Daily Archives: August 26, 2015

08/26/15

Saudis Could Face An Open Revolt At Next OPEC Meeting

OPEC next gathers December 4 in Vienna, just over a year since Saudi Oil Minister Ali Al-Naimi announced at the previous OPEC winter meeting the Saudi decision to let the oil market determine oil prices rather than to continue Saudi Arabia’s role of guarantor of $100+/bbl oil.

Despite the intense financial and economic pain this decision has inflicted on Saudi Arabia, its fellow OPEC members, and other oil producers, the Saudis have given no indication they plan to alter course. In fact, Saudis have downplayed the impact of lower prices on their country, asserting that the kingdom has the financial wherewithal to withstand lower oil prices.

Presumably swayed by Saudi equanimity, financial markets do not see the Saudis abandoning their current policy before, during, or after the upcoming OPEC meeting. CME Brent oil futures project continuity: as of August 18, 2015, CME Brent futures projected the price remaining below $60/bbl until June 2017. A CNBC poll of oil traders, analysts, and major fund investors, aired on CNBC August 17, showed 95 percent believing the Saudis will not alter course.

Are the futures market, CNBC’s oil traders, analysts, and major fund investors, and others, being lulled into an unjustified consensus?

The damage the Saudi decision has inflicted on Saudi Arabia itself provides reasons for the Saudis to change course.

Saudi Policy: OPEC-centric or Self-Serving?

Stresses within OPEC should add to the pressure on the Saudis to rethink their strategy. The Saudis sold their change to their fellow OPEC members as being in OPEC’s general interest. They asserted that the their traditional method of stabilizing the oil market, production cuts, would not work since non-OPEC producers would increase output; second, that “market” forces would reduce investment and therefore increase prices in the medium and longer term and ultimately benefit all OPEC members; and third, that any Saudi increase in output was aimed at defending its market share, not reducing theirs.

As the first anniversary of the Saudi decision approaches, it would be reasonable for OPEC outsiders–OPEC members, other than the Saudis and their Gulf Arab allies, Kuwait, UAE, and Qatar—to interpret Saudi policy shift as designed to serve Saudi interests and those of its Gulf Arab allies rather than their interests and those of OPEC in general.

“Market” forces include many components. A key component—perhaps the key component—is a country’s capability, at a minimum, to maintain output, and better yet, to increase output. Financial wherewithal is the foundation of this component. Saudi and Gulf Arab OPEC members’ foreign currency reserves and sovereign wealth funds (SWF) comprise approximately 78 percent of total OPEC member holdings, $2.73 trillion of $3.05 trillion.

As the following table shows, their advantage is particularly large on a per capita basis. Of the non-Saudi, non-Gulf Arab ally OPEC members, only Libyan per capita resources exceed the average. (The UAE includes data for three SWF funds only: Abu Dhabi Investment Authority ($773 billion), Abu Dhabi Investment Council ($110 billion), and Investment Corporation of Dubai ($183 billion)).


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Given the other budgetary demands on their oil revenues, $50/bbl or $60/bbl oil leaves these OPEC outsiders with little to invest in maintaining oil output, much less expanding output. Budgetary pressures and limited financial resources, for example, have forced the Iraqi government to request its foreign partners, BP in the Rumaila field and Exxon in the West Gurna-1 field, to reduce spending to cut 2015 investment by $500 million ($1.1 billion vs. $1.6 billion) and $1 billion ($2.5 billion to $3.5) respectively.

While all OPEC members, including Saudi Arabia, have suffered from the Saudi decision, they have not shared the pain equally. Saudi Arabia and its Gulf Arab allies, except Qatar, have increased output, while the output of other OPEC members, other than Iraq and Angola, has either flat-lined or decreased, compared to 2014:


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Given Saudi determination to defend its export markets, it is interesting that the percentage gain in their crude exports exceeded the percentage gain in crude output in 1H 2015, by 2.7 percentage points. For Iran, the only other OPEC country for which the IEA provides domestic demand data, the increase in exports, 0.7 percent, matched the increased domestic output.


