OT - Ruble watching

[Damocles]

I've been watching the ruble for the past two weeks and I got to say, it's time to break out the popcorn. This is going to get INTERESTING!

Everyone remembers that Chinese curse right?

[kato13]

It all comes down to the price of oil and the Saudi's are in a wonderful position now to totally screw over both the Russians (whom they are pissed off at re. Syria) and American shale speculators (just like they did in the 80s). Heck they can take down the whole green movement as well with 40 dollar a barrel oil for next 2 years.

[RN7]

Who will blink first? I think the Saudis will.

America (and Europe) likes its cheap oil and they also like the fact that its their own oil. Saudi Arabia can manipulate the price of oil as low as it wants, but if they force the US shale producers out of business which is their intension then the banks will foreclose on the loans they have invested in the shale producers and they will in effect own the shale. They will then sell it on cheaply to the Supermajors (ExxonMobile, Chevron, Shell and BP) and none of them are not short of money or are dependent on shale to make a profit. It will be the Saudi's and OPEC's worst nightmare, a bunch of super sized American and British oil companies with huge oil reserves in America, and guess were all the oil at your local gas station will be coming from!

[raketenjagdpanzer]

Finally. Bring on Saudi America and let's turn our backs on the Middle East once and for all...

[Cdnwolf]

and guess were all the oil at your local gas station will be coming from!


Canada.

[kato13]

People thought it was bad at 60 rubles to the dollar yesterday (it was at 35 at the beginning of the year) and it hit 77 today.

http://www.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=USDRUB&uf=7168&type=2&size=2&sid=0&style=1013&freq=1&time=8&rand=1318721756&ma=1&maval=50&lf=1&lf2=4&lf3=0&height=444&width=579&mocktick=1

If this is what happens after you take dramatic efforts to stop the loss of value, it looks like you are entering a death spiral.

[RN7]

Canada.

Maybe some of it alright.

[stormlion1]

A failing Ruble could go either way, it could cause the Russian governments fall given enough time and anger in the population or could cause them to go for a short, victorious war in a effort to reinvigorate there economy and drain whoever they conquered economy into there own like a needle full of vitamins, not a long term solution but one that would keep them a going concern for a bit longer until the next time they need a booster shot.

[Webstral]

I’d like to know more of the details that are hidden from general view. For instance, I have read that the Saudis don’t have the kind of liquid cash reserves they once did. Other members of OPEC may not have the reserves for a long term price war, either. If the dropping price of oil results in a major disruption, the global economy could go back into recession. The Saudis and OPEC have to be sensitive to this. Capturing control of a reduced market may look good in the long term, but not everybody can afford to think long term. The bills that accumulate during a price war will have to be paid.

Odd as it may sound, this is the time for us to go whole hog into transitioning from a fossil fuel economy to an electricity-and-synthetic natural gas energy economy. The keystone of making this happen is getting a Manhattan Project type of effort going on bringing down the energy costs of electrolyzing water. Right now, the energy requirements of electrolysis amount to 180% of the energy one gains from combining hydrogen and oxygen. If the energy requirement can be brought down to 150%, the economy of storing [the energy value of] electricity as synthetic natural gas will be transformed. If the research to make this happen costs $20 billion, it will be a pittance compared to the money we spend on the fossil fuel economy. Once we can store electricity as SNG in a cost effective fashion, everything can change.

There will be some losers in all this. The immediate losers will be the coal industry. When surplus renewable electricity can be stored as SNG in a cost effective fashion, then the death knell for coal fired electricity will have sounded. Exports may still be possible, but other countries will catch on to the value of using renewables-to-SNG to secure their own electricity independence fairly quickly. While I am unsympathetic to the shareholders, who compete in the free market after all, I am concerned about the impact on labor in the coal mining parts of the country. For this reason, I would support adding a jobs retraining appropriation along with the research project. It should not be very hard to figure out how many jobs would be eliminated as a result of a cessation of coal mining, then figure out how many of these jobs need how much retraining before the labor can be repurposed. Retraining all of these people would cost a pretty penny. Perhaps money could be set aside to retrain 1/3 or ½ with the understanding that attrition of this labor pool through retirement or the cost-free transition of some of them to other mining jobs or even other admin and chemical industry jobs would cover a significant portion of the remainder. If the money were made available on a first-come first-served basis, some of the dithering might be avoided.

