US-Saudi Oil Competition Leverages Pressure on OPEC, Russia

[asianobserve]

Why Saudi is selling oil at lower rate to US compared to rate at which they sell oil to Asian countries? This discount is the main reason why US WTI crude is trading at lower rate compared to brent crude. I never support subsidising petroleum products using tax payers money. But what is wrong with subsidising petroleum products using extra tax earned from oil imports?

From what I know there are varying qualities/kinds of crude from different producers. They seem to be priced with slight difference. But I don;t know much on how these differences in prices are really arrived at. LNG are likewise priced with slight differences depending on suppliers and consumers.

There is nothing wrong with subsidising petroleum products using extra taxes earned from oil imports. My statement was on the imposition of anti-damping duties against oil imports when there seem to be no case of dumping.

Please check below links. Instead of passing full benefit from lower oil price to consumers Govt. increased tax from oil sector and increased spending money for alternate energy.
Government fixes Rs 48.5-49.5 price for ethanol procurement by oil marketing companies - Economic Times
Excise Duty on Petrol, Diesel Raised; No Impact on Prices - NDTVProfit.com
Exclusive: India to reap $12 billion-plus budget windfall from oil slide - sources | Reuters
Narendra Modi government's big solar push: Several power projects announced - The Economic Times

There's no doubt that the ever decreasing oil prices presents an opportunity for governments of net energy consuming countries to generate revenues for some uses or they can keep current tax rates and let the public reap the benefits of lower oil prices on pump so that they can have more savings.

 

[sob]

Why Saudi is selling oil at lower rate to US compared to rate at which they sell oil to Asian countries? This discount is the main reason why US WTI crude is trading at lower rate compared to brent crude. I never support subsidising petroleum products using tax payers money. But what is wrong with subsidising petroleum products using extra tax earned from oil imports?

Please check below links. Instead of passing full benefit from lower oil price to consumers Govt. increased tax from oil sector and increased spending money for alternate energy.
Government fixes Rs 48.5-49.5 price for ethanol procurement by oil marketing companies - Economic Times
Excise Duty on Petrol, Diesel Raised; No Impact on Prices - NDTVProfit.com
Exclusive: India to reap $12 billion-plus budget windfall from oil slide - sources | Reuters
Narendra Modi government's big solar push: Several power projects announced - The Economic Times

Let us understand a few facts regarding oil prices in India and the policies.

The Central Govt. Duties and taxes on crude oil/petroleum products are ad valorem i.e they are a fixed amount and not a percentage. So whichever direction the oil prices go there will be no impact on the Central Govt. revenue. For the state Governments it is the other way around. The recent tax increases on petroleum products were price neutral for the consumers but have led to increased revenue for the Govt.- they need all the extra cash to balance the books, due to the mess left by the UPA govt. Also when the prices go North again, the GOI will have the leeway to reduce these taxes so that the prices at the pump fall.

Ethanol prices hikes is due to
1. It being an import substitute, and
2. Sugar lobby gets a lifeline and in turn the farmers get paid for their old dues.

 

[sob]

All major commodities are going down due to one main reason-- a strong greenback.

One just has to see that all commodities are listed and traded in Dollars. If the Dollar weakens then the producing countries have to raise the Dollar prices so that they maintain the price level and the same goes in the other direction if the Dollar strengthens.

 

[sob]

@Ray sir,

There are a few reasons why Bush Jr. was supporting oil exports from Iraq.

1. The restoration of Iraqi Oil fields led to major contracts for US companies, many of them were Texas based.
2. With revenue coming in Iraq was supposed to buy major US defence equipment and indirectly foot the US bill in Iraq.

 

[Ray]

Most people have heard the term OPEC (pronounced oh-peck), the Organization of Petroleum Exporting Countries, which is a cartel of oil exporting countries. As a cartel, they manipulate supply of oil in the market, in hopes of keeping prices, and profits, high. Together, the 12 member-nations control nearly 80% of the world's oil reserves, and 44% of the world's daily production—a powerful force used to manipulate oil prices around the world. Together, these countries can keep oil prices high by producing less oil than the market needs—in effect, driving up prices and keeping them high. How is it possible that this cartel could fail at controlling prices?

Oil prices, on the rise since 2009, have caused widespread speculation that OPEC would raise their production quotas—thereby putting downward pressure on prices. While OPEC always wants to maximize profits for themselves, they also don't want to kill the golden goose by driving prices so high that alternative energy exploration becomes a top priority.