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Interestingly, also, the Saudis increased their share of OPEC average daily output in the first half of 2015 over 2014 average daily volume—and their share of average daily global output. Their share of OPEC output increased to 26.6 percent in 1H 2015, from 26 percent on average in 2014, while their share of world output increased to 10.4 percent from 10.2 percent.

For the OPEC outsiders, this should be particularly distressing, since the increase in output likely deepened the decline in prices the Saudi decision to abandon its role as guarantor precipitated.

Both results continue trends seen since 2010. Saudi share of OPEC output increased three percentage points, from 23.6 percent in 2010 to 26.6 percent in 1H 2015. At the same time, the Saudi share of world output increased 1.1 percentage points, from 9.3 percent to 10.4 percent, during the same period; during the same period, OPEC output as a share of global output declined slightly, from 39.5 percent to 39.2 percent.


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In fact, over this period, Saudi Arabia and its Gulf Arab allies increased their total output 18.1 percent while the output from the other OPEC members decreased 5.4 percent. During this period, the Saudi and Gulf Arab share of global output was flat, declining only 0.1 percentage point, while the share of the other members declined 1.5 percentage points, from 16.7 percent to 15.2 percent.


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Impact on Non-OPEC Producers as Advertised?

In defense of their policy, the Saudis could point to IEA projections that show the rate of growth in output from major non-OPEC producers slowing substantially in 2016, particularly in North America, a major Saudi target, and Brazil:


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However, it is reasonable for the OPEC outsiders to question the actual efficacy of Saudi policy on non-OPEC producers and the benefit it will bring them. In both the United States and Russia, each of which produces roughly as much as Saudi Arabia, output increased in 2015 rather than decreasing, and will continue to increase in 2016 in the U.S.

The IEA projects Brazil’s output, despite Brazilian political turmoil, growing 6.45 percent in 2016. Moreover, Saudi policy, combined with the impact of U.S. and EU sanctions on Russia, led to the undesirable result for OPEC (and other oil exporters) that Russian exports have increased, from 7.21 million barrels/day in 2014 to 7.55 million barrels per day in 1H 2015, in part because as Russia’s economy contracted, reducing domestic crude demand to 3.47 MMbbls/day in 1H 2015 from 3.65 MMbbls/day, while crude output increased to 11.025 MMbbls/day from 10.86 MMbbls/day.

Moreover, any comfort the OPEC outsiders gain at best may be cold comfort. While the IEA projects surplus production will begin to recede in 2H 2016, they are suffering now (and in any case, it is a projection). As we have pointed out, RBC Capital’s fragile five, Algeria, Libya, Nigeria, Iraq and Venezuela, the pain is intense. Also, it is wealthy Saudi Arabia and its Gulf Arab allies and non-OPEC members, in particular the U.S., Canada, Mexico (foreign investment), and also Russia (Chinese investment), that will have the financial wherewithal to grow output to satisfy the 18 million barrel per day increase in demand that OPEC sees by 2040.

The December 2015 OPEC Meeting

Given the Saudi decision’s positive impact on their and their Gulf Arab allies’ relative position within OPEC and its negative impact on OPEC outsiders, it is possible, perhaps even likely, the Saudis will face an OPEC outsider revolt at the December 4 OPEC meeting.

The Saudis and their Gulf Arab allies would seem to have three possible approaches, should a revolt occur:

Reconciliation, as Saudi Arabia acquiesces in the wishes of OPEC’s weaker members to bring price increases forward through OPEC production cuts, Saudi Arabia bearing the brunt;

Separation, as the Saudis and their Gulf Arab allies ignore their fellow members’ entreaties and force them to wait for “market” forces to balance supply and demand; or

Divorce, as the Saudis and their Gulf Arab allies decide to exploit their financial wealth and go their own way, therefore forcing their fellow OPEC members, unable to finance their domestic oil industries, unwillingly to bear the brunt of global production cuts.

In October 2014, the Saudis began signaling their intention to abandon their role as guarantor. It is unlikely however, that whatever Saudi decision makers are now considering, they will show their hand in advance of the December meeting, since this would reduce pressure on the non-OPEC producers that the Saudis claim to be targeting, before necessary.

