Santos hopes to give peace a chance in Colombia

After a fascinating two weeks travelling around South America, the Oilholic is back where the journey on the continent started in Bogota, Colombia, before heading back to London. 

In using the Colombian capital (seen on the left from Mt. Monserrate) as a starting point, this blogger wanted to both feel first hand as well as write about how far this country has come following five decades of armed conflict resulting in a tragic human and socioeconomic cost, above all else. More so, as peace is finally getting a chance in 2015.

In September, President Juan Manuel Santos inked a preliminary agreement with the Revolutionary Armed Forces of Colombia (or FARC). After three prolonged attempts since the 1980s by successive Colombian governments to broker peace, the recent accord appears to be the best chance for achieving that objective.

Despite being the first president in decades to have an upper hand on FARC thanks largely to a heavy military build-up under his predecessor Alvaro Uribe, Santos staked his presidency on finding a solution to end the violence through peaceful means, though not at any cost.

Reaching an agreement depended on FARC doing jail time, as demanded by the court of public opinion so heavily traumatised by violence perpetrated by the rebels over the years on a daily basis. On that front there is some dissatisfaction with the proposed deal.

While the finer points are still to be worked out over the next six months, the Santos administration and FARC have broadly agreed that foot soldiers of the militant outfit would receive amnesty, but its leaders charged with “serious crimes” will face a special tribunal that would include foreign judges alongside Colombian ones.

Those FARC operatives who cooperate and confess to their crimes would receive lighter penalties including five to eight years of community service with restriction on movement, but not prison time in the strictest sense. However, those who do not cooperate could go to jail for up to 20 years. 

A judicial framework along similar lines would be applied to right-wing paramilitary forces and their supporters. In return, FARC, which still has over 6,000 combatants, has also agreed that the rules will only apply if they give up their weapons. 

The significance of the deal cannot be overstated even if public demand for stricter penalties on FARC is not being met. From M-19 to the still active ELN, Colombians have seen too much death and destruction, and the dark side of human conflict that no one needs to see.

Among the many expressions by Colombian artists summing up the tragedy of conflict within the country's borders, the Oilholic was privileged to see the late Alejandro Obregón’s Muerte a la bestia humana (Death to human beast) on display at the National Museum of Colombia in Downtown Bogota.

Friends here in Colombian capital say the painting (see right) was Obregón’s expression of disgust at those responsible for the kidnapping and gruesome murder of Gloria Lara de Echeverri, a government official abducted in June 23, 1982. 

Her body was found five months later on the steps of a church. While a FARC faction was alleged to have been behind the act, the case was never fully resolved and remains a source of debate to this day. For Obregón and his peers in the art community, Gloria Lara, like several of her countrymen and women were innocent victims who deserved better but lasting peace, bar the odd ineffective ceasefire aside, could not be brokered. 

So if an imperfect deal now offers a chance for peace, then it needs to be looked at. FARC knows its back is against the wall and has as much of a vested interest in making the deal work as the Santos administration. Things are changing in Colombia. While every life is precious, and 600 Colombians civilians were lost to conflict last year, 2015 has so far been the year to see the fewest deaths to armed conflict since 1985, according to local data.

While there is petty crime and gun violence in Bogota, it is no longer the kidnapping capital of the world, like it was back in the 1980s. Beleaguered FARC’s ire has been directed more towards near daily attacks on Colombian infrastructure, mainly power lines and oil pipelines.

One recent attack resulted in 15,000 barrels of crude spewing into a river. April saw heated exchanges of fire between government forces and FARC. However, while talks were progressing the skirmishes diminished in frequency and ferocity.

