Thursday, January 26, 2012

Oil Shock@ 150......200...250..... Who will survive ?

Oil Shock @ 150…..200……..250
American sanctions and European Sanctions – When I started studying the issue of oil embargo on Iran, I got one thing in mind. Are they really intended to stop Iran from getting Nuclear Capabilities or something else? (Hidden Agenda) In my study all points showing advantage Iran. Iran is surplus economy and net exporter.
Country                        Imports bpd      Percent Imports
 1. China                        543,000          10
 2. India                         341,000          11 
 3. Japan                        251,000          5.9 
 4. Italy                          204,000          13.2
 5. South Korea          239,000          7.4
 6. Turkey                     217,000          30.6
 7. Spain                        170,000          16.2
 8. Greece                    158,000          53.1
 9. S. Africa                   98,000           25
 10. France                   75,000           6.0
    Sri Lanka imported 39,000 bpd in the first half of the year, IEA data shows. It is completely reliant on Iranian oil.                  

·        Who is most affected?
o   India
o   China
o   Europe
·        Basically I think this American Strategy is to destroy currency challenge by EU and China (Challenge to the Dollar as reserve currency of the world.)
·        I will write on this in next post, today I am writing on how it is advantage to the Iran.

Oil Prices
I am starting my argument with; minimum oil price will be USD 100 per barrel that is what OPEC wants and is endorsed by Saudi Arabia. OPEC consensus on $100/barrel oil is broadened by Saudi comments. Saudi Arabia’s endorsement of an oil price of $100 a barrel increases OPEC unity over a triple-digit price aspiration, making agreement on policy easier and adding support for the market.
If Iran stops selling 20% oil to Europe then, it need just increase of USD 30 per barrel to compensate its income.

The chart below shows how the sell and prices will affect Iran, oil can go to USD 150 a barrel soon, if Iran sells 10- 15 percent less than it is all win-win for Iran and Saudi Arabia both. Opec , even though not speaking but looking for 120 -135 USD a barrel for Oil. The massive expansion of Saudi, Kuwait budget and future projects of Qatar and Abu Dhabi cannot survive with low prices. The second issue is the losses Oil Exporting Countries and their Sovereign funds made during financial crisis must have to make up now. West and importer must now pay for the mess created by them. This is advantage America because this money will go back ( excess cash called as surplus ) to USA will help US economy in getting out of woods.
If prices remain low then there is no excess cash so nothing for USA, this is how USA will destroy emerging economies.

The Myth Called Spare Capacity -
Everyone based their argument on spare capacity of 4.1 million barrels. Out of this 2.6 million is in Saudi Arabia. This is 71 % of total capacity. But Saudi Arabia is already using at least 1.2 million barrels a day from time of Libya revolution and disturbances across the Arab world. No country at this point is immune from craze. The development plan in Saudi Arabia and Kuwait will need more and more oil at home to cater to growing need locally and appease the population. Saudi Arabia in fact has just 1.2 million barrel in spare capacity. This is very difficult situation in Nigeria, Sudan and Libya along with Iraq. There are continuous disturbances in these countries and oil production and sell is not smooth. This oil is not guaranteed in the market. Where is spare capacity?
As such there is no spare capacity. This is biggest of myth of Oil market.
Currency War
After the financial crisis all emerging market tried to tame their currencies. Brazil in particular has strongly defended its currency against appreciation, and America is continuously pressing China for currency appreciation, which America believes that Chines currency is under values and good for exports. Even Switzerland defended its currency against appreciation and depreciated it. Basically depreciating Iranian currency will help Iran rather than destroy them.
The Barter Trade
Iran is doing more and more barter trade and China is there to export everything to Iran. There is no issue of not having enough in the market.

Iran-China trade soars to top $45 bn: report

TEHRAN, Jan 25, 2012 (AFP) - Trade between Iran and China soared by 55 percent on year to exceed 45 billion dollars in 2011, Tehran's envoy to Beijing was quoted as saying on Wednesday.
The Iranian government's 80 percent of revenues come from oil export, but China as Iran's biggest oil importer has decreased Iranian crude import by 220,000 barrels per day. India as Iran's second oil importer is seeking the way to pay Iranian oil price in yen or rupee. And finally, Japan and South Korea decided to decrease Iranian oil import respectively by 100,000 and 40,000 barrels per day as Iran's third and forth oil importers.

