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Oil Surges After OPEC+ Said To Agree On 100Kb/d Production Cut

Oil Surges After OPEC+ Said To Agree On 100Kb/d Production Cut

And there it is: the half life of the infamous fist bump proved to be less…



Oil Surges After OPEC+ Said To Agree On 100Kb/d Production Cut

And there it is: the half life of the infamous fist bump proved to be less than two months, with a delegate telling Reuters that OPEC+ supports a 100kb/d reduction in oil output for October, meaning it's a done deal.


... just as we predicted.

* * *

The much-anticipated OPEC+ meeting later on Monday has all options on the table for oil, Bloomberg's Nour Al Ali writes, adding that whatever the decision is on production in October, the alliance has the upper hand, which is bullish for the oil futures market. 

A delegate has told Bloomberg that OPEC+ will discuss a range of oil-policy options at Monday’s meeting including a 100k b/d output cut - reversing last month's just as symbolic output hike following Biden's begging for more oil. Other options include maintaining production at current levels as well as an output cut before the next month's meeting.  

That much appears to be priced into futures markets, which remained about 2.7% higher at around the $95-level in Brent crude futures.

As Al Ali reminds us, we know from Saudi Arabia, that perhaps oil at current levels isn’t a fair reflection of the physical market’s tightness. Historically, the leader of the alliance is known to view prices at around $100 as fair. 

Meanwhile, disruptions to global oil supply remain key. As the EU discusses a price cap on Russian oil, many members of the 23-nation alliance struggle to increase their output due to various reasons, and the outcome of a potential Iran nuclear deal remains uncertain. Technical experts at OPEC+ recently slashed forecasts for this year’s supply surplus in half, to 400,000 barrels a day, and expect a supply deficit in 2023. 

Finally, as volatility picks up, the futures market (which is now "completely broken" according to oil trader Pierre Andruand) poses a conundrum for the alliance. Even as bearish factors such as a looming global economic slowdown and reduced demand out of China push prices lower, the European energy crisis puts the alliance back in the driver’s seat as an oil-for-gas substitution might be needed to keep the continent warm this winter.

Here's what else to expect from today's OPEC+ meeting which takes place as the US is out on vacation.

Courtesy of Newsquawk, here is a full preview of today's JMMC and OPEC+ due at 12:00 BST

SCHEDULE: On September 5th, the Joint Ministerial Monitoring Committee (JMMC) will review the findings of the JTC and make a recommendation to the decision-making OPEC+ group. The JMMC is set to meet at 12:00BST/07:00EDT, with the OPEC+ ministerial meeting guided around 12:30BST/07:30EDT.

PRIOR MEETING: On August 3rd, OPEC+ agreed to hike total September quotas by 100k BPD. Split among most members, Saudi Arabia’s share was increased by 30k BPD, and the UAE’s by 7k BPD. The White House welcomed the decision, since it eases some pressure on Washington in the short term at least; the US Energy Department said at the time that it has seen a remarkable decline in oil prices, and wanted even lower prices.


  • Sources briefed on Saudi's thinking says Saudi has not yet made a decision to tweak OPEC+ policy, but the energy minister is under pressure to keep prices near USD 100/bbl, FT reported: but the range of complicating factors could make the Kingdom opt for a pause.
  • Russia doesn't currently support an oil output cut and OPEC+ is likely to keep its output steady when it meets Monday, according to people familiar with the matter cited by WSJ. Russia is said to be concerned that production cut would signal crude supply is outgripping demand, thus reducing leverage will oil consuming nations.
  • Reuters sources said OPEC+ is to weigh a rollover or small cut at its meeting on Monday Two out of five sources said the group could weigh a small cut of 100k BPD to bring quotas back to August levels. Five sources said existing policy could be rolled over.


  • OPEC+ is reportedly not currently discussing the possibility of reducing oil production, and one source says it is too early to talk about reduction, according to TASS; note: this quote has subsequently been withdrawn from the article, without an explanation yet provided.
  • Reuters sources said OPEC+ might lean towards an oil output reduction when and if Iranian production returns, whilst warnings cuts may not be imminent. (23rd Aug)
  • WSJ reported Saudi Arabia and its allies are open to oil-output cuts to keep prices high, and the comments from the Saudi Energy Minister have been backed by some OPEC members, such as Iraq, Kuwait, and Algeria for now. (23rd Aug)
  • Five OPEC+ sources told Argus that a formal proposal to reduce production was not on the table, but another said cuts were possible "if needed". (24th Aug)
  • Saudi Arabia and UAE could pump significantly more oil in the case of a winter crisis, but would only do so if supply worsened, according to Reuters; sources said OPEC members possess around 2.0-2.7mln BPD of spare capacity. (4th Aug)