But to many a gasoline-buyer's chagrin, OPEC decided to keep production at the same level, manipulating the supply of oil lower to keep prices high.

"Instead of raising production the Organization of Petroleum Exporting Countries ended a contentious meeting in Vienna without changing quotas for its members."
'We are unable to reach consensus to ... raise our production,' OPEC Secretary General Abdullah Al-Badri said."
Over the past few years, however, OPEC's rigging of the oil market has largely fallen flat. The reason? Oil producing nations cheat their quotas.

Game theory is the branch of economics that studies the behavior of different groups under different situations. A cartel is the classic example of a prisoner's dilemma—a situation where each cartel member can earn more profit by breaking their agreements—thereby making the cartel as a whole worse off.

When OPEC limits oil production, they keep the price of oil and profits high. But those high profits give each member the incentive to cheat a little. By producing a little more oil, an individual country can earn more. But if every country cheats, prices will subside to normal, and no country will enjoy high profits. Usually, cartels can't last very long because of this strong incentive to cheat. As you can tell by chart below from Econbrowser, OPEC countries can and do cheat.

Free markets have a way of forcing countries to act in their best interests and over time, they usually destroy any chance to manipulate markets.
OPEC Is In Control Of The Oil Prices - Wealth Cycles Blog

***************************************

From FINANCIAL TIMES

Has Saudi Arabia lost control of the oil market?

Conspiracy theories abound around the oil price fall. A 25 per cent drop in less than three months is certainly exceptional and the assumption is that in a politically driven market a political decision by someone, somewhere must have forced prices down. The most popular conspiracy theory is that the US and the Saudis have combined to take money away from their major enemies – Russia and Iran. In both cases, [the argument goes], a shortage of revenue could help to bring President Vladimir Putin and the Supreme Leader, the ailing Ayatollah Ali Khamenei, to the negotiating table to sort out a deal on Ukraine and Iran's nuclear ambitions.

In a complicated world anything could be true. I don't happen to believe the conspiracy theory but I accept that it is a possibility. To me the interesting thing is what happens next, and that is down to the Saudis. The risk for the whole industry, and for many countries dependent on oil revenues, is that Saudi Arabia's games have led them to lose control of the market. Prices could go a good deal lower with wide and mostly negative consequences, starting with more regional instability and a cutback in investment which can only feed the next cycle........

US Vice President Joe Biden said the other day that Saudi citizens were supporting terrorist groups. He had to withdraw the remarks but no one doubts that behind the "mistake" was a darker story. As Ed Luce put it in an article for the FT, the US link with Saudi Arabia is a dangerous "Faustian pact".......

The only action which would break this trend is a sharp and sustained cut in output by Saudi Arabia. Saudi has acted in this way in the past but never alone. Its cuts in output have always been part of an agreed strategy in which it has been joined, if only in a modest way, by its OPEC partners. But the world has changed and it is hard to think of any OPEC state, except perhaps Kuwait, which is in a position to accept any sustained cut in production and revenue.

If the conspiracy theorists are right, this has all been planned and prepared. The fall in prices will force Russia and Iran to negotiate and restore the authority of Saudi Arabia in the world oil market by discouraging new high cost investments. But the scope for miscalculation is enormous. Oil has certainly been a market in which prices have been set by politics.
http://blogs.ft.com/nick-butler/2014/10/16/has-saudi-arabia-lost-control-of-the-oil-market/

Call it what you wish, conspiracy theory or otherwise, the free flow of oil will hurt Russia the most since Russian economy is based on oil sales primarily.

If one goes by the Wolfovitch Doctrine, then the US will ensure that there are no powers to challenge its supremacy and oil is a weapon in it quiver.

Here's How President Obama Is Using the 'Oil Weapon'—Against Iran, Russia, and ISIS

Until recently, the use of the term "the oil weapon" has largely been identified with the efforts of Arab producers to dissuade the United States from supporting Israel by cutting off the flow of petroleum. The most memorable example of its use was the embargo imposed by Arab members of the Organization of the Petroleum Exporting Countries (OPEC) on oil exports to the United States during the Arab-Israeli war of 1973, causing scarcity in the US, long lines at American filling stations, and a global economic recession.

After suffering enormously from that embargo, Washington took a number of steps to disarm the oil weapon and prevent its reuse. These included an increased emphasis on domestic oil production and the establishment of a mutual aid arrangement overseen by the International Energy Agency (IEA) that obliged participating nations to share their oil with any member state subjected to an embargo.

