Monday, 5 December 2022

Saudi Arabia Announces Arab Light crude prices for January 2023

Saudi Arabia, the world's top oil exporter has cut January 2023 official selling price (OSP) for its flagship Arab Light crude for Asian buyers to a 10-month low, on concerns over faltering demand and a potential increase in Russian competition.

The OSP for January-loading Arab Light to Asia was trimmed by US$2.20 a barrel from December to US$3.25 a barrel over Oman/Dubai quotes, state oil producer Saudi Aramco said on Monday.

The new OSP is just above the previous low of US$2.80 per barrel, set for March 2022.

The change was in line with market forecasts for a cut of about US$2 a barrel.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, on Sunday decided to keep their plan to cut production unchanged.

The backwardation in the Dubai market structure narrowed during trading last month, implying that fears over near-term supply tightness for crude were easing.

The premium for front-month Dubai over the price for the third-month averaged US$2.76 a barrel in November 2022, down from US$4.73 in October 2022.

Saudi Arabia's OSP adjustment also came after the Group of Seven (G7) nations and Australia agreed to a US$60 per barrel price cap on Russian seaborne crude oil.

"Although the market remains cautious on lifting Russian crude as the price cap is just set, there is no doubt that more cargoes will flow to Asia and compete with the Middle Eastern crude," said a Singapore-based trader.

Saudi Arabia cut its January Arab Light OSP to northwest Europe by US$1.80 a barrel from December and kept the price to the United States unchanged.

Xi Jinping visit to Saudi Arabia

When Chinese President lands in Saudi Arabia this week, he will be touching down in an energy-rich region with a growing interest in being a part of the Beijing-led Shanghai Cooperation Organization, says a report by South China Morning Post.

Xi Jinping’s expected arrival in the Gulf state for a China-Arab summit comes as the kingdom and other members of the OPEC Plus alliance are at odds with the United States over oil supplies and Russia’s war in Ukraine.

Observers say Xi’s trip could be another step in the westward expansion of the SCO, with China growing not only as a trade partner but also an investor in the Gulf’s lucrative energy sector.

“It’s going to be a very, very energy-focused meeting,” said Raffaello Pantucci, a senior fellow at the S. Rajaratnam School of International Studies in Singapore.

“It’s also going to be another meeting that’s focused in this direction because what we’ve seen with the Saudis is a clear reticence by them towards the United States.”

The US ties with Saudi Arabia, the world’s biggest crude oil exporter, and other suppliers in the OPEC Plus alliance, soured after they decided to sharply cut production to support prices.

The US said the decision would worsen global inflation and support Russia’s oil revenue from China and other markets that is used to fund war efforts in Ukraine

Nevertheless, Saudi Arabia remained China’s biggest source of oil in October, according to Chinese customs data. It is also an SCO dialogue partner interested in an upgrade to observer status.

Pantucci said the Gulf’s tensions with the US presented an opportunity for China in Riyadh.

“The Chinese want to capitalize on that and highlight the fact that Saudi Arabia is a great independent country who works with us happily. I think that’s one narrative they want to push out,” Pantucci said.

Elsewhere in the Middle East, Egypt and Qatar have also become SCO dialogue partners, and sanctions-battered Iran – whose largest petroleum customer is China – passed a bill late November to join the group.

Russia, China’s second-biggest oil supplier, is a founding member.

Li Lifan, head of the SCO centre at the Shanghai Academy of Social Sciences, said that once Iran joined the group, it could help the SCO expand its energy club – a Moscow-led platform for SCO countries to discuss energy trade without binding commitments.

SCO leaders have already identified the transition towards renewable energy sources as an area for cooperation, with ambitions of developing a common energy strategy across Eurasia.

Beijing has touted the 3,666km (2,280-mile) Central Asia-China pipeline that supplies natural gas from Turkmenistan to China as a success, and in November Chinese Premier Li Keqiang called on SCO counterparts to advance cooperation over energy security.

However, there are questions about the SCO’s role beyond dialogue on securing energy for China and counterbalancing Western energy interests in the region.

