US oil drilling on decline in response to lower prices

In United States, oil drilling activity has begun to decline in response to the downturn in prices since the middle of 2022. This will lead to lower production growth throughout the rest of 2023 and into 2024.

The number of rigs drilling for oil fell to 600 in the week ending on February 24, down from a recent peak of 627 in the week ending on December 02, 2022 oilfield services company Baker Hughes found.

The rig count has declined in five of the eight most recent weeks and is at the lowest level since the start of July 2022.

The acceleration of drilling activity that started in August 2020 after the first wave of the pandemic appears to have paused or possibly ended.

Over the last three decades, changes in the rig count have generally followed changes in front-month WTI futures prices with an average lag of about 4-5 months (roughly 19 weeks).

When prices rise, delays reflect the time needed to confirm a change in price level is persistent rather than temporary, contract extra rigs, move them to the drill site, erect the equipment, and begin boring.

When prices fall, the lag reflects time needed to confirm the trend, finish part-drilled wells, drill wells already under contract, and idle unneeded rigs.

The number of rigs drilling for oil peaked in late November 2022, roughly 25 weeks after prices peaked, slightly longer than average.

Since June 2022, prices have generally retreated, which has been reflected in a gradual turnover in drilling activity rates.

Prices are roughly 15% below year-ago levels and still trending lower, implying drilling is likely to continue falling through end of June 2023.

Once drilling is finished, there is a further delay of six months on average for casing, pressure pumping, installation of surface equipment, flow testing, linking up to the pipeline network and entering commercial production.

The current slowdown in drilling is therefore likely to reduce production growth through the end of 2023 and probably into 2024.

The Energy Information Administration (EIA) forecasts US production will be only 340,000 barrels per day (2.7%) higher in December 2023 than it was in December 2022.

If this forecast is realized, growth will have halved from 660,000 barrels per day (5.8%) in December 2022 compared with December 2021.

Growth would be just one-sixth of what it was at the height of the second shale drilling boom in 2018, marking the end of the shale revolution.

Slower growth in US production will reduce any accumulation of crude inventories, even if the global economy slows this year, and restrict the potential for non-inflationary growth in the remainder of 2023 and 2024.

 

Zelensky thanks Saudi Arabia for support

Saudi Arabia and Ukraine signed an agreement and a memorandum of understanding (MoU) for the provision of humanitarian aid, amounting to US$400 million, to the war-stricken European country.

This is in implementation of the pledge made by Crown Prince and Prime Minister Mohammed Bin Salman during his phone call with Ukrainian President Volodymyr Zelensky in October 2022 with regard to the provision of an additional humanitarian aid package to Ukraine.

The ceremony of signing the pacts was held on the occasion of the visit of Saudi Foreign Minister Prince Faisal Bin Farhan to Ukraine and his meeting with Zelenskyy.

Prince Faisal Bin Farhan and Director of the Office of the Ukrainian President Andriy Yermak attended the signing ceremony of the agreement and MoU between the Kingdom and Ukraine, with a value of up to US$400 million.

The agreement includes a joint cooperation program to provide humanitarian aid from the Kingdom to Ukraine, amounting to US$100 million.

The agreement was signed by Advisor at the Royal Court and General Supervisor of the King Salman Humanitarian Aid and Relief Center (KSRelief) Dr. Abdullah Al-Rabeeah and Deputy Prime Minister for Restoration of Ukraine – Minister for Communities, Territories and Infrastructure Development of Ukraine Oleksandr Kubrakov.

The MoU also includes financing oil derivatives worth US$300 million as a grant from the government of Saudi Arabia through the Saudi Fund for Development in favor of Ukraine.

Earlier, Zelensky received Prince Faisal and his accompanying delegation at the presidential residence in the capital city. At the outset of the meeting, Prince Faisal conveyed the greetings of Custodian of the

Two Holy Mosques King Salman and the Crown Prince to the president, the government, and the people of Ukraine.

Zelensky conveyed his greetings and appreciation to King Salman, Crown Prince Mohammed bin Salman, and the government and people of Saudi Arabia.

During the reception, they reviewed the bilateral relations between the two countries and ways to further promote them. They also discussed a number of regional and international issues of common concern.

The foreign minister reiterated the Kingdom’s keenness and support for all international efforts aimed at resolving the Ukrainian-Russian crisis politically, and the continuation of its efforts to contribute to mitigating the humanitarian effects resulting from it.

