Is the planet under the spell of a range of Black Swans – a Wall Street meltdown caused by an alleged oil war between Russia and the House of Saud, plus the uncontrolled spread of Covid-19 – leading to an all-out “cross-asset pandemonium,” as billed by Nomura, the Japanese holding company?
Or, as German analyst Peter Spengler suggests, whatever “the averted climax in the Strait of Hormuz had not brought about so far, might now come through ‘market forces’”?
Let’s start with what really happened after five hours of relatively polite discussions last Friday in Vienna. What turned into a de facto OPEC+ meltdown was quite the game-changing, plot twist.
OPEC+ includes Russia, Kazakhstan and Azerbaijan. Essentially, after enduring years of OPEC price-fixing – the result of relentless U.S. pressure over Saudi Arabia – while patiently rebuilding its foreign exchange reserves, Moscow saw the perfect window of opportunity to strike, targeting the U.S. shale industry.
Shares of some of these U.S. producers plunged as much as 50 percent on “Black Monday.” They simply cannot survive with a barrel of oil in the $30s – and that’s where this is going. After all, these companies are drowning in debt.
A $30 barrel of oil has to be seen as a precious gift/stimulus package for a global economy in turmoil – especially from the point of view of oil importers and consumers. This is what Russia made possible.
And the stimulus may last for a while. Russia’s National Wealth Fund has made it clear it has enough reserves (over $150 billion) to cover a budget deficit from six to 10 years – even with oil at $25 a barrel. Goldman Sachs has already gamed a possible Brent crude at $20 a barrel.
As Persian Gulf traders stress, the key to what is perceived in the U.S. as an “oil war” between Moscow and Riyadh is mostly about derivatives. Essentially, banks won’t be able to pay those speculators who hold derivative insurance against a steep decline in the price of oil. Added stress comes from traders panicking with Covid-19 spreading across nations that are visibly unprepared to deal with it.
Watch the Russian Game
Russian President Vladimir Putin at Russian-Saudi energy talks, Oct. 14, 2019 Riyadh. (Kremlin)
Moscow must have gamed beforehand that Russian stocks traded in London —such as Gazprom, Rosneft, Novatek and Gazprom Neft —would collapse. According to Lukoil’s co-owner Leonid Fedun, Russia may lose up to $150 million a day from now on. The question is for how long this will be acceptable.
Still, from the beginning Rosneft’s position was that for Russia, the deal with OPEC+was “meaningless” and only “cleared the way” for American shale oil.
The consensus among Russian energy giants was that the current market setup —massive “negative oil demand,” positive “supply shock,” and no swing producer — inevitably had to crash the price of oil. They were watching, helplessly, as the U.S. was already selling oil for a lower price than OPEC.
Moscow’s move against the U.S. fracking industry was payback for the Trump administration messing with Nord Stream 2. The inevitable, steep devaluation of the ruble was gamed — also considering the ruble was already low anyway.
Still, what happened post-Vienna essentially has little to do with a Russia-Saudi trade war. The Russian Energy Ministry is phlegmatic: move on, nothing to see here. Riyadh, significantly, has been emitting signs the OPEC+ deal may be back in the cards in the near future. A feasible scenario is that this sort of shock therapy will go on until 2022, and then Russia and OPEC will be back to the table to work out a new deal.
There are no definitive numbers, but the oil market accounts for less than 10 percent of Russia’s GDP (it used to be 16 percent in 2012). Iran’s oil exports in 2019 plunged by a whopping 70 percent, and still Tehran was able to adapt. Yet oil accounts for over 50 percent of Saudi GDP. Riyadh needs oil at no less than $85 a barrel to pay its bills. The 2020 budget, with crude priced at $62-63 a barrel, still has a $50 billion deficit.
Aramco says they will be offering no less than 300,000 barrels of oil a day more than their “maximum sustained capacity” starting April 1. They say they will be able to produce a whopping 12.3 million barrels a day.
Persian Gulf traders say openly this is unsustainable. It is. But the House of Saud, in desperation, will be digging into their strategic reserves to dump as much crude as possible as soon as possible — and keep the price war full tilt. The (oily) irony is that the top price war victims are an industry belonging to the American protector.
Saudi-occupied Arabia is a mess. The Wall Street Journalreported Friday that one of the king’s brothers, Prince Ahmed bin Abdulaziz al Saud, and a nephew, Prince Mohammed bin Nayef, two powerful Saudis, were arrested and charged with treason for allegedly plotting against King Salman and his son, Crown Prince Mohammed bin Salman (MbS).
Every grain of sand in the Nefud desert knows Jared of Arabia Kushner’s whatsapp pal MbS has been de facto ruler for the past five years, but the timing of his new purge in Riyadh speaks volumes.
Crown Prince of Saudi Arabia Mohammad bin Salman Al Saud at Russian-Saudi energy talks, Oct. 14, 2019 Riyadh. (Kremlin)
The CIA is fuming: Nayef was and remains Langley’s top asset. The fact that Saudi regime spin denounced “Americans” as partners in a possible coup against MBS should be read as “CIA.” It’s just a matter of time before the U.S. Deep State, in conjunction with disgruntled National Guard elements, comes for MbS’s head — even as he articulates taking over total powerbefore the G-20 summit in Riyadh next November.
Black Hawk Down?
So what happens next? Amid a tsunami of scenarios, from New York to all points Asia, the most optimistic rule is that China is about to win the “people’s war” against Covid-19, and the latest figures confirm it. In this case global oil demand may increase by at least 480,000 barrels a day.
Well, that’s way more complicated.
The game now points to a confluence of Wall Street in panic; Covid-19 mass hysteria; lingering, myriad aftershocks of President Donald Trump’s global trade mess; the U.S. election circus; and political instability in Europe. These interlocked crises do spell Perfect Storm. Yet the market angle is easily explained as perhaps the beginning of the end of the Fed pumping tens of trillions of U.S. dollars into the economy through QEs and repos since 2008. Call it the calling of the central bankers’ bluff.
A case can be made that the current financial panic will only subsidize when the ultimate Black Swan – Covid-19 – is contained. Borrowing from the famous Hollywood adage — “no one knows anything” — all bets are off. Amid thick fog, and discounting the usual amount of disinformation, a Rabobank analyst, among others, came up with plausible four Covid-19 scenarios. He now reckons it’s getting “ugly” and the fourth scenario — the “unthinkable” — is not far-fetched anymore.
This implies a global economic crisis of, yes, unthinkable magnitude.
To a great extent it will all depend on how fast China – the inescapable crucial link in the global just-in-time supply chain — gets back to a new normal, offsetting interminable weeks of serial lockdowns.
Despised, discriminated, demonized 24/7 by the “system leader,” China has gone full Nietzsche – about to prove that “whatever does not kill you makes you stronger” when it comes to a “people’s war” against Covid-19. On the U.S. front, there’s scant hope that the gleaming Black “helicopter money” Hawk will crash down for good. The ultimate Black Swan will have the last word.
Pepe Escobar, a veteran Brazilian journalist, is the correspondent-at-large for Hong Kong-based Asia Times. His latest book is “2030.” Follow him on Facebook.
The views expressed are solely those of the author and may or may not reflect those of Consortium News.
If you value this original article, please consider making a donation to Consortium News so we can bring you more stories like this one.
Before commenting please read Robert Parry’s Comment Policy. Allegations unsupported by facts, gross or misleading factual errors and ad hominem attacks, and abusive or rude language toward other commenters or our writers will not be published. If your comment does not immediately appear, please be patient as it is manually reviewed. For security reasons, please refrain from inserting links in your comments, which should not be longer than 300 words.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
