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Saudi Arabia needs current oil price of $60 a barrel to move up to $80 a barrel to balance its national budget. To do this OPEC needs to coordinate its oil production cuts with a group of 10 countries led by Russia that includes Mexico. These countries include countries in the former Soviet Union.  In December cuts of 1.2 million barrels a day were coordinated between the 2 groups to push up oil prices. Now the OPEC cartel plans regular meetings with the Russian led group to push up oil prices. Under a draft document an alliance between the 2 groups would last 3 years and include regular meetings. Earlier Prince Salman led Saudi government proposed replacing OPEC with a new group combining Russia and Saudi Arabia and the other countries in OPEC, yet giving most of the decision making power to Russia and Saudis. This was rejected by Russia and was received poorly by Iraq, Iran  Nigeria, Angola, Algeria. The Iraqis reminded Saudis that OPEC was started in Baghdad. ...

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A shift in priorities away from focussing on high growth to lower sustainable growth was announced by China's premier Wen Jiabao at the National People's Congress, China's parliament, in March 2012. This shift will reduce investment in infrastructure, power generation and exports, which will affect the level of imports of commodities from commodity producing nations in the Middle East, Australia, Canada and Brazil. It should increase imports of software, computers, entertainment, tourism and high tech goods from the U.S. and Europe. Chinese leaders have said they would make this kind of shift for some years now but growth has consistently increased more than the target rate, and domestic consumption as a percentage of the economy has actually decreased in the last decade. Now 9-10% growth rates may be a thing of the past and the target of 7.5% set this year may be actually closer to the real figure. The Chinese leaders have belatedly realized the need to make these changes now because slowing markets in Europe -which is seeing declining growth and high unemployment- and in the U.S., make the issue impossible to avoid. Wen told the Congress: "Accelerating the transformation of the pattern of economc development... is both a long term task and our most pressing task at present... Domestically it has become more urgent but also more difficult... to alleviate the problem of unbalanced, uncoordinated and unsustainable development." This is his way of saying that its unavoidable and better to start in earnest now, and at the same time recognizing the resistance to change from the stateowned companies and the other interests who have benefitted from surging growth, and now occupy a central role in the power structure. An opinion article in the People's Daily, China's official newspaper, said: "imperfect reforms are to be preferred to a crisis caused by no reforms." The World Bank's president Zoellick is respected by the Chinese leaders. He also urged them to make changes now. The recent report of the DRC, China's planning research arm, and the World Bank, also laid out the new direction away from a focus on infrastructure to domestic consumption. The fear is sudden deceleration in the absence of policy action. The impact of this will be negative for commodities over time, leading to slower growth in Australia, Brazil, and Canada. It should boost imports from Europe and the U.S. of high tech, consumer, pharmaceutical goods over time....

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A very relevant comment about the media coverage on Putin's negotiations in Beijing for supplying natural gas to China, by a reader of the WSJ, Frank Peel. He points out China and Russia do not share the same goals and Putin talked about the Chinese as tough negotiators after signing the deal. The price as a "commercial secret" is because its years, could be 5, before gas actually flows to China from Siberian fields. Russia, is a smaller oil based economy- having failed to make the transition to a diversified economy- and very susceptible to the economic conditions in Europe and the U.S., as the 2008 crisis showed with very steep drops in output. President Obama has also pointed to this. Russia also shares with Argentina the tendency for elites- in the case of Russia a newly created oligarchy of business interests under Putin and his predecessor- to shift capital out of the country, making it even more susceptible to loss of value of the currency, the ruble. Devaluation of the ruble experienced under Yeltsin was severely traumatic for Russia, and the head of Russia's central bank went on state television recently to reassure ordinary Russians that this would not happen. The rainy day sovereign fund of over $400 billion acts as a cushion for shocks in short periods, but sustained loss of foreign investment would damage prospects for future improvements in standards of living or economic growth....

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The last days of the pro-Russian Donetsk People's Republic in eastern Ukraine, as Ukrainian government forces under the government of prime minister Poroshenko defeat separatists by July 2014. Russia decides not to intervene further. Opinion polls show a majority of Ukrainians in Donetsk do not favor separatism, and opposition is based on alienation from the poor quality of governance in Kiev. With the Poroshenko government committed to respecting the rights of Russian speaking Ukrainians, Tymoshenko soundly defeated in elections, and Russia's economy at risk in the adverse impact on foreign investor sentiment, Russia's sees little to be gained from supporting the separatists.

