Where is the Market’s Invisible Hand gone?

An article in French by Ramdane Mohand Achour and published on March 25th, 2017 by LibreAlgerie is proposed. It is about Algeria in the course of the persistently decline of its hydrocarbon exports related revenues is currently undergoing soul searching questioning of what is best for making its economy work. Many are wondering where is the market’s invisible hand gone? Like many countries, Algeria that is struggling with falling revenue from lower oil prices is presently looking for ways to upgrade its energy systems to fully support current and future requirements of its economic growth.

Where is the Market’s Invisible Hand gone?

Proponents of liberalism argue that the market naturally produced a self-regulating mechanism that corrects imbalances born out of the multitude of society shaping special interests. This mechanism, called “the invisible hand of the market”, would satisfy the public interest. The law of supply and demand would naturally harmonize economic situation marked by the selfish will of each individual. In this scheme, the State doesn’t have to intervene if it is to guarantee the exercise of free and undistorted competition intended to benefit at all.

The current state of the oil international market turns wrong this angelic vision of a self-regulated inclusive market. Left to itself, the market has experienced a bullish cycle during ten years (1999 – 2008). The price of the barrel thus reached 140 dollars in June 2008 before tumbling within the 2008 crisis, but he soon to rise in 2009 again to be slightly above 120 dollars in April 2011. In 2014, it exceeded even the 110 dollars.

Such a situation was undoubtedly beneficial to the producing countries and companies in the sector as well as those rich countries whose States taxed petroleum products so as to keep their economy afloat. It was not the same for the non-producers, and all poor and middle-income countries who were struggling to feed themselves because of their limited financial resources. The market did not benefit to all, far from it.

The second disadvantage of this situation of relatively expensive oil lay in the fact that it boosted search for more hydrocarbon and production and allowed shale oils to make a big splash, in a full sense of the word, on the world market. With a production of 11 million barrels a day, the United States will see their rate of dependence on foreign oil drop to 30% in 2016 down from 60 percent in 2005.

Such a dynamic did fail to cause a state of overproduction; the purpose of the market is not, contrary to the image that its promoters sell us, to satisfy human needs, but rather to garner, first and above all for not only, profits, but for maximum profits.

Proponents of the “the invisible hand of the market” were right about one thing: in an economy obedient to the laws of the market, the engine of the “economic agents” is selfishness, the individual profit, at the expense of the lives of the producers (workers), consumer and research of nature which we see what mess it is today.

Overproduction intervening in a situation of de facto global stagnation, in the first place, the downturn in the economy of emerging countries (China, Brazil…) dropped slowly but inexorably the price of the barrel. Out of $110, it fell to $35 in February 2016. Decided to reduce the share of the North American Shale oil producers, Saudi Arabia will trigger a price war which played a vital role in this descent into hell.

If the drop in prices could theoretically help poor and middle-income countries producers, it on the other hand hit with full force the producing countries, primarily those of OPEC. For the first time in its history, the rich Saudi Arabia could no more balance its budget and had to resort to austerity. Its involvement in Yemen who turned into a quagmire for Riyadh, financial support of ‘takfirist’ groups in Syria and Iraq and a fierce will to challenge Iran contributed to accentuate its financial crisis. In this sequence of fall in the price of oil, as in the previous bullish sequence, no sign of self-regulation by the market. The invisible hand had other things to look after.

Last November and to everybody’s surprise, the 14 member countries of OPEC, under the impetus of Algeria but due to the will of Saudi Arabia, decided to reduce their production to the tune of 1.2 million barrels a day. Eleven countries non-members of the cartel, including Russia, committed as well to reduce their 560000 barrels per day. In the month of December, stocks of the OECD countries dropped to 1.2 MBD.

 

Number of non-conventional oil producers will be forced to close their wells that became no more profitable below a price floor of around $50 a barrel. The agreement of the producing countries, OPEC and non-OPEC, which was not an action of “the invisible hand of the market”, but of the conscious and active action of 25 States, will result in stopping the fall in prices on the world market and could even allow the beginnings of a rebound in prices which will pass from between 45-50 dollars to 50-55 dollars.

Number of non-conventional oil producers will be forced to close their wells that were most profitable below a price floor of turning around 50 dollars per barrel. The agreement of the producing countries, OPEC and non-OPEC, which was not the action of “the invisible hand of the market”, but the conscious and active in 25 States, will result will stop the fall in prices on the world market and will allow even the beginnings of a rebound in prices which will pass a fork understood between 45-50 dollars to 50-55 dollars.

