Russia's voice in the oil debate is vital for progress

Up until early August, much of the excitement around the resurgence of oil prices this year had been lost after market participants began noticing cracks in the sustainability of the moves citing OPEC members being at loggerheads with each other over the exclusion of Iran from a deal that looked set to freeze the production of oil.

Saudi Arabia, the de facto leader of OPEC, insisted on their inclusion saying Iran might use the opportunity to gain market share that could erode the position of other members but mainly itself. Iran countered by saying it had been sanctioned from trading its oil with the rest of the world and was in the process of mending its trade balance that had suffered badly as a result.  

The dispute between the two threw the power of OPEC into jeopardy by opening the door to retaliatory attacks against one another with Riyadh going as far to say to would increase oil output to record highs in a veiled threat intended to undermine Tehran.

But along came Russian oil minister Alexander Novak who suggested his country was open to revisiting the prospects of negotiating a production freeze after a meeting held in April between them and OPEC members fell through leaving producers in limbo. Novak said OPEC could possibily use an upcoming informal meeting between members to discuss the way forward.

Putin Joins "OPEC Headline" Fray, Pushes For Oil Production Freeze https://t.co/Nx725kAdzO

— zerohedge (@zerohedge) September 2, 2016

This revived up the bulls although only for a little while as the bickering flared up with Saudi Arabia proudly announcing it had reached an all time high in oil production for the month of July. The on and off commentary that's been swirling around since Novak made the comments has driven uncertainty off balance and dissuaded participants from taking a view on either direction.

However things look set to get interesting with Russian president Vladimir Putin adding his voice to the debate and throwing his weight behind reaching a deal without the inclusion of Iran. He went further to express empathy for Tehran saying the country has increased oil production from a low base and the effects of generating profits through oil revenue would be an added boost to its economy.

I've stated previously in the past that Saudi Arabia had abused its position in OPEC to suit its own economic needs while overlooking the distress in of others inside the group and it's bullyboy tactics threaten to tear apart the organisation with the possibilities of members "cheating" on the agreement to see higher oil prices.

Needless to say, Russia's support for Iran gives confidence to those who are of the belief that a production freeze is likely because it pits two giant oil producing nations against one another without creating conflict within the organisation. Russia may not form part of OPEC but the combination of their supply with that of OPEC equates to roughly 50% of the world's oil supply. Their participation in the deal is an absolute necessity for both OPEC and themselves.

And in saying this, Moscow can't afford to slip back on the economic work its done in alleviating the hardship suffered from its own sanctions imposed by the West after it annexed Crimea. Optimally it would benefit greatly if oil prices sat above $60 yet we still need to see them retain those levels with a degree of certainty that they'll stay above there.  

A leader as powerful as Putin weighing in on the debate highlights the urgency of finding resolve in the current environment.

The 3 players that matter the most in Doha oil talks

With three days left to go to the start of the much anticipated oil summit set to take place between OPEC and Non-OPEC producing nations held in Doha, most market participants remain skeptical that a long term positive outcome can be found when leaders sit down to discuss a possible oil production freeze.

I've been following the story since the middle of last year and have stated a number of times that a resolution to this matter will only be found when the biggest producers are the ones at the tail end of the economic damage which has slowly materialised. Up until a few months ago Saudi Arabia had remained steadfast in its decision to rid the market of alternative producers in the US by flooding the market with barrels of oil.

This initially worked with US shale producers feeling the pinch and responding almost immediately with closures of wells that couldn't break even as well as preparing for a financial storm that had been brewing over the levels of debt created in starting up these new ventures. However it didn't stop these producers from exploiting the richest wells with quantity aplenty to help them extend their stay in the oil market a little while longer and become a frustration to the Saudi's.

Added to this a new problem was slowly starting to emerge within the context of the entire world economy where the growth needed to stoke the coals of  the economic engine were found wanting with both the US and China letting up far more than would be necessary to nudge things forward.

Double whammy...

Having heard cries of help from other minor producers in OPEC, Saudi merely let those calls fall on deaf ears as they proceeded on but its placed them in a vulnerable position within the oil producing community. Saudi's efforts to curb its ill gotten plans that have backfired and put not only their well-being at jeopardy but the entire membership of OPEC, leaving them open to harsh reactions from those it failed to listen to.

This can't be a good footing to stand on when negotiating the stability of oil prices let alone a steady and consistent relationship amongst its peers in OPEC where co-operation from each party is an absolute necessity which is what we find with fellow member Iran.      

When #OPEC & non-OPEC oil meet this weekend, it will be one of the most closely watched #oilsummit in yrs. https://t.co/oAhA3Z0nJu #giforum

— Gulf Intelligence (@gulf_intel) April 11, 2016

Iran's readmission into the oil market has dampened the outlook for the supposed Black Gold as the inventory of barrels stockpiled in Tehran is bound to be sold off to help aid an economy that's been economically isolated for a number of years.

