Chilean markets show the virtues of an aggressive fiscal policy

This past week Chilean stock indexes (which fell 22% last year) hit seven-week highs, buoyed by Central Bank President Jose De Gregorio’s one percentage point interest rate cut (to 7.25 percent; the highest cut in a decade). The rate cut followed President Michelle Bachelet’s Jan. 5 announcement of a $4 billion stimulus package, worth the equivalent of 2.8% of Chile’s GDP.

Shipments fell the most in a decade in the year to December after the global financial crisis undermined the price of copper, which is Chile’s biggest export. Total exports fell 24% from a year earlier to $3.6 billion, the lowest monthly total since October 2005.

Oil’s supply destruction may continue

The Organization of the Petroleum Exporting Countries (OPEC) may decide to reduce oil output again at its meeting in March if crude prices continue to fall, claimed Iran’s OPEC representative, Mohammad Ali Khatibi.  OPEC decided last month to cut production by a record 2.2 million barrels per day (bpd), taking total curbs since September to 4.2 million bpd, the equivalent of 5% of the world’s oil supply.  Oil prices fell 2% to below $41 a barrel on Friday after the release of the U.S. unemployment report that was a tad gloomier than expected.  The U.S. is the world’s biggest oil consumer.

Algeria’s Sonatrach mentioned in Saharan gas venture

Algeria’s Energy and Mines Minister, Chakib Khelil, and Holland’s Economic Affairs Minister, Maria van der Hoeven, are negotiating a potential project to pipe Nigerian gas to Europe across the Sahara, according to the official Algerian news agency APS. The idea centers around a partnership between Algeria’s Sonatrach, the Nigerian hydrocarbon company NNPC, and Royal Dutch Shell to develop a “mega-project” of the Trans Sahara Gas Pipeline that would transport Algeria’s gas to the ever gas-dependent hostages customers in Europe.

European Union (EU) Energy Commissioner Andris Piebalgs apparently “welcomes” the project as being in “the interests of European energy security and the environment and of Africa’s development”. Piebalgs has also indicated that the EU would help finance it. The talks come in the midst of a “gas war” between Moscow and Kiev that has implications across the continental Europe. That said, Russian gas monopoly Gazprom said last year that it was holding preliminary talks with Nigeria about participating in the venture, so let’s see what happens.

As frontier companies go, Algeria’s Sonatrach is one of the more stable and appealing, especially in the energy sector. Per one analyst:

Arguably the largest company in all of Africa, state-owned Sonatrach oversees Algeria’s oil and gas exploration, production, and marketing activities. In addition to its exploration, refining, and pipeline operations, the company also invests in electrical power and in desalination projects. Sonatrach may lose some of its its power as a monopoly as legislation passed by Algeria’s parliament allows more foreign players in Algeria’s energy sector. The company also has exploration and production activities in other countries, including Libya, Mali, Niger, and Peru.