International
Why Saudi Arabia May Be Forced To Start Another Oil Price War
Why Saudi Arabia May Be Forced To Start Another Oil Price War
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Authored by Cyril Widdershoven via OilPrice.com,
The ongoing weakness of global oil markets seems to be stoking tensions within OPEC+, and a split within its leadership is now imminent. From the start of this year’s Moscow-Riyadh brokered OPEC+ production cut deal, internal differences have been kept at bay by a global pandemic and high crude oil storage volume. Market optimism now seems to be growing, from bullish reports about next year’s crude oil prices and even today’s IEA World Energy 2020 Report. But the reality of oil markets is far bleaker.
The threat of European lockdowns is real, hitting global demand again while taking a heavy toll on the economy. Financial easing and subsidies worldwide have kept some demand in place, but the financials of major economies are bleak, which can be seen in the rising level of unemployment. This will not only remove OECD demand for oil but also for Asian manufacturing. OPEC+ seems to be looking at things differently though, with oil taps in Saudi Arabia, Russia, and other OPEC+ member countries opening once again. OPEC production cuts compliance is still around 100%, but the coming months will see that figure fall.
Nobody is speaking about a new oil price war yet, but the writing is on the wall with some producers now fed up with strangling their own production to counter the overproduction of others. Asian importers, especially China and India, have been reaping the rewards of this low price environment, filling their oil storage tanks to the brim. Although most Asian importers now seem to be content with storage. An OECD economic downturn will put several million barrels per day of expected Asian demand at risk.
In contrast to former assessments, Q32020-Q12021 is not forecast to see a healthy upturn of oil and petroleum products demand worldwide. Global oil storage levels are still high, while the world is awash with oil and gas. International traders are openly questioning the current OPEC+ move to put extra oil on the market, as there is no current need for these barrels. In January 2021, the former production cut of around 10 million bpd (May 2020) will fall to 6 million bpd. As stated in May, not even the existing cuts are sufficient and an easing of cuts will only prolong the current weak market conditions.
It is a worrying time for the two main architects of the OPEC+ agreement. One could say that Riyadh and Moscow are caught in a Catch22 situation, as whatever they try to do, the market is likely too weak to react and will come back to hurt both parties. Saudi Arabia, supported by its main ally UAE, and Russia are both looking at a financial crash of unknown magnitude if oil markets don’t recover soon. Oil prices are currently too low to sustain the government strategy of both nations. The latest reports on the Saudi government budget, which is based on a $50 per barrel scenario, is realistically too optimistic, as prices right now are in the low $40s.
For Russia, its economy has been hit from all sides, as oil and gas is weak, demand worldwide is down, and the diversification of its economy is stalling. Putin’s maneuverability, however, is higher than that of the Saudi rulers. Russia’s global power position still opens doors to make life bearable in the coming months.
Saudi Arabia, however, is looking at a situation in which a straightforward strategy does not seem to exist. Without higher crude oil prices, not only is the Kingdom’s flagship Saudi Aramco suffering but most government projects too. The world’s largest oil company has already put several major new projects on hold, while at the same time reassessing investment levels of others. High-profile offshore projects, such as the Red Sea or the setup of the new shipyard in Ras Al Khair, are not progressing as fast anymore, showing some internal constraints.
Aramco is also being squeezed by Riyadh for cash to fund the ongoing Saudi Vision 2030 projects. Diversification of the economy is needed, but without cash, projects are being delayed or even put on ice. The Kingdom’s finances are struggling, already shown by the fact that international interest for Saudi (and Russian) government bonds is waning. Last week’s US$ -denominated government bonds to Russia and Saudi Arabia have fallen, mainly due to lower oil prices and U.S. election issues. If capital markets are getting worried, then Riyadh and Moscow really are in trouble. Drastic measures will need to be taken.
With an internal crisis looming, the Bear and the Kingdom could be forced to take totally different roads. If the threats made by Saudi Arabia’s Minister of Energy Prince Abdulaziz Bin Salman that the Kingdom has had enough of profit takers, short investors, or lack of support of members, are to be taken face value, the market should not be surprised if the OPEC leader decides again to go its own way. A more aggressive move by Riyadh towards market-share or oil prices is not at all unthinkable. The ongoing financial onslaught wreaking havoc on IOCs and oilfield services is also hitting NOCs. Revenues and profits are still high, but their respective governments are in dire need of cash. The relationship between Russia and Saudi Arabia may have appeared to be a marriage made in heaven, but now it is all falling apart.
