In December 2016, oil prices increased in the wake of the announcement of coordinated OPEC/non-OPEC action, where a new production target of 32.5 million b/d quoted for January 1st 2017 represents a reduction of around 1.2 million b/d from the October 2016 output levels. In particular, Brent Crude North Sea opened at $54.49/b and closed at $56.75/b, while West Texas Intermediate opened at $51.73/b and closed at $54.61/b. At the time of writing, the European and Asian benchmark was trading at $56.86/b, and the American reference was quoting at $53.73/b as a combination of the statements made by Kuwait and Oman - which respect their reduction programme - and the appreciation of the dollar over the euro (1.0385 on January 3rd). The green banknote appreciated over the euro during the last month of 2016.The dollar opened at 1.0642 €/$ over the European currency and closed at 1.0541 €/$, reaching its highest since 2002 on December 20th at 1.0364 after FED having increased its interest rates to the range of 0.50-0.75%. ''I would say the labor market looks a lot like the way it did before the recession'', the Governor of the Federal Reserve, Janet Yellen, said. Furthermore, the U.S. 10-year Treasury Debt yields quoted at 2.4481 on December 1st and closed the year at 2.4443, hitting the highest for 2016 at 2.5967, on December 15th. Despite the fact that the FED decided to tighten its monetary policy before the end of the previous year, the Russian currency steadily appreciated over the American currency in December, reaching its maximum of 60.50 rubble/$ in 12 months. The Russian ruble is one of the strongest currencies in the world this year with the Brazilian Real only trading better against the dollar due to the increasing in oil prices. This trend is carrying on during the first few days of 2017. In fact, the rubble hit 59.24 rubble/$ on January 9th. According to goldcore.com, ''Russia gold buying accelerated in October with the Russian Central Bank buying a very large 48 metric tonnes or 1.3 million ounces of gold bullion. This is the largest addition of gold to the Russian monetary reserves since 1998 and could be seen as a partial ''gift'' by President Putin to his rival ex-President Obama''.
Latest data and estimates on oil & gas
According to the data provided by the Oil Market Report on December 13th, the OPEC output was 34.2 million b/d in November - a record high - 300 thousand b/d higher than in October and 1.4 million b/d higher than a year ago. At the same time, global oil supplies reached a historical maximum of 98.2 million b/d, as a fall in non-OPEC output was more than offset by the higher OPEC production. As we previously wrote, on November 30th, the Organization of the Petroleum Exporting Countries decided to cut its production by 1.2 million b/d from January 2017. Non-OPEC producers will act in the same way, reducing their output by 558 thousand b/d. Among them, the Russian Federation will cut its production by 300 thousand b/d, while Mexico by 100 thousand b/d. In reality, the adhesion of the Central American country was taken for granted since the extraction of oil is expected to decline in 2017. Global oil demand is foreseen to grow by 1.4 million b/d in 2016 and 1.3 million b/d in 2017 to a total amount of 97.6 million b/d. Based on the figures published by the Energy Information Administration on December 12th, the American unconventional output is expected to increase by 2 thousand b/d in January 2017 to 4.542 million b/d. The U.S. crude production, after the peak of 9.7 million b/d in April 2015, decreased to its lowest of 8.428 million b/d on July 1st. It then started increasing to 8.770 million b/d, which was reached during the last week of December 2016. In fact, according to the data provided by Baker Hughes, the total current number of U.S. rigs – 665 of which, 529 (79.5%) of oil rigs and 135 (20.3%) of gas rigs, plus 1 miscellaneous on January 6th - have been carrying on to rise again thanks to the increase in oil prices. According to the International Energy Agency, the ''U.S. LTO [tight oil] is expected to continue to decline through the end of the year before rising marginally over 2017. Nonetheless, it remains to be seen whether companies can remain cash flow positive when the industry scales up activity and capital spending and as upward pressure on costs once again takes hold''. Despite the fact that the OPEC oil agreement made a billion dollar ''gift'' of capitalization gainings to the U.S. shale companies, the Organization of the Petroleum Exporting Countries’ forecasts do not confirm the 2017 upward trend estimated by IEA and, on the contrary, foresee a downward trend by 220 thousand b/d. While in September, the U.S. crude oil imports overcame 8 million b/d (8.057 million b/d) for the fourth time during 2016, in October they decreased to 7.607 million b/d in coincidence with the U.S. total oil output increase. Even so, the American average crude oil imports was 7.861 million b/d during the first ten months of 2016, on the rise if compared with the 7.344 million b/d imported in 2014 and 7.363 million b/d in 2015.
Geopolitics of Oil & Gas
According to economist Giuseppe Masala, ''with the appointment of Rex Tillerson, former CEO of Exxon Mobil, as U.S. Secretary of State by President Donald Trump, it should be clear that the new cold war between the Russian Federation and the United States of America really ended. Indeed, Tillerson is well known for being a Russian friend with which stipulated profitable businesses during the past years. This should restore the relations between the two countries on a path of mutual trust that could guarantee a great deal, both in Ukraine, and in the Middle East''. Masala suggests calling these possible historical events as the Oil Pax. Taking into account that the achieving of a future reset between the Russian Federation and the United States of America will not be so easy at all, which are the main current political issues and the actors that may support the so-called Oil Pax in the next months?
- Firstly, the OPEC deal means that the two big enemies inside the Organization – Saudi Arabia and Iran – came into an agreement fostered by the Russian Federation. In particular, the Saudis put an end to their energy policy of law oil prices, which started in September 2014 with the aim of expelling out of the market and in economic troubles respectively, high costs oil producers and countries with high break-even prices.
- Russian Oil Company Rosneft sold 19.5% of its share capital to a joint consortium made by Glencore and Qatar Investment Fund (QIF) for €10.5 billion ($11.3 billion). Specifically, both of them hold a 50% stake (9.75%), the third largest stake of Rosneft shares after the state-owned oil transportation agency Rosneftegaz (50%) and BP (19.5%). Moreover, the Swiss trader announced that it would pay out of its funds around €300 million and QIF would provide another €2.5 billion, while the rest of the amount will be financed by a pool of banks (including Russian banks) led by the Italian Intesa Sanpaolo. From a geopolitical point of view, this financial investment was reached because Qatar decided to abandon its destiny the terrorist groups, which was financed since the beginning of the Syrian war, due to the unsuccessful aim of overthrowing President al-Assad. At the same time, Russia achieved two goals: first, Qatar, which was a military enemy on the ground in Syria, has become an economic partner. Secondly, Kremlin ''inextricably unified the energy policies of the two world biggest natural gas producers'' as former French agent, Thierry Meyssan, pointed out.
- Last, but not least, Rosneft reached an agreement with ENI, purchasing a 30% stake in the Shorouk gas field for $1.57 billion. Shorouk is located in the Egyptian offshore specifically, in the super-giant gas field Zohr discovered by the Italian company in 2015. Zohr is considered the biggest natural gas field in the Mediterranean Sea with 850 Gmc3 estimated reserves. With this move, Rosneft has the opportunity to enter in the natural gas market - and Russia to put another foot in the Mediterranean - while the Russian President, Vladimir Putin, could overcome many domestic political frictions between the two national oil and gas energy giants respectively, just Rosneft and Gazprom.
To conclude, taking into account that Donald Trump’s Presidency will start on January 20th it seems that Italy may play a pivot role in terms of stabilization, development and political balance not only inside the Mediterranean area, but also between the two nuclear super powers.