The reception was attended by Dr. Abdullah Al-Rabeeah, CEO of the Saudi Fund for Development Sultan Al-Murshed, Saudi Ambassador to Ukraine Muhammad Al-Jabreen, and Director General of the Office of the Foreign Minister Abdul Rahman Al-Daoud.

Prince Faisal also met with the Minister of Foreign Affairs of Ukraine Dmytro Kuleba. During the meeting, they discussed the latest developments in the Ukraine crisis.

The Saudi foreign minister emphasized the Kingdom’s support for everything that contributes to de-escalation, protection of civilians, serious pursuit of negotiated political solutions, and support for all international efforts aimed at resolving the political crisis.

The signing of the agreement and the MoU reflects the keenness of the Saudi government to support Ukraine and its friendly people in facing the social and economic challenges that the country is going through and to contribute to mitigating the resulting humanitarian impacts.

Iranian annual export to India rises 60%

The value of Iranian export to India increased 60% in 2022 as compared to the preceding year, according to the data released by the Indian Ministry of Commerce and Industry.

The Indian ministry put the worth of Iran’s exports to India at US$653 million in 2022, while the figure was US$409 million in 2021, IRNA reported.

As reported, petroleum products have been the major goods imported by India from Iran.

According to the mentioned data, the value of trade between Iran and India reached US$2.5 billion in 2022, up 48% from US$1.693 billion in 2021.

During January-December 2022, Indian export to Iran also increased 44% to stand at US$1.847 billion, while the figure was US$1.284 billion in 2021.

Rice was India’s major product exported to Iran during this period, the country shipped US$1.098 billion worth of rice to the Islamic Republic.

In late May 2022, the Iranian ambassador to India said that Iran and India were trying to diversify the channels of payments to expand bilateral trade.

In an exclusive interview with Financial Express Online, Ali Chegeni said, “We are trying to diversify the channels of payments and accordingly wish to extend and expand an already existing mechanism in order to cover all of the goods and services including all of the non-oil goods and to achieve this”.

During the past two years, because of Covid restrictions, we pursue the issue via virtual dialogues and currently, our officials are following the matter through the exchange of delegations, the envoy stated at the time.

“We want to develop our economic and trade relations beyond energy and petrochemical products. because, due to the complementarity of Iran and India's economies, an extensive range of non-oil trade exists between the two sides including trade on goods and services, investment, tourism, education, and … which may pave the way for multiplying our economic relations ten times more than current relations in mid and long terms”, Chegeni said.

United States the biggest beneficiary of Russia-Ukraine war

The Ukraine war has entered its second year and the past 12 months have shown there are a variety of aspects of this conflict. In this write up an effort has been done find the movers-shakers and losers-benefiters. My conclusion - Ukrainians the biggest losers.   

In 2014, following the revolution in Ukraine, armed clashes broke out between ethnic Russians (opposed to the new government in Kyiv) and the Ukrainian military in the country’s eastern Donetsk and Luhansk regions which make up the Donbas.

Despite European attempts to ease the fighting, including the Minsk agreements which granted self-government to the Donbas, the fighting continued, leaving around 15,000 people dead. Officials in Donetsk and Luhansk claim that Kyiv aimed to wipe them out. This caused deep concern in Russia.

Meanwhile over the past decade, despite repeated warnings by Moscow, NATO has been expanding eastwards towards the Russian border.  

The US-led military alliance triggered alarm in Moscow which warned NATO to avoid dangerous steps that pose a threat to Russia’s territorial integrity and sovereignty.

Amid the massive NATO buildup of forces coupled with advanced and sophisticated weapons that can strike the heart of Russia, the Kremlin sought security guarantees from the US and NATO. These were effectively ignored by both the US and NATO.

On February 24, 2022, Russia launched attack on Ukraine, calling it a “special military operation”.  It cited several reasons for the attack, including the stance of the government in Kyiv, attacks on ethnic Russians in the Donbas region, and NATO expansion to the borders of Ukraine.

Ukraine and its Western backers argue that the conflict waged by Russia was unprovoked.

Current state of affairs

As things stand, the fighting in flashpoint regions of eastern and southern Ukraine shows no signs of ending.

Moscow has annexed four regions in Ukraine where mostly ethnic Russians reside, following a referendum by the people in Luhansk, Donetsk, Zaporizhia and Kherson.
Ukraine and its Western backers have dismissed the votes as a sham.

The war has seen suffering on both sides, but mostly in Ukraine which has witnessed a high death toll and millions displaced, although a significant proportion of those have returned home.

