Greens deserve inclusion in UK leaders’ debates

A political kerfuffle has broken out in British political circles about inclusion (or exclusion) of the UK’s Green Party in televised leaders’ debate ahead of the 2015 General Election on May 7.

It all kicked-off on Monday when the country’s broadcasting regulator Ofcom opined that the Green Party did not have the clout to be considered a big enough player on the national stage.

Prime Minister and leader of the Conservative Party David Cameron then said he wouldn’t take part in a televised debate that excludes the Green Party, since UKIP a minor right-wing party that’s eating into his political base had been invited to participate but not the Greens. 

As exposure for the Greens is likely to hurt the opposition Labour party and the Liberal Democrats, Cameron’s desire to have the Greens included might well be driven by his own interests. Labour, Liberal Democrats and UKIP all cried foul at Cameron’s announcement, while he in turn accused opponents of running scared. 

Whatever his reasons might be, the Oilholic feels Cameron is right to demand inclusion of the Greens. Those asking why the Greens should be included must actually ask “Why not?” instead. The Oilholic profoundly disagrees with a lot of what the Greens say and the policies they propose. However, that does mean this blogger should frown upon giving them a voice on a national stage at one of the most important general elections in a generation.

The British Green movement should now be considered sufficiently mature and in sync with some of its counterparts in the wider European Union. In fact, at the recent European elections both the Greens and UKIP got more votes than the Liberal Democrats.

The Greens had their first MP in 2010 as Caroline Lucas entered parliament on her own merit and credentials having fought against mainstream parties with deeper pockets. While UKIP might well have two MPs in parliament at the moment; both are defectors from the Conservative Party who re-entered parliament having been elected on their established political reputations while piggybacking on a populist bandwagon provided by a protest party.

Yet UKIP gets a voice, but the Greens don’t despite being level pegging with the Liberal Democrats in many opinion polls? Some say giving the Greens a nationally televised platform would invite legal challenges from Scottish and Welsh nationalists, and other minor parties. If so, then so be it – let them prove the credentials as a national party.

That the Greens are a national force is beyond dispute. They might well be a fringe party, but unlike Scottish and Welsh nationalists, the Greens are fighting UK-wide not just in pockets of the still United Kingdom. Perhaps we should look to Germany and how its multiparty system has incorporated the Green movement. There are other such examples within the EU.

We should give the Greens a wider platform and leave their electoral performance to the court of public opinion. By that argument, allowing them to participate in a national leaders’ debate would be a good starting point. That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo: Big Ben and the UK parliament, London © Gaurav Sharma

Oil price dip & those tankers on the horizon

Crude year 2015 has well and truly begun with the oil price slipping several notches further, as tankers begin carrying their January cargo that is worth considerably less than it was 12 months ago.

With the full trading week to Jan 9 seeing an uptick in trading volumes back to normal levels after the festive period, the Oilholic spent a day looking at tankers in English Bay on a beautiful sunny afternoon in Vancouver, British Columbia, Canada. Most of these behemoths (see left, click to enlarge photo) ferry Canadian crude to Asian markets finding their way to the vastness of the ocean from Vancouver's Burrard Inlet. 

As tankers disappeared away from eyesight and yet more dotted the landscape, one's first 5-day assessment of this year saw Brent down 11.44% on the week before, WTI -8.2% and the OPEC Basket a whopping -16%. For now, the Canadian oil and gas industry is holding up pretty well and strategically bracing itself for a further drop in price to as low as US$35 per barrel.

Beyond that, of course all bets are off. Whatever the price, local environmental lobby groups don’t quite like these tankers “blotting the coastline of beautiful British Columbia” to quote one. Data suggests traffic has risen seven-fold since 2001. Of course, the oil being shipped isn’t local as British Columbia doesn’t have too much of its own.

Rather, as many of you would know, all of it is piped in from Alberta by Kinder Morgan to its Westport Terminal on the South East shoreline of Burrard Inlet in Burnaby. The company is the middle of a full on bid to increase pipeline capacity. However, standing on the beach, more than one environmentalist would tell you that a spill was inevitable, especially if you happen to declare you are an energy analyst.

Yet, both major incidents over the last ten years have been on land and weren’t down to the crude behemoths of the sea. In 2007, a construction mishap saw a Kinder Morgan pipeline break in Burnaby spilling oil into the Burrard Inlet while dousing some 50 homes in the neighbourhood with the crude stuff. 