  • Saudi Energy Minister said OPEC+ may need to tighten output to stabilise the market and that the oil futures "disconnect" may force OPEC+ action. Furthermore, he stated OPEC+ will soon start work on a new accord for post-2022 and has the means to deal with market challenges including cutting production at any time and in different forms, while he also stated that the oil market is overlooking limited spare capacity and faces extreme volatility amid low liquidity, according to Bloomberg. (22nd Aug)
  • Russian Deputy PM Novak said Russian oil producers support an extension of the OPEC+ deal after 2022. Russia and partners will discuss an extension in October.
  • UAE is supportive of the latest statement from Saudi Arabia on crude markets, according to Reuters citing sources. (26th Aug)
  • Iraq supports the statement from the Saudi oil minister on extreme volatility within oil markets and believes the OPEC alliance will take all necessary measures to achieve market balance, Bloombergsaid. Iraq said thin liquidity and extreme fluctuations in oil futures markets lead to prices being far from fundamentals, and OPEC has several tools to combat market fluctuations, due to discrepancies between futures and spot markets. (24th Aug)
  • OPEC President (Congo) said he is open to an oil production cut, according to WSJ. (25th Aug).
  • Algeria said it's ready to balance oil market with OPEC+ partners; concerned about elevated oil price volatility which does not reflect a major change in fundamentals. (24th Aug)
  • US State Department says conversations will continue with OPEC+ and other partners. (22nd Aug)
  • Russia's Gazprom CEO called for the OPEC+ deal to be extended, and geopolitics are behind high oil prices and OPEC+ is not to blame for it. (30th Aug)
  • OPEC Secretary General said fears of a Chinese slowdown have been taken out of proportion, "relatively optimistic" on the 2023 oil outlook. OPEC Sec Gen says he sees a likelihood of an oil-supply squeeze this year, open to dialogue with the US. Still bullish on oil demand for 2022. Too soon to call the outcome of the September 5th gathering. (17th Aug)

JTC FINDINGS: The OPEC+ Joint Technical Committee (JTC), under a revised analysis due to underproduction by members, cut its 2022 surplus forecast by half to 400k BPD and flipped the forecast for 2023 to a deficit of 300k BPD. Assuming producers hit their quotas, the JTC sees the 2022 oil market surplus at 900k BPD, +100k BPD from the prior report; it also acknowledged the relevance of the Saudi Energy Minister's comments on volatility and thin liquidity of crude markets, according to Reuters.



The Iranian Nuclear Deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), has been in a state of limbo following a string of unsuccessful negotiations between members, namely Tehran and Washington – who have resisted making concessions up until recently (a recent Newsquawk analysis can be found here). The Biden administration has attempted to revive the deal to bring energy prices down as the West shuns Russia's oil and gas. In March 2022, the Iranian oil minister was cited saying Iranian oil production capacity can reach its maximum less than two months after a nuclear deal is reached. Iran pumped an average of 2.4mln BPD in 2021 and plans to increase output to 3.8mln BPD if sanctions are lifted, with the National Iranian Oil Company (NIOC) chief also suggesting the possibility of over 4mln BPD by year-end. More recently, on August 31st, the EU's foreign policy chief said on he was hopeful the Iran nuclear deal could be revived "in the coming days" after receiving "reasonable" responses from Tehran and Washington to his proposed text.


OPEC+ is burdened with limited spare capacity, with Saudi Arabia and the UAE the members with the most output power left. As a reminder, the IEA estimates Saudi has a short-order capacity (reachable in less than 90 days) of around 1.2mln BPD, with the longer-term capacity predicted to be nearer to 2.1mln BPD. The argument OPEC watchers have been flagging is the state of confidence within the group (to stabilise the oil market) if they have no spare capacity, with oil traders warning of a potential upward spiral in oil prices if this “worst case” scenario was to occur.


The COVID situation in China remains a headwind for global growth and overall demand. Several Chinese cities have tightened restrictions in recent days, with the latest major update being the Chinese metropolis of Chengdu, which will affect 21mln residents - this is China's largest city-wide lockdown since Shanghai in June. Furthermore, Moody's became the latest agency to downgrade its global economic growth forecast - "the risk of further energy shocks remains high. As for monetary policy, it will be tricky for central banks to navigate to an equilibrium where inflation falls but economic activity does not slip into a deep recession. China's low tolerance for COVID-19 outbreaks and weakness in its property sector pose risks to its growth outlook," Moody's said.