Source: http://oilprice.com/Energy/Crude-Oil/Saudis-Could-Face-An-Open-Revolt-At-Next-OPEC-Meeting.html

By Dalan McEndree for Oilprice.com

08/26/15

Why the Democrats Are So Desperate

By: Cliff Kincaid
Accuracy in Media

The conventional wisdom is that Joe Biden is considering a presidential run because Hillary Clinton’s campaign is scandal-plagued, mostly over the handling of classified emails. But the prospect of Bernie Sanders winning the Democratic presidential nomination has to be regarded as even more of a serious problem for Democrats. Sanders is so loony and far-left that he could easily be portrayed by the opposition as not just a “democratic socialist,” which he claims to be, but a hard-core communist with a bizarre spiritual adviser.

On a left-wing website called Reader Supported News, writer Steve Weissmanfrets that Sanders will be the target of a “red-baiting campaign,” in the same way that Jeremy Corbyn has been exposed in Britain. Corbyn, a socialist, is hoping to lead Britain’s Labor Party. He refuses to deny being a Marxist and has the support of communists. Weissman wants Corbyn and Sanders to stand up for “twenty-first century socialism” and take on their critics.

“The fact that Jeremy Corbyn has made it onto the ballot paper for Labor leader is great news for all socialists,” says the British Communist Party. It notes that a poll on the website of the Daily Mirror found that 83 percent declared him the winner of the first leadership debate, while in a separate survey of Labor Party members “he came first with an impressive 47 percent.”

But it looks like the Democratic Party in the U.S. may have a problem with going this far in too overt a manner. It was one thing for a first-term senator from Illinois named Barack Obama to win the presidency by hiding his Marxist background and outlook. After all, the media were prepared to hide anything to make him the first black president.

It would be quite another thing for long-time socialist and career politician Bernie Sanders, who supported Soviet “peace” initiatives in the 1980s, to hide his ideology, especially when he’s running as an avowed socialist. Sanders appears to be going a bit too far in the left-wing direction, even for Obama’s Democratic Party.

But there’s another big problem for Sanders. He has been closely linked to the New Age spiritual teacher Marianne Williamson, who has made millions of dollars by claiming there are many different pathways to heaven. “The creative challenge of spiritual life is to know enough about God to be hopeful,” she wrote in one of her books. “From Jesus to Buddha to Moses to Mohammed, wayshowers have risen out of the timeline of history to draw maps and pave roads to a more perfect world.”

As we previously reported, the term “wayshower” is a reference to a spiritual master of some kind who guides humanity to a better world. But the idea of Mohammed, the founder of Islam, being a role model, is not the kind of issue that Sanders would want to explain on the presidential campaign trail. Sanders’ association with Williamson is an embarrassment.

Explaining the role of Mohammed as a spiritual hero has been made more difficult by the release of Glenn Beck’s powerful new book, It IS About Islam, exposing the nature of this religion. In contrast to Jesus, who preached love, Mohammed was a violent hater who justified war on his opponents to build an empire. This may sound harsh, but “The time for worrying about being insensitive or hurting other people’s feelings is long past,” Beck argues. His book quotes from Muslim scriptures and authoritative documents to make his case.

Beck says the “mainstream media” have “essentially ordered a blackout” of the truth about Islam. Nevertheless, the truth is getting out, and Beck has been making several important media appearances to promote his book. It is inevitable that Sanders will be asked why New Ager Marianne Williamson, who failed in her own run for a Democratic congressional seat, is backing him and writing articles about revolution on his presidential campaign website. Sanders will not be able to avoid being asked whether he agrees with Williamson’s characterization of Mohammed as a positive influence on human history. He will also be asked why he had appeared at her “Sister Giant” conference together with proponents of legalizing mind-altering drugs.

So the problem for the Democratic Party goes beyond some classified Hillary emails not being handled properly and possibly falling into the hands of our enemies. It’s that the success of her opponent, Bernie Sanders, has exposed how a significant portion of Democratic Party voters are willing to go over the edge with him by openly aligning themselves with a foreign ideology—Marxism—that would make him a certain loser in the general election.

