MacroScope

Gas talks resume

By Mike Peacock
May 30, 2014

Fresh talks between Russia, Ukraine and the European Commission in Berlin will aim to resolve a gas price dispute that Moscow has warned could make it cut off supplies next week.

Ukraine has said the price for 2014 should be agreed before it starts making any payments. Russia’s energy minister has said Moscow and the EU have proposed that Kiev pay Gazprom $2 billion, and another $500 million before June 7, as a precondition for a price discount and further talks.

Gazprom said on Thursday it had not yet received any payments from Ukraine on a debt which it says will have risen to about $5.2 billion by June 7 unless Ukraine begins to pay it off. Kiev has countered that Gazprom owes it around $1 billion for gas following Russia’s seizure of Crimea.

EU energy commissioner Oettinger is working on getting Russia and Ukraine to agree on “a fair price” but there are endless complications.

Apart from relying on Russia for its own energy needs, Ukraine is the transit nation for around half of the gas Russia sells to the European Union. But after an unusually mild winter, Europe and Ukraine have hefty gas stocks so even if the taps were turned off, there would be no immediate pinch and probably wouldn’t be until winter. And given the cost to Russia, any hiatus would be likely to be short-lived.

On the ground, pro-Russian separatists shot down a Ukrainian army helicopter on Thursday, killing 14 soldiers including a general, as government forces pressed ahead with an offensive to crush rebellions in the east. A rebel leader in the eastern city of Donetsk acknowledged that some of his fighters who died in the government offensive had been “volunteers” from Russia.

There’s a smattering of economic data on the blocks. German retail sales, already out, have fallen 0.9 percent on the month in April having been forecast to rise while Spanish and Italian inflation data are due later. European Central Bank policy easing is considered a slam dunk next week given the noises coming out of Frankfurt HQ on and off the record.

The ECB insists it sees no threat of deflation but is poised to cut its headline interest rate and deposit rate, thereby charging banks to park money with it for the first time, and unveil some sort of scheme to get credit flowing to smaller companies in the euro zone. There is, as yet, no prospect of QE although today’s data may show how dangerously low prices pressures are.

Italy’s May inflation rate is forecast at 0.5 percent and Spain’s at just 0.2. That is not a problem if it increases purchasing power, assuming wages are rising faster than that after a period of harsh internal devaluation. But if people start deferring spending plans on the assumption that goods and services will get cheaper and cheaper, the spectre of Japan will start to loom large.

Libya is staring into the abyss after rival prime ministers both claimed legitimacy in a confrontation among rival factions. Even by its chaotic standards, the North African oil producing state is veering closer to its most dangerous crisis in the three years since Muammar Gaddafi’s one-man rule was brought to a violent end.

Bulgaria’s government survived its fourth no-confidence vote on Friday, but failed to end growing political uncertainty after the main opposition GERB party won by a bigger than expected margin in last week’s European elections.

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