I'm calling it. Right here, right now.
Matt's been showing us what has become a national reaction by governments to protect their domestic oil supplies and stabilize pices. They are setting price floors.
The more countries that do this, the more meaningful it becomes as a "counter" to Saudi price cuts. The world is saying, enough is enough.
Argentina may be small, but China certainly is not. The oil price decline is over.
Called...right here on MNE.
9 comments:
There's also this: the Russian Energy Ministry has announced that it will begin test-trading a new Russian oil benchmark priced in rubles and not USD. Russia supplies 80% of Europe's oil needs, and if it demands payment in rubles, things change.
http://journal-neo.org/2016/01/09/russia-breaking-wall-st-oil-price-monopoly/
And Russia wil be okay with running trade deficits?
Who knows if it even knows it has to? The question applies to China as well. As the article notes China is planning an oil benchmark in Yuan too.
Author Engdahl (an American based out of Germany) does not understand MMT, but he seems to have stopped his US is bankrupt/in debt routine, or maybe he just shut up about it for the article.
They don't need to run trade deficits, they can import stuff from the EU and should balance out more or less.
Probably what they have in mind (balanced trade with Germany, which is being pressed to drop the embargo already by business and consumers).
"Russia supplies 80% of Europe's oil needs, and if it demands payment in rubles, things change."
Just because something is generally priced in USD doesn't mean that the actual deals are settled in USD - certainly not transitively throughout the entire supply chain.
I would expect people here to have a wider view of the transaction chain and the nature of the flow. It's not what things are priced in that matters. It's how much is saved from the transaction flow in each currency - which is part of what shifts the supply and demand. If Russian oil companies are maintaining their surplus in USD assets, then they are more part of the US currency zone, than the Russian one.
Neil-
I dont think that its necessarily the case that MNErs dont have a wide view, I think its more about how new and different the concept of currency zone thinking is. Its much more complicated this way. Thinking about not just which companies are in which zone, but which parts of which company are in each zone with their various ops and balance sheets. It takes awhile for this conceptual framework to become intuitive. Just like how Im still trying to work out in my head the mechanics of forex movements due to price changes like Matt has suggested.
" Just like how Im still trying to work out in my head the mechanics of forex movements due to price changes like Matt has suggested."
The dynamics are complicated in both cases.
What we actually need is a tool that allows us to jiggle the bottom end parameters and watch the outcome. Although I have sympathy for Matt's view I'm not completely convinced by it - because entities do not necessarily convert currencies when they earn it. There is a Treasury layer there that needs understanding.
I suspect half the problem we have is that few have analysed and fewer understand the internal structures of multinational operations.
The price of crude oil may bounce back near term for a while, but long term the price of oil will trend much lower into the low single digits, as commercially viable nuclear fusion energy comes on line. Defense contractor Lockheed Martin (LMT) claims they will deliver compact fusion within five years...
http://www.lockheedmartin.com/us/products/compact-fusion.html
Fusion will render fossil fuels, wind/solar/hydro power, and nuclear fission as obsolete as buggy whips.
Thanks, Ed. Promoted to a post. This could be the game-changer.
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