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Six cities have rejected the Olympics, with Calgary in Canada being the last one. The problem with hosting the Olympics is how much it costs. Cost overruns are common. 20141 Sochi WInter Olympics estimated budget was $10 billion, in the end it cost $51 billion. 

Brazil is the latest example of the problem. With huge needs in sanitation, epidemic prevention, infrastructure and public services, the country did badly by spending money on new soccer stadiums in the northeast which were not used after the World Cup soccer championship, and in the summer Olympics. 

Learning from these lessons voters in Calgary, Canada, rejected hosting  the Winter Olympics. Voters or local councils in Innsbruck, Austria, Rome, Italy, Bern, Switzerland, Hamburg, Germany, Oslo and Stockholm have rejected the idea of hosting the Olympics. Other problems are the environmental impact with deforestation to create Olympic sites.

 

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Shipping and freight statistics show an increase of shipments from Mexico. Trains and truck shipments from Mexico to the U.S. increased by 8.7% by weight in the first 11 months of 2011 compared to the prior year. By comparison shipping containers entering the ports of Los Angeles and Long Beach went down by 0.2% in 2011. Mexico stands to benefit from the shift in dynamics as manufacturing costs in China increase with labor constraints, higher wages, higher commercial land prices and recent Asian supply chain issues making firms wary of unanticipated problems. This is expected to benefit the U.S. with the return of some manufacturig jobs and a serious rethink of outsourcing. Because of highly automated factories and advanced technologies the manufacturing process requires fewer and more skilled operators, reducing the labor component of costs. Carlisle Companies CEO, David Roberts says he is expanding tire manufacturing plants in Tennessee. He says he can make tires as cheaply or cheaper in the U.S than in China. This has serious implications as the U.S. gets down to rebuilding and renewal of its manufacturing industry....

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This WSJ editorial says despite his call for "hard-hitting sanctions" prime minister Cameron of Britain has not taken action to stop the flow of "dirty money" from Russia into the City of London. About $75 billion left Russia so far in 2014 in capital flight as the Russian elite shifts money overseas including to the City of London. France has a planned $1.6 billion sale of Mistral naval ships to Russia, and will need the British example to cancel this sale. Putin's strategy is to distance Europe from the U.S. In the EU countries opposing tougher sanctions are Germany, Netherlands, Italy and Greece. Netherlands suffered the most with 193 Dutch citizens killed in the shooting down of Malaysian Airlines Flight 17 over eastern Ukraine.

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Researchers David Autor of the Massachusetts Institute of Technology, Gordon Hanson of the University of California, San Diego, and David Dorn of the Center for Monetary and Fiscal Studies in Madrid, in independent research, studied the impact of trade on 722 clusters of interrelated counties in the U.S. They focussed on the surge in Chinese imports and found a pattern. Counties with higher exposure to Chinese import growth showed higher unemployment and higher expenditures by the government for unemployment benefits, food stamps and disability benefits. Their calculations show the increased government payments amount to one to two thirds of the gains from trade with China. This does not include the losses suffered by people losing jobs who deplete savings as they look for new jobs. Hanson studied the effects of trade and Chinese imports in the 1990's and found the effects were relatively small. This time the effects are large and show counties that lacked local investments in industrial machinery and technologies in which China was still playing catchup such as Caterpillar in Peoria, Illinois, and Boeing in Everett, Washington, were most susceptible to higher jobless rates and in need of government support payments. Autor and Hanson found that from 2000-2007, communities in the 75th percentile- ones with greater exposure to Chinese import growth than 75% of all communities- saw a manufacturing jobless rate of about one-third more than communities in the 25th percentile. The government payments mean higher taxes or larger deficits are needed to support these communities, and long periods of unemployment reduce the incentive to work. Michael Spence, a Nobel prize winning economist from New York University, says the world has never seen such a rapid pace of growth as China experienced between 2000-2011, with rates approaching 12% in some years, making past experience and prevailing theories on trade an insufficient guide to what is happening....