It now remains to be seen, if the agreement holds, and Santos has said the Colombian people will have their say on the final agreement. The visible human tragedy aside, disruption caused by conflict lowers the country’s GDP by 15% to 20% per annum according to some estimates. It appears a chance to change that is on the horizon. Here's hoping it holds. That’s all from Bogota for the moment folks! Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2015. Photo I: View of Bogota, Colombia from Mt. Monserrate. Photo II: Muerte a la bestia humana by Alejandro Obregón on display at National Museum of Colombia in downtown Bogota © Gaurav Sharma, August 2015

Dilma and the Petrobras scandal's aftermath

Bidding Adiós to Buenos Aires, the Oilholic has landed in the bursting metropolis of Sao Paulo, Brazil, one’s penultimate stop in South America before returning to Bogota and flying back home following a two week trip to South America.

Walking down the city’s vibrant Avenida Paulista, a 1.75 mile thoroughfare that has several businesses, financial and cultural institutions (including the Museu de Arte de São Paulo), glitzy skyscrapers, malls, hotels and shops lining up either side of it, one gets a real buzz of modern Brazil.

However, the country’s President Dilma Rousseff would get a largely unwelcome buzz were she to walk down the avenue. Most in Brazil’s commercial heart lay the blame for the Petrobras corruption scandal, uncovered earlier in February, firmly on Rouseff’s door even tough she has not been directly implicated in anything uncovered by corruption investigators so far.

There have been several mass protests here in Sao Paulo, along with Rio de Janeiro and other major Brazilian cities calling for the President to be impeached. As the Oilholic noted earlier this year in a Forbes column, the scandal has politically scarred Rouseff, a former chairwoman of Petrobras’ board of directors, beyond repair in the unforgiving world of Brazilian politics.

Many of those facing investigations and jail time happen to be from her side of the Brazilian political spectrum – the Workers’ Party. That’s what fuels people’s anger. Mass protests grab headlines, but sporadic smaller protests – like one this blogger witnessed on Avenida Paulista – are commonplace (see above left).

For people who call the Americas third-largest oil producer behind the United States and Canada their home, Petrobras has always held a special place in hearts and minds. So to see it humiliated on the world stage and financially wounded by a corruption scandal plays on peoples minds in a struggling economy.

In global terms, according to BP’s latest statistics on the industry, Brazil is the world’s 9th largest oil and gas producer pumping out some 2.95 million barrels per day, with Petrobras as its custodian.  

Furthermore, as the US Energy Information Administration, notes, “Increasing domestic oil production has been a long term goal of the Brazilian government, and discoveries of large offshore, presalt oil deposits have already transformed Brazil into a top-10 liquid fuels producer.”

However, weak economic growth and the scandal implicating several high profile people at Petrobras has reduced the chances for production growth over the short term; at least of the kind that was hoped for back in 2010 according local sources. 

Clearly, going by the mood in Sao Paulo, not many want to let Rouseff off the hook, whether rightly or wrongly. That’s all from Brazil folks, as one leaves you with a view of the magnificent Catedral da Se de Sao Paulo (above right). Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo I: Anti-Dilma Rousseff protests on Avenida Paulista, Sao Paulo, September 23, 2015. Photo II:  Catedral da Se de Sao Paulo, Brazil © Gaurav Sharma, October 2015.

'Crude' implications of Argentina's election

The Oilholic has hopped over from Santiago de Chile for a splash and dash pre-election visit to the Argentine capital of Buenos Aires. Braving fake banknotes, dodgy cab drivers, eateries where prices change daily and a services sector with few scruples if any, yours truly finds himself peeking at ongoing electioneering in the run-up to the October 25th presidential election, standing beside the Obelisco de Buenos Aires.

In all likelihood, a presidential run-off looms for a successor to Cristina Fernandez de Kirchner, who claims to be leaving behind a “crisis free” country where of course inflation is close to 30% by unofficial accounts and the IMF expects the economy to shrink further.

Centre-left candidate Daniel Scioli, handpicked by Kirchner (who cannot seek a third term under the constitution), is vying with centre-right man and Buenos Aires mayor Mauricio Macri. Not many in the Argentine capital, give the “third guy” Sergio Massa, a former ally of Kirchner's (before relations soured), much of a hope. However, his support – should a run-off happen – would be vital. 