So consider it a surprising reversal that, having tested out the oil weapon against Saddam Hussein's Iraq with devastating effect back in the 1990s, Washington is now the key country brandishing that same weapon, using trade sanctions and other means to curb the exports of energy-producing states it categorizes as hostile. The Obama administration has taken this aggressive path even at the risk of curtailing global energy supplies.

As it happens, though, the Obama administration is also wielding the oil weapon against two of the world's leading producers, Iran and Russia. These efforts, which include embargoes and trade sanctions, are likely to have a far greater impact on world output, reflecting White House confidence that, in the pursuit of US strategic interests, anything goes......

In an April 2013 speech at Columbia University, Tom Donilon, then Obama's national security adviser, publicly expressed this outlook with particular force. "America's new energy posture allows us to engage from a position of greater strength," he avowed. "Increasing US energy supplies act as a cushion that helps reduce our vulnerability to global supply disruptions and price shocks. It also affords us a stronger hand in pursuing and implementing our international security goals."

Fighting Vladimir Putin

The same outlook apparently governs US policy toward Russia.

Prior to Russia's seizure of Crimea and its covert intervention in eastern Ukraine, major Western oil companies, including BP, Chevron, ExxonMobil, and Total of France, were pursuing elaborate plans to begin production in Russian-controlled sectors of the Black Sea and the Arctic Ocean, mainly in collaboration with state-owned or state-controlled firms like Gazprom and Rosneft. There were, for instance, a number of expansive joint ventures between Exxon and Rosneft to drill in those energy-rich waters.

"These agreements," Rex Tillerson, the CEO of Exxon, said proudly in 2012 on inking the deal, "are important milestones in this strategic relationship... Our focus now will move to technical planning and execution of safe and environmentally responsible exploration activities with the goal of developing significant new energy supplies to meet growing global demand." Seen as a boon for American energy corporations and the oil-dependent global economy, these and similar endeavors were largely welcomed by US officials.

Such collaborations between US companies and Russian state enterprises were then viewed as conferring significant benefits on both sides. Exxon and other Western companies were being given access to vast new reserves—a powerful lure at a time when many of their existing fields in other parts of the world were in decline. For the Russians, who were also facing significant declines in their existing fields, access to advanced Western drilling technology offered the promise of exploiting otherwise difficult-to-reach areas in the Arctic and "tough" drilling environments elsewhere.

Not surprisingly, key figures on both sides have sought to insulate these arrangements from the new sanctions being imposed on Russia in response to its incursions in Ukraine. Tillerson, in particular, has sought to persuade US leaders to exempt its deals with Rosneft from any such measures. "Our views are being heard at the highest levels," he indicated in June.

As a result of such pressures, Russian energy companies were not covered in the first round of US sanctions imposed on various firms and individuals. After Russia intervened in eastern Ukraine, however, the White House moved on to tougher sanctions, including measures aimed at the energy sector. On September 12th, the Treasury Department announced that it was imposing strict constraints on the transfer of US technology to Rosneft, Gazprom, and other Russian firms for the purpose of drilling in the Arctic. These measures, the department noted, "will impede Russia's ability to develop so-called frontier or unconventional oil resources, areas in which Russian firms are heavily dependent on US and western technology."

The impact of these new measures cannot yet be assessed. Russian officials scoffed at them, insisting that their companies will proceed in the Arctic anyway. Nevertheless, Obama's decision to target their drilling efforts represents a dramatic turn in US policy, risking a future contraction in global oil supplies if Russian companies prove unable to offset declines at their existing fields.

More at:

http://www.motherjones.com/politics/2014/10/president-obama-oil-weapon-war-russia-iran-isis

 

[Ray]

Conspiracy theory or otherwise, the gameplan seems to be working.

Russia is feeling the pinch and the Rouble has tumbled.

Manipulating the market by those who control it, indeed is a great political and strategic tool.

Neocolonialism (also Neo-colonialism or Neo-imperialism) is the geopolitical practice of using capitalism, business globalization, and cultural imperialism to influence a country, in lieu of either direct military control or indirect political control, i.e. imperialism and hegemony.

Jean-Paul Sartre (Colonialism and Neo-colonialism, 1964)

 

[jamesvaikom]

From what I know there are varying qualities/kinds of crude from different producers. They seem to be priced with slight difference. But I don;t know much on how these differences in prices are really arrived at. LNG are likewise priced with slight differences depending on suppliers and consumers.

