Power Politics And The Price Of Oil

Oil and Energy Investor with Dr. Kent Moors

Report: Gasoline Set to Hit $5 a Gallon by March

The national average for gasoline is $3.40 a gallon right now. But according to Dr. Kent Moors, the “oil constriction” he – and he alone – sees coming could slam Americans at any time. And we could have $5 gas by as early as March. Here’s his official warning. As you’ll see, this is also a massive profit opportunity, especially for those who “get in” before the rest of the world even knows what an “oil constriction” is.

December 5, 2011
Power Politics and the Price of Oil
by Dr. Kent Moors

Dear Oil & Energy Investor,

Over the past three days, two events at different ends of the globe have reminded us that political developments can directly influence global oil prices.

First, on December 2, just as I was departing theUnited States, the Senate gave notice that it was prepared to tighten sanctions againstIranover its nuclear program.

And yesterday, the parliamentary elections here inMoscowdidn’t quite provide the results Prime Minister Vladimir Putin and his party had expected.

The catalysts of each event were quite distinct, and each event was not directly the result of energy policy or related costs. However, both events will likely influence the international oil market in similar ways.
Both will likely restrict the flow of oil. And this constriction should be a sign to investors that crude prices will be going up.

The End of an Era in Russia?

As I sit inMoscowthis morning, I can’t help but notice the enormity of what has occurred here. All conversations today center on the final vote tallies from yesterday.

Some are calling this the end of an era; others are saying a new age of power sharing inMoscowis about to begin.

My initial take is less dramatic than either viewpoint. But, I do agree with one widely accepted conclusion about yesterday…

These election results were highly unanticipated.

UnitedRussia, the dominant political party in this unsettled new democracy, is the vehicle of both Putin and President Dmitry Medvedev. The two men plan to swap jobs after next year’s presidential election.

It was to be the guarantor of a parliamentary majority to their liking. After all, the party controls more than 64% of the current Duma (the more powerful lower house of the parliament). The next largest… the long-in-the-tooth Communist Party, with barely 11.5%.

UnitedRussiawas expected to provide a solid legislative base for whatever the Putin-Medvedev tag team wanted to introduce. But there was just one wrinkle in their plans: Russian voters had other ideas and decided not to grant free permission to the ruling party.

In a remarkable sign of popular unrest, United Russia is now hanging on to a bare majority in the vote totals.

Putin’s Next Step

Many now believe Putin’s party will need to forge connections with at least one of the other three parties. This would allow United Russia to generate enough votes to have seats awarded in the Russian style of proportional representation.

The Communist Party now has approximately 20% of the seats sewn up. Just Russia (a newly structured social-democratic coalition) has 13%; and 12% of the vote has gone to the Liberal Democrats (there’s nothing “liberal” here; these are actually the intense nationalists of Vladimir Zhirinovsky, a man who once promised free vodka to everyone in Russia if he were put in power).

The remaining seats are too close to call.

In perspective, Russian power remains in the same hands. However, political leverage will now be spread more broadly.

Real opposition now exists. However, the three parties occupying that side of the chamber have very little in common. So Putin still has little to worry about…

Except for One Major Issue

And it’s the one issue on which all opposition parties and much of United Russia can agree.

Click here to continue reading…

0 thoughts on “Power Politics And The Price Of Oil

  1. But Pat Hoyos and a whole crew want the government of Barbados to subsidize the price of gas and other fuels.

    To my untrained and simple mind the equation seems a strange one.

    We run a fixed exchange rate in bim. To run that system we need reserves. The tourists are spending less, and there is less money coming in from real estate sales and such projects. My reading of central bank reports tells me that those were out main sources of foreign exchange. They are earning less and can be expected to continue to do so in the foreseeable future.

    Why in gods name would our government follow a policy of encouraging, even subsidzing bajans to spend the same amount on fuel as before? You mean that the increased spending from the fuel subsidy will generate enough foreign exchange to pay for the higher oil import bill. Sounds like vodoo economics to me, but I am open to being brought to a christian understanding of a matter too complex for my untrained mind.

    This government get on the wrong side of the wrong people and will get voted out, because those people run things. But I suspect their policies have kept the fixed rate safe four years into this great economic contraction. I have a fear that the put money in people’s pocket and they will spend approach of pat hoyos, sanka price and crew would have us in foreign exchange problems by now. But the big ups will tolerate no adjustments in their life style, which is almost entirely based on conspicuous consumption = foreign exchange usage.

    These folks want tough choices, but tough choices that do not impact on them and their lifestyles.

