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The Kremlin once again slips on high oil prices

Кремль опять поскользнется на дорогой нефти

On Tuesday, November 7, the price of Brent crude during trading on London stock exchange established at $ 64,19 per barrel. It is 0.12% below the bar reached the day before, but still a record. The last time the exchange has seen these quotes in June 2015.

The price of “black gold” started to grow November 4, at the beginning of a large-scale anti-corruption campaign in Saudi Arabia. Over the weekend it became known about the dismissal from power and arrested 11 senior officials in Riyadh, including Ministers and members of the Royal family. According to reports from Reuters, most of them charged with bribery, money laundering and other crimes. Among them is the billionaire al-Waleed bin Talal.

Note: according to Forbes, the state bin Talal — about $ 19 billion, the Prince is the largest shareholder of the financial Corporation Citigroup, he also holds the second largest share of media company 21st Century Fox. According to The New York Times, in October, bin Talal gave an interview to the Western media about cryptocurrencies and possible partial privatization of the state oil company Aramco.

A few hours before his arrest by the decree of king Salman bin Abdul-Aziz was established anti-corruption Committee, headed by the heir — the king’s son, Prince Muhammad bin Salman. The king himself, speaking on national television, said that “the law will punish everyone who touched the money companies and do not protect them, or kidnapped them, or have abused their power and influence.”

In parallel with the arrests, the resignation was sent to the head of the National guard — the son of the previous king Abdullah Prince Miteb, who was considered one of the few people among the senior Saudi officials, were not part of the sphere of influence of the heir of Muhammad.

Arrests of top officials, according to observers, testify to the strengthening of the position of bin Salman. And Prince Mohammed is a consistent supporter of the reduction of OPEC quotas on oil production, which has already led to balancing the market of “black gold”.

As stated by former Secretary-General of OPEC, Rene Ortiz, the rising trend in oil prices will continue as demand and supply of crude oil regained its balance.

“Demand growth is already a trend. It is noticeable that the economic recovery of the European Union and Asia will increase,” said Ortiz. According to him, if earlier it was expected “about 120 thousand barrels per day extra demand,” but now the expectations have increased to 200 thousand barrels per day.

Ortiz noted that, “probably in 2018 will not require the Algiers agreement”, which envisages a reduction of 1.8 million barrels per day of oil production by OPEC and the countries outside the group, such as Russia.

What actually happens to the price of “black gold”, as it will affect the Russian economy?

We have been trapped in oil prices in the 1970s — said the Chairman of Russian economic society. SF Sharapova, Professor of international Finance (University) Valentin Katasonov. — After the oil crisis in 1973, prices for “black gold” saw 4 times, and suddenly it became clear that we can not live particularly strained, due to the oil rent. Before that, the Soviet Union was rather modest exports of “black gold”. Mostly the deliveries were in the Soviet bloc countries, but in the mid-1970s, it was decided to enter the world market.

This decision has served us bad service. On the world market with the money we started buying machines and equipment, plus fall into technological dependence on the West, and the successes of industrialization of the country gradually began to blur. The upshot was that the Russian budget is firmly seated on the oil and gas needle.

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After the crisis of 2014 was hoped that the situation will change. Russian authorities started talking about the need to move away from oil. And now, it seems that the situation is back to normal. The Cabinet discusses anything other than the reindustrialization of the economy and the creation of a single national economic complex, which would be if not eliminated then at least reduced Russia’s dependence on external markets.

“SP”: — What is behind the arrest of a Saudi Prince?

In my opinion, the Saudi king and his entourage are in a very uncomfortable situation. The fact that the main market of crude oil for Saudi Arabia for today is China. But the last two years, Beijing is actively pushing for Riyadh, reducing the proportion of Saudis in the Chinese market. The University wants China to Saudi Arabia was selling oil for yuan, and is seeking in the form of an ultimatum.

Riyadh to take such a step does not go, because it is well aware that any attempt to move away from petrodollars is contrary to the interests of Washington, and maybe the Saudis will end very badly.