Pantucci said the focus in the West was more on tangible outcomes, which the SCO did not appear to generate.

“I think the problem in the West, at least the Western analysis, is an obsession with things, doing things, and this organization doesn’t do much,” Pantucci said. “Our collective response in the West is, ‘Well, it doesn’t do much then it can’t be important.’”

But he said the SCO membership would help Iran rhetorically, and practically, allowing it to take part in regular talks with other countries.

“Who knows what benefits might come from there?

“For Iran, to be able to associate itself with such a structure and be a member of it shows the Iranian people, for one thing, and it shows the world that Iran isn’t an isolated country.”

Li, the SCO researcher in Shanghai, agreed that Iran could use the group as a platform to grow its influence against what it sees as hegemony from the West.

“Even if it is being squeezed out in the United Nations, at least the SCO can give it a platform every year for its ministers, department heads, state leaders and prime ministers. That way, it can have a say in the international arena,” he said.

Li said the SCO could play a further role in reducing the use of US dollars in energy trade by promoting local currencies, pointing to a Russia-China gas deal denominated in the rouble and the yuan.

Sana Hashmi, a postdoctoral fellow at Taiwan-Asia Exchange Foundation in Taipei, said that while the SCO was not developed as an “anti-West coalition”, China had become an economic guarantor to SCO countries, and the group could keep US influence out of Central Asia.

One advantage China had over the US was its willingness to cooperate with no strings attached, she said. “Every country has a very different reason why they are becoming anti-West, but at least they have a common reason to be a part of something like SCO.”

 

 

 

Sunday, 4 December 2022

More Europeans will perish from energy crisis than Ukraine war

The most vulnerable people in Europe, the elderly and those living alone or on low pay to medium paychecks will pay the highest price: Death.

More people will perish in Europe this winter because of unaffordable household energy costs than those who have died on the battlefield in the Ukraine war, according to research by the British weekly newspaper The Economist.

Last week, the United Nations said the official civilian death toll from the Ukraine war has risen to nearly 6,900, with civilian injuries topping 10,000. Whilst the death of military forces in Ukraine has been difficult to verify, the number of soldiers thought to have died in Ukraine is estimated at 25,000-30,000 for each side.

The Economist modeled the effect of the unprecedented hike in gas and electricity bills this winter and concluded that the current cost of energy will likely lead to an extra 147,000 deaths if it is a typical winter.

Should Europe experience a particularly harsh winter, which is something likely when considering the growing effects of climate change, that number could rise to 185,000. That is a rise of 6.0%. It also reports that a harsh winter could cost a total of 335,000 extra lives.

Even in the rare case of a mild winter, that figure would still be high with tens of thousands of extra deaths than in previous years. If it is a mild winter, research by The Economic indicates the death toll would be 79,000.

The Economist's statistical model included all 27 European Union member countries along with the United Kingdom, Switzerland, and Norway.

It is anticipated that Governments across Western Europe would be alarmed and concerned by these shocking figures published by the study.

But it remains to be seen what measures these governments will take to prevent so many extra fatalities in their own countries because of the energy shortage.

The energy crisis itself began when Europe, which was heavily reliant on Russian gas, imposed heavy sanctions on Russian energy exports following Moscow’s war in Ukraine. Before the war, Russia supplied 40-50% of the EU’s natural-gas imports. One of Europe’s strongest economies, Germany for example, had become dependent on Moscow’s gas flows and had no Plan B.

The move clearly backfired on Western economies, with inflation reaching record levels not seen in decades, mainly as a result of the soaring energy prices. That has left pensioners and other poorer as well as middle-class income households facing a choice of putting food on the table this winter or heating their homes.

The study by The Economist says that despite European attempts to stockpile as much gas as possible to fill their storage facilities, many consumers are still being hurt by the rise in wholesale energy costs.

Even as market prices for fuel have slightly declined from their peaks, the real average residential European gas and electricity costs are 144% and 78% above the figures for 2000-19.

As it is being hurt the most, Europe could take serious and concrete efforts to push both Kyiv and Moscow to the negotiating table and hold peace talks that would bring an end to the war.

