, respectively). Linda Kim TOKYO, August 13 -- Asian shares slumped on Tuesday (Aug 13) as fears about a drawn out US-China trade war, protests in Hong Kong and a crash in Argentina’s peso currency drove investors to safe harbors like bonds, gold, and the Japanese yen. MSCI’s broadest index of Asia-Pacific shares outside Japan skidded 1 per cent. Chinese stocks fell 0.8 per cent, while Hong Kong’s main market index tumbled more than 1 per cent to a seven-month low. “The protests in Hong Kong are negative for stocks, which were already in an adjustment phase because there is talk that the trade war will trigger a recession,” said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co. Hong Kong’s airport, the world’s busiest cargo airport, reopened on Tuesday, which could ease some concern about the immediate economic impact of protests over the past two months. The protests began in opposition to a bill allowing extraditions to mainland China but have quickly morphed into the biggest challenge to China’s authority over the city since it took Hong Kong back from Britain in 1997. Japan’s Nikkei was also hit hard, down a sharp 1.5 per cent and on course for its biggest daily decline in a week. US stock futures were 0.13 per cent higher in Asia, but that did little to ease the mood. Stocks in Singapore shed 1.1 per cent to reach their lowest since June 6 after the government slashed its full-year economic growth forecasts. The city state is often seen as a bellwether for global growth because of its importance as a key trade hub. The selling in regional markets came as Wall Street stocks took a beating on Monday, with the S&P 500 losing 1.23 per cent. Sentiment was already weak due to increasing signs that the United States and China will not quickly resolve their year-long trade war. Markets were hit with further turbulence after protesters managed to close down Hong Kong’s airport on Monday. Traders were also on edge after market-friendly Argentine President Mauricio Macri suffered a mauling in presidential primaries, increasing the risk of a return to interventionist economic policies. Benchmark 10-year Treasury yields were near the lowest in almost three years, gold was pinned close to six-year highs, and the yen was within a whisker of a seven-month peak versus the dollar in a sign of the heightened anxiety in financial markets already battered by global growth woes. “Long-term rates will continue to fall, and stocks will adjust lower, but this is temporary. Major central banks are cutting rates, which will eventually provide economic support,” Mitsubishi UFJ’s Ishigane said. Analysts said that trading could be subdued as many investors are off for summer holidays. Yet, there was no shortage of gloomy news for investors looking to catch their breath from several months of market ructions. The Argentine peso collapsed overnight, falling to 55.85 to the dollar, after voters snubbed Macri by giving the opposition a surprisingly bigger-than-expected victory in Sunday’s primary election. The Merval stock index crashed 30 per cent and declines of between 18-20 cents in Argentina’s benchmark 10-year bonds left them trading at around 60 cents on the dollar or even lower. Refinitive data showed Argentine stocks, bonds and the peso had not recorded this kind of simultaneous fall since the South American country’s 2001 economic crisis and debt default. The grim backdrop was enough to push investors into safe-havens, and US Treasury yields dropped across the board on Monday as trade worries and political tensions supported safe-haven assets. In Asia on Tuesday benchmark 10-year Treasuries yields fell to 1.6471 per cent. On August 7 yields had skidded to 1.5950 per cent, the lowest since October 3, 2016. Spot gold rose 0.33 per cent to US$1.516.42 per ounce, near the highest in six years. The yen last fetched 105.37 per dollar, and was within striking distance of 105.03, its strongest since the January 3 flash crash. The Swiss franc, which along with the yen is considered a safe haven in times of trouble, traded at 0.9697 per dollar , near its highest in a year. Oil prices edged slightly lower in Asian trading as expectations that major producers will continue to reduce supplies ran into worries about sluggish economic growth. US West Texas Intermediate futures fell 0.33 per cent to US$54.75 a barrel. NEW YORK, January 9 -- Brent crude oil has returned to $60/barrel while WTI has moved back above $50/b as hopes of a deal between the US and China on trade continues to build. Yesterday, US President Trump tweeted: “Talks with China are going very well” and that was followed by news of an unplanned extension of the talks into Wednesday. These developments have supported a continued recovery in global stocks following a miserable December. Adding to this are a softer dollar and ongoing production cuts from the Opec+ group, which have all supported the current change in sentiment. A trade deal between the US and China, however, is likely to slow but unlikely to reverse the deterioration seen recently in forward-looking economic data from the US to Europe and China. On that basis the upside at this stage may be limited to the upper area of the mentioned consolidation area for Brent at $64/b and WTI at $55/b. Another reason why the bulls may need to be patient can be seen in the developments of the forward curve and the open interest in the two major oil contracts of WTI and Brent. A rally driven by fundamentals, such as the outlook for a tightening, would normally trigger a flattening of the forward curve, as the contango – the prompt months discount to deferred – begins to narrow. As per the chart below we find that the six months spread between February (CLG9) and August (CLQ9) has hardly moved since December. Hedge funds would normally during a rally cut short positions while adding fresh longs. However, since the December 24 low the open interest in WTI has only risen by 61k lots while in Brent it has only risen by 36k lots. This could indicate that the rally has been short covering more than fresh longs entering the market. RIYADH, December 29 -- The Arabian Peninsula’s largest state, both in land mass and population, the Kingdom of Saudi Arabia faces some of the region’s largest challenges in the year ahead. While 2018 started out with a foreign policy success – the US pulling out of the nuclear deal with rival Iran – the months that followed have left the country in a damaged condition going into 2019. A draining conflict in neighboring Yemen, the continuing fallout from the murder of Washington Post columnist Jamal Khashoggi, the suspected kidnapping of the Lebanese prime minister, a stalemate in the Qatar blockade, and defeat for Saudi-funded opposition factions in Syria all made 2018 a bruising year for the country – and for its 33-year-old crown prince and effective CEO, Mohammed bin Salman (popularly known as MBS). These overseas issues have also left MBS’s domestic reform agenda stalled, with a need to shore up support at home, as he tries to restart a long-overdue restructuring of the highly oil-dependent economy.
Politics After the 2016 launch of an ambitious domestic reform agenda, Vision 2030, MBS imprisoned some of the country’s wealthiest people in the Ritz-Carlton hotel in 2017. This made him some silent enemies amongst the kingdom’s elite. His father, the ailing, 83-year-old King Salman, has played an important role in keeping potential rivals under control, taking his son on a tour of the country to shore up support for his agenda. |
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