There is nothing wrong with subsidising petroleum products using extra taxes earned from oil imports. My statement was on the imposition of anti-damping duties against oil imports when there seem to be no case of dumping.




There's no doubt that the ever decreasing oil prices presents an opportunity for governments of net energy consuming countries to generate revenues for some uses or they can keep current tax rates and let the public reap the benefits of lower oil prices on pump so that they can have more savings.

Saudi is selling same quality oil to different countries at different rates. This can be treated as anti dumping. The problem is Obama is more interested to help Saudi than US or Canadian oil companies. Even his stand against oil pipelines are helping Saudi.

 

[jamesvaikom]

Let us understand a few facts regarding oil prices in India and the policies.

The Central Govt. Duties and taxes on crude oil/petroleum products are ad valorem i.e they are a fixed amount and not a percentage. So whichever direction the oil prices go there will be no impact on the Central Govt. revenue. For the state Governments it is the other way around. The recent tax increases on petroleum products were price neutral for the consumers but have led to increased revenue for the Govt.- they need all the extra cash to balance the books, due to the mess left by the UPA govt. Also when the prices go North again, the GOI will have the leeway to reduce these taxes so that the prices at the pump fall.

Ethanol prices hikes is due to
1. It being an import substitute, and
2. Sugar lobby gets a lifeline and in turn the farmers get paid for their old dues.

Ethanol prices hikes will help us reduce wasting food crops. Ethanol production is very less compared to our oil consumption. So there won't be any wastage. So let's cultivate food crops we need and use remaining land for ethanol production.

 

[sob]

In India Ethanol is produced from Sugarcane. There has to be a balance between ethanol and sugar. If the sugar mills get better prices for ethanol then they will reduce sugar output leading to spike in the sugar price.

Also Ethanol is used to mix with Petrol. The need for the hour is a bio fuel for Diesel, which is consumed in large quantities. Jatropha is the bi fuel that we need. It can be grown with very little oil and does not need fertile soil. It can be grown in semi arid lands also and the beauty of this is that the oil does not need to be refined before using. India Railways has trial projects running on it.

 

[Daredevil]

Even US is going to suffer

The Shocking Data Proving Shale Oil Is Massively Over-hyped

Hooray, oil is suddenly much cheaper than it used to be. That's great news, right?

Not so fast. For certain it's not good news for those counting on a continued rise in US oil production from the "shale miracle". Many drillers were challenged to operate profitably when oil was above $70 per barrel. Very few will remain solvent with oil in the $50s (as it is as of this writing).

So, expect US oil production to suffer from these lower prices if they persist. But even if oil prices rise and rise soon, there's new data that indicates the total amount of extractable oil from America's shale plays is less -- much less -- than what we're being told (or better put, "sold").

On today's podcast, Chris talks with oil analyst David Hughes, who has complied several recent studies based on a massive database of production results on a play-by-play basis of America's shale basins. The data show that declines tend to be hyperbolic in all shale fields. The average first-year decline is 70%; down to 85% by year three. And we're drilling the best plays first: meaning future ones will yield less even under the best results.

We're pinning our hopes of "oil independence" on faulty data. Worse, we're using it to dismiss the Peak Oil theme at exactly the time we should be using this extra oil to construct the infrastructure for our next energy age (whatever that may look like), while we still have the net energy available to us:

Let's just take a play like the Bakken.: 45% fuel decline, sweet spots are getting to be drilled out. We know that they need to drill 1,500 wells a year just to keep production flat. But as you go into lower quality rock, the well quality in most of the plays is only about half of what it is in the sweet spot. If you have to rely on the lower quality price of the play you need 3,000 wells per year instead of 1,500 to offset the fuel decline. But the wells aren't any cheaper. They cost the same amount to drill. To be profitable for producers, it's going to take a lot higher prices in order to make that happen. And you can go through play after play and see the same thing. We are drilling the best parts of the plays now and it is just going to get worse down the road. We are going to need higher and higher prices.

The EIA has not only made what I consider really optimistic estimates on production, they have also made optimistic estimates on price. A lot of the infrastructure that is being built on the assumption of cheap prices for the foreseeable future. That is not in the cards. With these recent cheap prices we are going to see production go down a lot faster than my estimates. My estimates are best case: I assume that the capital will always be there to drill the wells and that there will be no environmental concerns that restrict access to drilling locations. So in that way I am the best case. But even if you take my best case, that would be rather disturbing to me if I were a petrochemical company.