    You know as I follow the international news one of the items I am hearing the msot about is how the top 5% or so percent of earners got most of the wealth and income generated in the last 20 or so years. I would love some of the big ups at uwi to give me some similar info for bim. It should make intersting reading. we have heard a lot about the economic growth and boom, i wonder how the wealth was distributed? I for one did not feel much increase in wealth. I saw a lot of my friends paying more and more for house and land, which I think was a massive tranfer of wealth in this country from the haves to the aspiring. The kinds of mortgages people got l,ocked into has many people in trouble today, despite sthe fact that they still earning decent money. We aree not talking about that.

    Forget the political horse races that the media loves, lets deal with some real issues.

  2. Poor Class you live in a capitalist country. Capitalism was contrived to make the rich get richer and the poor to support the rich.

    They call it the trickle down economy. The more money the rich make the more they will let trickle down…..or not.

  3. It is clear the DLP’s policy of passing on the market price of oil is an attempt to curb behaviour. It is also clear Barbadians have not reacted to this price strategy very well. Maybe a well designed public education program is what was/is called for.

  4. The BLP Opposition seems to be saying that were they in government their policies would attract growth and economic buoyancy. It is a bit like religion, it will require a leap of faith by the electorate given the global economic quagmire which now exist.

  5. Speaking of oil BU please start a thread on the fisherman who were locked up in Tobago for illegally entering Tobago waters. What I dont understand is why risk your life sailing 200 miles (not 300 miles diplomat Peter Simmons) to Trinidad to catch 250 flying fish. It dont make sense thats a $80 sale. WTF?!? If fisherman cant find fish in Bdos 200 mile zone they should consider getting into another line of work. Trinidad’s waters are theirs as Barbados’ waters are ours. Stay out of the people territory. Its that simple. Their arrest embarasses the citizens of Barbados while strengthening the hands of the gloating Trinidadians. Kamla Persad already announce Trinidad is no ATM and she’s not giving hurricane ravaged countries like ST.Lucia any aid unless she get something in return. How hard ears can our fisherman be? If you cant find fish in Bdos maritime zone look for work in another industry.

  6. What I believe some are saying is to subsidize the price of oil to key businesses or risk an overall increase in the cost of living. Oil is bought in US dollars so you really are not talking subsidies, maybe just selective adjusting the exchange rate when prices are converted to Barbados dollars depending on who the local consumers are ..

  7. Has any analysis been done in the troubled period 2008 to present to plot energy usage by sector?

    How would selective pricing be done to ensure forex earning sector for example is separated from consumption?

    What other strategies can be used to get ALL sectors to retrofit systems to reduce dependence on oil?

  8. But David I looking at selective pricing so that businesses are not impacted (including supermarkets, utility and productive operations). The idea is to manage the cost of living yet still have ordinary plebs pay for gas at the 2 to 1 conversion rate.

    As for analysis, I would still like to know how the implementation seat belts and helmets has impacted on the deaths and hospitalization that has occurred as a result of vehicular use. Does the word “analysis” appear in the Barbadian dictionary?

  9. Just saw this on bloomberg. S&P now has a negative outlook for Germany, France and 13 other eurozone countries. So the government of little barbados with its economy dependent on tourists and capital flows from these countries should be pilloried for also having a negative outlook. I am coming around to the view that a lot of local commentators are either ill-informed or politically motivated. Maybe its class warfare as Poor man says, they want the lower class to bear the major burden as we adjust to this severe global crisis.

    S&P Jumps Into Politics Again With EU Outlook Warning
    Standard & Poor’s, rebuked by Warren Buffett in August after downgrading the U.S. over government gridlock, is again injecting itself into the political process, just as European leaders are poised to meet for a summit aimed at ending the region’s sovereign-debt crisis.

    The ratings firm put Germany, France and 13 other euro-area nations on review for a downgrade yesterday, saying “continuing disagreements among European policy makers on how to tackle” the region’s debt crisis risk damaging their financial stability. The move came four months after S&P cut the U.S. to AA+, saying “extremely difficult” political discussions over how to reduce America’s more than $1 trillion budget deficit tainted the credit quality of the world’s largest economy.

    Bondholders questioned the timing of S&P’s move, with European Union leaders planning to meet Dec. 8-9 in Brussels to end a crisis that led to bailouts of Greece, Ireland and Portugal, and now threatens to engulf Italy. German Chancellor Angela Merkel and French President Nicolas Sarkozy presented a plan earlier in the day to rewrite the EU’s governing treaty to allow tighter economic cooperation.

    “S&P should back off,” Anthony Valeri, a market strategist with LPL Financial in San Diego, which oversees $330 billion, said in a telephone interview yesterday. “It complicates the job of the EU leaders to resolve the debt problem.”

    $8.1 Trillion

    Grades may be lowered by one level for Austria, Belgium, Finland, Germany, Netherlands and Luxembourg, and as many as two steps for the other governments if the summit results don’t satisfy S&P’s criteria, the firm said. More than $8.1 trillion of government debt would be affected if S&P does downgrade all the nations, according to data compiled by Bloomberg. Germany and France are rated AAA.