Sanders will have to explain why he has abandoned capitalism, which admittedly has flaws but has brought more freedom and material well-being to more people than any other system in history. He will be asked why, despite his criticism of global trade, he came out in favor of putting American dollars in Communist Cuba. “American businesses are losing billions of dollars because of the economic embargo,” Sanders said. “Meanwhile, Canadians and Europeans are creating jobs through their investments in Cuba.” He ignores the fact that these “investments” benefit the Communist regime and not the Cuban people. Cuban-Americans question why Sanders wants “to partner with Castro’s monopolies and exploit the island’s captive labor.”

Perhaps it’s because Sanders is more of a communist than a socialist.

In Britain, Corbyn doesn’t have a New Age spiritual adviser like Sanders. But he does have links to a cult known as the Lyndon LaRouche movement. Corbyn gave the Australian branch of the group an interview about the BRICS process, the movement by various countries led by Russia to design an alternative to global capitalism. During the interview he spouts all kinds of Marxist gibberish about different topics, even blaming right-wingers for the socialist mismanagement of the economy in Venezuela.

Sanders talks nonsense as well, such as his attacks on the billionaire Koch brothers for making products that people in America and around the world actually use. But as we demonstrated in a recent column, Sanders has been curiously silent about the insider trading conviction and currency manipulations of Democratic Party money bags George Soros.

“I am not a billionaire,” Sanders said, when asked about GOP candidate Donald Trump. No, but Sanders is running for the presidential nomination of a political party whose activist groups have been subsidized not by one but several billionaires—Soros, Tom Steyer, and Tim Gill among them.

It would look bad for a political party backed by billionaires to nominate an open socialist for the White House. Democratic Party insiders have to understand the problem. That’s why an alternative to Hillary and Sanders must be found.

08/26/15

Iran Nuclear Side Deals Expose Additional Flaws

By: Roger Aronoff
Accuracy in Media

More Democrats are falling in line to support the Iranian nuclear deal, despite recent revelations further exposing the farcical nature of the inspections regime on which it depends. And according to The New York Times, nearly everyone they talk about in this article who either is or might be opposing the deal is doing so because of their loyalty to Israel, or because they come from a state where “anti-Obama sentiments” are “feverish.” It’s never based on the merits. That’s only the people who support the deal, the article implies, and those who are voting with Obama. They are supposedly the principled ones, voting out of “optimism” or based on the merits of the deal. This line of attack is right out of the Obama playbook, blaming Israel and the Jews for opposition to Obama’s foreign policy legacy, which is truly a disaster in the making.

We pointed out many of the inherent problems in this deal last month, and listed many of the reasons it should be defeated in Congress. Even though, according tothis AP article, “A congressional vote of disapproval would not prevent Obama from acting on his own to start putting the accord in place. While he probably would take some heavy criticism, this course would let him add the foreign policy breakthrough to his second-term list of accomplishments.”

This new push for Democratic endorsements for the deal comes at a time when the details of one of the International Atomic Energy Agency’s (IAEA) secret deals with Iran have gone public, and it becomes all the more apparent that Iran is not going to be held accountable for its past nuclear activities. It makes it all the more unlikely that Iran will face tough scrutiny from the international community, or the IAEA, under the framework’s proposed inspections regime.

The Associated Press and Fox News have reported that with the IAEA’s second of two secret side deals, Iran will, essentially, be allowed to inspect itself at Parchin. But these news outlets and others aren’t covering an equally important development.

IAEA director general Yukiya “Amano was in Washington recently to brief members of Congress and others about the recently inked nuclear accord,”reported Adam Kredo for The Washington Free Beacon on August 18. “However, he did not discuss the nature of side deals with Iran that the United States is not permitted to know about.”

“Iran apparently threatened Amano in a letter meant to ensure he did not reveal specific information about the nature of nuclear inspections going forward, according to Iranian AEOI [Iran’s Atomic Energy Organization] spokesman Behrouz Kamalvandi,” reports Kredo.

Notably, many media outlets—including The New York Times and Washington Post—have not covered this threat against Amano. The Fox News and Associated Press articles covering the Parchin side deal do not mention Iran’s threatening letter.

