Trump dealt a blow as the world is flooded with oil
The current Brent oil price is about $US68 a barrel but analysts from major banks like JPMorgan Chase and Goldman Sachs have forecast oil prices of around $US60 a barrel by the end of the year.
The shift in OPEC+ strategy could be regarded as self-destructive. The key Middle Eastern producers have very low production costs (the Saudi's are less than $US15 a barrel) but need prices ranging from about $US65 a barrel (United Arab Emirates) to $US80 to $US85 a barrel (Saudi Arabia) to balance their budgets. Flooding the market with more oil will almost inevitably push prices down.
Having accepted reality, however, the cartel is now trying, again, to implement a strategy it has attempted twice before – first between 2014 and 2016 and then in 2020 – where it tried to take market share away from the US shale producers by driving the price below their production costs.
It underestimated the dynamic nature of the shale producers who, after an initial drop in their production, cut their costs and increased their productivity at a startling rate.
Will OPEC+ be any more successful this time?
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The US producers are more returns-focused than they were during those earlier episodes and, with some of the major basins' reserves depleting, more likely to respond to a lower oil price by mothballing their wells. Already, with West Texas Intermediate prices around $US66 a barrel, there are about 46 fewer rigs operating onshore in the US than there were a year ago.
Trump might want the US companies to 'drill, baby, drill,' but a recent Dallas Federal Reserve Bank survey showed most would reduce their drilling if the US price fell towards $US60 a barrel. Breakeven costs for US producers average around the mid-$US60 dollars a barrel.
There could be something of a safety valve for both the core OPEC producers and the US shale oil sector.
This Friday is the deadline Trump has set for Russia to agree a ceasefire in Ukraine, with Trump threatening secondary tariffs of 100 per cent on Russia's oil customers if it doesn't comply. India which, with China and Turkey, has been one of the major buyers of Russian oil during the conflict, has been specifically targeted by Trump.
Russia's new production target will be 9.45 million barrels a day next month. Any material reduction its oil sales would create space for the increased production of other OPEC+ members and take some of the pressure off oil prices.
Absent the withdrawal of Russian supply, even if Russia is eventually able to find a workaround (as it has throughout the war in Ukraine and the sanctions regime the G7 has imposed), the outlook for demand in the near term isn't great.
China's economy has been spluttering and is further threatened by Trump's trade wars. The US economy has weakened sharply because of, initially, the uncertainty Trump's trade and immigration policies and his assault on government agencies have created and now the reality and increasing economic impacts of his tariffs.
The global economy will slow as a result of Trump's assault on global trade. Some of the faster-growing economies, and those most dependent on imported energy – the Asian, South American and African developing economies – are, perversely, among those facing the most punitive tariffs.
Having accepted reality, OPEC+ is now opening the spigots.
While lower oil prices might help keep a lid on inflation rates, particularly the US inflation rate, and provide some offset for those import-dependent economies from the effects of Trump's tariffs, the trade-off will be reduced economic growth.
The longer-term outlook for oil is clouded.
OPEC believes demand, fuelled by developing economies, will continue to grow through to 2050, rising from just over 100 million barrels a day to 123 million barrels a day. The International Energy Agency believes demand, impacted by electric vehicles and electrification more widely, will peak at about 105 million barrels a day in 2030.
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While the long-term outcome matters for the members of the cartel, who are still overly reliant on oil revenue despite increasingly urgent attempts to diversify their economies, it's the near term outlook for oil prices that matters for an increasingly messy and threatened global economy.
It also matters for Trump's economic strategy, as articulated by his Treasury Secretary, Scott Bessent.
Bessent's '3-3-3' strategy has three major components. He aims to reduce the federal deficit to 3 per cent of gross domestic product, raise GDP growth to 3 per cent per year and add 3 million barrels per day of domestic oil production.