Sadly, corporations tend to think about the next couple of quarters. Politicians may think about the next election, but this is an energy plan an energy sustainability plan has to have a vision of decades we certainly don't see that in all the hype read every day. If you look at the mainstream media, I don't think there is a lot of original research that is done there. I think people tend to repeat what other people said and it kind of takes on a momentum of its own, which is why I was so interested in trying to lay out as much of that as I could. It's dangerous.

I mean, if you look at the infrastructure going forward in an era of declining oil and gas the number one way to promote energy sustainability in my view is figuring out ways to use less. And some of the infrastructure needs to be built in order to give people an alternative to high energy throughput lifestyles. It takes a lot of oil and gas to build. And you know, this short term bounty that we are looking at should in fact be used to do that not to maintain business as usual to the bitter end and then face the consequences.

http://www.zerohedge.com/news/2014-12-14/shocking-data-proving-shale-oil-massively-over-hyped

 

[santosh10]

.
i made a post on a different forum as below, which may have a place here, i think :thumb:


=> Net U.S. oil imports fell to a 28-year low in 2013 as a result of the shale oil boom: :thumb:

//blogs-images.forbes.com/jessecolombo/files/2014/06/oilimports.jpg

U.S. oil production is expected to grow to 9.2 million barrels a day in 2015 and 9.6 million by 2016, which would make the U.S. the world's largest oil producer, ahead of even Saudi Arabia and Russia. Canada's oil sand boom is expected to boost the country's oil production by 500,000 barrels per day to achieve a total production of 3.9 million barrels per day in 2015, much of which will be exported to the United States.

Led by China and other emerging nations, global oil demand spiked in the years following the 2008 financial crisis, which contributed to oil's bull market. Since 2011, oil demand growth has slowed significantly to a half-decade low largely due to the ongoing economic slowdown in China and emerging economies:

//blogs-images.forbes.com/jessecolombo/files/2014/06/fig1.gif

forbes.com/sites/jessecolombo/2014/06/09/9-reasons-why-oil-prices-may-be-headed-for-a-bust/3/

forbes.com/sites/jessecolombo/2014/06/09/9-reasons-why-oil-prices-may-be-headed-for-a-bust/3/


.
=>

Although Opec's most influential members, such as Saudi and the United Arab Emirates, have some of the lowest production costs in the world, they are also the big spenders and also vulnerable to falling prices.

"Should lower oil prices persist then emerging economies such as Venezuela or Russia may be forced to adjust their fiscal balances by cutting subsidies and social benefit programmes which may trigger political and economic instability," said Mr Dryden.

Oil price slump to trigger new US debt default crisis as Opec waits - Telegraph

UAE and Saudi A. have mainly very cheap labors from the developing countries, while the US provides jobs to its own people, who then spend the earned money within the country hence generating direct and indirect taxes this way too... while fall of Ruble by 40%+ might have adjusted profit margin of the Russian oil producers....

US would maintain Petrol/Diesel prices based on oil price at $70/barrel, the minimum, which will only benefit the whole nation :cheers:



=>

Figure the USA will allow market forces to prevail, weeds out the weak and inefficient. India should be benefiting well from lower fuel prices since it imports much of its fuel.

thats the very first benefit we got by oil/gas pumping of US, we all know how US has defended the oil importing countries to an extent by keeping its lower price.

in fact, if we have a look on the way all the currencies are on broke, and US$ is maintained strongly, there is enough support from the US to the whole world at present....

for example of fall of Euro and Japanese Yen by around 12% during the last 3-4 months, it straight gives an advantage to the exporting industries of OECD economies.....

and even if the Euro/Yen fallen, there is still lower payment for the energy import by them due to lower oil prices. and its all just because The US is standing strongly at present

America Will Likely Close Out 2014 as the World's Reigning Oil Champion

America is Producing More Oil than ever and using it more Intelligently :tup:

Bloomberg reported the latest triumph of America's energy boom. Earlier this year America's daily production surpassed Saudi Arabia's and Russia's. Since the boom has continued, the U.S. is likely to close 2014 as the world's oil champion.