With internal financial pressures and increased unemployment, especially amongst young people, young leaders in the Middle East are likely to follow their hearts. If cooperation will not bring the necessary rewards, the old option of a new oil price war is not unimaginable. The global energy transition and fossil fuel divestments are already removing the weak for the oil and gas industry. There is a need for consolidation, maybe Russia and Saudi Arabia will follow a Malthusian-Darwinian approach in the future. This time, both IOCs-independents and some weaker OPEC+ producers will suffer. Statements made these weeks that Saudi Arabia wants to be the last oil producer standing or the “Sole Survivor” should not be taken lightly. This implicit threat needs to be taken at face value. The gloves are likely to come off in the coming months, and oil markets will have to be ready.
International
Stock Market Today: Stocks turn lower as Treasury yield rise mutes earnings gains
A mixed set of big tech earnings, alongside modestly higher Treasury yields, has stocks moving lower into the start of the Wednesday session.
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International
People in Europe ate seaweed for thousands of years before it largely disappeared from their diets – we wonder why?
The decline of seaweed as part of the staple diet in Europe remains a mystery.
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How are we sure people ate seaweed?
We identified several types of molecules in the dental calculus that collectively are characteristic of seaweed. We refer to these as “biomarkers”. They include a set of chemical compounds called alkylpyrroles. When we detect these compounds together in calculus, we can be fairly sure where they came from. The same goes for other compounds characteristic of seaweed and freshwater plants. To have become embedded in dental calculus, the seaweed and freshwater plants had to have been in the mouth and most probably chewed. Biomarkers do not survive in all our samples, but where they do, they’re found consistently across many individuals we analysed from different places. This suggests seaweed was probably a routine part of the diet.Perceptions of seaweed
Today, seaweed is often seen as the scourge of beaches. It accumulates at the high-water mark where it can create a slippery and sometimes smelly barrier to the sea. But it is a wondrous world of its own. There are over 10,000 species of seaweed worldwide living in the intertidal zone (where the ocean meets the land between high and low tides) and the subtidal zone (a region below the intertidal zone that is continuously covered by water). Around 145 of these species are eaten today and in parts of Asia it is commonplace. Seaweed is edible, nutritious, sometimes medicinal, abundant and local. Although overconsumption can cause iodine toxicity, there are no poisonous intertidal species in Europe. It is also available all year round, which would have been particularly useful in the past, when food supplies were less reliable.Reconstructing ancient diets
Reconstructing ancient diets is challenging and is generally more difficult as you go back in time. This helps explain why we’ve only just realised how much seaweed was being eaten by ancient Europeans. In archaeology, evidence for ancient diets often comes from physical remains: animal bones, fish bones and the hard parts of shellfish. Evidence for plants as part of the diet before farming, however, is rare. Techniques to study molecules from archaeological remains have been around for some time. A key method is known as carbon/nitrogen (C and N) stable isotope analysis. This is widely used to reconstruct ancient human and animal diets based on the relative proportions of these elements in bone collagen. But the presence of plants has been difficult to identify, due to their low nitrogen content. Their presence is masked by an overwhelming signal for animals and fish.Hiding in plain sight
The evidence for seaweed had been present all along, but unrecognised. Our discovery provides a perfect example of how perceptions of what we regard as food influence interpretations of ancient practices. Seaweed was detected in chunks that had been chewed (and presumably spat out) at the 12,000-year-old site of Monte Verde, Chile. But when it is found at archaeological sites, it is more commonly interpreted as having been used for things other than food, such as fuel and food wrappings. In European archaeology, there is a longstanding perception that Mesolithic hunter-gatherers ate lots of seafood, but that when people started farming, they focused on food sourced from land, such as their livestock. Our findings hammer another nail into the coffin of this theory. Today, only a few traditional recipes remain, such as laverbread made from the seaweed species Porphyra umbilicalis in Wales. It’s still not clear why seaweed declined as a staple source of food in Europe after the Middle Ages.What are the implications?
