Bye-Bye Cheap Oil

Plus: Why Italy is chin flicking digital payments ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

December 5, 2022

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TOGETHER WITH

Good morning.

It was here just a minute ago. In a bizarrely candid interview with WSJ, everyone’s not-so-favorite former crypto billionaire, Sam Bankman-Fried, said he “can only speculate” about what happened to $5 billion worth of customer deposits to his now bankrupt crypto exchange FTX once they were secretly shifted to his equally-defunct trading firm Alameda Research.

“There are lots of ways that one could have done this in a responsible way,” he mused. “Clearly what we did was not one of them.” You don’t need a physics degree from MIT like SBF’s to reach a similar conclusion.

Morning Brief

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OPEC+ is staying on its production-cutting course.

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Delta wants to appease its pilots before the holidays.

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Italy wants to bid arrivederci to small digital transactions.

Oil & Gas

OPEC+ Wants to Keep Curbing Oil Production

OPEC+ is sticking to its guns.

On Sunday, the 24-member strong cartel of oil-producing nations OPEC and OPEC+ announced they will adhere to the plan they agreed to in October and continue to restrict supply by 2 million barrels a day. The commitment comes just after Ukraine-aligned G7 nations announced a price cap on oil from OPEC+ member Russia for refusing to holster its guns.

Tip of the Cap

Oil markets remain ever-sensitive to seismic world events and geopolitics — and, yes, that includes war and pandemics. Renewed lockdowns in China have sent a shiver down OPEC’s gold-plated spine, playing a major role in a roughly 13% dropoff in oil prices in the past month. Exacerbating the slide is the $60 per barrel price cap imposed on Russian exports by the G7 as a retaliatory maneuver that extends to all European Union nations and is designed to deprive Moscow of much-needed oil revenue without completely dismantling the global supply chain.

While the oil cartel briefly considered boosting production to fill the void left by Russia, one look at benchmark oil prices was enough to convince the group to act otherwise:

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In sum, the varying forces have pushed the Brent crude international benchmark to just $85 per barrel, and the West Texas Intermediate US benchmark to just over $80 per barrel. Analysts tell The Wall Street Journal the group is targeting a $90 per barrel price point.

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OPEC delegates say the production cut, known in oil countries as a “rollover,” will grant the cartel time to gauge just how impactful the price caps on Russian oil will be on the overall market.

OPEC estimates that Russian oil exports are likely to fall by more than 1 million barrels a day. The cartel says that it isn’t meeting to review its production until June but remains ready to “meet at any time and take immediate additional measures to address market developments.”

Cut Off: Responding to the G7’s price cap, Russia seemed to be channeling the late Premier Nikita We-Will-Bury-You Khrushchev. On Saturday, Mikhail Ulyanov, Moscow’s ambassador to international organizations in Vienna, reaffirmed the mother country’s stated plans to cut off oil supply to any country implementing the price cap: “From this year, Europe will live without Russian oil.” That also means, of course, that Russia will live without European oil revenue.

Aviation

Delta Proposes More than 30% Pay Increases in New Pilot Contract

(Photo credit: Trac Vu/Unsplash)

Delta pilots have entered smooth air ahead of the holidays.

The airline is offering pilots 34% raises as part of a new contract proposal after aviators began pressuring a resurgent airline industry for better pay and benefits.

Soaring Demands

Pandemic protocols are a thing of the past (mostly), and travelers around the globe are once again rushing to hop on a plane for work and pleasure. Seats are selling and airlines are making money again. This summer, American and United finally saw their first operating profits since COVID started. However, airlines are still experiencing inflated fuel prices, a bottleneck on new plane parts, and pilots wanting a bigger piece of the pie in the sky.

Pilots coming out of the pandemic say they’re often overworked and underpaid. For months, captains and co-pilots for Delta, United, American, and other major airlines have participated in protests and picket lines. With an expensive and hectic holiday travel season about to take off, Delta’s latest contract proposal could signal a thaw in relations between pilots and airlines:

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The deal includes an 18% raise when it’s signed, followed by three pay increases in the following years. It also includes a clause that guarantees Delta pays its pilots at least 1% more than rivals at American and United. The proposal still needs to be approved by union leaders and ratified by Delta’s pilots.

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The Allied Pilots Association, which represents pilots at American, recently shot down a proposal that would have raised pay by about 20% over two years, and United pilots also rejected a tentative deal that would have boosted pay nearly 15% over 18 months. Pilots said the pay wasn’t worth the quality of life concerns and unreliable schedules they’d still have to live with.

Learning to Fly: Airlines are becoming more and more desperate to hold onto their pilots because the pool to draw from is shrinking. Consulting firm Oliver Wyman expects global aviation faces a shortage of nearly 80,000 pilots by 2032. In response, airlines are making lateral moves to create a flight school-to-airline channel. Southwest, Hawaiian, JetBlue, and Frontier have all set up branded training courses at independent flight schools throughout the country, and last year, United established the US’ first airline-owned school.

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Currency

Italy’s Prime Minister Wants to Prioritize Cash

In Italian culture, there are some things you don’t mess with, like the simplicity of a cacio e pepe, the cut and polish of Persol sunglasses, the unisex design of a classic Vespa Siluro — or paying in cash.

In a recent draft budget proposal for 2023, Italy’s new far-right Prime Minister Giorgia Meloni proposed granting Italian merchants the right to refuse digital payments for certain transactions — making good on a marquee campaign trail promise while defying directions from Brussels.

Don’t Give ‘em Credit

While most people under the age of 30 may view cash as a cumbersome, inefficient, or perhaps even a downright foreign vehicle for completing transactions, one Italian group in particular wants to keep actual paper money in circulation: small business owners. That’s because digital transactions, like swiping or tapping a credit card, incur small fees from the big banks facilitating them, effectively levying a tax on business owners. And if there’s one thing Italians loathe as much as peas in a carbonara, it’s paying taxes — de facto or otherwise.

The Italian government has long encouraged the shift toward digital payments, in part to tap down on widespread tax evasion — Italy’s shadow economy was estimated at around €183 billion in 2019. While EU leaders in Brussels are pushing for greater use of digital payments to accelerate growth in a post-covid world, Italians are digging in their heels. Meloni’s proposals add some high-proof grappa to the fiery debate:

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On average, the Italian consumer swipes a payment card only 85 times a year, by far the lowest in Europe and below the continent’s 156-digital-transaction average. The act is typically reserved for costlier purchases, with Italian consumers averaging an unusually high digital transaction price of €47.50.

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Big businesses typically pay a fee between 0.5% and 1.5% to banks and payment providers for digital transactions, and small businesses often have to pay even more. Meloni’s proposal would allow businesses to refuse digital payments for any transaction under €60 while raising the cash-purchase limit from €1,000 to €5,000.

La Vita e Bella…with cash: Of course, critics note Meloni’s proposal would create more problems than it solves. “It could be that the fees on [card] payments . . . are a little higher than in other countries, but in that case the solution is to negotiate with the bank system and align [them],” Antonella Trocino, a lecturer in economics at Rome’s Luiss University, told the Financial Times. Sounds like Italy’s going to have to make the banks an offer they can’t refuse.

Extra Upside

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Just For Fun

The deep end.

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Written by Griffin Kelly and Brian Boyle.

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