The timing could not have been worse for Russia to provoke a spat with Saudi Arabia over oil production quotas in early March. Moscow’s decision to withdraw from the OPEC+ agreement restricting oil production in order to maintain higher oil prices triggered a harsh reaction by Riyadh that sent oil prices spiraling down to below $25 per barrel in the midst of the coronavirus pandemic (Oilprice.com, March 24). The price of Russian Urals oil dipped even lower, under $19 on March 18, which will deprive the Russian budget of some $3 billion a month (Vedomosti, March 19).
The Russian economy is likely to suffer the most devastating consequences of the oil price war – just as it bore the heaviest impact of low global oil prices five years ago. This time around, however, the injury is self-inflicted, as an angry Saudi Arabia not only decided to ramp up production but also moved to grab Russia’s oil market share around the world (see EDM, March 19, 23).
On March 6, Russia’s Energy Minister Aleksandr Novak declined to accept new oil production quotas after April 1 when the current OPEC+ deal expires (Oilcapital.ru, March 10). The move targeted primarily debt-burdened U.S. shale oil companies, which were already under pressure by the advancing COVID-19 pandemic. Moscow has long resented that the U.S. oil sector has continued growing unobstructed by cartel policies and has steadily overtaken Russia and Saudi Arabia as the world’s leading oil producer. Russian energy officials took advantage of the coronavirus spread globally to deal a blow to indebted American shale oil producers who need an oil price above $40 a barrel to remain solvent (Asia Times, March 18).
But Moscow also needs an oil price above $40 to balance its budget (Lenta.ru, March 11), for which oil and natural gas revenues make up to 40 percent. The current budget is calculated at an oil price of $42 per barrel (Interfax, March 1), and that, combined with foreign currency reserves of $570 billion, could indeed provide a cushion – but only in the short term. A sizeable foreign currency reserve helped prop up Russia’s budget when the Organization of the Petroleum Exporting Countries (OPEC) drove oil prices down in 2014, targeting oil companies in the United States. The drop in oil prices then overlapped with the Western-imposed sanctions against Russia for invading Ukraine. The budget, calculated at an oil price of $96 per barrel at the time, had to be revised when oil prices dropped to $45 and revenues decreased by $160 billion, one third of Russian overall exports (Cbr.ru, May 2015, accessed March 25, 2020). Social spending programs had to be put on hold until oil prices recovered a few years later, resulting in increased social protests in 2018 and 2019 (Kommersant, June 22, 2019).
Today, Russia is in a much riskier situation as its long-term financial stability is threatened if oil prices do not recover. The Kremlin evidently did not expect that its disagreement with Saudi Arabia would lead to a plunge below $20 per barrel. Officials are now playing down the long-term impact on the economy. Russia’s Finance Minister Anton Siluanov has said he is not concerned about the fall in oil prices, because Russian oil companies have recently accumulated a large safety cushion (RBC, March 20).
If a price agreement is not reached soon, however, Russia’s prospects would be grimmer than in 2014–2015, because oil prices are 50 percent lower, Western sanctions remain in effect and new ones were introduced, and global oil demand has shrunk due to the coronavirus pandemic. In addition, Saudi Arabia has been successful in snatching some of Russia’s markets, including an oil purchase deal with Azerbaijan’s State-Owned Oil Company (SOCAR) (Ona.az, March 13). Not surprisingly, Moscow quickly settled price negotiations with Minsk and agreed to sell crude oil to Belarus at a significant discount of $15.70 per ton (Tut.by, March 23; see EDM, March 24).
In the meantime, Russian oil companies have started revising their investment plans due to the collapse of oil prices. Lukoil was the first to admit it will have to cut investment by $1.5 billion, mainly for new projects. Its vice president, Leonid Fedun, said that with oil prices below $35 per barrel, oil production in Russia will begin to decline from 2022–2023 (Kommersant, March 20).
It is becoming increasingly clear that if oil prices do not recover, President Vladimir Putin is unlikely to deliver on his promise to increase social spending. The plan, announced in Putin’s annual State of the Nation address on January 15, includes 4.1 trillion rubles ($65 billion at the time of the address) in social spending by 2024 to assist the poor, increase pensions, help families and boost the national birth rate (Kremlin, January 15).
The period of economic hardship coincides with President Putin’s attempt to secure his position as de facto president for life, after he initiated changes to the Russian constitution (see EDM, January 16, March 16, 19). The authorities scheduled a nationwide constitutional plebiscite on the amendments for April 22, but this was subsequently delayed amid the coronavirus pandemic (Meduza, March 25). The COVID-19 outbreak in Russia and several weeks of inept or counterproductive government response – the authorities have been habitually hiding the facts and arresting activists who report on coronavirus cases – are making Russian citizens even more anxious. Putin suspended work for all non-essential laborers from March 28 to April 5 in an effort to curb the infection (Meduza, March 25). The pandemic will undoubtedly take an additional financial and social toll in a time of decreased oil revenues.
By Margarita Assenova via Jamestown Foundation
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WestJet to rehire nearly 6,400 workers with help of federal wage subsidy – CBC.ca
WestJet says 6,400 workers will be brought back onto its payroll once the federal government has approved an emergency wage subsidy program.
In a statement Wednesday night, WestJet CEO Ed Sims cautioned that there might not be enough work for the rehired employees, but noted “it does help them make ends meet.
“We will be communicating with those WestJetters who are affected by this decision as soon as we can,” said Sims.
Last month, WestJet announced it was cutting roughly half of its 14,000 employees with the elimination of 6,900 positions.