There is however, that this new ‘virtuous cycle’ for producing countries is not shared by the importing poor and middle-income countries. It also translates into a revival of the production of Shales. In the United States, the number of wells increased each week. Mid-March 2017, it stood at 617 and the U.S. production has reached the historical peak of 9.1 MBD that recalls the production rate of the 1970s. Stocks of oil and oil products are at the highest historical level at 2 billion barrels. The commercial reserves of the country reached 528,4 million barrels with an increase of 8.2 million barrels, the largest weekly increase since 19821.

This new overproduction mechanically caused a new fall in the price of oil, which threatens the stability of many countries. We think first of countries such as the Venezuela struck by an economic and social crisis. But it does not spare the rich monarchies of the Gulf as well. Thus, below a certain price, producers of Shale disappear from the market while exporters suffer a severe income crisis whereas if prices were back on the rise, Shale producers will return to the market. But in the absence of a significant global economic recovery, they contribute quickly to only flooding the market.

The bullish and bearish cycles seem to alternate way more and faster, impeding the process of renewal of the facilities and the discovery of new deposits that require significant investment that the big oil companies do not realize by altruism, but through their search for profits.

One could therefore ascertain that the market does not regulate anything and that without the intervention of the State that plays a major role but not always effective, the market being not self-regulated, would verge onto anarchy causing economic, social, and humanitarian crises as the deterioration of the environment.

The reality of the international oil market confirms that the role of “the invisible hand of the market” is just a myth. The Liberals, who are constantly putting their realism and their pragmatism forward but who do not have enough teeth against their opponents, in ideology, swim themselves in full ideology. Behind a friendly speech sold according to the lastest in marketing theories, formidable doctrinaires could be hiding.

Source : Libre-Algérie

 

The Future is Not in Fossil Fuels

 

An article published on Tuesday, January 3rd, 2017 by Common Dreams and written by Deirdre Fulton, staff writer is reproduced here for its interest to all concerned in the MENA region countries about the Peak-Oil theory being concretised under our eyes and that renewable energy would eventually replace all fossil oil based energy production.  The author asserts rightly that the Future is Not in Fossil Fuels  and that “Solar is also creating jobs at an unprecedented rate, more than in the oil and gas sectors combined, and 12 times faster than the rest of the economy.” (The above Photo is by David Goehring/flickr/cc)

 

Global Economic Realities Confirm, the ‘Future is Not in Fossil Fuels’

While oil and gas companies falter, ‘renewable energy has reached a tipping point,’ says World Economic Forum expert.

 

Underscoring the need for a global shift to a low-carbon economy, a new report finds a record number of U.K. fossil fuel companies went bust in 2016 due to falling oil and gas prices.

The Independent reported the analysis from accounting firm Moore Stephens which found “16 oil and gas companies went insolvent last year, compared to none at all in 2012.” And the trend was not unique to the U.K.—a year-end bankruptcy report from Texas-based Haynes and Boone LLP showed there have been 232 bankruptcy filings in the U.S. and Canadian energy sector since the beginning of 2015.

“As the warnings from climate science get stronger, now is the time to realize…that the future is not in fossil fuels,” Dr. Doug Parr of Greenpeace U.K. told The Independent. “It’s also time for government to recognize that we should not leave the workers stranded, but provide opportunities in the new industries of the 21st century.”

Those opportunities are likely to come in the renewable energy sector, as the World Economic Forum (WEF) announced (PDF) in December that solar and wind power are now the same price or cheaper than new fossil fuel capacity in more than 30 countries.

“Renewable energy has reached a tipping point,” Michael Drexler, who leads infrastructure and development investing at the WEF, said in a statement at the time. “It is not only a commercially viable option, but an outright compelling investment opportunity with long-term, stable, inflation-protected returns.”

Quartz reported last month:

In 2016, utilities added 9.5 gigawatts (GW) of photovoltaic capacity to the U.S. grid, making solar the top fuel source for the first time in a calendar year, according to the U.S. Energy Information Administration’s estimates. The U.S. added about 125 solar panels every minute in 2016, about double the pace last year, reports the Solar Energy Industry Association.

The solar story is even more impressive after accounting for new distributed solar on homes and business (rather than just those built for utilities), which pushed the total installed capacity to 11.2 GW.

And as Paul Buchheit noted in an op-ed published Tuesday at Common Dreams, “solar is also creating jobs at an unprecedented rate, more than in the oil and gas sectors combined, and 12 times faster than the rest of the economy.”

But it remains unclear how these trends will develop under an incoming Donald Trump administration.

As Moody’s Investor Services reported Tuesday, under Trump’s fossil-friendly cabinet, “U.S. energy policy likely will prioritize domestic oil and coal production, in addition to reducing federal regulatory burdens.”