    “The upcoming European summit,” S&P said in a report, “provides an opportunity for policy makers to break the pattern of what we consider to have been defensive and piecemeal measures to date, overcome individual national interests and preferences, and advance a credible response to the crisis that would go far towards restoring investor confidence.”

    The move to tie ratings to the outcome of the summit drew criticism from European Central Bank Governing Council member Ewald Nowotny of Austria, who said in an interview that it “highlights the problem that rating agencies increasingly are assuming a political role.”
    ‘Increasingly Problematic’

    “There is no doubt that rating agencies have an economically important role to play, but the way in which this is happening at the moment is increasingly problematic as it creates pro-cyclical effects, that means effects that make the crises worse,” Nowotny said yesterday in Vienna.

    S&P said in a statement yesterday that it decided to review the region’s ratings before the summit because the risks of a deepening crisis have “risen markedly.”

    “Policy makers appear to have acted only in response to mounting market pressures,” S&P said, declining to comment beyond the statement.

    Finding a solution to Europe’s debt crisis took on greater urgency last month as yields on Italy’s surged past the 7 percent threshold that led Greece, Ireland and Portugal to seek aid. Italy has 500 billion euros ($669 billion) of bonds maturing in the next three years, more than the current size of the EU’s rescue fund.

    U.S. Downgrade

    The yield on Italy’s 10-year bond fell 73 basis points, or 0.73 percentage point, yesterday to 5.95 percent before S&P’s announcement, the lowest level since Oct. 27 on a closing basis.

    In a joint statement, the governments of France and Germany said they “recognize” the move by S&P and “affirm their conviction that the common proposals made today will strengthen coordination of budget and economic policy, and promote stability, competitiveness and growth.”

    New York-based S&P, a unit of McGraw-Hill Cos. (MHP), downgraded the U.S. to AA+ on Aug. 5 from AAA, saying the U.S. government is becoming “less stable, less effective and less predictable.”

    While the S&P 500 Index of U.S. stocks plunged 6.7 percent on the first trading day after the downgrade, Treasuries rallied, sending yields to record lows. Treasuries due in 10 years or more are 2011’s best-performing sovereign securities, returning 26 percent as of Nov. 30, according to Bloomberg/EFFAS indexes.

    The ratings company’s decision on the U.S. was flawed by a $2 trillion error, according to the Treasury Department. S&P disputed the Treasury’s assertions and said using the department’s preferred spending measures in its analysis didn’t affect its credit grade.

    Buffett, the billionaire chairman of Berkshire Hathaway Inc. and the world’s most successful investor, said S&P erred and the U.S. should be rated “quadruple-A.” Buffett is also the largest shareholders of Moody’s Corp. (MCO), the parent of Moody’s Investors Service.

    Downgrades of Germany and France would affect the rating of the 780 billion euro European Financial Stability Facility, the bailout fund for struggling euro member countries that has funded rescue packages for Greece, Ireland and Portugal partially through bond sales.

    If the EFSF has to pay higher interest on its bonds, it may not be able to provide as much funding for indebted nations. Yields on the EFSF’s 3.375 percent bonds due in July 2021 rose 2 basis points yesterday to 3.6 percent, according to Bloomberg prices.
    ‘Tremendous Pressure’

    The outlook change is “disastrous for Europe,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said in an interview yesterday on Bloomberg Television’s “Street Smart” with Lisa Murphy and Adam Johnson.

    “Every bank now in Europe is also going to be downgraded as the sovereigns are downgraded, many corporations in Europe will be downgraded, the euro is going to come under tremendous pressure worldwide,” Grant said. “There’s just a whole lot of dominoes that are going to fall because of this report.”

    Regulators have tried and failed to rein in credit-rating companies, which the U.S. Congress has said helped fuel the worst financial crisis since the Great Depression by assigning top grades to subprime mortgage bonds, Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in a telephone interview.
    Proposed Rules

    “Why are they pulling the trigger now?” Rupkey said yesterday in a telephone interview. “There’s a danger of putting too much power in the hands of these institutions and causing in effect a race to the bottom.”

    The EU proposed rules last month to increase regulation of the credit-rating companies while postponing plans to ban them from giving assessments of countries negotiating international bailouts.

    S&P also cited “high levels of government and household indebtedness across a large area of the eurozone” and the increased risk of a recession in 2012 as reasons for yesterday’s change in outlook. The firm said economic output in Spain, Portugal and Greece will likely fall next year, and that there’s now a 40 percent chance of a decline for the entire region.