That would ease a lot of problems facing the continent – and the world – from energy shortages to the global food supply chain disrupted by the war. However, critics argue, this would backfire on many Western arms manufacturers who are making lucrative profits from their weapons shipments to the warzone.

There are many officials and other influential figures in the West, especially the U.S. congress (despite America not being included in a study by The Economist), who have links to arms manufacturers; which makes the possibility of peace somewhat unlikely.

While the United States has sent weapons to the tune of US$40 billion dollars, European countries show no sign of opting for peace with the new British Prime Minister Rishi Sunak, the latest to announce plans of maintaining or increasing military aid to Ukraine next year

The other course of action is for Western governments to ease the cost-of-living crisis by spending more on social welfare and hiking the tax rates for the rich.

This would save lives by allowing families to heat their homes but many Western governments are taking the opposite route, by claiming they need to cut spending in order to strengthen economic growth in the long run. 

As things stand, the new research by the Economist will add to the fears already facing families in Europe ahead of the winter season. The lower the temperatures will be in Western Europe, the more likely it will be that higher-than-usual death tolls are going to hit the continent. 

As The Economist notes, although heatwaves get more press coverage, cold temperatures are usually deadlier than hot ones. Between December and February, 21% more Europeans die per week than from June to August.

The report says that in the past, changes in energy prices had a minor effect on mortality rates in Europe. But this year’s hikes to household bills are remarkably large.

The Ukraine conflict has exposed other massive costs that have accompanied the violence. The Organization for Economic Co-operation and Development estimates that the world economy in 2023 will be US$2.8 trillion smaller than was estimated in December 2021, before the fighting erupted in February.

The British weekly newspaper, which built a statistical model to assess the effects of the sharp rise in energy prices, forecasts deaths based on weather, demography, influenza, energy efficiency, incomes, government spending, and electricity costs, which are closely correlated to prices for a wide variety of heating fuels.

It used data from 2000-19, (excluding 2020 and 2021 because of covid-19) and says the model was highly accurate, accounting for 90% of the variation in death rates.

High fuel prices can exacerbate the effect of low temperatures on deaths, by deterring people from using heat and raising their exposure to cold.

It says that with average weather, the study found a 10% rise in electricity prices is associated with a 0.6% increase in deaths, though this number is greater in cold weeks and smaller in mild ones.

In recent decades’ consumer energy prices have had only a modest impact on winter mortality, because energy prices have moved or swung back and forth in a regular rhythm.

In a typical European country, increasing fuel prices from their lowest level in 2000-19 reduce the temperature from the highest level in that period to the lowest which means colder weather increases the death rate by 12%.

The study cites the case of Italy, where electricity bills have surged to nearly 200% since 2020, extending the situation, which it said was a linear relationship that yields extremely high death estimates. It has been reported that the country will suffer the most extra deaths. The results show that Italy, which has an older population along with soaring higher electricity prices makes it the most vulnerable. 

Other countries such as Estonia and Finland are also expected to suffer from higher fatalities on a per-person basis. People in Britain and France will also be affected. The model for the effects of fatalities from high energy costs did not include Ukraine.

However, damage to the energy infrastructure in Ukraine as a result of the war, will also certainly have a dire humanitarian effect on Ukrainians as well.

Over the past weeks, many reports have emerged citing Europeans as saying they will be forced to switch the heating off because of the high fuel prices, essentially exacerbating the effect of cold temperatures on deaths by raising people’s exposure to low temperatures.

The most vulnerable people in Europe, the elderly and those living alone or on low pay to medium paychecks will pay the highest price: Death.

 

OPEC Plus sticks to oil output targets

OPEC Plus agreed to stick to its oil output targets at a meeting on Sunday as the oil markets struggle to assess the impact of a slowing Chinese economy on demand and a G7 price cap on Russian oil on supply.

The decision comes two days after the Group of Seven (G7) nations agreed a price cap on Russian oil.

OPEC Plus which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, angered the United States and other Western nations in October when it agreed to cut output by 2 million barrels per day (bpd), about 2% of world demand, from November until the end of 2023.