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Spain's central bank was lauded for macroprudential supervision before the housing bubble burst. Will China's central bank and financial authorites which have managed the housing bubble upto this point face similiar problems? Can China be the sole exception even as housing bubbles burst with wide repercussions in the U.S., UK and Spain? Nicholas Lardy, of the Peterson Institute of international Economics, says urban housing stock makes up 41% of Chinese household wealth in 2011. The same figure for the U.S. is 26%. Chinese buyers invest in homes because low interest rates on savings accounts cannot keep up with inflation. Real estate investment was 13% of GDP in 2011. Home ownership is a recent development in China, only since 1990, Chinese have never experienced large price declines. Household debt as a percentage of disposable income has increased significantly in recent years, up to 53.6% in 2011 from 31.3% in 2008, according to Lardy.

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The new oil law allowing foreign oil companies to compete with Pemex passes the Senate in Mexico and now goes to the lower house. The legislation removes the 4 oil worker union's representatives from the 15 person Board of Pemex. The oil law now leaves only a 10 member board- five appointed by the government and five independent members approved by the Senate. Because past opening of investment by the private sector in state owned railways and telecom sectors has led to wealth passing into the hands of a few business owners and worsening competitiveness, there is concern in Mexico about how this law will be implemented so that it benefits Mexico and Mexicans through foreign investment in the oil industry. Leftist parties are pushing a bill in the lower house to allow a referendum on the oil law by 2015 if 1.6 million signatures are collected. Oil experts point to foreign investment in the Mexican oil industry as further enhancing the prospects of North American oil production in comparison to the position of Middle East oil producers, because of Mexico's large shale oil and gas reserves and the prospects for new exploration in deep waters. ...

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Prime minister Modi cites the successful Mars mission "Mangalayan" as showing India's technological capabilities and its ability to do things speedily at very low cost. For foreign investors India offers a stable politcal climate because his party has an absolute majority in parliament and controls many state governments, as well as being a democracy with a vibrant and internet connected young generation. A young population with 55% of the people under age 35 makes India the manufacturing powerhouse of the next two decades, said Modi. And the consumer base of over 1.2 billion people an attractive market. It was a rare combination of hands on salesmanship rarely seen ever on television from a prime minister. In one exceptional response about the condition of women, Modi said he personally led his ministers and legislators through Gujarat state's rural areas house to house in 45 degree centigrade summer heat on June 11-13 school opening days. He did this urging parents to send their daughters to school with the slogan "Send your daughter to school, Save a Girl." The result he said was 100% school enrollment in these rural areas for girls. A rare person at a special moment in India's history pushing the goals of development with uncommon tenacity....

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A major shift in foreign investment may be taking place as the 2014 St. Petersburg International Economic Forum takes place in May 2014. Russian policy in Ukraine and tensions with the U.S. and Germany could lead to a shift in investment to other emerging market countries. China's tensions with Japan could lead to a similiar shift of Japanese foreign investment. At the same time India has elected a new government with an absolute majority and an overwhelming mandate from young people to accelerate development. The new government under the BJP party's Modi has a decade of experience attracting foreign investment in western India. Indonesia, Vietnam, Africa and other emerging market countries, could benefit from the shift in investment. Investment could also return to the home countries with lower labor costs in Southern Europe, lower labor/energy/transport costs in North America. For Russia the debate at the St Petersburg Economic Forum was about pursuing one of three policy paths with some riskier than others, or some combination also risky and uncertain- depending on state banks and oil windfall funds, increasing ties with Asian countries, continuing on the current path with lower foreign investment and continued capital outflows. The failure to use the time wisely to diversify the oil based economy which could have been better accomplished in an economy not overly dependent on crony capitalism and centralized economy, both current characteristics, will affect future progress. A key weakness for Russia compared to China is the centralization under one person Putin, more so in the third term. In China the two man team Keqiang and Jinping is part of a larger team chosen by consensus and negotiation and part of a rotational scheme. It has senior leaders who initiated the changes to a market driven economy in the nineties determined to see China on track....

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Manuel Barroso, president of the European Commission, tells Italian newspaper La Repubblica on September 1, 2014, that Russian president Putin made some abnormal remarks in a phone conversation. Responding to Barroso's question about whether Russian troops had crossed into eastern Ukraine, Putin is reported to say: "That is not the question... But if I wanted to, I could take Kiev in two weeks." The WSJ editorial on September 3 referred to an earlier editorial on "Putin Bonaparte," giving some idea of how such comments by Putin are seen in the media, and how Putin's actions in Ukraine are creating new tensions with the NATO alliance and the U.S.