India says still buying Iran oil, despite new sanctions

NEW DELHI, Jan 25, 2012 (AFP) - India's oil minister said Wednesday the energy-hungry nation was continuing to import oil from Iran and was not bound by new sanctions imposed by the European Union.
Japan posts $32bn trade deficit
Only four of the country's 54 nuclear power reactors are running due to public safety fears after the March disaster.
"If you remove nearly 20 to 25 per cent of their power production capability, which the Fukushima incident did, that's a situation that's going to create a short-term increase [in energy imports]," Collett said. "The nuclear power situation, in and of itself, is going to continue to contribute to a net trade deficit."
S Korea 'cautious' in cutting Iran oil imports following US, EU actions
Despite increasing pressure int the wake of US sanctions and EU embargo on Iranian crude imports, South Korea would remain cautious about whether to cut and if yes then by how much, a government official said Thursday.

"South Korea's position is different from the EU ... and we would be cautious while checking possible supply shortages and domestic economic conditions," the official said, speaking on the condition of anonymity.

"Europe's decision to stop importing oil from Iran is not new because it has long been anticipated," he told reporters.

UPDATE 3-S.Korea hikes Iran crude imports 20 pct in 2011

* Imports from Iran at 238,860 bpd in 2011, up 20 pct yr/yr
* Total crude imports up 6.2 pct y/y in 2011-KNOC
* Middle East supplies 87 pct of S.Korea's 2011 crude (Recast lead and adds more details)
SEOUL, Jan 25 (Reuters) - South Korea's imports of Iranian crude surged 20 percent in 2011, data showed on Wednesday, the latest indication of Korea's dependence on the oil even as it faces pressure from its ally the United States to cut back.
The rise in Iranian crude imports was more than three times greater than the increase in Korea's overall oil purchases in 2011 and some refineries have indicated they will buy more, not less, from the OPEC producer this year.

FACTBOX-EU imports more Iranian oil in Q3

Jan 25 (Reuters) - OPEC's second largest producer, Iran, sells large volumes of oil to China, India, South Korea, Japan and Italy. But Greece, Turkey, South Africa and Sri Lanka rely most heavily on Iranian oil as a percentage of imports.
    EU figures show imports of Iranian crude were up more than 7 percent in the third quarter of 2011 compared to the second quarter. The EU says it imported about 700,000 bpd of Iranian crude oil in the third quarter of 2011, compared to about 655,000 bpd in the second quarter.

Iran's withdrawn cash and EU sanctions

The European Union tightened sanctions ring around Iran by imposing new round of penalties during EU foreign ministers meeting in Brussels on Monday.
The EU members, who previously blocked 443 Iranian entities and 113 true personalities' assets step by step, this time agreed on Iran oil embargo, alongside freezing Iran's Central Bank assets, gold and petrochemicals trade. Europe has blocked all Iranian banks' assets including Melli, Saderat, Refah, Mellat banks, except Tejarat and Central banks.
Iran has withdrawn around $75 billion in assets from Europe until 2008 to prevent them from being blocked under threatened new sanctions over Tehran's disputed nuclear ambitions.
Iran withdrew 250 tons of its gold reserves from Suisse Credit Bank worth five billion Swiss francs, and transferred them to Tehran.
Suisse Bern-based daily Der Bund reported that apparently Iran has withdrawn 700 tons of its gold reserves, worth sixteen billion Swiss franks, from various Western monetary funds and transferred them to other unknown destinations.
So, Iran seems not to have significant assets in EU to be frozen.
Gold reserves
The Iranian officials urge the country's foreign exchange reserves stood at more than $100 billion.
Governor of Central Bank of Iran Mahmoud Bahmani said in July, 2011 that Iran's gold reserves increased by $10 billion in value, while the Central Bank of Iran assures that the country have sufficient gold reserves for 10 years.
The CBI currently possesses 400 to 500 tons of gold reserves and put behind all the problems caused by sanctions, Bahmani said.
Import and Export – Who will get Pain - Germany
With regarding Iran's $58.5 billion legal import volume in 2010, including $14.6 billion from EU, it seems Iran be able to increase imports from Turkey and Asian countries, including China. Beijing-Iran trade turnover was about $30 billion, but the sides decided to boost this figure to $45 billion in 2012.

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