Washington accused the group and one of its leaders, Saudi Arabia, of siding with Russia despite Moscow's war in Ukraine.

OPEC Plus argued it had cut output because of a weaker economic outlook. Oil prices have declined since October this year due to slower Chinese and global growth and higher interest rates, prompting market speculation the group could cut output again.

On Sunday the group of oil producers decided to keep the policy unchanged. Its key ministers will next meet on February 01, 2023 for a monitoring committee while a full meeting is scheduled for June 03-04, 2023.

On Friday, G7 nations and Australia agreed a $60 per barrel price cap on Russian seaborne crude oil in a move to deprive President Vladimir Putin of revenue while keeping Russian oil flowing to global markets.

Moscow said it would not sell its oil under the cap and was analyzing how to respond.

Many analysts and OPEC ministers have said the price cap is confusing and probably inefficient as Moscow has been selling most of its oil to countries like China and India, which have refused to condemn the war in Ukraine.

Neither an OPEC meeting on Saturday nor the OPEC Plus meeting on Sunday discussed the Russian price cap.

Russia's Deputy Prime Minister Alexander Novak said on Sunday Russia would rather cut production than supply oil under the price cap and said the cap may affect other producers.

Sources have told Reuters several OPEC Plus members have expressed frustration at the cap saying the anti-market measure could ultimately be used by the West against any producer.

The United States said the measure was not aimed at OPEC.

JP Morgan said on Friday that OPEC Plus could review production in the New Year based on fresh data on Chinese demand trends and consumer compliance with price caps on Russia crude output and tanker flow.

 

Peace in Palestine must for regional stability, says King of Bahrain

Bahrain supports a just peace for the Palestinians as an important step in maintaining regional stability, the country’s monarch, King Hamad bin Isa Al Khalifa, told Israel's President Isaac Herzog when the two met at Al-Qudaibiya Palace in Manama on Sunday.

There is firm support in Bahrain for “achieving a just, comprehensive and sustainable peace that guarantees the legitimate rights of the Palestinian people and that will lead to stability, development and prosperity for both the Palestinian and Israeli people as well as for the people of the region," Khalifa said.

Herzog said his visit to Bahrain symbolized a message of peace for the region and was a historic step that expanded Israeli ties with the Arab world.

He spoke at first on the tarmac at Ben-Gurion Airport on Sunday morning, then repeated the message as he sat with Bahrain's Minister of Foreign Affairs Abdullatif bin Rashid Al Zayani. 

This trip marks the first time that an Israeli president has visited Bahrain.

Herzog recalled that Zayani signed the Abraham Accords, who in turn said it had been a "bright day."

"This is another historic step in the relationship between Israel and Arab states, signed with the Abraham Accords, and another step toward more and more nations joining the circle of peace with the State of Israel," Herzog said earlier that day. "I will be the guest of the King of Bahrain and his government, and I hope to discuss issues of mutual interest."

Herzog will then be flying to the UAE to attend a space conference. "Israel and the UAE are both regional powers in this field, and if one looks ahead, one sees an incredible vista of cooperation between so many industries of Israel, the UAE, Bahrain, and other nations that have signed the Abraham Accords, with the hope of including more and more nations in future," he said.

 

US shale producers just can’t beat OPEC Plus

Shale oil drillers turned from scrappy wildcatters into multi-millionaires over the past two decades, propelling the United States to become the world's largest producer, but now they are running out of runway. Oil output gains are slowing and executives from some of the largest firms are warning of future declines from overworked oilfields and less productive wells.

On Sunday, the Organization of the Petroleum Exporting Countries (OPEC) meets to decide whether to hold the line or cut its output, no longer afraid that their policy decisions might provoke a surge in shale production in the way they did in the years before the pandemic.

The sidelining of US shale means consumers around the world may face a winter of higher fuel prices. Russia has threatened to block oil sales to countries supporting a European Union price cap, and the United States is winding down releases from emergency oil stockpiles that helped cool energy inflation.

US shale production costs are soaring and there is no sign that tight-fisted investors will change their demands for returns rather than investment in expanding drilling.