On a macro level, it turns out the U.S. has actually managed the oil boom with some modicum of intelligence. It's little-appreciated, but the boom in oil production has coincided with a quiet revolution in the way Americans use oil. At the same time we are pumping more, we are using less, and using it more intelligently. Consumption amounted to 18.9 million barrels per day in 2013, which was up from 2012. But that rise followed seven years of net decline, from 20.8 million barrels per day in 2005 to 18.49 million barrels of oil per day in 2012. Between 2005 and 2013, oil consumption fell 9 percent in absolute terms.


slate.com/articles/business/the_juice/2014/07/america_world_s_leading_oil_producer_as_we_re_pumping_more_we_re_using_less.html

 

[santosh10]

UAE and Saudi A. have mainly very cheap labors from the developing countries, while the US provides jobs to its own people, who then spend the earned money within the country hence generating direct and indirect taxes this way too... while fall of Ruble by 40%+ might have adjusted profit margin of the Russian oil producers....

US would maintain Petrol/Diesel prices based on oil price at $70/barrel, the minimum, which will only benefit the whole nation :cheers:

Oil Pumping by US and its Impact on the Economy as whole

further to my last posts, if US is pumping oil worth $400billion+, at average oil price of $90/barrel, then you keep $400billion money inside the country, in place of importing the same from other countries. and its a thumb rule, investment of $1.0 result in return of 66cents, 66%, through the direct and indirect taxes..... for the developing countries like India, Philippines, Vietnam etc, it would be around 50% return through the taxes as over 90% workers dont pay taxes in developing countries...

(for example, if you earn salary, you pay tax on it, the direct tax, and then you spend money in market, buy products/services which then make the shops/companies pay tax on the products/services they are selling too, the indirect taxes. and the very first thing is, providing jobs of worth $400billion+ to the home workers....)

and then you have at least $250billion+ tax revenues this way, through the direct and indirect taxes, which may be further used for the key infrastructure projects. its all good until you use you oil pumping "intelligently", as discussed in the article of last post

and hence, i would favor US to maintain petrol/diesel prices to be based on at least $70/barrel+, regardless how the world market fluctuates. its simple that you are pumping oil for the domestic use, and have prices as you wish, for good of the whole nation. regardless what happens in rest of the world. as you must have jobs of $400billion+ of oil pumping, direct and indirect taxes of $250billion+ this way, and the related development projects of this tax money, for the nation as whole.

as we do know, this fall of oil price is temporary, having a similar characteristic of 2009, which again raised to over $100+ per barrel by 2010....

and yes, the further investment of the estimated Tax Revenue at around $250billion+ this way, would create additional jobs with generating additional tax revenue of $150billion+ this way again, and so on.... :thumb:

 

[santosh10]

Vladimir Putin's math is looking fuzzy. Russia's budget is based on oil trading for $100 a barrel, government documents reveal.
Finance minister Anton Siluanov calls that an "alternative economic reality."
Oil currently trades around $60 a barrel.
Siluanov warned that cuts will be needed since the budget doesn't reflect the hits Russia's economy has taken from the standoff in Ukraine and falling oil prices.
When Russian parliament passed the draft budget for 2015-2017 last week, it assumes that oil trades at $104 a barrel for 2014 and $100 for 2015-2017. That might have made sense when oil traded at $115 in June, but not now.
The result: Russia has a huge hole in its books.
And it might get worse. Goldman Sachs (GS) and top bond investor Jeffrey Gundlach predict oil could fall as low as $60 in the coming months.

Oil Price Math on Ruble Depreciation

and in a more clear and simple way, "Russia's Budget is based on Oil Price at (32.5*$100) = '3,250' Ruble a barrel by early 2014, OR, on (59*60*0.95) = '3,360' Ruble a Barrel by early 2015, a simple math at Oil Price at $60 per barrel and 1.0US$=59 Ruble, by end 2014.
(it used a factor of 0.95 considering the expected rise of 'additional' inflation by 5% due to fall in Ruble value during last 3-4 months.......)

//x-rates.com/graph/?from=USD&to=RUB&amount=1.00

as we see as below, Russia's inflation rising to hardly upto 10% by December 2014, from its 6.5% level in early 2014. hardly around 5% "additional" inflation they getting due to the currency depreciation :coffee:

tradingeconomics.com/russia/inflation-cpi

always keep in mind, Russian Budget is Budgeted in Ruble value, not in US$. similarly Indian Budget Expenditure is budgeted in Indian Rupees value.