The holder of the EU’s rotating presidency, the Czech Republic, has called for an emergency energy meeting on September 9th in Brussels to discuss a broader solution to the rise in energy markets. "The main task... is to separate the price of electricity from the price of gas, and thus prevent Putin from dictating to Europe prices of electricity with his shenanigans with gas supplies," the Czech Industry Minister said. Power prices have been on an exponential rise in recent weeks, with French and German contracts breaching both EUR 1,000/MWh (note: natural gas prices have seen some pull-back recently after EU officials pledged to take action). The Czech Industry Minister expects draft proposals next week. One-fifth of European electricity is generated by gas-fired power plants. A Commission official also said the EU is looking at energy price caps as well as options for lowering electricity demand, including looking at windfall taxes in the context of high energy prices.


Oil prices have been volatile since OPEC's last meeting, and somewhat unstable with Brent in a USD 15/bbl range. The Saudi Energy Minister said OPEC+ seeks to calm a "yo-yo" oil market that he views as a threat to energy security and the global economy. Some have also suggested the Saudi commentary indicates an "OPEC put", i.e., a price floor - however, his comments were seemingly more related to volatility. Meanwhile, IEA's Birol said a further strategic petroleum reserve release is not off the table, and Russian oil production has not fallen as much as previously expected.

Amid the shunning of Russian energy from the West, market share has been rejigged, with some Asian nations upping imports of Russian crude (see figure below via S&P Global). There have also been reports that Russia is mulling oil discounts of up to 30% with Asian nations in response to the price-cap push, according to Bloomberg.

Meanwhile, Iraq's SOMO said it can redirect more crude oil exports to Europe if needed, according to Reuters citing a SOMO source. SOMO began exports to Europe in June and said Iraq has adjusted export flows as a result of increased competition in Asian markets.

Tyler Durden Mon, 09/05/2022 - 07:43

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High fossil fuel prices mean UK cannot delay transition to low emissions steel

Steelmaking with green hydrogen is now a less expensive prospect relative to alternatives.




Norenko Andrey/Shutterstock

Steel is essential for making many of the technologies that will end fossil fuel combustion, including electric vehicles, wind turbines and solar panels. Unfortunately, to produce a lot of steel, manufacturers need to burn a lot of fossil fuel.

Steel production accounted for 2% of the UK’s emissions in 2019 and ranks second for energy consumption among the country’s heavy industries. Roughly two-thirds of this energy comes from coal.

The blast furnaces of steelworks burn a special type called coking coal (which is converted to a hard and porous fuel known as coke) at temperatures of up to 2,000°C, producing large amounts of carbon dioxide (CO₂) – around 1.8 tonnes for each tonne of steel. This method accounted for 82% of steel production in the UK in 2021, and 71% of all steel made worldwide that year.

While coal-based steelmaking can be decarbonised to an extent by capturing the CO₂, there has to be a suitable storage site nearby or sufficient demand for using that CO₂ in other industries. This is not the case for the blast furnaces in Port Talbot, Wales, which account for half of UK steel production.

Coking coal prices have more than doubled since the beginning of the pandemic and the invasion of Ukraine has disrupted supplies. In 2021, the UK imported 39% of its coking coal from Russia, with almost all of the rest coming from the US and Australia.

Another option is to use natural gas, another fossil fuel. But since 2020, gas prices have also risen considerably. These recent fuel cost hikes demand a reassessment of how steel is made.

A metallurgical plant at night with chimneys belching smoke.
High coal prices make coal-based steelmaking less attractive for producers. ArtEvent ET/Shutterstock

Steelmaking with green hydrogen (hydrogen that has been split from water using electricity generated by renewables or nuclear power) removes fossil fuels from the process altogether. As a result, it could be insulated from increases in fossil fuel prices and carbon taxes, all of which have made steelmaking with fossil fuels more expensive in recent years.

The UK steel industry is currently given a free allocation of emissions allowances, which significantly lowers the effective carbon price paid by steel producers. Our recent research shows that, if this exemption were phased out gradually, steelmaking with green hydrogen produced using wind and solar electricity would in fact be cheaper than all other options.

Green steel

Hydrogen can convert iron ore to a pure form known as sponge iron through a process known as direct reduction. This involves heating hydrogen to between 800 and 1,000°C which reacts with the oxygen in iron ore to leave pure iron and water vapour, with no carbon emissions. The sponge iron is then processed in an electric arc furnace to produce steel.