Sanctions

The US and its Western allies have imposed unprecedented sanctions on Russia. From the freezing of US$330 billion of Russian assets to the silencing of all Russian media outlets, the Western sanctions regime continues to this day and has targeted almost all sectors of Russian society, even to the extent of banning Russian athletes from international sports tournaments. The sanctions have failed to end the war.

On the other hand, they have backfired mostly on the people of Europe. According to IMF forecasts in 2023, the UK economy will be worse off than sanction-hit Russia.  

Inflation

If anything, Western sanctions on Russian energy and wheat have backfired on Europe and beyond.

Europe has faced an energy crisis this winter. It was dependent on cheap Russian gas for 40% of the continent’s consumption.

Europe is now filling the gap by purchasing US liquefied natural gas (LNG) at astronomical prices.

This has spearheaded record inflation levels in European households, which has in turn seen waves of protests and strikes in many European countries paralyzing the public sectors. But it’s a major income boost for US energy firms.

United States Role

1. The United States is widely believed to have instigated the war in its efforts to contain Russia.

2. Washington has by far been the largest supplier of weapons to Ukraine.

3. The Pentagon has been shipping weapons to the tune of tens of billions of dollars. The White House has repeatedly announced fresh military packages for Kyiv.

4. Yet that doesn’t mean NATO members have not chipped in.

The US and other Western arms manufacturers have made very lucrative profits from the war that is the reason many experts argue, allies want the conflict to continue as long as possible.

By the same token, Russia and other countries say pouring weapons into the warzone has not and will not end the conflict. Moscow says the arms deliveries will only increase the suffering of Ukrainians and prolong the war.

Kyiv argues it needs more advanced weapons, such as battle tanks, to repel Russian forces in the country’s east. There are major question marks as to whether these weapons will change anything on the battlefield.

Some European Parliament lawmakers have said the war serves the interests of the US and not the interests of Europeans.

Europe fails in ending violence

After the fall of Afghanistan to the Taliban in August 2021 and the embarrassing scenes of US-led forces fleeing the country, repetitious statements were made by the European Union about the need to distance itself from the military affairs of the US in different parts of the world.

EU foreign policy chief Josep Borrell said Europe needs to develop its own military capacity independent of the United States.

The 27-member bloc revived debates about Europe developing the means to act independently from the US

The EU reiterated it needed to develop diplomatic and military muscle and what France's President Emmanuel Macron termed as strategic autonomy.

Some countries are going to have to ask themselves questions about an American ally which, as Joe Biden said, doesn't want to fight other people's wars for them.

"The Europeans don't have a choice. We must organize ourselves to deal with the world as it is and not the world that we dream of," Borrel said.

"We have to analyze how the EU can further deploy capabilities and positively influence international relations to defend its interests. Our EU strategic autonomy remains at the top of our agenda."

As Europe tried to be sovereign instead of taking directions from Washington, it failed to do so, as witnessed five months later with the eruption of war in Ukraine.

The Europeans understood perfectly that they are still defenseless, both militarily and diplomatically.

They don’t have the means to significantly contribute in ending a conflict on their doorsteps.  

All the European ducks have lined up and have taken their marching orders from Washington again, with a very few exceptions.

The Europeans are unable to take themselves out of this fatal subservience to the Americans.

Accusations against Iran and China

The US and NATO have accused Tehran and Beijing of providing arms to Russia to use in the Ukraine war. Both countries have dismissed the allegations as ludicrous, saying they have been working with both parties to find a political solution to the conflict.

Russia has also rejected reports that it has received weapons from any third party.

International community

While the West claims the international community stands in solidarity against Russia, the facts on the ground suggest otherwise.

However, a considerable number of countries have taken a neutral stance toward the war.

NATO does not represent the international community, despite statements by its Secretary-General, Jens Stoltenberg. 

The international community is calling for a peaceful resolution, something the US has stood firmly against.

Countries benefiting from war

The biggest beneficiary of this war has been the United States.

It has been successful in triggering a conflict in Europe to try and contain Russia’s growing power.

It has disrupted gas supply to the continent by sabotaging Nord Stream pipelines delivering Russia’s cheap gas to European consumers.

Many experts also say the US has pitted and provoked Russia and Ukraine against each other, in a similar fashion to other conflicts instigated by the Pentagon. 

 

Bangladesh: Massive withdrawals from Islamic banks

According to The Daily Star of Bangladesh, deposit flow to Islamic banks in Bangladesh registered a fall in the fourth quarter of 2022, the first such decline in eight years, in a sign of erosion of confidence among savers owing to loan irregularities.