Nearly two years later, a storage tank spilt 200,000 litres of oil on Burnaby Mountain. Thankfully, a containment bay prevented spillage into the wider environment. All this might not help Kinder Morgan's medium term public relations drive, but the volume of traffic and cargoes, even with the existing pipeline capacity, isn’t going to ebb over 2015 unless the global economy sees a severe downtown.

If the Russians, Americans and Saudis are in no mood to lower production, the Canadians aren’t going to either, according to anecdotal evidence. The Oilholic’s thoughts on how an oil price below $60 might well hit exploration and production in Canada (and elsewhere) are here in a Forbes piece one wrote earlier. 

This blogger does see an uptick in price from around the halfway point of 2015, as a supply correction is likely to kick-in. For the moment, barring a financial tsunami knocking non-OECD economic activity, the Oilholic's prediction is for a Brent price in the range of $75 to $85 and WTI price range of $65 to $75 for 2015. Weight on Brent should be to the upside, while weight on WTI should be to the downside of the aforementioned range.

Come Christmas, we should be looking at around $80 per Brent barrel. One thing is for sure, the days of a three-figure price aren’t likely to be seen over the next 12 months. That’s all for the moment folks! Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2015. Photo: Oil tankers in English Bay, Vancouver, British Columbia, Canada © Gaurav Sharma 2015

Crude year that was & oil price forecasts for 2015

As 2014 comes to a close, it’s time to look back at what the Oilholic was up to and how the oil and gas sector performed in general. The only place to start would be the oil price where those in the business of charting it had a year of two halves.

First six months of the year saw Brent, considered a global proxy benchmark, comfortably over $100 per barrel only to see a dramatic decline over the second half of the year that accelerated rapidly in the face of a global supply glut.

The US went in general retreat from the global oil markets in meaningful volumes, not needing to import as much given rising domestic shale and tight oil production. Global demand didn’t stack-up like it did in 2013, but producers were unrelenting with output rising from Canada to Russia and OPEC’s production quota staying where it was at 30 million barrels per day (bpd).

In fact, make it 30.7 million bpd if you believe in market consensus. End result was (and still is) a buyers’ market with China leading the way, but not importing as much as it used owing to stunted economic activity. From $115 per barrel in the summer, Brent is barely managing to resist a $60 price floor having already breached it once in December. WTI is also plummeted in tandem and is currently trading below $60.

Both OPEC Ministers’ meets for 2014 couldn’t have been held in more divergent circumstances. In June, the quota was held where it was because most in the cartel were happy with a $100-plus Brent price. In November, the quota stayed where it was because the Saudis refused to budge from their position of not wanting a production cut fearing a loss of market share. While Iran and Venezuela did not share their view, the Saudis prevailed as usual for a cut without their backing would have been meaningless.

Quite frankly, by not calling an extraordinary meeting when oil hit $85, OPEC missed a trick. Nonetheless, given the existing glut one doubts whether an OPEC cut in November would have had any tangible medium term impact anyway. Saudi Oil Minister Ali Al-Naimi probably thought the same. But where does the price go from here? One has to admit that for the first time since this blog appeared on cyberspace in 2009; price averages for both Brent and WTI fell below the Oilholic’s median 2014 forecast.

Being a supply-side analyst one has long bemoaned the high oil price right from the days it became manifestly apparent that the US was no longer importing like it used to. And yet net long bets persisted well into the summer of this year courtesy hedge funds and other speculators, until physical traders of the crude stuff refused to buy in to a false spike injected by Iraqi disturbances.

Instead of contango, backwardation set in and price hasn’t recovered since with good reason. However, it wasn’t until October that the decline really took hold with OPEC’s decision not to cut production really accelerating the drop over the fourth quarter. The Oilholic would say the market is undergoing profound change of the sort that only comes around once in 20 years or so.

Given there so much oil out there and importers aren’t importing as much, risk premium has turned to risk fatigue, while a sellers’ market in the most lukewarm of times has become a buyers’ market in uncertain times. Nonetheless, supply correction is inevitable as unprofitable, especially unconventional exploration, takes a hit and non-OECD demand picks up. The Oilholic is fairly certain that come December 2015, we would once again be around the $80 level for Brent.

For the moment, barring a financial tsunami knocking non-OECD economic activity, the Oilholic's prediction is for a Brent price in the range of $75 to $85 and WTI price range of $65 to $75 for 2015. Weight on Brent should be to the upside, while weight on WTI should be to the downside of the aforementioned range. This blogger also does not believe legislative impediments over the US exporting oil are going away anytime soon as the 2016 presidential election draws ever closer.