In turn, according to Moody’s:

Increasing confidence in the oil and gas industry’s prospects will spur acquisition activity among North American exploration and production (E&P) firms, Moody’s says. Debt and equity markets are again offering financing for producers seeking to re-position and enhance their asset portfolios after a lull. [Merger and acquisition activity] will also pick up in the midstream sector. At the same time, integrated oil and gas firms will continue to improve their cash flow metrics and leverage profiles by cutting operating costs, further reducing capital spending and divesting assets.

Even so, the oilfield services and drilling (OFS) sector is in for another tough year, with continued weak customer demand, overcapacity, and a high debt burden.

Bottom line, wrote Buchheit, is that with the rapid expansion of solar power, Trump has “the opportunity to make something happen that will happen anyway, but he can take all the credit, with the added bonus of beating out his adversary China.”
“Unfortunately, Trump may not have the intelligence to recognize that he should act,” Buchheit wrote. “And the forces behind fossil fuel make progress unlikely. But there is plenty of American ego and arrogance and exceptionalism out there. We need some of that ego now, just like 60 years ago, when the Soviet accomplishments in space drove us toward a singular world-changing goal. Then it was the moon. Now it’s the sun.”

16 events that will shape 2017

AMEinfo came up with this formidable vision of next year titled 16 events that will shape 2017; we could not help but reproduce it here all for the benefit of our readers.  All comments are welcome but we would advise to address direct to AMEinfo with nevertheless a copy to MENA-Forum.  

AMEinfo, is a well known and reliable middle east online medium of information.

Historically as per Wikipedia, AMEinfo.com was initially Arabian Modern Equipment Est., incorporated in Abu Dhabi, in February 1993 by Saif Al-Suwaidi and Klaus Lovgreen. The first version of the AME Info CD-ROM database of 125,000 companies was developed and compiled late 1996 and sold some 10,000 copies.  

The listing of the events as proposed by AMEinfo summed up thus.

  •  Many events of 2016 will have repercussions spilling over into 2017
  •  Positive impacts include Saudi Vision 2030, OPEC deal
  •  The fallout of Trump’s presidency, JASTA law, Italy referendum, etc. remain to be seen

The year 2016 was eventful, to say the least, with the world shaken by several momentous events whose repercussions will spill over into 2017.

Here are 16 events of 2016 that will most probably shape the coming year:

 

Saudi Vision 2030

This vision, announced in April, is one of the top economic highlights of 2016. Its repercussions are yet to be experienced throughout 2017 and beyond. Some of the biggest follow ups to this event are the Saudi Aramco IPO, expected to take place in 2018, privatising Football Clubs in the kingdom and its green card plan.

 

Trump as president of the United States

President-elect Donald Trump filling posts for his administration, getting ready to officially take office in January. This is when his foreign policy is expected to take its final shape and impact the whole world, starting with countries of the Americas, passing through Europe and the Middle East and reaching Asia.  

(Donald Trump wins US elections 2016: What it means for MENA)

 

Brexit

The United Kingdom voted to exit the European Union last June through a national referendum. Since then, the country underwent several months of economic chaos that it tried to keep under control, especially because it had not yet left the European Union. The chaos is expected to continue until the announcement of an exit plan, expected in March 2017.  

(Brexit: Who’s next?)

 

JASTA

The Justice Against Sponsors of Terrorism Act is a law passed by the United States Congress, allowing survivors and relatives of victims of terrorist attacks to pursue cases against foreign governments in the US federal court. The bill raised tensions with Saudi Arabia – when the bill was introduced, Saudi Arabia threatened to sell up to $750 billion in United States Treasury securities and other US assets if the bill is passed. Saudi Arabia is still lobbying the US over the law.

 

Egypt’s floating of the pound

Egypt’s central bank floated the pound currency in November, devaluing by 32.3 percent to an initial guidance level of EGP 13 to the dollar and hiking interest rates by three per cent to rebalance currency markets following weeks of turbulence. According to many observers, Egypt’s floating of its currency comes in a bid to attract more investors to the country.

 

China’s AIIB development bank

China launched the Asian Infrastructure Investment Bank (AIIB), a new international development bank, seen as a rival to the current, US-led World Bank. Countries such as Australia, Britain, Germany, Italy, the Philippines and South Korea agreed to join the AIIB, recognising China’s growing economic strength.

 

Google Alphabet

Last August, Google announced creating a new public holding company, Alphabet. Alphabet become the mother of a collection of companies, including Google, which includes the search engine, YouTube and other apps; Google X, the Alphabet arm working on big breakthroughs in the industry; Google Capital, the investment arm; as well as Fiber, Calcio, Nest  and Google Ventures.

 

Panama papers leak

Roughly 11.5 million documents were leaked in April, detailing financial and attorney-client information for hundreds of thousands of offshore entities. The documents contained personal financial information about famous, wealthy individuals and public officials.

The documents were created by a law firm in Panama, with some dating back to the 1970s.

 

Iran nuclear deal: lifting of sanctions

Although the framework of this agreement was announced in 2015, economic sanctions started to lift only in January 2016. The year saw the beginning of Iran’s return to international markets and more is expected for 2017 as the country has not yet made a full comeback.

 

Samsung Galaxy Note 7

Samsung Galaxy Note 7 phones, released this year, started to heat up and explode, causing some injuries in different markets around the world and killing the model altogether. This created massive chaos for the South-Korean manufacturer, which withdrew all units from the markets and started a gruelling investigation into the rootcause of the issue.

 

King Salman bin Abdel Aziz Bridge

Last April, Saudi Arabia and Egypt agreed to build a bridge over the Red Sea, linking the two countries together. This was seen as a historic move highlighting the excellent relationship between the allies. The bridge would be called “King Salman bin Abdel Aziz Bridge”.

 

OPEC deal

Members of the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members as well, reached their first deal since 2001, to curb levels of oil output to ease a global glut after oversupply pressured prices for more than two years. Long-term market reactions to the deal are yet to be felt and will probably be seen throughout 2017.

 

Pokémon Go

The new augmented reality game, developed by Niantic, quickly became a global phenomenon and was one of the most profitable apps of 2016, with more than 500 million downloads worldwide.

 

Italy referendum

Italy’s government, led by then-Prime Minister Matteo Renzi, held a nation-wide referendum proposing reforms and amendments to the country’s constitution. The referendum failed, leading to the resignation of Renzi, tipping the country into potential political turmoil and the rise of the populist, right-wing movement in the country.

Renzi’s resignation and the country’s instability also brought up concerns over a looming banking crisis in Italy, the third-largest national economy in the euro zone.

(Italy referendum: Step 1 to another Brexit?)

 

Fed raises interest rates

The US Federal Reserve raised interest rates, signalling a faster pace of increases in 2017, with central banks adapting to the incoming of a Donald Trump administration, which has promised to cut tax. The year 2017 will probably see the repercussion of that decision.

 

Turkey’s coup

A coup d’état was attempted in Turkey in July against state organisations including the government of President Recep Tayyip Erdogan. The failed coup was carried out by a faction of Turkey’s armed forces, who attempted to seize control of several areas in the capital of Ankara, Istanbul and elsewhere.

The coup, and other terrorist attacks, disturbed Turkey’s peace and stability and harmed its tourism industry, among others.

 

Qatar’s policy of qatarisation

We have written on numerous occasions on Qatar’s policy of qatarisation (Ref. 15 years of Qatarisation), here is DohaNews produced article on Qatar peculiar situation of its minority autochthonous population.  We could safely say that it is about the same situation in all countries of the GCC.

Yes, Qataris have almost always been a minority in their own country

Qatar’s population is continuing to grow, but the number of Qatari nationals remains fairly static, at around 10 percent of the country’s residents, according to some estimates.

However, it used to be as high as 42 percent, according to Priya D’Souza.

The former editor of BQ Magazine was born in Qatar, and her family has lived in the country since the 1950s.

However, Qatari nationality is passed down almost exclusively through the father’s bloodline, and expats who are born in Qatar are not usually granted citizenship.

D’Souza recently left Qatar for good, and is now writing a series of posts for website calloftravel.com to “shed some clarity on the Qatar community (both local and migrant) to aid those looking to make Qatar home for the next few years.”

‘Waves’ of migrants

In her first post, “Have Qataris always been a minority in their country?” D’Souza outlines immigration patterns to Qatar since the 1940s.

She also charts the changing relationships between the local population and expats. Her family for example still has close friendships with Qatari families they have known for almost 70 years.

Souq Waqif

But it is difficult to call a country home and not a hold passport to that nation, she added. All families who have lived here for generations “have at some point hoped for Qatari citizenship.”

Now, changes appear to be afoot among this population, with many long-term resident families considering, “for the first time in decades” leaving Qatar.

She didn’t elaborate why, but added:

“While Qatar will always hold a special place in my heart as the country I was born in, the Qatar of the last decade and what it is turning into, is the reason I had very little choice but to leave,” she said.

D’Souza’s future posts will cover topics such as how safe the country is; whether Qatari society is hypocritical; migrant worker rights and treatment; working in Qatar and censorship; and Qatarization.