    The “negative” outlook on CC rated Greece, which is 10 steps below investment quality, wasn’t changed, as its grade “connotes our belief that there is a relatively high near-term probability of default,” S&P said. The firm kept its “negative” outlook on Cyprus’s long-term rating and placed its short-term rating on “creditwatch with negative implications.”
    ‘Credible Backstop’

    Europe may stem its debt crisis by moving to a “full fiscal union” in which all countries assume responsibility for the euro area’s sovereign debt or by “a much larger commitment” by the ECB to support sovereign-debt markets, Goldman Sachs Group Inc. said Nov. 30 in a research note.

    The threat of a downgrade may make it more difficult for Merkel to convince the German people that supporting peripheral nations is in their interest, Noel Hebert, a credit strategist at Mitsubishi UFJ Securities USA Inc. in New York, said yesterday in a telephone interview.

    “If it starts threatening the creditworthiness of the country itself, that’s a much harder row to hoe for Germany,” Hebert said. “It heightens the internal tensions that Merkel has politically.”

    Sovereign Issuer: Ratings Placed on Watch:

    Austria AAA
    Finland AAA
    France AAA
    Germany AAA
    Luxembourg AAA
    Netherlands AAA
    Slovenia AA-/A-1+
    Slovakia A+/A-1
    Portugal BBB-/A-3
    Ireland BBB+/A-2
    Malta A/A-1
    Italy A/A-1
    Spain AA-/A-1+
    Estonia AA-/A-1+
    Belgium AA

    To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Zeke Faux in New York at zfaux@bloomberg.net

  10. I am very worried that a BLP government in an effort to prove it can grow the economy despite the global challengesdoes not lead us into a forex problem. The forex problems don’t show up immediately they take a little while to feed through and you can claim a lot of bragging rights while the economy grows and the forex problem is building up, like sandi in the 1990s.

  11. in his last outing owen had massive real estate inflows and foreign borrow to provide the forex to fund his growth strategy. I for one would need to hear where he plans to get the forex to fund the growth strategy they are alluding to.

  12. that should be foreign borrowing. in the owen days our forex reserves were regularly shored up by foreign borrowing.

  13. Didn’t Arthur admit that the need to fund compliance/regulatory issues today means that tourism receipts will not do it for Barbados. He used this position to explain why his government was bullish on FDI of the real estate variety.

  14. The outlook changes seem driven by the worsening prospects for economic growth in Europe and around the world, the same reason given in the Barbados case.

    What the agencies don’t seem to be confronting is that if all these nations engage in some measure of austerity to protect their credit rating, then the outlook for growth is likely to be even worse.

    Hopefully, governments and policy makers will begin to weigh the trade-off between the benefits of keeping a credit rating and the costs to the economy, and not subject themselves to a tyranny of the financial markets.

    Maybe institutional investors will do as they have done in the USA, ignore the ratings, and lend to governments at rates based on their own judgement rather than slavishly following credit ratings as they have done in the past. If borrowing costs do not change simply as a result of rating changes then the power of the ratings agencies will effectively be broken.

  15. He could as well come clean and admit that the 4 Seasons investment is a “fait accompli” and he has the rubber stamp in hand.
    Let us know that it is a political decision and we will give you respect for that admission, jr!

  16. @David

    Three weeks ago S&P lowered Barbados’ economic outlook from ‘stable’
    to ‘negative’. One would have believed that Barbados is a super power when he/she saw/heard the comments from the Cave Hill economic professors and doctors, editor of the Broad Street Journal, our own BU economic guru etc. etc… I wonder how they feel when they read headlines like the following which appear in today’s edition of the Telegraph Newspaper..and RTE News?

    (1) ”S&P threat of rating cuts may hit eurozone rescue”’

    (2) Fifteen out of 17 eurozone nations – including Germany – were threatened with downgrades to their credit ratings in a move that may imperil the foundations of a landmark rescue deal agreed on Monday.

    (3)Standard & Poor’s today placed the top AAA rating of the EFSF bail-out fund under review for possible downgrade

    According to the young people, are Bajan economists fuh real?

  17. @Chuckles

    We are living in some very uncertain times. Of course you would have to admit that the fickle global economic market does not preclude the need to formulate the best mitigation strategy. As well it does not mean that political opportunism is not rife. We operate in a Westminster System afterall.

  18. Chuckles

    Stop mekkin’ sport … You well know that the first responsibility of any Government, and I mean any Government (which includes its Central Bank and academic lackeys who are paid with tax dollars) is to paint a picture of confidence and optimism … that is what they see themselves as being paid to do. Then they are going to turn around and devalue the currency (after all in the know have gotten what they could out of the local Banks).

  19. It is bitter sweet. An economy which depends heavily on retail/distributive sector the spur in spending will help but the outflow of forex must be a concern and more of concern is the need to shift to earning forex to drive growth and sustainable.

  20. Minister says he expects no forex loss but a saving instead as some persons might buy stuff locally that they might otherwise buy overseas. it might be true for some online purchases.


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