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Saudi Arabia continued to follow a policy of high oil production in 2016, and reported that it produced 10.67 million barrels a day in July 2016. Iran is producing at a pre-sanction level of 4 million barrels a day. 2017 oil demand prediction by OPEC is at growth of 1.15 million barrels a day. Experts says that the interests of Iran and the Saudis may be converging to reduce production as they face low oil prices. Iran needs to make large investments and Saudis face budget cuts with low oil prices. They point to this cooperation being temporary as there are issues of competing politics in the region, and beyond that both countries seek to expand their market share.

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Li Keqiang, China's new premier, is a member of the "Class of 77," who gained entry to Peking University when university entrance exams were reinstated after Mao's death. This is a period of great curiosity in China about the outside world. Li described it this way in 2008: "In this period knowledge was expanding with the speed of an explosion. I came here not just for knowledge, but to mold a kind of temperament, to master a kind of academic discipline." This he did by working extremely hard trying to master the English language and Western legal theory. He is now the only leader in China who can speak fluent English and is familiar with western concepts of law. For this he owes much to one of his professors, Gong Xiangrui, who studied at the London School of Economics in the 1930's and supported a multiparty system for China. Li was selected as one of the students to translate "The Due Process of Law" by Lord Denning, a British jurist. He spent the next 15 years in the Communist party's Youth League and moved up through the ranks. Many of the "Class of 77' " are still close friends and in academic positions in Singapore, Hong Kong and other universities. He understands the weaknesses in China's legal system because many of his close friends are lawyers, judges and law professors. Evidence of his intellectual openness, is his return to Peking University for a masters degree in economics years later, his thesis on urbanization, and his sponsorship through the Development Reform Commission think tank and the World Bank's Zoellick, of the report published in 2012, "China 2030." That report called for China to change course and reverse the role of state owned firms in the economy, giving consumers a bigger role. Like many of China's leaders this openness also meant during the period of turmoil of the Mao period and the decades following this, of a reticence to talk about political change that came over the entire country, in the words of the 2012 Chinese Nobel Prize Laureate's name, Mo Yan, a kind of "Don't Speak." Taking any kind of political position was simply too risky. The presence of 4 older Politburo members in their mid-60's who are close allies of former president Jiang Zemin and likely to preserve the status quo, also suggests a cautious approach in making changes. One key difference between Jinping- Keqiang from the Jintao-Wen Biao leadership is that Jinping has experience in provincial leadership positions in Hebei, and Keqiang was provincial leader in Henan, China's most populous province, as well as leader in industrial Liaoning province. By odd contrast Hu Jintao was a leader in the remote Tibet region and Wen Biao was a geologist in the northeast for many years. This gives the new leadership team a first hand knowledge of conditions in populous provinces, and the connections with the World Bank's Zoellick a kind of window to the outside that no other leader has had. Jiang Zemin, a former mayor of Shanghai, China' most westernized city in the 1930's and today, was himself a experimenter in his own right when he initiated the changes tht gave China entry into the World Trade Organization. His support of Xi Jinping gives Xi the needed backing for making change happen when the time comes....

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The OPEC meeting in Qatar in April 2016 to stabilize oil prices with a freeze in production is not likely to affect supply and demand. Saudis and Russia are producing all out, and Iran plans to increase its production, making it difficult to reach an agreement. The International Energy Agency, IEA, predicts demand will rise by the end of 2016 from 94.8 million barrels a day to 95.9 million barrels a day. Production is at 96.4 million barrels a day, and this is expected to lead to narrowing the gap between supply and demand. Experts say cars are becoming more fuel effficient, and electric car technology is becoming commercially viable, leading to a lack of growth in demand in developed and middle income countries. This may have to be factored in for the intermediate and long run for demand growth.

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The WSJ's Spencer Jakab points out the role of politics- with Saudi Arabia in a standoff with Iran and Russia in Middle Eastern conflicts- and Saudi policy of full output with no cuts unlikely to change, ensuring lower prices for 2016-2017.