Such a breakthrough also will be a problem for the Russians in the long term. Once developed nations are synthesizing their own natural gas, there won’t be a lot of demand for one of Russia’s principal exports. Petroleum will still be needed for all the purposes besides burning it for energy. There definitely will be a decline in demand, though. So when and if we can crack the code on more energy efficient electrolysis, Russia is going to have to figure out another way to bring in hard currency.

[kato13]

I’d like to know more of the details that are hidden from general view. For instance, I have read that the Saudis don’t have the kind of liquid cash reserves they once did. Other members of OPEC may not have the reserves for a long term price war, either. If the dropping price of oil results in a major disruption, the global economy could go back into recession. The Saudis and OPEC have to be sensitive to this. Capturing control of a reduced market may look good in the long term, but not everybody can afford to think long term. The bills that accumulate during a price war will have to be paid.


Everything I have read in the past 2 months say that the Saudis have at least 750 billion in cash reserves (up 20.1% since last year) and can break even at 38 dollars a barrel. Other members of OPEC are nowhere near this level, but the Saudis have a lot of economic flexibility.

[Webstral]

Interesting. I'd like to know what the real numbers are. It's clear that some sources are misinformed--perhaps all of them. If the Saudis have very deep reserves of cash right now, and if they can break even at $38/barrel, I wonder that will play with the other members of OPEC. Will the Saudis part with some of their cash to keep their partners afloat long enough to accomplish the mission? What happens if the Saudis and the other members of OPEC reach a point at which the non-Saudis won't tolerate the blow to their income any longer? It's a dangerous game.

[Targan]

Ouch. Crash the global natural gas and coal prices and my country's economy will go down the toilet. It's already struggling with low iron ore prices.

[RN7]

The Saudi's are undoubtedly trying to choke US shale oil producers with low oil prices, as surging US shale oil production is a huge threat to OPEC's domination of the world's oil industry. As Kato stated Saudi Arabian sovereign-wealth fund monetary reserves are about US$ 750 billion and most of it is sitting in the Saudi central bank. The Saudi's don't invest much outside of their own country unlike other oil rich Gulf states. Most Saudi investment is in Saudi Arabia or in foreign bonds and equities, rather than in foreign real estate like Kuwait, Qatar and Abu Dhabi as the Saudi national income is lower because they have a bigger population. Unlike most other OPEC countries Saudi Arabia could quite comfortably survive for at least three years and maybe up to six years with oil prices at $40 a barrel. The other OPEC members including Iran, Iraq, Libya, Venezuela and Nigeria could not. The Saudi's have no interest in the success of other OPEC members as they are competitors, and would be quite happy to see Iran's economy hurt as they have a lot of enmity with the Iranians due to the Sunni and Shia rivalry in the Islamic world and major regional rivalry between both countries.

Back in the 1980's the Saudi's did the same at the request of Ronald Regan and the CIA to destabilise the Soviet Union, who's earnings were heavily dependent on oil exports. By manipulating oil prices as Ronny embarked on huge arms spending spree they succeeded to cripple the Soviet economy forcing Gorbachev to raise the white flag and the rest is history. The Saudi's are trying to repeat this move to strangle US shale production. However America is not the Soviet Union or Russia. Despite the importance of the petrochemical industry to the US economy and its potential importance to the future growth of the economy, the American economy is too large and diverse to be harmed by the likes of Saudi Arabia and America derives no income at all from oil exports as it does not export oil due in large part to previous Saudi manipulation in the 1970's which sparked the oil crisis. If the Saudi's succeed in driving US shale producers out of business the big winners as I already stated will be the Supermajors as there will be a fire sale as the smaller energy companies get taken over by the big ones. Exxon and Chevron have both publically stated that they could survive oil prices as low as $40 a barrel and will take full advantage of what they see as a window of opportunity for them.

[Slappy]

I wouldn't count out the Saudi - Iranian angle here.

