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Russian economy suffers first major contraction since 2009

MOSCOW (Reuters) – Russia’s economy shrank sharply in November and the rouble resumed its slide on Monday as Western sanctions and a slump in oil prices combined to inflict the first contraction in GDP since the global financial crisis. The Economy Ministry said gross domestic product shrank 0.5 percent last month, the first drop since October 2009. With oil exports forming the backbone of the economy, analysts said the contraction is likely to worsen. The slide on the oil market accelerated this month after the exporters’ group OPEC refused to cut output, and prices are down almost 50 percent from a peak in June. On top of this, the sanctions imposed over Moscow’s role in the Ukraine crisis have deterred foreign investment and led to over $100 billion flooding out of the Russian economy this year. "With the current oil price we expect things to get worse. There is […]

Posted On : Published By : Tom Whipple
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The News in Moscow

A customer counts out ruble banknotes at a food market in Moscow on December 23rd. Credit Photograph by Andrey Rudakov/Bloomberg via Getty The news in Moscow is that everyone has a new television and some people have a new car, but no one has any money or plans for winter vacation travel—or any plans for the future, really. When the ruble collapsed in mid-December, a man went to an Audi dealership to find that only one new car was still available; while he was test-driving the car, someone else bought it in cash sight unseen. Several people told me this story as though it was about a friend of theirs, and it may in fact be true. It is certainly true that large electronics stores have sold out of expensive television sets, which are apparently the durable good of choice in this round of dumping tumbling currency, and instructions […]

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Putin is trying to save Russia’s economy with one weird trick

(Reuters/Dmitry Astakhov/RIA Novosti/Pool) Vladimir Putin wants to have his dollars, spend them too, and invade Ukraine. That’s impossible, of course, but he’s trying to make it a little less so with some financial legerdemain that covers up what’s really going on. Putin, you see, is forcing Russia’s companies to spend their dollars instead—but Russia’s government will be on the hook if those firms get into trouble as Russia’s economy implodes. So Putin, in other words, is playing a financial shell game to try to buy enough time for oil prices to rebound and bail him out. Russia’s problem, as I’ve said before , is that it doesn’t so much have an economy as an oil exporting business that subsidizes everything else. And that business is in bad shape now that oil prices have halved the past few months. Cheaper oil means Russian corporations have fewer dollars to turn into […]

Posted On : Published By : Tom Whipple
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What’s Next for World Oil as Lower Prices Extend Into ‘15

The oil price decline of 2014 upended the geopolitical chessboard. Worth watching in 2015 will be who can recover and dominate play — OPEC, Vladimir Putin or U.S. shale drillers. Oil’s international benchmark price dropped as much as 49 percent in 2014. Those looking for a quick rebound may be disappointed, as world consumption growth slowed to the least since 2009, U.S. companies pumped more than they have since the 1980s and a price war broke out among members of the Organization of Petroleum Exporting Countries. “It’s a turning point in the way people perceive OPEC, that this so-called cartel is not really driving prices,” said Jeff Colgan, a professor at Brown University’s Watson Institute for International Studies who researches the geopolitics of energy. “The real story is going to be about the fracking industry. How much pain can North American producers take?” Here are five concerns about oil […]

Posted On : Published By : Tom Whipple
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Five energy surprises for 2015: The possible and the improbable

The coming year is likely to be as full of surprises in the field of energy as 2014 was. We just don’t know which surprises! I am not predicting that any of the following will happen, and they will be surprises to most people if they do. But, I think there is an outside chance that one or more will occur, and this would move markets and policy debates in unexpected directions. 1. U.S. crude oil and natural gas production decline for the first time since 2008 and 2005, respectively. The colossal markdown in world oil prices has belatedly been followed by a slightly smaller, but nevertheless dramatic markdown in U.S. natural gas prices. The drop in prices has already resulted in announcements from U.S. drillers that they will curtail their drilling operations significantly next year. But drilling that is already contracted for will likely go forward, and wells […]

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Is U.S. in an oil price nirvana?