Electric arc furnaces can also recycle scrap metal, and while the UK has no direct reduction furnaces, it already has five electric arc furnaces that recycle scrap to provide 18% of the nation’s steel. If renewable electricity powered these furnaces and was used to generate the hydrogen that fuels the production of sponge iron, then total emissions from the steel industry could be zero.

A suspended cylinder spewing molten metal.
Electric arc furnaces cut out fossil fuels, but are still expensive to run. D.Alimkin/Shutterstock

The EU and UK have both committed to ending imports of Russian coal in 2022, and large producers such as Tata Steel and ArcelorMittal have already stopped using Russian commodities in their supply chains.

While high gas and electricity prices are making some industries revert to burning coal, our findings show that green hydrogen offers a cheaper alternative to steelmakers. At recent fossil fuel prices, we estimate that direct reduction steelmaking with green hydrogen could be roughly 15% cheaper than the cheapest coal-based option (including carbon capture and storage) over a typical 25-year project lifetime.

Steelmaking with green hydrogen and electric arc furnaces uses lots of electricity. So, in a recent paper, we looked at reducing industrial electricity bills by removing green levies (which raise funds to spur the deployment of renewable technology and support vulnerable customers) and energy network maintenance costs and moving them to general taxation instead.

This would put the UK’s steel industry on an equal footing with France’s and Germany’s. We found that price parity could be achieved by increasing the average income tax bill by around 68p, rising to around £5.50 if UK steel production switched entirely to direct reduction with green hydrogen.

The UK government is considering exempting industries that consume a lot of energy from paying green levies. But soaring fossil fuel prices have hiked wholesale electricity costs so much that removing them and network maintenance fees will not significantly affect bills.

Instead, steelmakers and other heavy industries could access cheap renewable electricity directly in a green power pool.

The UK cannot afford to keep coal-based steelmaking in its decarbonisation strategy and must ensure the steel industry is ready to transition to using green hydrogen fuel instead.

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Clare Richardson-Barlow is a non-resident fellow at the National Bureau of Asian Research.

Andrew Pimm and Pepa Ambrosio-Albala do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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What Is Helicopter Money? Definition, Examples & Applications

What Is Helicopter Money?What’s a surefire way to encourage spending, and thus, spur growth? How about dropping money from the sky? As far-stretched…



Former Fed Chair Ben Bernanke describes helicopter money as a “money-financed tax cut.”

Public DomainPictures from Pexels; Canva

What Is Helicopter Money?

What’s a surefire way to encourage spending, and thus, spur growth? How about dropping money from the sky?

As far-stretched as this idea seems, it actually has credence in schools of economic thought, particularly during times of recession or supply shocks. Helicopter money policies inject large sums into the monetary supply either through increased spending, direct cash stimulus, or a tax cut.

This policy has two goals in mind:

1. Expand the supply of money, which improves liquidity

2. Spur economic growth

Economists consider helicopter money to be an option oflast resort, after other measures, such as lowering interest rates or quantitative easing, have either failed to lift an economy out of recession or because interest rates are already as low as they can get. This conundrum is known as a liquidity trap, when the economy is at a standstill because people are hoarding their savings instead of spending.

Since the practice of helicopter money also tends to foster inflation, it typically works best during periods of deflation, when prices, along with overall monetary supply, contract without a corresponding decrease in economic output. One relevant example is the Great Depression. Bank runs resulted in a reduction in both the monetary supply as well as in the overall prices of goods and services.

It takes a whole lot to lift an economy from such dire straits, and in such cases, helicopter money can be a viable option.

Example of Helicopter Money: The COVID-19 Recession

At the onset of the COVID-19 pandemic, the stock market crashed, and GDP nosedived, thrusting the economy into recession. While the Federal Reserve slashed interest rates and instituted a new round of quantitative easing measures, the U.S. government responded with helicopter money.

  • Under the Coronavirus Aid, Relief, and Economic Security Act (CARES), the Trump administration authorized two rounds of direct-to-taxpayer stimulus payments, of $1200 and $600 per person, in 2020.
  • In addition, as part of the Paycheck Protection Program (PPP), payroll loans were offered to thousands of small businesses—and many were quickly forgiven. The Federal Reserve also provided increased liquidity to banks so that they could offer loans to businesses to help them stay afloat.

Who Coined the Term Helicopter Money?

In a 1969 paper entitled “The Optimum Quantity of Money,” economist Milton Friedman coined the term “helicopter drop” as a method to increase monetary policy during times of economic stress. He wrote:

“Let us suppose now that one day a helicopter flies over [the] community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.”

The point was that the easiest way to lift an economy out of troubled times would be to give its population a direct injection of money. This would both expand the monetary supply and as well as increase the disposable income of the populace, resulting in greater consumer spending and increased economic output.