But to lose the Chinese market Riyadh does not want. Moreover, king Salman bin Abdul-Aziz sees perfectly, as the US did with their recent allies, who suddenly became unwanted. That is why, I believe, Ibn Abdul-Aziz at the beginning of October visited Russia, where he met with President Vladimir Putin and agreed to purchase four battalions of antiaircraft missile systems s-400 “Triumph”.

Plus, the actions of Riyadh due to the upcoming IPO of 5% of the shares of the state company Saudi Aramco. USA recently put a spoke in the wheel of the impending deal. It was assumed that the IPO will take place on the new York stock exchange, and today against this there are serious objections. Plus, the rating agencies, under the control of Washington which estimated the package Saudi Aramco in $ 2 trillion. lowered the bar below $ 1 trillion.

All of this, I believe, tells about pressure on the Saudis from the United States. Washington sends a clear signal to Riyadh: if I sell at least a barrel of oil for the yuan, you are in big trouble.

The arrest of a Saudi Prince, in my opinion, another manifestation of the pressure from Washington, since the information about the corruption of Saudi princes planted by us intelligence agencies.

“SP”: — the Actions of Riyadh, Beijing and Washington increases the price of oil?

— They increase the volatility of oil prices. Control of prices for “black gold” again becomes a tool in a political game. And I do not exclude that this game will be deployed against Russia, and will become aggravated on the eve of the presidential elections in Russia in March 2018.

— Increase of oil prices Russia is certainly profitable, — said General Director of national energy security Fund Konstantin Simonov. — I have negative attitude to the idea that high prices for “black gold” freeze economic activity. For example, it is convenient to take Ukraine. There are no large-scale oil and gas production, 25 years our countries go different ways. But if we agree that the development of the economy slows, oil industry, why is “independence”, the economy of which is — in theory — do not brake, did not become a prosperous state?!

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Now as for the oil prices. I am not a supporter of the theory that the oil market is a normal commodity market. This is not so. For example, now many say that this market came into balance. However, the current reserves of “black gold” still more than in 2012, when the oil price was significantly higher.

Contrary to market theory another time. Now prices have risen to $ 64 per barrel — but why did it happen? What fundamentally changed in the oil market over the past few months, which came to some sensational data which have changed the behavior of the players? No, of course. Everyone understands that such jumps are explained by the speculation. Moreover, it is in the oil market, the influence of the speculative factor is huge.

In my opinion, to fight it is futile — the system can only be integrated. For example, I perceive a deal of Russia with OPEC as verbal intervention, which has helped us become a part of this system.

It should be understood: the key speculators in the oil market is the United States. The lion’s share of transactions with oil futures is associated with America — these securities are American pension funds.

Today, the growth of oil prices, I’m sure, explains the preparations for the key event — the IPO of Saudi Aramco. It is difficult to say at what price will be sold a 5% stake, but certainly above $ 1 trillion. Moreover, Saudi Arabia is trying to raise the price, and is well aware: the more expensive oil is, the more expensive Saudi Aramco.

Because the Saudis go to Russia and spread rumors that the deal OPEC+ will be extended. Plus, arrest of princes, and hyping the topic of instability in the region — the subject of Yemen, which could cause a missile attack on Riyadh, plus the Kurds. Instability in the region also raises the price of oil.

But most importantly, the rise in oil prices plays Donald trump, who says that the IPO Saudi Aramco — almost a historical event. In fact, the United States, helping the Saudis help themselves. Trump — an open supporter of hydrocarbons. He plays against the trend, and argues that America needs the oil industry. In fact, trump was the main lobbyist of high oil prices for the simple reason that the shale industry in the United States are uncomfortable with prices below $ 50 per barrel, and very comfortable — at prices above $ 60 per barrel. And there’s no better way to ensure the inflow of investments in the shale industry than to drive up the price of oil.

Riyadh for this support and notice, Trump promises to carry the largest ever supply agreement in Saudi Arabia of American arms in the amount of $ 109,7 billion, which the US President agreed with the Saudis in may 2017.

“SP”: — Will the oil price to accelerate further?

— I don’t think. Prices significantly above $ 60 per barrel unprofitable, first of all, the oil industry, as playing into the hands of supporters of “green” energy. I think “black gold” will continue to stay in the corridor of $ 50-60 per barrel.

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