Moving away from pricing, 2014 also saw the oil and gas world mourn the sad death of Total CEO and Chairman Christophe de Margerie in a plane crash in Moscow. Here is the Oilholic's tribute to one of the industry’s most colourful characters. Wider human tragedies overlapping the crude world including Russia’s bid to influence events in Ukraine and the spectre of ISIS over Iraq loomed large.

The oil price began hurting Russia by the end of the year with the rouble taking a plastering. Meanwhile in Iraq, given that ISIS controlled areas were far removed from the port of Basra and major Iraqi oil production facilities, risk premium from the unfolding events did not have a lasting impact on oil price barring a momentary spike in June.

Nigeria and Libya's troubles continued. In case of the latter, the country now has two oil ministers, two prime ministers but thankfully only one National Oil Company. Yet, geopolitical flare-ups aren't likely to have much of an impact over the first half of 2015 given the amount of oil there is in the market.

Away from it all and on a more personal footing, yours truly started writing for Forbes as well as commentating on Tip TV on a regular basis over 2014, alongside various other ‘crude’ engagements. Going on the road (or air) in pursuit of ‘crude’ intel, saw the Oilholic visit Rotterdam, Istanbul, San Francisco, Zagreb, Tokyo, Hong Kong and Shanghai.

The 21st World Petroleum Congress meant a return to the host city of Moscow after a gap of 10 years. Invariably, the Ukrainian stand-off cast a shadow over an event dubbed the Olympics of the oil and gas business.

One also got a chance to interview ex-Enron whistleblower turned academic Dr Vincent Kaminski in Houston and IEA Chief Economist Dr Fatih Birol more closer to home. Among several senior executives one got a chance to interact with were C-suite executives from EDF, Tethys Petroleum, Frontier Resources, Primagaz and Rompetrol to name but a few.

Many fellow analysts, commentators, traders, academics, legal and financial experts shared their insight and valuable time on on-record while others preferred an off-record chat. Both sets have the Oilholic’s heartfelt thanks. Rather unusually, this blogger found political satirist and comedian Jon Stewart’s take on the farce that’s become of the Keystone XL project bang on the money. Finally, the Oilholic also reviewed some ‘crude’ books to help you decide whether they are for you or not.

It's been a jolly crude year and one that wouldn't have been half as spiffing without the support of you all - the dear readers of this blog. Here goes the look back at Crude Year 2014. As the Oilholic Synonymous Report embarks upon its sixth year on the Worldwide Web and the eighth year of its virtual existence – here's wishing you a very Happy New Year! That’s all for 2014 folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2014. Photo: Oil pipeline, India © Cairn India

On oil windfalls and African progress

Is the discovery of crude oil a blessing or curse for emerging economies? Does it further or hinder democracy and development? Is an oil rich nation’s currency destined to suffer from Dutch Disease?

These are profound questions and nowhere do they need to be answered more than in the continent of Africa. John Heilbrunn’s book Oil, Democracy and Development in Africa published by Cambridge University Press tackles the socioeconomic and political impact of oil in sub-Saharan Africa head on. 

In a somewhat refreshing take, Heilbrunn suggests that should historical and economic situations faced by African petrostates prior to the discovery of their oil be contextualised and discounted, there’s little evidence of a curse. Taking on a more optimistic tone than most, the author sets about a fascinating explanation of why he thinks even the most despotic and least accountable of African heads of state do use some proportion of oil revenues to improve their citizens' living standards.

Improvements have “failed to be uniform”, he admits, but that’s not to say there have been none. In a book of 270 pages, split by six detailed chapters, Heilbrunn writes there is much to be positive about while not losing sight of the biggest puzzle of them all – how the discovery of a natural resource changes the national and political psyche, as it is virtually impossible to predict “how political leaders respond to resource windfalls.”

While sum of all its parts makes this book a great read, Heilbrunn’s take on resource revenues, corruption and contracts in latter stages of the narrative should strike a chord with most readers. It has to be acknowledged that some African producers are pretty high on the corruption scale, but not every producer can be tarred with the same brush. 

All said, as Heilbrunn notes, oil can do nothing, being a mere mineral of variable qualities and marketability. “People choose how to oversee their extractive industries and the effects of oil production are consequences of policy choices.”

These choices alone determine the pace and scale of progress anywhere and not just Africa. Some of the book’s conclusions might surprise many readers, some might find the narrative a bit too optimistic for their linking, but for the Oilholic it’s a book containing some unassailable truths on African progress.

Heilbrunn is not attempting to gloss over what’s wrong at African petrostates. On the contrary, he puts forward what they are doing to get it right, with all their imperfections, following on from decolonisation and the inevitable expectations (plus subsequent windfall) a resource discovery brings with it.