 

[santosh10]

Vladimir Putin's math is looking fuzzy. Russia's budget is based on oil trading for $100 a barrel, government documents reveal.
Finance minister Anton Siluanov calls that an "alternative economic reality."
Oil currently trades around $60 a barrel.
Siluanov warned that cuts will be needed since the budget doesn't reflect the hits Russia's economy has taken from the standoff in Ukraine and falling oil prices.
When Russian parliament passed the draft budget for 2015-2017 last week, it assumes that oil trades at $104 a barrel for 2014 and $100 for 2015-2017. That might have made sense when oil traded at $115 in June, but not now.
The result: Russia has a huge hole in its books.
And it might get worse. Goldman Sachs (GS) and top bond investor Jeffrey Gundlach predict oil could fall as low as $60 in the coming months.

i would like to discuss it further. today we have news that India's Whole Sale price inflation approaching zero, then its because of very low oil/energy price right now. while i just been to Russia and Petrol prices were around 32 Ruble a liter, i remember, and its the same at present, no fall in petrol/diesel/gas prices there because Ruble also depreciated with the same pace as fall in oil prices.

and yes, Indian rupees was valued at around 1.0 Ruble to INR 1.9, while now Ruble going at par with Indian Rupees, check this curve for the last 1 year, Ruble w.r.t. Indian Rupees :coffee:

//x-rates.com/graph/?from=RUB&to=INR&amount=1.00

and here we find Russian inflation even rising to over 9.0 percent while it was around 6.5 percent few months before, while India's wholesale inflation reaching to zero, from around 6 percent few months before :coffee:

ibtimes.co.in/india-records-wholesale-price-inflation-zero-lowest-5-years-617205

and thats why have used a factor of 0.95 considering 'additional' inflation due to sharp fall of Ruble value.
and AA, Russian Budget is budgeted in Ruble value, not in US$ value, isn't it? i mean, regardless what, they would get the profit on oil sale in Ruble value, with adjusting 5 percent of inflation itself :tup:

 

[santosh10]

Well if the drop in the value of the ruble doesn't matter, I guess it doesn't matter.

look, it would certainly help the Russian food and other industries, mainly their food industries...... as the foreign competitors will have their products more expansive in the Russian market now, at least by over 50 percent.....

this type of 50 percent fall in a currency does look threatening but we do know how oil prices have a certain role in Ruble value to help its producers maintain profit margin in Ruble value terms :tup:

and again, i would appreciate the US$ which has supported most of the OECD economies at present. for example, ask PD, even if Eurozone economy is still around 2 percent lower than its early 2008 level, it would grow by at least over 4 percent within a year, if the Euro falls to at par to US$......

=>
also, we have enough reasons to believe that Russia itself wants Ruble to fall to an extent, didn't use its foreign reserve to stop its slide during the last 3-4 weeks.

so high foreign reserve, there might be a certain reason why they let Ruble fallen, may be to support oil producers to maintain profit margin on oil sell in world market, as discussed in my last fews posts in this thread too..... Ruble depreciation doesn't show weakness of Russia's economy

//en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves

 

[santosh10]

Am sure the Russians are happy that the value of the Ruble has dropped by half against the dollar. Makes their exports cheaper, especially oil and imports more expensive. The reason inflation has lessened in India is the drop in oil prices, makes every thing cheaper, from electric to transportation of goods, for now.

Picdelamirand-oil

hmmm, first ask PD, will he be happy or not if Euro falls to at par with US$? further to my last post......

and about me, a very honest answer from me while discussing trade deficit of India, my recent statement is as below:

posts#67, #68, #69

//defenceforumindia.com/forum/economy-infrastructure/64395-brics-e7-economies-ibsa-5.html#post982392

.

 

[amoy]

Russia Russian Central Bank Hikes Interest Rates to 17.5% / Sputnik International

MOSCOW, December 16 (Sputnik) – The Russian Central Bank announced an immediate hike rise in interest rates to 17% on Monday night in order to protect the currency after the ruble made rapid losses during trading on Monday. The rise comes after a previous announcement made by the Bank on Friday which raised rates from 10.5% to 11.5%. It is the largest single increase since 1998.

American shale-related HY bonds

So, OPEC's no-production-cut strategy has worked ?

 

[santosh10]

Russia ..........