Instead, the AP’s George Jahn gives the false impression that he broke news regarding the Parchin side deal with his August 19 article. Jahn labeled this a “revelation” that has “newly riled Republican lawmakers.” What was new was that the AP had actually seen the draft agreement, and reported based on that.

In reality, however,  Senators James Risch (R-ID) and Bob Menendez (D-NJ) both had confronted administration officials about the IAEA’s secret deals with Iran in July during a Senate hearing.

“Parchin was designed and operated as an explosive testing place where they designed a detonation trigger for a nuclear weapon,” said Senator Risch during that July 23 hearing. “What you guys agreed to was, we can’t even take samples there. IAEA can’t take samples there. They’re going to be able to test by themselves. … How in the world can you have a nation like Iran doing their own testing?”

Senator Menendez later asked Secretary of State John Kerry whether this was true, and was told by the Secretary that he could neither confirm nor deny that assertion. It would be better to be fully briefed in a classified setting, Kerry said. But, “The IAEA has said that they are satisfied that they will be able to do this in a way that does not compromise their needs and that adequately gets the answers that they need,” Kerry asserted.

The Times dismissed this issue in its August 20 article, focusing instead on President Obama’s pro-deal letter to Congressman Jerrold Nadler (D-NY). Nadler endorsed the deal the next day.

Republicans have “pounced” on this news of inadequate enforcement, but “that issue involved a longstanding effort by the IAEA to complete a report on past Iranian efforts to develop a nuclear weapon, an important part of the international effort to pressure Iran,” argues Jonathan Weisman near the end of his article in the Times.

“It has little to do with verification of the nuclear accord between Iran and the United States, Britain, Germany, France, Russia and China,” he writes. “That verification regime is laid out in the actual nuclear accord and does not rely on Iran’s self-monitoring.”

If this side deal has little to do with the accord, then why list it within the framework in the first place? The deal requires Iran to work with the IAEA on “outstanding issues” as part of listed “transparency and confidence building measures.”

Iran, therefore, is under considerable pressure to appear to now be cooperating with the IAEA.

The Washington Examiner argues in an editorial that “Such an arrangement would give the Iranian regime effective control of the process, making inspections of this site a farce. If this is so, then the Obama administration has agreed to give Iran massive sanctions relief, amounting to $140 billion, in exchange for little more than promises that cannot be verified independently.”

Instead of increasing transparency, Iran has resorted to attempting to coerce its own inspectors. Rather than ignoring or downplaying this nation’s continued stonewalling, the mainstream media might want to reconsider their blind support for this flawed, unworkable deal.

08/26/15

Our Watcher’s Council Nominations – Shootout In Donkey City Edition

The Watcher’s Council

Welcome to the Watcher’s Council, a blogging group consisting of some of the most incisive blogs in the ‘sphere and the longest running group of its kind in existence. Every week, the members nominate two posts each, one written by themselves and one written by someone from outside the group for consideration by the whole Council. Then we vote on the best two posts, with the results appearing on Friday morning.

Council News:

This week, The Pirate’s Cove, Maggie’s Notebook, Simply Jews and Seraphic Secret earned honorable mention status with some great articles.

You can, too! Want to see your work appear on the Watcher’s Council homepage in our weekly contest listing? Didn’t get nominated by a Council member? No worries.

To bring something to my attention, simply head over to Joshuapundit and post the title and a link to the piece you want considered along with an email address (mandatory, but of course it won’t be published) in the comments section no later than Monday 6 PM PST in order to be considered for our honorable mention category. Then return the favor by creating a post on your site linking to the Watcher’s Council contest for the week when it comes out on Wednesday morning.

Simple, no?

It’s a great way of exposing your best work to Watcher’s Council readers and Council members while grabbing the increased traffic and notoriety. And how good is that, eh?

So, let’s see what we have for you this week…

Council Submissions:

Honorable Mentions:

Non-Council Submissions:

Enjoy! And don’t forget to like us on Facebook and follow us on Twitter… ’cause we’re cool like that! And don’t forget to tune in Friday for the results!

08/26/15

NoisyRoom Article Recap – 08/24-26/15

Noisy Room