Oil, the heart of the global systemic crisis (Summer GEAB, August, 2017)

oil derek worker

In the interest of honesty and pedagogy, last summer we compiled our anticipations on the Brexit affair and we made amends on our failing forecasts. Today, our failure appears quite relative, seeing the difficulties of implementing the British people’s demand for divorcing Europe. This actually suggests that “there will be no Brexit” as we kept saying, since “no one leaves Europe”. We thought that the British political-media would realise it before the referendum and do something for a “yes”. In fact, the media began to understand it only ten months later… whilst creating a rather inextricable situation for the island… and for the continent for that matter.

This summer, we will go back to our anticipations on the evolution of the oil prices, a major subject of the global systemic crisis which we regularly study and do forecasts for, in order to help your strategic moves and decision-making process.

By reading again the series of our recommendations and analyses over the last two years, we are struck by the consistency of our interpretation axes and the anticipation precision to which they give rise: our eyes pointed on the economic interactions between major oil producers, placed in the general context of dethronement of the oil as absolute king, work perfectly and allow us to anticipate precisely the short and medium-term evolutions of the price of the black gold. More recently, we have begun to identify the role of the private players, particularly Glencore, in a shadowy oil diplomacy which should allow us to further sharpen up our anticipations.

In future issues of the GEAB, we will have a closer look into the evolution of the energy sector as a whole in order to take into account the synergy of the different energy sources which could give birth to an “Energy king” in place of the late “Oil king”. As we said in our June issue, “the era of too-big-to-fail is giving way to the era of the too-high-to-reach”. Consequently, the world-after as it was set by the world-before will not be only pink…

Extracts from the GEAB 116 / 15.06.2017

Oil: counter-direction

The Saiq oil supertanker, chartered by the Royal Dutch Shell Plc, wanders like an errant soul at about 530 miles south of the Canary Islands, looking for customers for its 2 million oil barrels from the North Sea, ever since its origin destination, China, proves to no longer need it: “Who wants my oil? My oil is cheap, come here! The black gold reign is well over… As we have pointed out, even wars will no longer be able to do anything. […]

The day the coalition around Saudi Arabia announced a cut of diplomatic relations with Qatar, risking the “koweitisation” of the latter, the oil prices… collapsed. This is not the first time we have noticed that outbreaks of conflict are no longer causing price surges. This fact validates the axes we have been following for a long time in our anticipation of the oil-market: energy (renewable energies, gas, nuclear) and economic transitions (e-economy, less energy-consuming) have definitely dethroned King ‘Oil’ who no longer calls the shots and whose value is henceforth limited to the princes’ capacity to agree among themselves on output volumes (OPEC and NOPEC cooperation). Rising tensions between Saudi Arabia and Iran are forcing the markets to question the solidity of the deals between producing countries, conveying risks of re-increasing production thresholds and consequently translating into an immediate decline in prices. This is of course good news, inducing fewer reasons to make war. Unsurprisingly, our team therefore anticipates that the period of tension around Qatar is likely to cause downward pressure on prices… but the situation will recover as soon as the leads of resolution emerge, with prices rising towards $50/barrel again. They could even slightly exceed that if the crisis in the end serves as a strategy for strengthening regional and sub-regional cooperation.

Glencore encore

Glencore, the Swiss commodity giant, present in 50 countries and employing 154,000 people worldwide, after having experienced severe difficulties in 2015 at the time when commodity prices collapsed (to the point of having almost sold off some extraction sites, such as in New Caledonia[1]), is now caught up in a frenzy of mergers and acquisitions. For instance, in the past few weeks it fought and won against the Chinese Yancoal in the takeover of the Australian mines in Rio[2]; Glencore also signed an agreement with Corporacion G500 SAPI to create a joint venture to supply gas-stations in Mexico[3]; it moved closer to Bunge, the American trader, with the ambition of becoming a leader in agricultural raw materials[4]; it is partnering with Carlyle to buy the Moroccan refining company Samir[5]… Last February, Glencore also bought some $905 million cobalt and copper mining shares in the Democratic Republic of the Congo[6]. Moreover, a little earlier, in December 2016, it joined forces with the Qatar sovereign wealth fund to acquire 19.5% of Rosneft shares and signed an agreement with the latter to secure 220,000 barrels of additional oil per day for its trading activities.

We find it relevent to draw your attention to the hyperactivity of this Glencore, which seems to have advanced its pawns in countries under sanction, taking several steps ahead of its pickier competitors. Glencore posted a profit of $936 million after an abysmal loss of $8.1 billion in 2015, and is already redistributing dividends after a one year break. Clearly, Glencore indulged in a blitzkrieg, a gamble which should bear its fruit by making the Swiss group unavoidable strategically speaking. It is likely that it is also involved in the work of output cuts carried out by OPEC; it has both hands in the Russian jam jar; and it is probably one of the reasons behind the opacification of the sacrosanct transparency rules of the European Investment Bank[7]… More than a giant multinational company, Glencore is a major strategic, political and economic player in the world which has been positioning itself for several months on a no turning back route. After the so called too big to fail, here is the time of the too high to-reach. Sad consolation: it is now possible to benefit from the situation, as the stock share, currently at £2.83, has every chance to go up in the long run… Read the entire report here.

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[1]      Source: FranceInfo, 02/03/2016 (to compare before today, FranceInfo: 02/03/2017).
[2]     Source: Zone Bourse, 11/06/2017.
[3]     Source: Le Figaro, 18/05/2017
[4]     Source: Les Echos, 26/05/2017.
[5]     Source: Media24, 16/05/2017.
[6]     Source: Le Figaro, 13/02/2017.
[7]     Source: The Guardian, 20/08/2014.