The incoming president would have an almighty mess to deal with in a country that has the dubious title of slipping from being a developed economy at the turn of the previous century to a third world country in the 21st century. Both main candidates promise to lower inflation to single digits and stimulate growth. Some (but not all) in Buenos Aires are simply glad Kirchner would be gone.

Discussing what shape the country’s energy policy in general (and oil and gas policy in particular) takes would be pointless before we know who the next occupant of the President’s office is. Much still remains at stake, including Buenos Aires’ continued hostility to offshore oil and gas exploration in the Falkland Islands (or Las Malvinas) as the Argentines call it, given the history of the territory. Despite Kirchner’s whinging to deflect attention from internal political woes, oil and gas explorers in the contentious British territory, claimed by Buenos Aires, are not going to go away.

If anything, the oil price decline, rather than something Buenos Aires does, is likely to have a bigger impact on future prospects. Away from the contentious side issue, it’s the direction of Argentina’s shale exploration that’s of a much bigger significance in a global context.

As the US Energy Information Administration noted earlier this year, if you exclude the US and Canada – only Argentina and China happen to be producing either natural gas from shale formations or crude oil from tight formations (tight oil) at an international level. How the country’s promising Neuquen Basin develops further would have a massive bearing on the economy. But where we go from here, given for instance the Repsol versus Federal Government histrionics of the past, would be anyone’s guess. 

The Oilholic intends to probe the subject more deeply at a later stage both on this blog as well as for Forbes, once we know who the next Argentine president is.

However, for the moment, that’s all from Buenos Aires folks. Yours truly leaves you all with a breathtaking  view of the Andes Mountain range as seen from LAN Airlines flight 1447 coming from Santiago de Chile to Buenos Aires (right). Keep reading, keep it crude!

Update, October 26th: With 96% of the votes counted, according to the AFP, Scioli was marginally ahead with 36.7% of the vote, while Macri had 34.5%. Massa, who came a distant third has accepted defeat but not stated who he would be supporting. A presidential election run-off has been scheduled for November 22.

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© Gaurav Sharma 2015. Photo I: Obelisco de Buenos Aires, Argentina. Photo II: Andes Mountain as seen from flight LAN1447 Santiago de Chile to Buenos Aires, Argentina © Gaurav Sharma, October 2015

Chile holds firm as copper market corrects

As the world’s leading producer of copper, there are grave concerns in Chile about China’s economic slowdown. The Oilholic doesn’t often touch on base metals on this blog, but being in Chile, one decided to break from tradition.

Over the last decade, China has displayed a voracious appetite for copper, with much of it coming from Chile. Clear indications point to a slowdown and even Beijing admits the country’s growth would be nowhere the double digit percentages it has posted in recent years that made the commodities world grow accustomed to the party.

No party lasts forever, and what the Oilholic finds here in Santiago de Chile is that no one need teach the Chileans that lesson. Policymakers, while anxious about it, saw China’s slowdown coming and are in confident mood they’ll weather the storm. The Chilean government can’t ignore the fact that the Chinese consume just shy of 50% of the world's refined copper, and as such Beijing is both directly and indirectly a major trading partner.

However, local economists’ thoughts and financial journals here in Chile appear to suggest one of the world’s leading copper producers is gearing up for a compound annual growth rate in Chinese copper demand in the range 2.5-3.5%; that’s less than half of the near 8% demand noted between 2010 and 2014.

If anything local forecasts are towards the lower end of Wall Street predictions and those put out by major European investment banks including Societe Generale, Barclays and Deutsche Bank. Droughts in Chile and other disruptions have tempered market sentiment on the oversupply front.

Disruptions in PNG and Zambia have also helped as have cuts announced by Glencore. To this effect, local analysts feel while the copper market is heading for leaner times, the effect would be less pronounced than say in the case of nickel or zinc. Supply/demand imbalances will persist but not to the extent feared both in Chile and beyond.

However, there is one thing though. As with oil, given the extent to which commodities have become an asset class, it is worth examining what the punters think. For the few this blogger has had a chance to interact with here in Chile, the copper market remains net short, using the COMEX copper (not LME three-month futures) contract as a benchmark.