However the relationship between Tehran and Riyadh hasn't been favourable at the best of times and the recent announcement by Saudi proposing a production freeze was met with a cold tone of defiance when Iran's oil minister was quizzed whether his country would be participating in such agreement. Tehran  had explicitly stated its objection to such a proposal before Saudi gave details of a possible way of halting the oil glut.

Sensing that Tehran could drag its heels, Saudi decided to find a better suited candidate that would give an extra notch of credibility to its plans to slow down the rate of oil production worldwide. Russia currently produces 10.9 million barrels per day marginally outstripping that of Saudi Arabia who is currently on 10.6 million bpd. Merging a plan together with both these players does add a degree of a no nonsense approach to the proposal but does it have the staying power to convince others?

Russia tactically got involved as it sees itself becoming a more prominent player in the oil market, possibly suggesting why the annexation of Crimea proved to be a hasty decision taken by Russian President Vladimir Putin. It's also got in on an oil deal with China that OPEC had hoped would've been swung its way but was beaten to the chase having devoting its attention to the oil price wars with the US.

But we should not forget that Russia's own economy has been crippled by the sanctions imposed on it from the West following the annexation of Crimea. Oil plays a significant role in providing much needed income in rebuilding the Russian economy and if Putin's ambitions are anything to go by don't expect anything less than astounding.

#Iran #oil production rises to fresh 4-year high of 3.3m b/d (up 300kbd from January) as nuclear sanctions lifted pic.twitter.com/kfBpXaGfZ3

— Javier Blas (@JavierBlas2) April 14, 2016

Since Saudi Arabia is seen as the leader of OPEC and possibly oil producers, their choice in strategy to freeze production as opposed to cut production was taken because they feels vulnerable of losing this status if it fails to play their cards properly which could see a hugely influential West losing its grip on oil supply since Washington and Riyadh hold close ties that sees a cordial understanding in keeping oil prices and production steady.

It's not a hidden secret that Iran has suffered from the economic sanctions imposed on it by the US and its dissatisfaction at the way Saudi Arabia has handled threats of new entrants to the oil market. Iran has capacity capable of meeting that of Saudi which would almost diminish the relevance of the latter should they chose to cut back production.

Russia on the other hand sees its ambition to play a more influential role on world politics as a priority with oil being strategic to this goal. It wouldn't miss an opportunity to circle a "wounded animal" so as to say when they see the pressure Saudi has come under in the waking months. Putin is too much of a political manoeuvrist to pass up such a chance to take power away from a controlling nation.

It's because of the above scenarios that I don't see the likelihood of a oil production freeze having an major impact on prices over the long term. The market remains critical and with profit margins being squeezed and debt hanging over the heads of management any significant jump in the price would yield an immediate flurry of selling from producers, pushing back the price from whence it came.

North Korea's missile test invoke leaders to find common ground

In an act of defiance against major world leaders, North Korean leader Kim Jong Un continued his rebellious tactics by firing yet another missiles after warnings by the US, Japan and South Korea that more would be done if provocations didn't stop. This comes at a time when leaders have gathered in Washington this week for a global nuclear security summit to discuss the latest developments surrounding tensions in the Korean peninsula.

Talks are proceeding slowly as China, a main trade partner and protector of North Korea, is yet to show it's hand over whether it will enforce the recent sanctions imposed on Kim's country by the UN following a nuclear test earlier this year. China has stated previously that it doesn't feel sanctions are sufficient to prevent further retaliation from their neighbours and a need to hold talks between 6 nations namely the US, Japan, China, South Korea, North Korea and Russia is needed to ensure denuclearisation happens.

However Russia's absence from the summit delved a bitter blow to leaders efforts to find a solution with many assuming the uncooperative nature of the West in scaling down its own imposed sanctions on the Kremlin following the annexation of Crimea could be the reason for the lack of participation.

Putin's role in finding a consensus is once again proving pivotal in moving forward highlighting the need for the West to start rethinking its approach to Russia especially with its involvement in Syria. Nothing seems to be clear at the moment but the attacks on Brussels last week are sure to nudge the level of priority upwards if resolution is wanting to be found. We should start to see Putin's presence increase in the coming weeks with anticipation over which of the two issues will be thrashed forward in terms of importance.

But probably the most notable talking point right now would be Kim Jong Un constant defiance but more so when their ally, China is in the presence of new and prominent trade partners that hold greater economic scope than North Korea. Kim's action is confrontational of Beijing, pressing them to show their support as they had done in the past.