The New Break Even of Russia's Oil Production Cost

sir, first we see Russia's Break Even of Oil Production cost has well fallen to $60 per barrel due to fall of ruble value. as discussed in my previous post of oil math, and as Russia budget is budgeted in Ruble value and they would hardly get 5% to upto 10% 'additional' inflation due to fall of Ruble value, new break even of oil production in Russia is calculated as below:

till early 2014, it was $100 per barrel, OR, 32.5 * 100 = '3,250' Ruble per barrel.

and by early 2015, considering its today's value at $60/barrel, at exchange rate of 1.0US$=62 Ruble, and Russia's Inflation seen at maximum of 11% by January due to fall of ruble value, while the Russia's Budget might be budgeted for the inflation at 6%, at least, considering inflation to this level by early 2014. the new break even of oil production cost in Russia comes around = 60*62*0.9 = '3,348' per barrel, a tooo safe side now for the oil production.....

x-rates.com/calculator/?from=USD&to=RUB&amount=1.00

tradingeconomics.com/russia/inflation-cpi

hence, this type of dramatic fall of Ruble value, has put Russia on a very safe side of oil production cost, even if we used a factor of 0.9 considering even 10% 'additional' inflation. now its break even has well fallen to $60 per barrel international price.....

from here, regardless all the conspiracy theories, how fall in oil price affected Russia's economy, except giving them a good reason to depreciate their currency, which would now only help home industries of Russia, without any effects on their Budget Expenditure in Ruble value? i hardly find Ruble at par with Indian rupees right now, while its still twice to Japanese Yen even right now, for example.....

=>

while im so much angry with over valued Indian Rupees that i can't say.... even Brazilian currency was depreciated by over 25% during the second half of 2014, while so strong Indian rupees has made imported products so cheap that now they have so high trade deficit

//in.reuters.com/article/2014/12/15/india-economy-trade-idINKBN0JT1AW20141215

and the only positive outcome is, even if India is a developing country, its wholesale inflation has approached zero value now, similar to the period of economic crisis of 2009 :cheers:

wsj.com/articles/indias-wholesale-inflation-at-lowest-in-over-five-years-1418640470

 

[Ky Loung]

You have to study more the US energy business, in particular the entrepreneurial shale drillers. They are not being controlled by the US government.

I don't have much time due to the holiday season. You are correct the US government have no control of oil prices or how much these companies are pumping out. Let me add to this.

The US in general is privatized. Almost everything is privatized. What the government do is give permits to open a business. It does not tell them how they run their business. Business and individual can sue the government. The government is not immune to civilian lawsuits. Because of these it very hard for US to control business. Lawsuits and counter lawsuits between businesses and governments can takes years to resolve in courts.

The USA is actually made up of 64 nations (50 states and 14 colonies). Each of them have their own constitution, laws, military, governments, courts, police, customs, etc. The Federal government is very limited in what it can do. The US Constitution which is only 6 pages long and two of them is the introduction and signatures. The most important job for the Federal government is being the arbitrator between the States/colonies. Instead of States/colonies declaring war on each other they sue each others in Federal courts.

The 10th Amendments stated:

"The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

So States and colonies have a lot of power within the USA.

As far as I know it is the State government giving the permit to drill for oil. The state and the federal does not a tell how much to pump out. It all privatize. They die or survive is determined by the market.

The USA has the largest known supply of oil. It is now the largest oil producer in the world. The USA alone can supply the world needs for well over 100 years. Because oil production is privatize in the USA, these companies do not care what is happening in Russia. What matter to them is money. The more they pump the more money they get. Also like all good US businessman they want to destroy their competitors which is other oil companies in the USA and aboard.

Due to advancement in technology, I would not doubt that within 25 years we stop drilling all together and grow our oil (green algae technology). Since the 1970s the technology have been getting cheaper and yielding more. We are nearing a point where in a decade or two farming green algae can supply the world with cheap oil. It is not uncommon to see cars getting 70 to 100 miles per gallon.

One last thing about Russia. It is beyond US control what will happen to Russia. Like a lot of stuff in the USA it now has it own life. In other words Obama do not have control of the event occurring. It will run it natural course and that mainly due how US society is structure, privatization, and limited government.

One last thing Americans are not Europeans. We do not have a, European society. We have an Americans society which is opposite of European society.

 

[pmaitra]

There three competing theories:

1. US and the Saudis colluded to bring oil prices down to hurt Russia.
2. Russia and the Saudis colluded to kill US fracking business.
3. The oil prices naturally came down due to additional supply from US fracking industry that is hurting US, Russia, the Saudis, Venezuela, etc., and there is no conspiracy.

Believe in what you want, the beneficiaries are the net oil importing countries. As long as India can buy out a lot of crude and fill up its underground strategic reserves, I am happy.