The DJIA lost another 443 points today and closed at 8696. I’ve long since given up looking at my 401k account on a daily basis. I’m in it for the long haul – probably 15 more years – so I’m somewhat sanguine. Retirement? What’s that? But for the moment, further contributions are sidelined in a cash account until matters stabilize – if they do.
But global markets are all reacting badly once again and the retail numbers for October were off – a lot. There is so much uncertainty that most everyone I know – me included – is holding back on everything but essential purchases. There are continued signs of price instability in global markets and firm pricing is necessary for any sort of long-range planning.
Take the oil market, for instance. Prices continue to slide, partly due to the stronger dollar but mostly due to slipping demand. Prices are just above $60 today and will probably slip further. While my SUV is happy, plummeting prices mean instability in places like Russia, where I rather doubt that the Russians can make any money at these prices. And Russia is a resource-based economy these days – almost completely. At higher prices, the Russian government has been able to accumulate nearly a trillion bucks in foreign exchange but they’ve had to dump nearly 200 billion of it to shore up their own markets in recent weeks. That hoard will not go far if things get really bad.
My left brain is happy to defund mischief makers like Putin (putting missiles into Kalinagrad yesterday was provocative indeed). But my right brain is worried about desperate moves as they run out of cash. Yesterday’s Moscow Times tells the story of the continuing meltdown in the Russian oil market:
The government cut oil export duties Saturday, responding to the concerns of top producers who feared making losses on overseas shipments.
The cut was far less than oil companies had wanted, however, and it remained unclear whether they would proceed with November export plans or redirect their oil to the domestic market to avoid the duty.
“It was the minimum reduction, and it does not significantly raise the appeal of exports,” a source at one of the country’s oil companies said.
The duty was set at $287 per ton from Nov. 1, down from $372.20, news agencies reported. That was the level favored by the Finance Ministry, sources in the Finance Ministry and the Economic Development Ministry said Friday.
The Finance Ministry, led by fiscal hawks who are counting on income from Russia’s oil resources to help stave off the effects of the global financial crisis, calculated its proposal to protect its budget requirements, the sources said.
The country’s senior energy official, Deputy Prime Minister Igor Sechin, was backing a steeper cut to $195.20 per ton, with the support of the oil industry lobby, the sources said.
Prime Minister Vladimir Putin ordered proposals for a new formula for crude oil export tariffs, based on market prices, to be prepared by Dec. 1, news agencies said.
Note the steep decline in duties – $100 so far and heading south with Putin’s approval. But there’s more: Russia will not join OPEC in cutting production. Why? Because they can’t afford it:
At the October duty level, industry sources said exports appeared to be creating losses after oil’s fall from record- high prices of over $140 per barrel in July.
Russia’s Urals blend crude was trading around $56.84 per barrel Tuesday, including the cost of delivering the oil to Mediterranean ports.
Trade sources said Saturday that Russia’s largest oil companies were preparing to cut at least half a million tons from the 11.5-million-ton November seaborne export plan if the government failed to trim duty enough.
“Rosneft and TNK-BP have canceled 200,000 tonners, and LUKoil has canceled all its Primorsk volumes for the first 10 days of November,” a trade source said Saturday.
Pipeline monopoly Transneft’s export program showed that TNK-BP was planning to export 300,000 tons, Rosneft 700,000 tons and LUKoil 300,000 tons from the Baltic port of Primorsk in the first 10 days of November.
From the Black Sea port of Novorossiisk, TNK-BP was to export 85,000 tons, Rosneft 140,000 tons and LUKoil 160,000 tons.
And there’s the story – that the per barrel price is down to $56 dollars with transportation thrown in. So, the Russians are trying to divert this production to the domestic market because they lose money on exports. How long before Moscow’s cupboard is completely bare?
And that leads to deflation. As commodity prices continue to fall and people begin to step out of the retail economy, is there deflation in our future? Deflation is worse than inflation because people hoard their money, which becomes more valuable by the day. With falling prices, nobody spends. Including me.
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