The positioning might be net short, but it isn’t as bad as what local analysts noted over the first quarter of this year, especially mid-February to late-March. So right now, smaller end of life miners in Chile appear to be in trouble, but others including the majors operating in the country appear to be holding firm on their cautious outlook.

Finally, past crises have taught most regional governments a thing or two about managing the situation in troubling times. Some like Venezuela consciously choose not to learn, while others like Chile do learn and manage their exposure to volatility better.

There’s no reason to believe why 2015 would be any different. President Michelle Bachelet who oversaw the 2008-09 downturn during her previous stint in office, remains a steady hand, despite declining domestic poll ratings. That’s all for the moment folks as one heads to Buenos Aires for a short pre-election hop. In the meantime, this blogger leaves you with an amazing view from Cerro San Cristobal. Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2015. Photo I: Flag of Chile in Santiago. Photo II: Cerro San Cristobal - Santiago, Chile © Gaurav Sharma, October 2015

Curious case of the Pisco Sour

Following a weekend in Lima, the Oilholic has crossed over to Santiago de Chile. However, before one gets down to commodities related matters, there is the not so little matter of ‘not settling’ where the splendid regional cocktail Pisco Sour originates, a subject of much disquiet between Peru and Chile.

But first the recipe – you’ll need 25ml Lemon Juice, one egg white, 50ml Pisco (either Chilean or Peruvian), 20ml simple syrup. Give it an almighty shake with ice cubes, pour from shaker and add a dash of bitters. The end result is that delicious stuff in the photo on the left. That dear readers is the national drink of both Peru and Chile!

The origin of the main liquor base – Pisco, a colourless to yellow amber grape brandy made from distilling grape wine into a high proof spirit (below right) – is hotly contested. First known production dates back to the 16th century. Peruvians claim the name and first production site originates from the town of Pisco, while the Chileans claim the word “pisco”, a derivative of a term for a common bird, was used all along the Pacific Coastline of South America since the early days of Spanish settlers.

Going one step further, should names of towns matter, the Chileans renamed the town of La Unión in 1936 as Pisco Elqui so as to reinforce their claims over the name Pisco. Chile’s Pisco production volume dwarfs Peru’s by a ratio of 10 bottles to one. However, on the international stage Peruvians have the bragging rights as the “finer pisco” (at least in their opinion) is exported 3.5 times more than the Chilean produce.

There was dismay in Santiago, when Lima won a significant battle by being recognised as the original home of Pisco by the European Union in 2013. Yet, Chile’s usage of the word Pisco to describe its brandy cannot be curtailed, given its commonality. So much so for the liquor, but the tussle doesn’t end here! The cocktail is just as hotly disputed. According to bartenders in Lima’s Larcomar area, the cocktail originated in the city and was invented by an American named Victor Morris in the 1920s. 

When Morris, who had been living in Peru since 1903, opened Morris' Bar in Lima, the cocktail became his specialty. However, the recipe underwent several changes until Mario Bruiget, a Peruvian employee of Morris, added Angostura bitters and egg whites to the mix, thus creating the cocktail mix that has stood the test of time since 1926.

However, in Santiago de Chile, the story is widely dismissed. On the contrary, bartenders in the Chilean capital’s Providencia area say it was an English sailor Elliot Stubb who came up with the idea in 1872. Stubb, they say, mixed Key lime juice, syrup, and ice cubes to create the cocktail well known in Chile, some 50 years before the modern Peruvian version was even around.

Rubbish, no proof – retort the Peruvians again, while adding that the Chileans pinched the idea when Morris advertised the drink in 1924 in a local newspaper in the port of Valparaíso, Chile. Guess that doesn’t settle this one then. All the Oilholic can say is – whether sipped in Peru or Chile – it’s a splendid beverage! Cheers! That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo I: Pisco Sour in Lima, Peru. Photo II: Pisco on rocks, Santigo, Chile. Photo III: Enojoying Pisco Sour in Santiago, Chile © Gaurav Sharma, October 2015