Thanks to Trump's 'One Big Beautiful Bill,' which could increase US deficits by about $US3.4 trillion over the next decade, the impact of his tariffs on US inflation and growth (already running at less than half the rate achieved last year) and OPEC+'s flooding of the market with increased oil supply, each of those objectives (which never looked likely or added up to a coherent strategy) now seem wildly unrealistic.
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The Age
31 minutes ago
- The Age
The woman with $2m cash in her boot and the violent trade as ‘lucrative as drugs'
Much of the illicit loose tobacco in Australia is home-grown, while most illegal cigarettes come from China. Those cigarettes are either counterfeits of cigarettes sold here or brands not available in Australia. Because they are smuggled in through Australia's porous border, importers do not pay the tobacco excise – currently $1.40 per cigarette – and lack the barcode, plain packaging and health messaging on their legal counterparts. Loading They are also significantly cheaper, sold through the convenience stores that have become ubiquitous in Sydney. Estimates have the cost price of a packet of illegal smokes as low as $2, providing both a significant profit for the importers and a cheaper product for the consumer. 'Organised crime are filling some of that void. They're able to provide cigarettes between $10 and $25 a packet rather than between $40 and $65 a packet,' Bennett said. NSW Premier Chris Minns in June came out swinging at the Commonwealth tobacco excise – which is indexed and also being increased by 5 per cent each year for a three-year period starting in 2023 – saying it should be reconsidered. On Wednesday, the state government introduced what it describes as 'tough new laws' to parliament. The sweeping new legislation is designed to penalise selling illegal tobacco, and would allow evictions of retailers selling illegal tobacco, business shutdowns and fines of up to $1.5 million. 'As lucrative as illegal drugs' Sydney's criminal milieu has long been keen to meet the city's ravenous appetite for illicit drugs; anecdotal evidence suggests that major players such as the Alameddine crime family can earn up to $1 million a week in profit. Despite these eye-watering profits, criminal groups are increasingly looking to illegal tobacco, says Bennett. A briefing to Police Minister Yasmin Catley, seen by this masthead, suggests players 'responsible for violence in Victoria' have moved into NSW and aligned themselves with 'known actors'. Asian and Middle Eastern organised crime groups have also become involved in the illicit tobacco trade, the briefing says. There are two reasons for this – illegal tobacco has a much larger potential market than illicit drugs, and the penalties for importing or selling illicit smokes are considerably lighter than for drugs. 'Large organised crime groups that have traditionally been involved in drug trafficking, extortion, kidnapping and ransom, they've all got an offshoot in illegal tobacco,' Bennett said. 'From what I can see, it's easily as lucrative as illegal drugs. 'We're certainly seeing that sort of traditional organised crime tactics around eliminating competition and establishing an area where you can do business.' Loading Arson attacks, which have authorities particularly concerned because of the proximity of many tobacconists to residential dwellings, have been used in NSW, says the briefing to the police minister. Legitimate retailers have also been targeted by organised crime, who are forced to sell illicit products on behalf of the crime group then are extorted for protection money. In a matter before the courts, a man allegedly planned to steal almost $1 million in cash from the home of a NSW tobacconist in November last year. Documents seen by the Herald allege the man used a device to track multiple cars and was heard on a phone tap discussing kidnapping people, dressing up as a police officer to orchestrate a vehicle stop or breaking into storage sheds. Police tracking the man and his co-accused stymied the alleged plot before the money – which police say is profits from illegal tobacco – could be stolen. He cannot be identified for legal reasons. In a separate case, an alleged tobacco runner had his big toe partially severed; in another instance last year, a tobacconist business was burnt to the ground. Bennett said it could be difficult to discern if this extreme violence was born of illegal drugs or tobacco, but 'more frequently we're finding from our intelligence base and from talking to the police, and talking to victims and talking to offenders, that the motivation is illegal tobacco'. The business of illicit tobacco has ensnared a huge number of seemingly everyday people – such as the Sydney woman with $2 million in the boot, now before the courts on two counts of dealing with the proceeds of crime – whose alleged role is to move huge volumes of cash, cigarettes and tobacco up and down the eastern seaboard. Loading In January, a truck driver was caught in one of the north shore's most moneyed suburbs, allegedly with $1 million in the back of his truck. The money was seized by the Crime Commission and he remains before the courts on proceeds of crime offences. That man, too, cannot be identified. Bennett said the NSW Police have been 'very active, very busy' both in vehicle stops of the type that allegedly both foiled the truck driver and the Sydney woman, and in their ongoing fight against organised crime. 