Dallas economist Bud Weinstein prays every night for $60 oil — give or take five bucks a barrel. That’s the sweet spot, he says, where the U.S. economy gets a boost without putting the brakes on oil-producing states such as Texas. Lately, West Texas Intermediate crude has been fluctuating at the lower end of Weinstein’s nirvana zone. The price of oil has been cut nearly in half since June, punished by too much oil for a slowing world economy and piling on by speculators. Oil prices tried to stabilize midweek, bolstered by indications of stronger demand from China and word that billionaire Harold Hamm, a kingpin in the North Dakota shale play, will scale back his company’s growth plans next year. But the reprieve was temporary with West Texas Intermediate ending Friday at $54.73 a barrel, down another $1.79 for the week. When oil is selling for $55 to […]

Posted On : Published By : Tom Whipple
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Oil Prices Drop to Nearly Five-Year Lows

Oil futures gave back early gains to end near five-year lows on Friday as a surge in U.S. supplies weighed on the market. Light, sweet crude for February delivery fell 2%, or $1.11, to $54.73 a barrel on the New York Mercantile Exchange. The U.S. benchmark ended 63 cents away from settling at the lowest price since May 5, 2009. The February contract for Brent crude, the global benchmark, ended down 79 cents, or 1.3%, at $59.45 a barrel on the ICE Futures Europe exchange, also just shy of a new five-year low. “The market at the end of the day just gave in to the fact that inventories are so high,” said Phil Flynn , senior market analyst at Price Futures Group in Chicago. “The market I think was really blindsided by the buildup last week.” Oil producers added 7.3 million barrels in the week ended Dec. 19, […]

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Oil Trades Above $60 Amid Signs of Saudi Confidence in Rebound

Oil traded above $60 a barrel in London amid the highest volatility in more than three years on speculation that Saudi Arabia , the largest crude exporter, is signaling confidence that prices will rally. Brent futures swung between gains and losses. Saudi Arabia’s assumption of oil at $80 a barrel next year is sending a message that the government expects a price rebound, according to John Sfakianakis, a former economic adviser to the kingdom’s finance ministry . Implied volatility for at-the-money options this week increased to the highest since October 2011, data compiled by Bloomberg show. Oil has slumped 46 percent this year, poised for the biggest drop since 2008, as the Organization of Petroleum Exporting Countries resisted supply cuts to defend market share while the highest U.S. production in three decades exacerbated a global glut. Crude prices are “fair” at about $70 to $80 a barrel, Iraq ’s […]

Posted On : Published By : Tom Whipple
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Natural Gas Wavers on Weather

By Ira Iosebashvili Natural gas prices shuffled between gains and losses Friday, as mild weather damped hopes for demand and investors bought when futures dipped. Natural gas for January delivery was recently down 1.7 cents, or 0.6%, at $3.013 a million British thermal units on the New York Mercantile Exchange. Prices fell to $2.980/mmBtu earlier in the session, the lowest price in more than two years, causing investors to cash in bets that prices would fall and pushing the contract as high as $3.098/mmBtu. Record production of natural gas is overwhelming demand in the U.S. This December has been one of the warmest since 1950, which has also limited demand for home heating and power consumption and has made traders and analysts wonder how much of a gas glut there could be next year. Prices are down 33% since their November highs, with little relief in sight as temperatures […]

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Libya Oil Ports Guard Calls In Air Strikes on Islamist Militias

Libya ’s government struck from the air at Islamist militias it said shelled the country’s largest oil port today, according to the military unit in charge of protecting export terminals. The strike comes two days after the Petroleum Facilities Guard gave the militias 72 hours to return to Misrata, their main stronghold, to avoid the airstrikes after an earlier attack on the Es Sider terminal. “We decided to order attacks from the air without waiting after the rocket attack on Es Sider,” Ali al-Hasy, a spokesman for unit, said by phone from the port, where loading was halted Dec. 13 after a first round of clashes. Aircraft belonging to the internationally recognized government of Abdullah al-Thinni attacked the artillery unit that fired on the port and bombed positions in Misrata and along the front line in Bin Jawad, 35 kilometers west of Es Sider, he said. The self-proclaimed government […]

Posted On : Published By : Tom Whipple