Mish's Global Economic Trend Analysis

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OPEC Blames Speculators, Non-OPEC Countries, US Frackers for Oil Price Crash Posted: 21 Dec 2014 02:21 PM PST OPEC is pointing the finger at speculators as well as Non-OPEC countries, but especially US shale producers for the crude price crash. Let's explore that idea in a series of charts. But first let's take a look at the allegation. The Wall Street Journal reports Gulf Oil Exporters Blame Non-OPEC Producers for Glut. Gulf oil officials on Sunday defended OPEC's decision last month to keep its production ceiling intact, blaming producers outside of the group for the glut of oil on the market that has depressed prices. Speaking at an energy conference in Abu Dhabi, Saudi Oil Minister Ali al-Naimi blamed a lack of coordination from producers outside the Organization of the Petroleum Exporting Countries—along with speculators and misleading information—for the slump. OPEC officials have singled out American shale producers as a particular problem. U.S. oil production has soared as a result of the shale boom, reducing OPEC exports to the U.S. Non-OPEC producers "will realize that it is in their interests to cooperate to ensure high prices for everyone," Mr. Naimi said. OPEC December Monthly Oil Market Report Are US shale frackers really to blame for the price crash? Let's take a look using OPEC's own data. Please consider charts and other analysis from the OPEC December Monthly Oil Market Report. OPEC vs. Non-OPEC Supply Non-OPEC oil supply is estimated to grow by 1.72 mb/d in 2014 to average 55.95 mb/d. In November, OPEC crude oil production averaged 30.05 mb/d, according to secondary sources, a decrease of 0.39 mb/d over one month earlier. OECD Americas OECD Americas' oil production is estimated to increase by 1.54 mb/d in 2014 to average 19.67 mb/d, the highest among all non-OPEC regions, indicating an upward revision of 10 tb/d from the previous MOMR. Strong estimates for both the US and Canada constitute the main factor behind expected supply growth, while heavy declines are seen in Mexico. US Developing Countries Russia Russia's oil supply is estimated to increase by 0.05 mb/d in 2014 to average 10.56 mb/d, an upward revision of 20 tb/d from the previous MOMR. Production reached a record 10.67 mb/d in November as per preliminary data, an upward revision of 80 tb/d in 4Q14, with current production data for October and November indicating higher-than-expected output. Russia's production is expected to average 10.58 mb/d in 4Q14, an increase of 60 tb/d from 3Q14. Based on preliminary oil production by companies in November, not only was output not reduced, but there was an increase in volume. However, it is anticipated marginal barrel output in Russia for 2015 could decline y-o-y, given the impact of sanctions, low prices and lack of large projects expected to come online. Nevertheless, the approval of a tax overhaul by the Russian parliament, reducing crude export duty from its current 59% to 42% in January, could encourage oil producing companies in Russia to produce more. OPEC Total OPEC crude oil production dropped in November to average 30.05 mb/d, according to secondary sources, down by 0.39 mb/d from the previous month. Production from, Iraq increased, while crude oil output mainly in Libya, Saudi Arabia and Kuwait fell. According to secondary sources, OPEC crude oil production, not including Iraq, stood at 26.69 mb/d in November, down by 0.44 mb/d over the previous month. OPEC Thousands of Barrels a Day World Supply vs. OPEC Supply Preliminary data indicates that the global oil supply decreased 0.19 mb/d in November 2014 to average 92.69 mb/d. Non-OPEC supply experienced growth of 0.20 mb/d, while OPEC crude oil production decreased by 0.39 mb/d. The share of OPEC crude oil in the global supply declined to 32.4% in November. This estimate is based on preliminary data for non-OPEC supply, estimates for OPEC NGLs and OPEC crude oil production from secondary sources. Singling Out US and Speculators is Ridiculous Let's dismiss the notion speculators are responsible. Speculators, don't take delivery of significant amounts of oil (if any at all) and they don't set prices, but they can swing day-to-day volatility and perhaps exaggerate trends in both directions for a while. Ultimately this is a supply-demand issue. US production is up by 1.45 million barrels a day since a year ago. Total world supply is about 93 million barrels a day. The increase in US production amounts to 1.56% of global supply. Singling out the US is absurd. There are 12 OPEC countries vs. the rest of the world. Those 12 OPEC countries represent 32.4% of global supply. In total, there are over 200 countries that produce oil according to the US Energy Information Administration (EIA). An EIA chart (2012 data) will help put things in better perspective. Countries and Producers Act Independently It should be pretty easy to spot the problem. Countries as well as oil producers in those countries act independently. Thus, Saudi Oil Minister Ali al-Naimi's statement "Non-OPEC producers will realize that it is in their interests to cooperate to ensure high prices for everyone" is laughable. Every country in the world wants the other countries to be the ones to cut supply. Cooperation is not going to happen. OPEC cannot even agree among its own members. For further discussion, please see What's Behind the Plunge in Oil? Winners and Losers? Boon to Spending or Recessionary? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Europe in Wonderland Posted: 21 Dec 2014 02:10 AM PST If you don't have the money, spend it anyway, says the Ukrainian government. Of course, that's no different than the philosophy of any other country, including the US. In this case, however, Ukraine borders on default. Please consider Ukraine Can't Scrimp on Military Spending as S&P Rating Cut. Ukraine's president, speaking a day after the nation's junk credit rating was cut further, said next year's budget mustn't cut corners on military spending and should account for the possibility of an invasion. "The war made us stronger, but has crushed the economy," Poroshenko said. "There's one article of spending that we won't save on and that's security. Ukraine is finalizing next year's fiscal plan amid a new cease-fire in the conflict that's ravaged its industrial heartland near Russia's border. As its economy shrinks and reserves languish at a more than 10-year low, it's also racing to secure more international aid to top up a $17 billion rescue. Standard & Poor's said Dec. 19 that a default may become inevitable, downgrading Ukraine's credit score one step to CCC-. With official forecasts putting this year's contraction at 7 percent, the government needs $15 billion on top of its bailout to stay afloat, according to the European Union. The European Union and the U.S. are discussing $12 billion to $15 billion in aid to Ukraine and "there needs to be a Russian contribution to the package," Pierre Moscovici, the 28-nation bloc's economy commissioner, said at a Bloomberg Government event this week in Washington. A decision is needed in January, he said. War Has Made Us Stronger Ukraine president says "War has made us stronger". That lie is so stupid my dead grandmother knows it from the grave. The evidence is a CCC- debt rating, a step or so above above default, with default imminent. The story gets even stranger. To avoid default, Ukraine needs a "Russian contribution to the package" according to Pierre Moscovici, the economic policy commissioner for the European Commission. Amazing Irony Europe and the US have crippling sanctions on Russia for the conflict in Ukraine, yet the EC wants Russia to bail out Ukraine while accusing Russia of invading Ukraine. Icing on the wonderland-cake is the Russian Ruble has plunged nearly 50% this year, but Ukraine needs money from Russia to fight Russia. Is this complete lunacy or what? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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