'On a local [police station] level is where you get that short-term information based around storage sheds or vehicle movements,' which have led to 'quite a few' seizures north of $1 million, Bennett said. Police are heavily involved in stopping illegal tobacco, but debate has raged over exactly who should regulate it. While NSW Health is the lead agency, it is ill equipped to take on the underworld. Minns has said he doesn't want police taken away from the fight against domestic violence and organised crime. Commercial implications Then there is the question of the place of illegal tobacconists in the commercial landscape. On Penrith's main street, there are four within a 50-metre radius. Dozens more feature along the suburb's main strip. On the other side of the city, tourists alighting from the famous Manly ferry pass three as they walk the 450 metres down the Corso to the beach. 'There's a massive capital investment going into illegal tobacco sales,' Bennett said, something that has alarmed many communities. Independent MP for Pittwater Jacqui Scruby has been agitating for more action on illegal tobacconists, and says there is 'real fear' in the community because of tobacconists' links to organised crime. She says legitimate businesses are being pushed out, neighbouring business owners have seen an increase in insurance premiums because of the risk of firebombs, and people living near or above those shops are concerned about being caught in the crossfire. Scruby has made a number of submissions to a parliamentary inquiry, including buffer zones to prohibit businesses around schools and playgrounds, tougher penalties and moving the responsibility for enforcement to a 'better resourced' interagency taskforce. But with illegal tobacco being sold in plain sight, issues with regulation and the sheer volume of illicit smokes for sale, the problem for government remains diabolical. 'Everyone's got a stake in stopping this and that's got to start with people not buying it,' Bennett says firmly. 'But whether Joe Average is willing to pay double or triple what they can pay to mitigate the organised crime aspect of it remains to be seen.'
Sydney Morning Herald
31 minutes ago
- Sydney Morning Herald
Firing people can't save Trump from the US economy's unflattering reality
In response, a group of statistical agencies that goes by the name The Friends of the Bureau of Labour Statistics released its own, more factual, statement that read: 'This escalates the President's unprecedented attack on the independence and integrity of the federal statistical system. The President seeks to blame someone for unwelcome news,' it said. It's also worth noting that the group statement was issued by William Beach, who was McEntarfer's Trump-appointed predecessor at the bureau. It's hard to overstate what Trump has done. Imagine if Anthony Albanese decided to sack the nation's chief statistician because the latest inflation data was not what the government wanted. There would, rightly, be an outcry. Naturally, the Trump apologists have been out defending the indefensible, ignoring the fact that the bureau has always revised job numbers (up and down), no matter the occupant of the White House. Last year, while Joe Biden was still in office, the bureau revised its jobs figures between January and July down by 340,000. But the single largest downward revision came in March and April 2020, during the early months of the COVID-19 pandemic, when the number of jobs was cut by almost 925,000. Loading Revisions are part and parcel of what the Bureau of Labour Statistics does. Every month it updates its numbers as it receives more information. The monthly release, plus the revisions, are vital to policymakers (like the Federal Reserve) and investors so they can see how the economy is travelling in as close to real time as possible. Ever since he declared a record crowd at his 2017 inauguration, Trump and reality have been at odds. In the grand scheme of things, crowd size does not really matter. But using a Sharpie to extend the expected landfall of a hurricane, gutting agencies responsible for