Who Made the Concept of Helicopter Money Popular?

In the 1990s, Japan was facing a deflationary crisis. Its central bank had implemented crippling rate hikes to calm its housing bubble—to disastrous economic effects.

In a 2002 speech to the National Economists Club, then-Fed Governor Ben Bernanke proposed that Japan’s central bank could have re-started the country’s economy through fiscal programs:

“A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money”

However, critics interpreted Bernanke’s words as his way of authorizing indiscriminate money printing, and the moniker “Helicopter Ben” took hold.

Bernanke would go on to chair the Federal Reserve from 2006–2014, and many of his theories were put into practice during the Financial Crisis of 2007–2008 and subsequent Great Recession. In fact, President Barack Obama credited Bernanke’s leadership during the crisis with averting a second Great Depression.

Helicopter Money vs. Quantitative Easing

While helicopter money and quantitative easing are both monetary policy tools, and both increase the monetary supply, they actually have different effects on a central bank’s balance sheet.

Through quantitative easing, a central bank buys trillions of dollars’ worth of long-term securities, such as Treasury securities, corporate bonds, mortgage-backed securities, or even stocks. This increases its reserves and expands its balance sheet. These purchases are also reversible, meaning the central bank can swap out its assets if it chooses.

Helicopter money, on the other hand, involves fiscal stimulus: distributing money to the public. It has no impact on a central bank’s balance sheet. The practice of helicopter money is irreversible, which means it is permanent—and cannot be undone.

In effect, helicopter money is less a long-term economic solution than it is a “one-time” or short-term operation.

Pros of Helicopter Money

In a 2016 blog post written for the think-tank Brookings Institution, Bernanke admitted that his helicopter money reference gave him some bad PR. In fact, he said that their media relations officer, Dave Skidmore, had warned Bernanke against using the term, saying “It’s just not the sort of thing a central banker says.”

But Bernanke insisted, and the moniker stuck.

To this day, Bernanke continues to believe in the practice of helicopter money as a tool the Fed could use in response to a slowdown in the economy. His successor at the Federal Reserve, Janet Yellen, agreed, stating that helicopter money “is something that one might legitimately consider.”

Other central bankers support the concept, particularly in Europe, which suffered from debt crises that mired its economy throughout the 2000s, igniting deflationary pressures like low demand and weak lending, and made recovery exceedingly difficult.

Cons of Helicopter Money

The biggest drawback of helicopter money is the inflation it tends to ignite. And since inflation is notoriously difficult to manage, once the inflationary fires have been stoked, what’s to prevent them from growing out of control—and fostering hyperinflation? That’s what happened in countries like Argentina and Venezuela, when their central banks printed money and gave it to their governments, who in turn gave it to the people. Inflation surged.

Helicopter money also leads to weakened currencies, because as more and more money is printed, its value decreases significantly. It could also deter currency traders from making long-term investments if the practice is prolonged.

Clearly, helicopter money is not a practice a central bank should undertake lightly.

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Arsenal’s $55.9M Loss An Improvement Over Previous Fiscal Year

Arsenal took a heavy loss but saw reasons for optimism.
The post Arsenal’s $55.9M Loss An Improvement Over Previous Fiscal Year appeared first on Front…



As a team in transition, Arsenal saw some losses in its last`fiscal year — but also saw signs of hope.

The Premier League team took an operating loss of $55.9 million in the fiscal year ending May 2022.

  • That figure was a significant improvement on last year’s $131.9 million loss.
  • The team saved around $39 million in wages compared to the previous year.
  • But broadcasting revenue dropped from $225 million to $178 million.

Arsenal benefitted from the lifting of pandemic restrictions, with matchday revenue rising by around $51.6 million to $453.7 million.

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Streak Snapped

The club failed to qualify for any European competitions in the 2020-21 season for the first time since 1994-95, which led to heavy spending on player contracts. 

“This investment recognises that the Club has not been where it wanted to be in terms of on-field competitiveness and that, as a minimum, qualification for UEFA competition needed to be regained, as a prerequisite to re-establishing a self-sufficient financial base,” the club wrote.

Arsenal credited owners Kroenke Sports & Entertainment for its willingness to invest in the team.

The move has borne fruit this season with Arsenal’s return to the Europa League, the second-tier competition to the UEFA Champions League. The team has already earned $8.4 million for its appearance there, with total potential earnings up to $22.1 million.

The post Arsenal’s $55.9M Loss An Improvement Over Previous Fiscal Year appeared first on Front Office Sports.

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