During a decade of stunning growth, shale consistently defied production forecasts, and opposition from environmentalists, as technology broke open more and more shale plays and revolutionized the global energy industry.

But there appears to be no new industry-transforming technologies in the works or cost-savings that could change the picture this time around. Inflation has pushed up costs by up to 20%, and less productive wells are crimping the industry's ability to produce more.

Industry spending on new oil projects, said analysts last week at Morgan Stanley is modest at best and the absolute level of investment is still historically low.

Shale has proven naysayers wrong in the past. After the 2014-2016 OPEC price war put hundreds of oil companies into bankruptcy, shale innovated with less expensive ways of operating. Their subsequent gains gave the United States by 2018 the title of world's largest crude producer, a distinction it still holds.

Shale can't come back to become a swing producer, because of the investors' unwillingness to finance growth. The demand for payouts and repeated price busts has forced oil producers and service companies to cut back on science projects that fed past production breakthroughs.

The industry also has less time to regain its former leadership, said Hess Corp CEO John Hess. He estimates rivals have about a decade of running room before they fizzle out. Shale is no longer in the driver's seat with OPEC regaining control over the market, said Hess.

Shale's waning influence is clear in North Dakota. Once the vanguard of the US shale oil industry, poor well productivity in the state's Bakken region and labor shortages have left it far from its boom days.

As the number of prime drilling locations decline across all shale fields, the outlook is grim. Shale production declines rapidly after peaking compared to conventional oil wells, falling about 50% after the first year.

The Permian Basin of west Texas and New Mexico, the largest and most important US oilfield, is the only US shale region to exceed its pre-COVID-19 pandemic oil production levels, according to US Energy Information Administration data. Even that field is showing signs of stress.

Saturday, 3 December 2022

Chinese Zero Covid Policy Hinders Global Supply Chain, says Powell

China’s stringent zero-Covid restrictions have affected the American economy by dragging on global supply chains, the top central banker of the United States said, reports South China Morning Post.

When China has shutdowns in regions that are deeply connected to the world economy, supply chains are less efficient, less effective and the prices of goods manufactured or assembled in the country are affected, said US Federal Reserve chairman Jerome Powell.

“It does have an implication for the US,” he said at an event where he gave a closely watched speech before policymakers enter a quiet period before the December 13-14 gathering on the next interest rate decision.

Powell added, “It’s hard to say how big that will be without knowing how persistent, how long the lockdowns will last”.

He spoke as signs increased that Beijing’s zero-Covid policy was taking a toll on the world’s No 2 economy, leading to weaker consumer demand, disrupted production and sluggish expectations.

The latest official surveys showed that both China’s factory and services activities contracted to seven-month lows and worse than market estimations in November.

Experts warned that the inevitable costs of Chinese cities being forced to impose restrictions amid a surge in coronavirus cases have already started to appear.

The International Monetary Fund last week urged Beijing to recalibrate its Covid-19 policy to the economy while relying on market reforms to raise productivity and deliver medium and long-term growth.

Analysts now expect the Chinese economy to grow only 3.3%YoY in 2022, far below the official target of around 5.5% set by the central authorities in March.

The investment bank Nomura said that weaker demand from China would exacerbate the export downturn and add to disinflationary pressures for the rest of Asia.

On November 23, Nomura cut its forecast for China’s fourth quarter growth rate to 2.4% from its previous estimate of 2.8%. It also trimmed the forecast for China’s annual economic growth rate in 2023 to 4.0% from 4.3%.

After protests in several major Chinese cities over the weekend, the country’s central and local authorities appeared to have taken steps to improve their coronavirus strategy.

The cities of Guangzhou and Chongqing announced an easing of Covid restrictions on Wednesday; a move also seen in Shijiazhuang, which at one point was expected to be a pilot city for reopening.

When meeting with health officials and experts on Wednesday, Chinese Vice-Premier Sun Chunlan, the most senior official in-charge of Covid response, uncommonly highlighted that the pathogenicity of the Omicron variant weakens and said the country was facing a new situation and new tasks in pandemic controls.