tracking climate change, and ignoring employment data have very real consequences. Economists and policymakers have, for years, been worried about the statistics coming out of nations where the political leaders meddle with the numbers. In Argentina during the 1990s, the government fired bureaucrats who released less-than-flattering inflation figures and began releasing their own (sound familiar?). Understandably, this made international investors wary and increase their premiums as protection. By 2001, the government was in a full-blown debt crisis and defaulted on $US93 billion of debt. Greece, Turkey, Russia and China have also tried to play fast and loose with statistics over the years. It got to such a point in the case of China that outside economists used electricity consumption or satellite pictures taken at night (to see artificial light) as a de facto measure of GDP because their trust in the official numbers was so low. As financial analyst Ned Davis told The Wall Street Journal, ' Your initial thought is, 'Are we heading toward what you see in Latin America or Turkey, where if the data doesn't look good, you fire someone, and then eventually stop reporting it?'' Just a few days before McEntarfer's sacking, Trump was saying how great the economy was travelling – and demanding the Federal Reserve cut interest rates because it was going so well. Of course, the GDP figures did not show that (growth is slowing while inflation, at 2.7 per cent, is above the Fed's 2 per cent target rate). But Trump couldn't admit that, so he told his own story. Loading Around the same time, the president claimed that his government had cut pharmaceutical prices by '1200, 1300, 1400, 1500 per cent. I don't mean 50 per cent, I mean 1400, 1500 per cent'. And he's the one who thought the Bureau of Labour Statistics was making up numbers. The problem with making up your own numbers, or installing people who will make the numbers show what you want, is that they will be at odds with the lived experience of voters. Just as Biden struggled to convince Americans that the cost of living was getting better while they could see the price of everyday essentials going up, saying the economy is great to people lining up for unemployment benefits has a short shelf life. There's an adage used by economists to describe the models they use to understand the economy: Put crap in, and you get crap out.
Sydney Morning Herald
31 minutes ago
- Sydney Morning Herald
The woman with $2m cash in her boot and the violent trade as ‘lucrative as drugs'
Much of the illicit loose tobacco in Australia is home-grown, while most illegal cigarettes come from China. Those cigarettes are either counterfeits of cigarettes sold here or brands not available in Australia. Because they are smuggled in through Australia's porous border, importers do not pay the tobacco excise – currently $1.40 per cigarette – and lack the barcode, plain packaging and health messaging on their legal counterparts. Loading They are also significantly cheaper, sold through the convenience stores that have become ubiquitous in Sydney. Estimates have the cost price of a packet of illegal smokes as low as $2, providing both a significant profit for the importers and a cheaper product for the consumer. 'Organised crime are filling some of that void. They're able to provide cigarettes between $10 and $25 a packet rather than between $40 and $65 a packet,' Bennett said. NSW Premier Chris Minns in June came out swinging at the Commonwealth tobacco excise – which is indexed and also being increased by 5 per cent each year for a three-year period starting in 2023 – saying it should be reconsidered. On Wednesday, the state government introduced what it describes as 'tough new laws' to parliament. The sweeping new legislation is designed to penalise selling illegal tobacco, and would allow evictions of retailers selling illegal tobacco, business shutdowns and fines of up to $1.5 million. 'As lucrative as illegal drugs' Sydney's criminal milieu has long been keen to meet the city's ravenous appetite for illicit drugs; anecdotal evidence suggests that major players such as the Alameddine crime family can earn up to $1 million a week in profit. Despite these eye-watering profits, criminal groups are increasingly looking to illegal tobacco, says Bennett. A briefing to Police Minister Yasmin Catley, seen by this masthead, suggests players 'responsible for violence in Victoria' have moved into NSW and aligned themselves with 'known actors'. Asian and Middle Eastern organised crime groups have also become involved in the illicit tobacco trade, the briefing says. There are two reasons for this – illegal tobacco has a much larger potential market than illicit drugs, and the penalties for importing or selling illicit smokes are considerably lighter than for drugs. 