Data released by the Bangladesh Bank showed that total deposits in Islamic banks declined to Tk 409,949 crore at the end of December 2022, down 2.71% from Tk 421,375 crore in September 2022.

This means Islamic banks lost Tk 11,426 crore in deposits in the three months, according to the October-December 2022 quarterly report on Islamic banking of the central bank.

Full-fledged Islamic banks, now numbered 10, were the biggest sufferers as they lost Tk 11,842 crore in the fourth quarter from the third quarter. They collectively held deposits of Tk 379,951 crore in December, down 3% from Tk 391,792 crore in September.

Conventional banks with Islamic banking windows recorded a marginal decline in savings in the fourth quarter, while banks with Islamic banking windows registered a 2.94% increase in the flow of savings.

Islamic banks, however, recorded a 4.28%YoY deposit growth in the fourth quarter. Yet, the growth was the lowest since 2014, the year when the central bank started to release the quarterly report on Islamic banking.

The data came at a time when a number of Islamic banks, including Islami Bank Bangladesh (IBBL), the largest private bank in terms of deposits and investments, suffer from liquidity dearth resulting from withdrawals by many depositors after reports on alleged loan scams surfaced.

The liquidity crunch prompted the central bank in December to pump funds at 8.75% into a number of Islamic banks, including IBBL, to enable them to meet emergency financing needs and comply with regulatory requirements.

As of December 29, IBBL took Tk 8,000 crore under BB’s special arrangement. Four other Shariah-based banks — First Security Islami Bank, Social Islami Bank, Union Bank and Global Islami Bank — took Tk 6,790 crore.

Analysts say the fall in deposits at the Islamic banks is an indication of the drop of customers’ confidence owing to the allegation of loan scams, particularly at IBBL.

The central bank is investigating allegations of gross irregularities at IBBL over the disbursement of loans amounting to Tk 7,246 crore among nine companies last year.

“It is expected. Customers have withdrawn deposits mainly as a precautionary move,” said Ahsan H Mansur, Executive Director of the Policy Research Institute of Bangladesh.

“The confidence crisis is still there.”

With the fall in deposits, the overall market share of Islamic banks dropped to 25.81% in the deposit segment in December, down from 28.43% three months ago.

As such, the overall availability of excess liquidity at the Shariah-based banks reduced to Tk 12,871 crore at the end of 2022, from Tk 17,525 crore at the end of the third quarter, a decrease of Tk 4,654 crore.

Shah Md Ahsan Habib, a Professor at the Bangladesh Institute of Bank Management, said Shariah-based banks had enjoyed an edge over conventional banks for years in terms of deposit collection. So, a number of banks have opened Islamic banking branches and windows to attract deposits.

Data on deposits showed that Islamic banks have been displaced by conventional banks, he said.

“It seems that the confidence of a section of people has eroded following reports on loan irregularities.”

In a recent report, global ratings agency Moody’s Investors Service said Islamic banks in Bangladesh are more vulnerable to the tightening of liquidity than conventional banks because they have smaller liquidity buffers.

One reason that Islamic banks have weaker liquidity cushions is that the central bank has more relaxed liquidity requirements for them to support the growth of the sector.

Another reason is that Islamic banks are prohibited from holding conventional interest-bearing government bonds, and there is a limited amount of liquid shariah-compliant instruments.

“The profitability of Islamic banks is already weaker than that of conventional banks because they are more reliant on term deposits, which results in narrower spreads between financing yields and deposit costs than the system-wide level,” said the agency.

Monzur Hossain, Research Director of the Bangladesh Institute of Development Studies, thinks the recent media reports related to irregularities might have prompted the deposit withdrawal.

“Once the deposit figures of all types of banks become available, it will be clear whether the decline is a general trend or Islamic bank-specific,” he said.

A spike in imports, declines in remittance inflows and high inflation have drained liquidity out of the Bangladeshi banking system, said Moody’s report.

Despite the decline in deposits, investments by Islamic banks grew 4.9% to Tk 405,202 crore at the end of December from Tk 386,221 crore in September. The growth stood at 14.6% from the Tk 353,448 crore witnessed at the end of December 2021, according to BB data.

Mansur, a former official of the International Monetary Fund, said governance has to be ensured and irregularities that have taken place have to be addressed to regain the confidence of depositors.

“Islamic banks have to do the repair to regain the trust of people,” said Prof Habib.