North Korea appears to have fired missile into sea: South Korea military https://t.co/9T6cCAAuV2 pic.twitter.com/ijdSjCqJjV

— Reuters Top News (@Reuters) April 1, 2016

This hasn't been the case since China's Premier Xi Jinping made a state visit to North Korea last year pleading with the upstart leader to cool down his retaliatory stance that was causing concerns in the West. Xi feared that Kim was drawing too much attention to a vital part of the Asian region that could harm trilateral relations between themselves, Japan and South Korea.

China however has moved swiftly to relieve any uncertainty by openly talking with South Korea even though both nations have had strained relations in the past. Both nations leaders have laid down a commitment to work with one another that could all but spell doom for Kim Jong Un. The friendly relationship makes it more difficult for China to go back on its word and stamps a feel of genuine concern over the tense situation in the Korean Peninsula.

South Korea's President Park Geun-hye's non-aggressive open invitation for discussions between itself and North Korea further wounds the emotionally charged youthfulness of Kim Jong Un leading to many side with the voice of reason, winning more allies for South Korea.

Xi meets S. Korean President Park Geun-hye, exchanging views on bilateral ties #XiVisit https://t.co/kbl5XnZbP0 pic.twitter.com/pwIVlNDGH3

— China Xinhua News (@XHNews) April 1, 2016

Russia's credit rating agency dilemma signals further pressure by the West

Russia is making headlines again after it announced it would be forming its own rating agency to assess the credit quality of local Russian debt after Moody's and Fitch's both said they would be pulling out of the country due to heightened regulations wanted to be imposed on them from the Russian government. The move was sparked from an ongoing dispute that international rating agencies are deliberately downgrading ratings to sabotage capital inflows into Russia.

A move away from rating assessments done by international rating agencies could spell disaster for Russia as the likely outcome to come out of it would be even more dissuasion to foreign investors who require unbiased and impartial evaluations of investment grades pertaining to foreign investments.

This latest spat highlights the increasing pressure the West are piling on Russian President Vladimir Putin to restore order in Ukraine following the annexation of Crimea as well as lighten up his support for Syrian dictator Bashar al Assad who remains in power five years after civil war broke out in the Middle Eastern country. Putin has hoped that his military involvement in Syria may sway his Western counterparts to have a change of heart and possibly use his fight against terrorism, namely ISIS, as a negotiating tool to have sanctions dropped.

But the oil rich economy has had no such luck with the most recent statement made by Putin detailing Russia's retraction of airstrikes in Syria as a sign that the beleaguered state of affairs may be pushing Putin's government to scale down to save costs or either Putin holding the West's need to fend off terrorism seeping into the EU as a ransom note to grant him more freedom.

Anyway you want to look at it the situation on the ground remains tense and with little resolution taking place it will only serve to make things worse in the coming months which makes it vital for world leaders to suspend the petty political cat and mouse game and concentrate on the priority of Syrian civilians caught in the crossfire.

Vladimir Putin starts his own credit-ratings firm in Russia https://t.co/Fe6D2k2VpZ pic.twitter.com/jdtkoh3GQE

— Bloomberg Business (@business) March 18, 2016 

Valeant's stockholders face the most severe price valuation shock

If there's ever been a time to highlight the importance of corporate governance it today's era of business you don't need to look further than Valeant Pharmaceuticals who faced claims in late 2015 of falsifying sale records to inflate numbers opening a can of worms and possibilities of executives being charged of manipulation of accounting records following the explosive report made by Citron research firm who made the accusations.

The intensity of media hype around the story led CEO Michael Pearson being declared sick and unable to continue with his duties until such time he had recovered which quite frankly sounds like a distraction away from the main issue. Pearson has subsequently returned to office but not without less scrutiny than what was afforded to him when the story broke. The company dropped its 2016 guidance and raised the alarm that it could breach debt agreements if it couldn't publish its annual statements causing the stock to tumble over 50% on Tuesday.

News of the calamitous outcome placed billionaire and significant stockholder Bill Ackman in a difficult position in explaining to investors in his hedge fund why the fund continues to stick with the company after such a poor showing in terms of governance. The hedge fund owns approximately 9% of Valeant.

The situation now forces Ackman, which must be said has defended the company to the hilt, to take on a more active role in management in an attempt to save it from going bust. The self proclaimed investor activist who tried to tarnish the reputation of Herbal Life faces his own worst nightmare with this latest move signalling his own concession that all is not well inside the boardroom of the firm.

It goes to show that people in glass houses shouldn't throw stones and boy has Ackman landed himself in the stew with this one.

Bill Ackman says Valeant is a problem he knows how to handle https://t.co/fFTnWlrmA1 pic.twitter.com/0mCYEc7Q91

— Bloomberg Business (@business) March 18, 2016