Canada’s airline industry has seen a dramatic reduction in demand due to lockdowns to control the spread of the coronavirus that causes COVID-19.
The Calgary-based airline’s move to rehire its employees follows a similar move by Air Canada, which announced Wednesday that it would rehire 16,500 laid-off workers with assistance from the same federal wage subsidy program.
The federal government’s emergency wage subsidy — originally targeted only at small- and medium-sized businesses — was expanded earlier in April to cover a 75-per-cent wage subsidy for Canadian companies that had lost 30 per cent of revenue due to the pandemic.
WestJet said it can’t guarantee that all employees will be coming back to work in the short-term, but the new subsidy will help out.
After announcing layoffs in late March, WestJet executives took a 50-per-cent pay cut and vice-presidents and directors took a 25-per-cent cut.
The airline also said it would reduce the number of flights offered in Canada by about half due to a reduced demand for travel.
Oil Prices Surge with Production Cut Anticipation By – Investing.com
By Gina Lee
Investing.com – Oil prices built on the momentum from the previous session as the price war between Russia and Saudi Arabia seems to be nearing a truce.
Russia said overnight that it was willing to reduce output by around 1.6 barrels daily, or 15%. The announcement saw WTI futures surging to almost 12% as the session closed.
International rose 2.62% to $33.7 by 10:19 PM ET (3:19 AM GMT) and U.S. jumped 3.71% to $26.02.
As the oil industry continues to grapple with a supply glut, with the COVID-19 pandemic shrinking demand, Russia’s declaration comes at an opportune time. The Energy Information Administration (EIA) said overnight that the U.S. crude oil inventory increased by 15.2 million barrels for the week ending April 3, against analyst expectations of a 9.37-million-barrel build.
The American Petroleum Institute (API) also estimated a build of 11.9 million barrels yesterday.
Investors are waiting to see if Russia will hold to its word at OPEC+’s virtual meeting later in the day.
“The coming extraordinary producing-countries meeting is the only hope in the horizon for the market that could prevent a total price collapse and production shut-ins,” Rystad Energy’s head of oil markets Bjornar Tonhaugen told CNBC.
“At the moment, prices are so volatile that any news or leaks about the direction of the negotiations could move them [prices] either way. As you have seen in recent days, price swings from gains to losses and back are not unusual in such times,” he added.
But some investors took a more skeptical view.
“OPEC+ is trying mightily to cobble together a sizable production cut, and they are in full spin mode to try and rally prices,” Again Capital’s John Kilduff told CNBC.
“[OPEC’s meeting] will be a make-or-break moment for the oil market. The math on a 10 million barrel per day cutback, which is the minimum necessary to stabilize the situation, is almost impossible to compute. I expect a bad day for OPEC+ tomorrow,” he added.
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Why Canadian dairy farmers are dumping milk – Canada News – Castanet.net
Some Canadian dairy farmers started dumping milk last week to rid the system of surplus production as demand from restaurants plummeted amid the COVID-19 pandemic that forced eateries across the country to close their doors.
“We first started seeing milk being discarded last week,” said David Wiens, vice president of the Dairy Farmers of Canada, a national organization for dairy producers. Though, it’s a bit early to know exactly how much milk farmers dumped at this point.
Dairy farms in British Columbia started disposing of raw milk on April 3, according to a statement on the BC Dairy Association website. The group did not respond to a request for comment
The Dairy Farmers of Ontario, which represents about 3,400 farms, informed producers “these measures would be necessary on a select and rotating basis” last week, said Cheryl Smith, chief executive, in an emailed statement.
It’s “very, very disheartening for farmers,” Wiens said. “It goes against every grain in their body.”
Dairy production in the country is controlled under a system known as supply management. It’s a controversial system that has seen its share of opposition. U.S. President Donald Trump called on Canada to end the practice for dairy.
Canada adopted this model for dairy in the early 1970s to overcome production surpluses in the two decades prior, according to the Dairy Farmers of Canada website. Egg and poultry farmers started to operate under the system in later years.
The Canadian Dairy Commission administers supply management for dairy producers, with the Canadian Milk Supply Management Committee assessing national demand for milk products and setting targets for production annually. Dairy farmers own what’s known as quotas, which allow them to produce a set amount of milk that depends on the anticipated demand. The production amount for their quota can be moved up or down as needed.
Dairy farmers sell their product at a fixed price that accounts for production costs and other factors. Grocers set retail prices.
The supply management system attempts to ensure farmers produce the right amount of milk to feed Canadians’ desire for dairy products.
The outbreak of COVID-19, however, resulted in unforeseen fluctuations, said Wiens.
“A few weeks ago, nobody would have predicted that it would have this impact on the marketplace,” he said.
On the retail front, demand soared as people descended on grocery stores and stocked up on essentials. Some grocery stores placed limits on the amount of butter and other dairy products customers could buy as their just-in-time distribution system couldn’t handle the new milk volumes and keep shelves stocked fast enough, he said.
Farmers have a “a huge surplus of milk now, which had nowhere to go,” said Wiens.
But demand plummeted from food service clients, like restaurants. Eateries across the country shut their doors — some on provincial government orders and others in an effort to help stop the spread of the coronavirus. Nearly all dine-in services across Canada remain shuttered, with some restaurants continuing to operate serving only food to go.
Meanwhile, as demand fluctuates, cows keep producing milk daily.
“There’s no tap that you can just slow down, and, you know, turn on and off as we wish,” said Wiens, who operates a dairy farm near a small town about 70 kilometres south of Winnipeg. “It doesn’t work that way.”
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