 

Incoming World Bank Chief, Ajay Banga faces myriad of challenges

Ajay Banga, US President Joe Biden's pick to run the World Bank, will face a tough slate of issues around the institution's finances and capital structure from the get-go, thorny problems he must address as he reshapes the bank into a force for combating climate change on top of its traditional role as a poverty fighter.

Biden and his team have ambitious plans for overhauling the 77-year-old World Bank, which critics have said under its outgoing Chief David Malpass was too timid in financing climate initiatives and still funds substantial fossil fuel projects across the developing world.

The key to it all, of course, is money, and as organized and funded now, the World Bank would be stretched to meet those goals.

Banga's nomination, announced on Thursday, won a round of rapid endorsements as top finance leaders met on Friday in India, a sign his ascendance by early May - or possibly sooner - is all but assured, though other member countries can also submit nominations through March 29 before the World Bank's governors choose the President.

Even before he takes office, the former Mastercard Chief is expected to start working his numerous constituencies as early as April when top officials meet in Washington at the World Bank and International Monetary Fund's spring meetings. Member countries are expected to approve initial moves to stretch the bank's balance sheet to free up more funds for climate projects, pandemic preparedness and other priorities.

If confirmed, he will jump into high-profile talks in June hosted by French President Emmanuel Macron and Barbados Prime Minister Mia Mottley focused on developing a new global financial pact to reform how rich countries finance poor countries grappling with climate-driven damages.

Under Banga's leadership, Mastercard became among the first companies to set net-zero emission targets under the Science Based Targets initiative. He also serves on the advisory board of Beyond Net Zero, a climate finance fund.

Biden administration officials touted Banga's decades of experience building global companies and public-private partnerships to fund responses to climate change and migration.

"Ajay has proven his ability as a manager of large institutions and understands investment and the mobilization of capital to power the green transition," said John Kerry, the US special envoy on climate change.

An even tougher challenge then awaits Banga in winning a capital increase from member countries. This will be especially difficult for the World Bank's top shareholder, the United States, due to political brawling between the Biden administration and the Republican-majority House of Representatives. The House has major sway over the country's purse strings and its leaders are not disposed to widen the World Bank's role in fighting climate change.

In fiscal 2022, the World Bank committed more than US$104 billion to projects around the globe, according to the bank's annual report. Experts say countries will need trillions of dollars to fight and adapt to climate change.

Before an increase can even be considered, US officials say changes in World Bank debt-to-equity ratios and other rules could free up more funds for the climate fight, given the reluctance of a politically divided US Congress to appropriate more funds in a direct capital increase.

An independent report prepared for the Group of 20 major economies said changing the way the bank and other multilateral development banks (MDBs) operate could unlock hundreds of billions of dollars in additional funds.

But some middle-income countries worry that could weaken the bank's AAA credit rating and raise borrowing costs, Mark Malloch Brown, President of the Open Society Foundations told Reuters.

"The middle-income countries worry ... that the cost of borrowing will increase because of the refusal of the West to put up more cash."

Iskander Erzini Vernoit, Director of the Morocco-based climate think tank Imal Initiative for Climate and Development, said the US - which has only contributed US$2 billion of the US$100 billion in climate finance rich countries have pledged - needed to invest more.

"Playing the blame game with management of the MDBs will only get you so far, and not far enough to finance tackling the polycrisis at scale," he said.

 

IMF flags debt restructuring hurdles

There are some disagreements over restructuring debt for distressed economies, the chief of the International Monetary Fund said on Saturday on the sidelines of a G20 meeting.

India's G20 presidency comes at a time when its South Asian neighbors Sri Lanka, Bangladesh and Pakistan are seeking urgent IMF funds due to an economic slowdown caused by the COVID-19 pandemic and the Russia-Ukraine war.

China, the world's largest bilateral creditor, urged G20 nations on Friday to conduct a fair, objective and in-depth analysis of the causes of global debt issues as clamor grows for lenders to take a large haircut, or accept losses, on loans.

"On debt restructuring, while there are still some disagreements, we now have the global sovereign debt roundtable with consideration of all public and private creditors," IMF Managing Director Kristalina Georgieva told reporters after the roundtable she co-chaired with Indian Finance Minister Nirmala Sitharaman.

"We just finished a session in which it was clear that there is a commitment to bridge differences for the benefit of countries."

Apart from restructuring debt, regulating cryptocurrencies is another priority area for India, which Georgieva agreed with.

"We have to differentiate between central bank digital currencies that are backed by the state and stable coins and crypto assets that are privately issued," Georgieva said.

"There has to be very strong push for regulation... if regulation fails, if you're slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk."