The oil price fall: price war and geopolitical allianc

  • 28 November 2014

The oil price continues to decrease unabated since last summer. In November, the price of oil collapsed: Brent (index of the European oil price) decreased from 84.71 to $ 70.02 per barrel ($ / b), while the WTI (West Texas Intermediate) crashed from 78, 78 to $ 66.1 / b. In less than six months, the deduction is estimated at over 38 percent.

This event is caused by a combination of different factors:  basically, there is an oversupply, caused both by the massive production, and the reduction in demand. There is an inverse relationship between production and price: if production increases there is more supply, and then the price drops.

The excess supply is determined by multiple situations. Basically there is the increase in world production of oil, driven mainly by an increase in production in the United States. This increase was possible because of the investment policy initiated in the middle of last decade which has generated a considerable increase in the supply current and the oil production capacity (over 100 million b / d). Currently, due to the extraction of oil from tar sands in North Dakota and Texas, US production of oil has risen to 8.5 million barrels per day, the highest level ever recorded since 1986. In addition, a similar situation also occurs for the production of oil in Russia, which has almost reached the levels of 1987 to 11.48 million barrels per day. The last year and a half has seen a positive trend for oil production in Libya (collapsed in 2011 due to the civil war).

The demand deficit is caused by a reduction of global consumption of oil:

In China (a major importer and consumer of oil in the world) the estimate for 2014 oil demand was much higher than the real one. In fact, in 2014 the International Energy Agency (IEA) has repeatedly lowered its annual forecast growth in Chinese demand for oil (the last estimate is spoken by 2.3 percent; for 2015 was lowered the estimated 4.2 to 2.3 percent).

Even the oil consumption of the United States itself has fallen, because of a policy that provides -by 2025- sale in the country of cars with fuel consumption that is proving to 54.5 miles per litre of gasoline (about 23 km/l).

The European situation is also complicated by the economic point of view, because the weakness of the euro has made the import of crude oil more expensive.

Finally even Japan has reduced its oil consumption, preferring to diversify the sources for its energy supply and increasing the use of gas and coal. Further contraction of the Japanese consumer could happen if they were restored to working nuclear power plants.

It would seem, however, simplistic to restrict only to these explanations the complex situation of the oil market -which is not only determined by the balance of the physical supply and demand but also by other factors which makes the geopolitical balance, but also speculation. To confirm this, just look at the recent past, when, in mid-2010 and 2012, the presence of excess supply of oil (much higher than the current one) did not produce a fall in prices of this magnitude.

It should be remembered that the collapse in oil prices will also have negative effects on Russia, already affected by the sanctions because of the Ukrainian crisis, would need an oil price of around $ 100 per barrel to balance its budget. For the Minister of Finance in Moscow, Anton Siluanov, the drop in oil prices could cost the Russian Federation up to $ 100 billion a year, while the sanctions would cause losses of $ 40 billion.

Alliances and strategic choices have as a fulcrum Saudi Arabia. Indeed, it is the country that produces a third of all barrels of OPEC and was the main proponent of the choice made just last OPEC summit held last November 27th in Vienna. The session is, in fact, ended with the decision to keep output unchanged. The immediate market reaction produces the loss of as many as 6 dollars value of Brent, which stood at 71.25 per barrel.

This decision may depend on whether the choice of decreasing the cost of oil as an anti-Russian and anti-Iranian (through a pact between the US and Saudi Arabia), both from the desire to transform the American Shale Oil in a product too expensive (in order to create a Russian-Saudi summit of the global energy market).

The data available to us are not so clear. In Vienna, in fact, Iran has aligned itself with the Saudi position, forced the postponement of the nuclear negotiations and by the continuation of sanctions. In addition there are also interests in the upheaval of the balances in Syria (ally of Moscow and Iran) and in Iraq, in order to eliminate intransigent positions of the current governments.

The only thing certain is that the undoubted beneficiaries of the collapse in oil prices are consumers, especially in countries where the trend of prices per barrel of black gold has as a direct consequence of the decrease in the price of the carburetted.

This mechanism, however, is not so straightforward in Italy. The justification of the oil companies are:

  • the discrepancy between the price of a barrel and currencies litre (the change may affect the non-adjustment of prices, but the difference in the cost of a barrel of oil at the beginning of the year is only 2.8% compared to current costs);
  • the presence of oil stocks (must clear their stock of crude oil purchased at a high price and only then you can adjust downward the price of gasoline and fuel oil, but the latest crude oil inventories purchased at price 100 date back to July);
  • it is argued that the real variable to look at is not the price of a barrel of crude oil but that of refined fuels (Platts that the index has fallen in recent months in parallel with those of the barrel).

 

 

 

The New European Strategy for Macro-Region Adriatic – Ionian is adopted: this is a new growth opportunity

  • 19 November 2014

On 18th November 2014, in Brussels, is held the Conference to launch the EU strategy for the region and the Adriatic Ionian Initiative (EUSAIR), organized by the Italian Presidency of the EU Council in collaboration with the European Commission, the Initiative Adriatic Ionian Initiative and the Marche Region – Presidency of the Adriatic Ionian interregional Group of the Committee of the Regions. The goal is to provide key implementing parties of the strategy a framework for effective implementation of EUSAIR and its Plan of Action: the national and regional authorities, those responsible for the strategy and management of EU funds, institutions EU institutions and regional organizations.

The new European strategy of macro-region Adriatic – Ionian is officially adopted by the 28 Heads of State and Government of the EU on 23rd October. The plan involves eight European countries, four of which are members of the EU (Italy, Croatia, Greece and Slovenia) and four are candidates or potential candidate countries (Albania, Bosnia-Herzegovina, Serbia and Montenegro). The strategy “remains open” to the participation of other partners in the region, such as the Former Yugoslav Republic of Macedonia. Implementation of the strategy will help the structural funds and European, as well as the Instrument for Pre-Accession (IPA). The Italian regions involved are thirteen: Abruzzi, Basilicata, Calabria, Emilia Romagna, Friuli Venetia Giulia, Lombardy, Marche, Molise, Puglia, Sicily, Trentino Alto Adige, Veneto and Umbria.

Overall, Eusair addresses more or less to 70 million citizens who will benefit from projects for economic growth, employment, cultural and social. It also provides for the allocation of national funds ad hoc, as part of the European cohesion policy and pre-accession instruments.

“The new strategy for the macro-region Adriatic-Ionian will be a model for future initiatives in maritime areas,” said the European Commissioner for maritime policies, Maria Damanaki. Satisfaction was also expressed by the European Commissioner for Regional Policy, Johannes Hahn, who added: “Success in the region of the Adriatic – Ionian contribute to the prosperity and security of Europe.”

The first green light to the macro-region had already arrived on 29 September by the General Affairs Council. “It is a new tool for more effective implementation of the priorities of the EU, in particular as regards enlargement and territorial cohesion”, said on that occasion the Vice Secretary for European Affairs, Sandro Gozi, recalling the “positive experiences” had with the strategies of the Baltic Sea and Danube.”Making soon the macro region Adriatic – Ionian is one of the priorities of the semester of Italian Presidency of the European council. – emphasizes Gozi – It offers a great development opportunity for a better use of structural funds in the strategic sectors of tourism, in maritime transport and culture.”

The goal of the macro-region is to revive the economy and create new jobs, while promoting the integration of the Western Balkans to the European Union. The action plan proposed by the EU Commission in June aims to help seventy million citizens to “benefit from closer cooperation in areas such as the promotion of the maritime economy, the protection of the marine environment, the completion of the connections in transport and energy and the strengthening of sustainable tourism.”

The implementation of the strategy, explains Cocco, (project coordinator Adrigov, which aims to capitalize on the cooperation networks and the various initiatives underway to promote an innovative model of governance within the macro-region Adriatic – Ionian), will mainly government guidance, but the regions will continue to contribute together to the National Contact Point, while the Euroregion will continue to monitor the activities and may intervene in response to specific requests. In addition, continuous Cocco, the Euroregion will advance the support activities for the regions, especially in Albania, Montenegro and Greece, who have relationships with the respective central governments less direct than those held with the Executive by the Italian regions and that often manage to be up to date on developments in the macro-region only through internal relations to the network.

The macro-region could be very useful to Italy, in particular in geopolitical field, if Italy will be able to take the opportunity of entering into the fabric intereuropean (even using those priority corridors that directly involve). There are, in fact, the conditions for reviving the role of Italy with respect to the growing economic and trade flows, tourism and culture: the complex network of the nine corridors, the routes that are being developed, the potential in the buildings to be constructed macro Adriatic – Ionian create an environment conducive to synergies, convergence of interests, team actions that, certainly, in the context of “anarchist” Italian, require a profound change of mentality, modus operandi. The territorial balances, established as the result of historical experiences resulting from the dissolution of the great empires of the past two centuries, the world wars and the Cold War, are undergoing significant changes, which will have a positive impact on the entire Mediterranean basin. Five corridors insist on this sea, among them, to establish direct contact between the macro-region and the proposed macro-Adriatic – Ionian, there is the corridor Baltic – Adriatic, which – by connecting to the corridor the North Sea-Baltic Sea – will travel to a large extent the route of the ancient “Amber Road”, connecting Helsinki with Bologna and Ravenna, via Tallinn, Kaunas, Warsaw, Brno, Bratislava and Graz, while a second slip road will develop towards Trieste (and a third from Graz, will drop to Koper). In fact, it will set a new axis of rail links, rubber and using ultra-wideband, between the North-East and South-East Europe, with obvious positive implications for the Adriatic, but especially for the ‘arc Upper Adriatic from Rimini to Istria. The approach of the space Baltic with the Adriatic / Mediterranean creates, in a relational environment new perspective compared to the current conditions of modernizing local and macro. The cooperation between the Italian regions of the northern Adriatic (instead of the recurrence of sterile contradictions and ambitions localist) would be an indispensable factor in the consolidation of the Italian role in logistics Mediterranean – Baltic.

 

Summary:

What is a Macro-region? It is an area comprising a number of territories of different countries and regions associated to one or more characteristics and problems (geographical, cultural, economic, etc.).

Area involved in macro region Adriatic-Ionian: Marche, Friuli Venetia Giulia, Veneto, Emilia Romagna, Abruzzi, Molise, Puglia, Basilicata, Calabria, Sicily as well as Slovenia, Croatia, Bosnia-Herzegovina, Serbia, Montenegro, Albania, and Greece.

Objective: the institutional recognition of Macro region Adriatic by the EU will give a frame made in many initiatives and projects already under way, it will work collaboratively on projects of importance to the entire area, will facilitate the attraction of EU investment.

Action plan: The action plan is made up on four pillars (Blue Economy, interconnections and infrastructure, environmental quality and attractiveness) and two transverse axes (research, innovation, development of SMEs and training and capacity building). The first pillar, on the Blue Economy, has the coordination of the Veneto, the second of interconnections and infrastructures, Friuli Venetia Giulia, the third, environmental quality, ecosystems and climate change, in Emilia Romagna, the fourth, which concerns’ attractiveness, Puglia. Of the two transverse axes, that of Research, innovation, development of SMEs is entrusted to the Marche (who also has the overall coordination of the work Eusair). The second axis (Training and Capacity Building) is the responsibility of Molise.

 

What about the economic relations between Italy and the Mediterranean Countries?

  • 15 November 2014

 

On November 14th, SRM presented at the headquarters of the Banco di Napoli the result of a year of study in the context of the Permanent Observatory on the economy of the Mediterranean: the Fourth Annual Report on the Economic Relations between Italy and the Mediterranean Countries.

The Report has a tripartite structure: in Part I – dedicated to the economy, to the trade and businesses- are considered trade relations of Italy and its main international competitors with the area of the South Mediterranean and provides a framework of the most recent economic developments in these countries. It also conducted an analysis on the presence of Italian companies in Egypt, Tunisia and Morocco, which is followed by a chapter about the economic situation in these three countries.

Part II of the Report – “finance and cash flows” – presents the situation of the banking and financial systems of both countries in the South Mediterranean, both Gulf (MENA Middle East North Africa) with particular focus on Egypt, Tunisia and Morocco. The development of the financial systems of the MENA has been steady in recent years, with performance efficiency and profitability better than European banks. A subsequent chapter addresses instead the analysis of investment strategies SWFs Mediterranean and the Gulf, with particular reference to the potential investment in Italy.

Part III – “the logistics infrastructure and renewable energy” – These two important research topics Mediterranean Observatory of SRM and includes a chapter on the competitiveness of our logistics system – port and a contribution on the development of renewable energy, with a focus ongoing projects and investments required in the coming years.

The President of the Republic Giorgio Napolitano sent a reflection on the theme, focusing on the ancient mix of history and culture between the countries bordering the Mediterranean and the fact that, “as it emerged from the latest report of the Study and Research Centre on the South, the economic and trade relations between Italy and the countries of the southern Mediterranean have not lost, despite the deep political crisis that plagues the area, their traditional liveliness “. Napolitano also said that in this contingency is necessary to work with the greatest commitment to re-establish conditions conducive to the economic development of the Mediterranean region.

The General Manager of SRM, Massimo Deandreis, in presenting the report outlined the framework the commercial exchange between Italy and the MED area, described the characteristics of the cash flows of the MENA and analyzed the flow of maritime traffic and the prospects of the renewable energy sector in the Mediterranean countries. The report shows how the Italian exports to the countries of the southern Mediterranean is now about 29 billion share, 11.1% of total exports of Italy, to which sum the 15 billion export towards’ Gulf area for a total of € 43.8 billion, a figure significantly higher than exports to the United States (€ 27 billion) and from China (9.9 billion).

There remains no doubt, however, that the new challenges of globalization and the current economic crisis, with the persistent weakness of domestic demand, requiring the improvement of competitiveness and export development.

Italy, with 54.8 billion euro in trade with the area (in late 2013), is the largest trading partner of the southern shores of the Mediterranean, after the United States (62 billion) and Germany (over 57 billion). Note that 2013 showed a contraction (-11.2% on 2012) due mainly to the sharp decline in oil imports from Libya (-37.8% in 2013). The incidence of the South Mediterranean on the total foreign trade of Italy was 7.3% in 2013, a share significantly larger than its main competitors; specialization more pronounced for the South, where it reaches an incidence of 14.6%.

What Italy exports to these countries are predominantly services, manufacturing and infrastructure; SRM research finds that, in total, there are about 18,001th Italian companies operating in Egypt, Tunisia and Morocco. The countries of the southern Mediterranean Italy, in large part, exports raw materials, especially oil and gas: these countries i1 comes over 22% of our supply of energy products.

A major factor in the choice of Italy as a trading partner (by these countries, in recent years) was the geographical proximity. Over the past 10 years, while Italian exports to the Middle EAST North Africa (Mena) doubled, some competitors have developed their relations with the region in pace even more intense: Chinese exports, in particular, has increased tenfold. Italy must focus not only on geographical proximity, but on mutual benefit that can come, it and its counterpart, the sharing of technical expertise and the quality of our personnel. Therefore needs proactive diplomatic action, which is absolutely essential in a geopolitical complex and layered, able to change rapidly. Despite the political unrest, the region remains attractive growth prospects for 2015 and 2016, respectively 3.6% and 4%. These growth rates, however, imply that the region to equip itself with adequate energy infrastructure, and promoting the on-site generation of renewable energy, here favored by the topography and climate, or by putting them in the energy thus generated tracked runners international energy. The result is huge demand profitable investment in energy infrastructure, power generation and transport, which is a specific opportunity for Italian companies, among the best in the world in this field. The transfer of know-how and excellence in these markets involves the need to improve infrastructure also of our country, in terms of transport and logistics. It should also improve the functioning of the administrative and judicial institutions, and increase the supply of digital capabilities, in terms of communication, processing, and innovative use of data. From a logistical standpoint, the fulfillment of the Salerno – Reggio Calabria must be accompanied from the up-grading of transmission lines, rail and port operations on the hub of the South (Naples / Salerno, Gioia Tauro, Cagliari, Taranto), which suffer competition from Greek ports, Spanish and Algerian, to the benefit of those territories. Investment opportunities are matched by the growing availability of Sovereign Funds, as evidenced by both the SRM report is from a recent study by the Bank of Italy. In the Middle East and North Africa, 11 countries out of 20 have a sovereign fund and together manage about 1.5 trillion dollars. In the past, sovereign funds have invested mainly in the financial sector of the advanced countries, but after the crisis broke out in 2008, and the losses they have suffered, they arose in the interest also to diversify into other sectors, including the energy and raw materials. Up to now Italy has shown low capacity to attract investments of sovereign funds in Europe, absorbing only i14%. Italy could provide services and products made in Italy to the countries of Mena, to help them transform from consumers to income derived from oil platforms in production and trade (using both the large availability of capital to invest in infrastructure internally and works’ industrialization, both the central geographical position between Asia, Europe and Africa, combined with the skills and technologies Italian).