'Large organised crime groups that have traditionally been involved in drug trafficking, extortion, kidnapping and ransom, they've all got an offshoot in illegal tobacco,' Bennett said. 'From what I can see, it's easily as lucrative as illegal drugs. 'We're certainly seeing that sort of traditional organised crime tactics around eliminating competition and establishing an area where you can do business.' Loading Arson attacks, which have authorities particularly concerned because of the proximity of many tobacconists to residential dwellings, have been used in NSW, says the briefing to the police minister. Legitimate retailers have also been targeted by organised crime, who are forced to sell illicit products on behalf of the crime group then are extorted for protection money. In a matter before the courts, a man allegedly planned to steal almost $1 million in cash from the home of a NSW tobacconist in November last year. Documents seen by the Herald allege the man used a device to track multiple cars and was heard on a phone tap discussing kidnapping people, dressing up as a police officer to orchestrate a vehicle stop or breaking into storage sheds. Police tracking the man and his co-accused stymied the alleged plot before the money – which police say is profits from illegal tobacco – could be stolen. He cannot be identified for legal reasons. In a separate case, an alleged tobacco runner had his big toe partially severed; in another instance last year, a tobacconist business was burnt to the ground. Bennett said it could be difficult to discern if this extreme violence was born of illegal drugs or tobacco, but 'more frequently we're finding from our intelligence base and from talking to the police, and talking to victims and talking to offenders, that the motivation is illegal tobacco'. The business of illicit tobacco has ensnared a huge number of seemingly everyday people – such as the Sydney woman with $2 million in the boot, now before the courts on two counts of dealing with the proceeds of crime – whose alleged role is to move huge volumes of cash, cigarettes and tobacco up and down the eastern seaboard. Loading In January, a truck driver was caught in one of the north shore's most moneyed suburbs, allegedly with $1 million in the back of his truck. The money was seized by the Crime Commission and he remains before the courts on proceeds of crime offences. That man, too, cannot be identified. Bennett said the NSW Police have been 'very active, very busy' both in vehicle stops of the type that allegedly both foiled the truck driver and the Sydney woman, and in their ongoing fight against organised crime. 'On a local [police station] level is where you get that short-term information based around storage sheds or vehicle movements,' which have led to 'quite a few' seizures north of $1 million, Bennett said. Police are heavily involved in stopping illegal tobacco, but debate has raged over exactly who should regulate it. While NSW Health is the lead agency, it is ill equipped to take on the underworld. Minns has said he doesn't want police taken away from the fight against domestic violence and organised crime. Commercial implications Then there is the question of the place of illegal tobacconists in the commercial landscape. On Penrith's main street, there are four within a 50-metre radius. Dozens more feature along the suburb's main strip. On the other side of the city, tourists alighting from the famous Manly ferry pass three as they walk the 450 metres down the Corso to the beach. 'There's a massive capital investment going into illegal tobacco sales,' Bennett said, something that has alarmed many communities. Independent MP for Pittwater Jacqui Scruby has been agitating for more action on illegal tobacconists, and says there is 'real fear' in the community because of tobacconists' links to organised crime. She says legitimate businesses are being pushed out, neighbouring business owners have seen an increase in insurance premiums because of the risk of firebombs, and people living near or above those shops are concerned about being caught in the crossfire. Scruby has made a number of submissions to a parliamentary inquiry, including buffer zones to prohibit businesses around schools and playgrounds, tougher penalties and moving the responsibility for enforcement to a 'better resourced' interagency taskforce. But with illegal tobacco being sold in plain sight, issues with regulation and the sheer volume of illicit smokes for sale, the problem for government remains diabolical. 'Everyone's got a stake in stopping this and that's got to start with people not buying it,' Bennett says firmly. 'But whether Joe Average is willing to pay double or triple what they can pay to mitigate the organised crime aspect of it remains to be seen.'