The Saudis hate Iran and hate even more the idea of them getting the bomb. I can't help but notice that this corresponds with the extension of the latest phase of the Iran nuclear talks. With Oil this low, the Iranian economy is also in a world of hurt and they may have to cut a deal. I think that's the major Saudi motivation. If they hit Putin and the Frackers too, even better. But if/once Iran caves, I think they'll take their foot off the gas.

[kato13]

I agree Iran also is a wonderful bonus for the Saudis.

They can take out 3 rivals, and make the US and the world happy with them. All they will have to do is eat into the profits they made in the last 2 years.

[kato13]

As a numbers junkie I found the following page fascinating.

http://reports.weforum.org/global-competitiveness-report-2014-2015/economies/#economy=RUS

Each of these numbers ranks a country out of 145 countries which were reviewed.

As far as major nations go, Russia really seems to be lower than I would expect in MANY categories.

The only major categories where it is in the top 30 is market size where it is at 7.

It was at 31 for macro economics, but I think the bottom has dropped out of that category with the drop in oil and the fall of the ruble. To be fair they are probably still ahead of the the US on this one (as the US is very weak in this one category, but is in the top 16 for nine of the other eleven categories)

Its next strongest are Higher Education and Infrastructure (both 39) where solid numbers in Quantity of Education, Railroads, Airplane Seat Miles and mobile phones provide a majority of the strengths.

Then the ratings really drop with every other category being below 45 and an overall numerical average of 61 and their weighted average of 53.

edit changed quality to quantity (they are still following Stalin I guess)

[RN7]

Russia is going down the tubes fast. Remember when Obama hit them with economic sanctions over the Ukraine and the annexation of the Crimea and many thought he was being typically too feeble in responding. It seems he wasn't.

http://www.telegraph.co.uk/finance/economics/11305146/The-week-the-dam-broke-in-Russia-and-ended-Putins-dreams.html

[kato13]

http://www.telegraph.co.uk/finance/economics/11305146/The-week-the-dam-broke-in-Russia-and-ended-Putins-dreams.html

That was the article that directed me to the page I mentioned above.

The economy is a tangle of bottlenecks. Russia ranks 136 for road quality, 126 for the ability of firms to absorb technology, 124 for availability of the latest technology, 120 for the burden of government regulation, and 105 for product sophistication, in the World Economic Forum’s index of competitiveness.

These numbers forced me to dig deeper.

[RN7]

That was the article that directed me to the page I mentioned above.



These numbers forced me to dig deeper.

Are you sure it was the same one Kato as its dated the 23rd of December?

[RN7]

Some interesting discussion going on about that article in the Telegraph's comments sections. One of the commenters is a well known Chinese propaganda troll who is obviously paid to defend everything about China and its allies with a blind madness from a ChiCom government office in Beijing. Some Russian ones have also joined in to condemn the Western imperialist, they must really be rattled.

[kato13]

Are you sure it was the same one Kato as its dated the 23rd of December?


Yep that is the one. (You obviously have not mastered the Flux capacitor).


Actually they probably republished it. (I found a link to the article from the morning of the 22nd here (http://romaninukraine.com/russian-military-spending-inflation-adjusted/) with the quote I used)

Those numbers in the 120s stunned me so I spent quite a bit of time on the WEF site reviewing their methodology and data.

[kato13]

Some interesting discussion going on about that article in the Telegraph's comments sections. One of the commenters is a well known Chinese propaganda troll who is obviously paid to defend everything about China and its allies with a blind madness from a ChiCom government office in Beijing. Some Russian ones have also joined in to condemn the Western imperialist, they must really be rattled.

Yeah I have seen lots of paid Trolls from Russia and a few from China. I think it is funny that they think they are not recognized.

For the most part I try to only follow news sites that allow comments. While you have to wade through a lot of trash, if the author has made a major mistake comments are often the only way to catch it.

[RN7]

That Roman guy reminds me a bit of Sacha Baron Cohen's Borat!

I'm still a bit confused about the Saudi role in all this. It would seem that it is a straight forward survival instinct by Saudi Arabian domination of OPEC to protect itself against US shale by manipulating the price of oil to squeeze the small shale producers out of business. But I'm now not so sure that the US government is not playing a role in this.