The positive growth prospects in the medium term they increase the interest of Italian companies for the area. SRM has analyzed and estimated the number, size and sectors of Italian companies in the countries of the Mediterranean focusing on Egypt, Morocco and Tunisia. Overall, the Italian companies that operate in a stable manner in these three countries are about 1,800. Is the important and growing role of sovereign funds MENA (FoS MENA) as an investment vehicle and driver potential to strengthen economic relations between Italy and the countries of the southern Mediterranean. Manage 2.7 trillion dollars and it is estimated that in the coming years may invest in Italy a figure between 1.5 and 2.5 billion dollars. Within the Mediterranean basin passes 19% of world traffic of goods by sea, an increasing share from 15% of the late ’90s. Between 2000 and 2013 steps of ships from the Suez Canal have more than doubled, with an average growth of around 8% per year.

Maurizio Barracco, President Bank of Naples said: “With this conference and the report presented by SRM as we emphasize economic relations with Southern Mediterranean are very dense and more important than commonly perceived, and this applies to Italy in general, but especially for the South. The centrality of the economic mare nostrum is also highlighted by the fact that a fifth of all goods traveling by sea in the world pass through the Mediterranean and the Suez Canal has doubled in recent years the number of ships in transit. Yet Italy cannot fully exploit the opportunities for economic growth arising from the geo-economic position of the South in the heart of the Mediterranean. From here we have to start if we want to raise, on concrete bases, the growth in our regions. ”

“There are few research centers that consistently and with permanent structures, focus on the analysis of economic relations to and from Italy with a specific focus on the South. SRM can do with perseverance and commitment with the support of the Intesa San Paolo and Banco di Napoli because we are aware that this is a strategic issue for the future of our economy. The union Midi-winning Mediterranean can be a lever, to which must be added the size of the economy maritime port, a key area for Italy and for the South in particular. You must use the relevance that have economic exchanges as leverage, as the title of the round table of our conference, to revive even political cooperation and, through it, to start a process of closer integration with the South Mediterranean “- said Paul Squires, President SRM.

“What amazes analyzing these data is their evidence – as said Massimo Deandreis, General Manager of SRM. It only takes one: 2001-2013 exports of Italy to the South Mediterranean (including Turkey) grew by 107%. Including the Gulf, with a value of 44 billion euro, Italy exports in more than it exports to the United States and four times the amount we sell in China or Russia. But there’s only export. Looking to Egypt, Tunisia and Morocco, SRM has surveyed nearly 1,800 companies with Italian capital; the number is constantly growing year after year. And ‘comforting to see that companies, and among them many of the South, we have understood the growing importance of these markets. What is lacking is a strategic vision and system. Yet the data are clear: the South would be a perfect logistics platform in the Mediterranean for the benefit of the entire Italian productive system. But we need to understand and invest, or others, even further away, we will take the place that geography has given us. ”