The Oilholic would be happy to recommend it to fellow analysts, those interested in the oil and gas business, African development, politics and the resource curse hypothesis. Last but not the least, that growing chorus of commentators calling upon the wider world to ditch archaic conclusions and reassess the impact of natural resources on developing economies would also enjoy many of Heilbrunn’s conclusions.

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© Gaurav Sharma 2014. Photo: Front Cover – Oil, Democracy and Development in Africa © Cambridge University Press, June, 2014.

Oil markets take in the 'Rouble Trouble' saga

The Oilholic is feeling somewhat melancholy today! A crisp rouble note yours truly kept as a memento following a visit to Moscow in June is now worth considerably less when pitted against one’s lucky dollar! 

At one stage over the past 24 hours, the US$1 banknote on the left was worth 79% of the RUB100 note on the right. One doubts whether a dollar would fetch a 100 roubles - but just putting it out there.

Barring a brief jump when the Russian government went for a free float of the currency back in November, there hasn’t been much to be positive about the rouble. Last evening’s whopper of an announcement by the Central Bank of Russia to raise interest rates by 650 basis points to 17% from 10.5% did little more than provide temporary respite.

Since January till date, Russia has spent has spent over $70 billion (and counting) in support of the rouble. Yet, the currency continues to feel the strain of escalating sanctions imposed by the West in tandem with a falling oil price.

However, there is a very important distinction to be made here. A falling oil price does not necessarily imply that Russian oil companies are in immediate trouble, repeat ‘immediate’ trouble. While a weak rouble makes imports costlier for the wider economy, which will almost certainly tip into a recession next year; oil – priced and exported in dollars - will get more ‘domestic’ bang for the converted bucks.

The Russian Treasury also adjusts tax and ancillary levies on oil exports in line with a falling (or rising) oil price. The policy is likely to keep things on a sound footing for the country’s oil & gas companies, including state-owned behemoths, for at least another 12 months.

How things unfold beyond that is anybody’s guess. First off, several Russian oil & gas players would need their next round of refinancing late next year or early on in 2016. With several international debt markets off limits owing to Western sanctions, the state will have to step in at least partially.

Secondly, the oil price is unlikely to stage a recovery before the summer, and would be nowhere near $100 per barrel. If it is still below $85 come June, as the Oilholic thinks it would be and the rouble does not recover, then corporate profits would take a plastering regardless of however much the Russian Treasury adjusts its tax takings. 

Of course, not all in trouble would be Russian. Austrian, French and German banks with exposure to the country, accompanied by Russia-centric ETFs and Arctic oil & gas exploration will be hit hard.

Oil majors with exposure to Russia are already taking a hit. In particular, BP springs to mind. However, as the Oilholic opined in a Forbes article earlier this year - while BP could well do without problems in Russia, the company can indeed cope. For Total and Exxon Mobil, the financial irritants that their respective Russian forays have become of late would not be of major concern either.

Taking a macro viewpoint, market chatter about a repetition of the 1998 crisis is just that – chatter! Never say ‘never’ but a Russian default is highly unlikely.

Kit Juckes, global head of forex at Société Générale, says, “Comparisons with past crises – and 1998 in particular – are inevitable. The differences are more important than the similarities. Firstly, emerging market central banks (including and especially Russia) have vastly larger currency reserves with which to defend their currencies.

“Secondly, US real Fed Funds are negative now, where they had risen sharply from 1994 onwards. That's a double-edged sword as merely the thought of Fed tightening has been enough to spark a crisis after such a long period of zero rates, but when the dust settles, global investors will still need better yields than are on offer on developed market bonds.”

The final difference, Juckes says, is that the rouble, in particular, is falling from a very great height in real terms. “It has only fallen below the pre-1998 peak in the last few days. It's still not cheap unless we believe that the gains in the last 16 years are all justified by productivity – an argument that works for some emerging market economies rather more than it does for Russia.," he concludes.

Finally, there is no disguising one pertinent fact in the entire ongoing Russian melee – the manifestly obvious lack of economic diversification with the country. Russia has remained stubbornly reliant on oil & gas exports and its attempts to diversify the economy seem even feebler than Middle Eastern sheikdoms of late.

For this blogger, the lone voice of reason within Russia has been former Finance Minister Alexei Kudrin. As early as 2012, Kudrin repeatedly warned of impending trouble and overreliance on oil & gas exports. Few Kremlin insiders listened then, but now many probably wish they had! That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2014. Image: Dollar versus Rouble: $1 and RUB100 banknotes © Gaurav Sharma, 2014.