A Sober Look at Ukraine

Source:  Beeb

The map of the current Ukrainan situation tells an interesting story.  Why a 2-day delay before the ceasefire comes into effect ?  That salient at Debaltseve looks awfully vulnerable: if the eyes of the world weren't quite so fixed on the area, Russia would bite that off in an afternoon and they may yet do so anyway.  Retention at least of Mariupol will be a boon for Ukraine, in the circumstances.

What has Russia gained?  In material terms, I'm not sure.  Raedwald suggests "the industry and the wealth producing bits, whilst Kiev has the beet fields and the pensioners" and if that's true, it's more than just a bit of swagger and nose-thumbing on Putin's part.  But I've also read that the Crimea and these eastern parts are going to cost him a lot of hard currency to keep them happy.  So it's a rather costly macho gesture ?  Or (as some say) a price well worth paying to fend off an existential threat ? - at least, as perceived in the Kremlin. 

The latter seems an extreme assessment.  All in all, I'm inclined to think it's a rather unusual (for the 21st C) example of best-form-of-defence-is-attack.  The lazy neocon strategy of baiting Russia along its borders, not to mention the expansionism of the EU (and NATO), provides plenty of motive for Putin to flex his BM 21s.  He has followed Soviet doctrine pretty much to the letter (albeit on pinprick scale), as I confidently predicted here.  There's also an element of making the best of a bad job, as the Ukrainian separatists are probably not 100% under control - or at least, they weren't when this whole thing seriosuly kicked off. A bit like China and N.Korea (again, on a tiny scale): why do the Chinese indulge the childish bastards ? - well, they are their childish bastards, so piss off the rest of you.  Maybe now Putin can get back to the serious business of managing an economy around $50 oil, which he very much needs to do.

There is one good aspect to this.  It will be ten times harder for Russia to play its 'little green men' trick again in (say) the Baltic - tactically, that is, not logistically - because we've seen it now.  And perhaps the Typhoons weren't such a bad investment after all; so long as we keep up the NATO spending now.  But with the Greek thing simmering away, that might be another story.

ND

$70 Oil ? I'd Be Surprised

Shell makes its investment plans "inside a $50-$90 range for oil", the Telegraph reports, and reckons $80-$100 over the next 4 years, with lots of volatility.

The volatility, I buy: and there's no harm in planning on a conservative basis. Otherwise, they must have either a very pessimistic view on the world economy, or lots of optimism on production - which as regards oil means Iraq.

I'm pretty pessimistic on the economy myself, and as noted before the Baltic Dry freight index is collapsing. And it is fair to note that, Arab Spring notwithstanding, the producing nations often work hard to keep the valves open - see this commendable story of how Yemen kept the LNG flowing through a fairly tough 2011 (and aren't the Japanese & Koreans grateful).

But as regards oil, although there is indeed still plenty that costs less than $70 to produce, the newer big finds (e.g. in Brazil) are more costly. It is Iraq where the vastest, easiest reserves are awaiting development: and they seem to be about to award themselves a civil war. As Iran showed in the early 1980's, a perfectly sound oil industry can go to wrack and ruin when eyes are not on the ball.

I'd say it's the gas price that looks the softer. Recession is very bad for industrial gas demand, as 2009 showed. But LNG production capacity is surging and mothballed LNG carriers are being brought back into service. Huge Australian projects are coming onstream to join the Qatari production which, coupled with US shale, took the post-Fukushima increase in Japanese gas demand in its stride. Of course, ME turmoil might be lethal for Qatar, so complacency would be unwise.

It's a commonplace observation that the dynamics of gas and oil have gone separate ways in recent years. You don't typically see such big increments of additional production in the oil sector as you do with LNG projects. And we are just reaching the point where the price of oil (Brent, not the meaningless WTI) will have been in 3 figures for a full year.

So - gas soft, oil firm. I reckon it stays that way for a while yet.

ND

Osborne's North Sea Raid

The hastily-cobbled North Sea windfall tax is a black mark against Osborne, though not necessarily for the reason the oil lobbyists would have us believe.

It's dumb because (a) any hasty intervention into the incredibly complex N.Sea taxation regime is bound to go wrong; (b) it was motivated by a determination to do some sort of very noisy, attention-grabbing hand-brake turn on Fuel Duty; (c) Osborne started rowing back on it immediately, thereby confirming the impression it's ill thought out.

But, CU's anguish notwithstanding, we shouldn't rush to accept at face value the oil companies' protestations that they'll stop drilling forthwith ("pause and reflect", my arse). As an old oil-man myself I have trooped to the Treasury on many occasions, crying wolf with the best of them. Confident politicians see this special pleading for what it is.

It's a fact that oil companies the world over fully expect that when windfalls accrue - especially from oil price increases that they have in no sense budgeted upon - windfall taxes are never far behind. They know it, they expect it, & they kick up a fuss for the sake of form.

So - can't lose sleep over this, even though the Law of Unexpected Consequences is in full swing and something daft will probably come of it all. But no dafter than the rest of the shambolic 'energy policy'. I see that Huhne is at loggerheads with Clegg on nukes, calling him a headless chicken, no less. Kinda amusing ... Huhne ... chicken ... Huhn ... no ? Well I thought it was funny.

ND

Timing Is Everything

This, just arrived at my in-tray

The first long wheelbase versions of the Audi A8, including exclusive 6.3-litre W12 version, are now available in the UK with prices starting from £60,010.

And that would be oil at, errr, $112 / bbl ... Still, I expect its a very efficient 6.3 litre engine. As engines go.

ND

Quiz of the day: 2010 oil price

One year ago today the oil price was $147 per barrel. Oh, what a different world it was then pre-Lehman bankruptcy and the meltdown of September to October.

Today the price of oil hovers around $62, a huge discount to last year, but nonetheless 100% up since the lows earlier in the year of $31 dollars.

These are indeed the ups and downs of the Assyrian Empire.

So in an extra special competition I want you to guess predict the price of Oil a year from today.

Anyone who gets it right (rounded down to the nearest whole dollar) wins that amount of Money from me this time next year.

So what do you think, deflation, hyperinflation or more of the same?
(Answers in the comments, competition entry closes midnight 8/7/09)