Our unexpected discovery changes the way we understand past people. It also alters our perceptions of how they understood the landscape and how they exploited local resources. It suggests, not for the first time, that we vastly underestimate ancient people. They had a knowledge, particularly about the natural world, that is difficult for us to imagine today. The finding also reminds us that archaeological remains are minute windows into the past, reinforcing the care required when developing theories based on limited evidence. The consumption of plants, upon which our world depends, has been habitually left out of dietary theories from our pre-agrarian past. Rigid theories have sometimes forgotten that humans were behind these archaeological cultures – and that they were probably similar to us in their curiosity and needs. Today seaweed sits, largely unused as food, on our doorstep. Making the edible species a bigger component of our diets could even contribute to making our food supplies more sustainable.
The authors 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.
european europeInternational
EUR/AUD bearish breakdown supported by additional China fiscal stimulus and AU inflation
Weak PMI readings from the Eurozone, an increase in China’s budget deficit ratio, and renewed inflationary pressures in Australia may trigger a persistent…
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- Weak PMI readings from the Eurozone, an increase in China’s budget deficit ratio, and renewed inflationary pressures in Australia may trigger a persistent bearish sentiment loop in EUR/AUD.
- Watch the key short-term resistance at 1.6700 for EUR/AUD.
- A break below 1.6250 key medium-term support on the EUR/AUD may trigger a multi-week bearish impulsive down move.
The Euro (EUR) tumbled overnight throughout the US session as it erased its prior gains against the US dollar recorded on Monday, 23 October; the EUR/USD shed -104 pips from yesterday’s intraday high of 1.0695 to close the US session at 1.0591, its weakest performance in the past seven sessions.
Yesterday’s resurgence of the USD dollar strength has been attributed to a robust set of October flash manufacturing and services PMI data from the US in contrast with weak readings seen in the UK and Eurozone that represented stagflation risks.
Interestingly, the Aussie dollar (AUD) has outperformed the US dollar where the AUD/USD managed to squeeze out a minor daily gain of 21 pips by the close of yesterday’s US session. The resilient movement of the AUD/USD has been impacted by positive news flow out from China, Australia’s key trading partner.
China’s national legislature has just approved a budgetary plan to raise the fiscal deficit ratio for 2023 to around 3.8% of its GDP which was above the initial 3% set in March and set to issue additional sovereign debt worth 1 trillion yuan in Q4. This latest round of additional fiscal stimulus suggests that China’s top policymakers are expanding their initial targeted measures to address the ongoing severe liquidity crunch in the domestic property market as well as to reverse the persistent weak sentiment inherent in the stock market.
In addition, the latest set of Australia’s inflation data surpassed expectations has also reinforced another layer of positive feedback loop in the Aussie dollar which in turn may put Australia’s central bank, RBA on a “hawkish guard” against cutting its policy cash rate too soon.
The less lagging monthly CPI Indicator has risen to an annualized rate of 5.6% in September, above consensus estimates of 5.4%, and surpassed August’s reading of 5.2% which has translated into a second consecutive month of uptick in inflationary growth.
In the lens of technical analysis, a potential bearish configuration setup has emerged in the EUR/AUD cross pair from a short to medium-term perspective.
Major uptrend phase of EUR/AUD is weakening
Fig 1: EUR/AUD medium-term trend as of 25 Oct 2023 (Source: TradingView, click to enlarge chart)
Even though the price actions of the EUR/AUD have been oscillating within a major ascending channel since its 25 August 2023 low of 1.4285 and traded above the key 200-day moving average so far, the momentum of this up movement is showing signs of bullish exhaustion.
Yesterday (24 October) price action ended with a daily bearish reversal “Marubozu” candlestick coupled with the daily RSI momentum indicator that retreated right at a significant parallel resistance in place since March 2023 at the 65 level which suggests a revival of medium-term bearish momentum.
EUR/AUD bears are now attacking the minor ascending support
Fig 2: EUR/AUD minor short-term trend as of 25 Oct 2023 (Source: TradingView, click to enlarge chart)
The EUR/AUD has now staged a bearish price action follow-through via the breakdown of its minor ascending support from its 29 September 2023 low after a momentum bearish breakdown that was flashed earlier yesterday (24 October) during the European session as seen from the 4-hour RSI momentum indicator.
Watch the 1.6700 key short-term pivotal resistance (also the 50-day moving average) for a further potential slide toward the intermediate supports of 1.6460 and 1.6320 in the first step.
On the other hand, a clearance above 1.6700 invalidates the bearish tone to see the next intermediate resistance coming in at 1.6890.
stimulus budget deficit us dollar euro yuan gdp stimulus european uk china
People in Europe ate seaweed for thousands of years before it largely disappeared from their diets – we wonder why?
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