Showing posts with label ENERGY = Crude Oil & Natural Gas. Show all posts
Showing posts with label ENERGY = Crude Oil & Natural Gas. Show all posts

Saturday, December 6, 2014

WTI Crude Tumbles Back Below $66, Heads For Lowest Weekly Close Since July 2009

It appears the growth-is-back-just-look-at-the-jobs-number meme is not flowing through to the oil complex. WTI just broke below $66.00 (having earlier broken below and bounced back above) and is now down almost 1% on the week having retraced most of Monday's kneejerk dead-cat-bounce. This will be the lowest weekly close since July 2009 and down 9 of the last 10 weeks.
From surging dead-cat-bounce to slow death...
WTI Crude Tumbles Back Below $66, Heads For Lowest Weekly Close Since July 2009
To the lowest weekly close since July 2009...
WTI Crude Tumbles Back Below $66, Heads For Lowest Weekly Close Since July 2009

But don't worry, The White House says
  • *FURMAN SAYS MOST U.S. OIL PROFITABLE AT CURRENT PRICES: CNBC
Which is just a lie...

WTI Crude Tumbles Back Below $66, Heads For Lowest Weekly Close Since July 2009

Charts: Bloomberg

Thursday, December 4, 2014

Crude Slides After Saudis Suggest Oil Stabilizes Around $60

Just when industry experts were eying zee stabilittee in oil prices in the last 12 hours, this happens...
*SAUDI ARABIA SAID TO SEE OIL AROUND $60/BARREL: WSJ
And crude oil prices begin to dip once again.

As The Wall Street Journal reports,
Oil may stabilize around $60/barrel, WSJ reports, citing unidentified people familiar.

Suggests Saudis won’t push for supply cuts in near-term, even if oil prices fall further
*  *  *
And the reaction...
Crude Slides After Saudis Suggest Oil Stabilizes Around $60

Friday, November 28, 2014

Brent Crude Crashes 7%,after OPEC meeting

Oil Prices Collapse After OPEC Keeps Oil Production Unchanged
OPEC KEEPS OIL PRODUCTION TARGET UNCHANGED AT 30M B/D: DELEGATE WTI @70 and Brent Crude (under $75 for first time since Sept 2010 are collapsing. Big Positive for India
Brent Crude Crashes 7%,after OPEC meeting
Lowest since June 2010…
Brent Crude Crashes 7%,after OPEC meeting

Tuesday, November 25, 2014

Brent Plunge To $60 If OPEC Fails To Cut, Junk Bond Rout, Default Cycle, "Profit Recession" To Follow

While OPEC has been mostly irrelevant in the past 5 years as a result of Saudi Arabia's recurring cartel-busting moves, which have seen the oil exporter frequently align with the US instead of with its OPEC "peers", and thanks to central banks flooding the market with liquidity helping crude prices remain high regardless of where actual global spot or future demand was, this Thanksgiving traders will be periodically resurfacing from a Tryptophan coma and refreshing their favorite headline news service for updates from Vienna, where a failure by OPEC to implement a significant output cut could send oil prices could plunging to $60 a barrel according to Reuters citing "market players" say.
By way of background, the key reason OPEC is struggling to remain relevant is because, as the FT reportedover the weekend, "US imports of crude oil from Opec nations are at their lowest level in almost 30 years, underlining the impact of the shale revolution on global trade flows. The lower dependence on imports from the cartel, which pumps a third of the world’s crude, comes amid advances in hydraulic fracturing that has propelled domestic US production to about 9m barrels a day – the highest level since the mid-1980s."
The US "shale miracle" is best seen on the following chart showing the total output of the US compared to perennial crude powerhouse, Saudi Arabia:
Brent Plunge To $60 If OPEC Fails To Cut, Junk Bond Rout, Default Cycle, "Profit Recession" To Follow

It is this shale threat that has become the dominant concern for OPEC, far beyond whatever current US national interest are vis-a-vis Ukraine, and Russia's sovereign oil revenues, and as reported previously, Brent has to drop below to $75 or lower for US shale player to one by one start going offline.
Brent Plunge To $60 If OPEC Fails To Cut, Junk Bond Rout, Default Cycle, "Profit Recession" To Follow

Unfortunately, it may bee too little too late for the splintered cartel. As Bloomberg reports, "the days when OPEC members could all but guarantee consensus when deciding production levels for oil are long gone, according to a veteran of almost two decades of the group’s meetings."
The global glut of crude, which has contributed to a 30 percent decline in prices since June 19, has left the Organization of Petroleum Exporting Countries disunited and dependent on non-members to shore up the market, said former Qatari Oil Minister Abdullah Bin Hamad Al Attiyah. The 12-member group is set to meet in Vienna on Nov. 27.

“OPEC can’t balance the market alone,” Al Attiyah, who participated in the group’s policy meetings from 1992 to 2011, said in a Nov. 19 phone interview. “This time, Russia, Norway and Mexico must all come to the table. OPEC can make a cut, but what will happen is that non-OPEC supply will continue to grow. Then what will the market do?”
...

“OPEC had been enjoying easy meetings, and decisions were taken without a sweat,” Al Attiyah said. “Now the situation is different.”

Oil markets are oversupplied by about 2 million barrels a day, and global economic growth is below expectations, he said. “The U.S., which was a major market for OPEC, is no longer welcoming imports. It’s now striving to become an oil exporter. It’s already exporting condensates.”
So if OPEC is unable to reach an agreement, what is the worst case? Back to Reuters, which says that "The market would question the credibility of OPEC and its influence on global oil markets if there was no cut," said Daniel Bathe, of Lupus alpha Commodity Invest Fund.
That could send Brent down to around $60, Bathe said.

"Herding behavior and a shift to net negative speculative positions should accelerate the price plunge," he added.

Fund managers are divided over whether OPEC will reach an agreement on cutting output. Bathe put the likelihood at no more than 50 percent.

The oil price has been falling since the summer due to abundant supply -- partly from U.S. shale oil -- and low demand growth, particularly in Europe and Asia.

As a result, some investors believe a small cut -- of around 500,000 bpd -- would not be enough to calm the markets.

If OPEC fails to agree a cut, prices will drop "further and quite quickly", with U.S. crude possibly sliding to $60, he said. U.S. crude closed at $76.51 on Friday, with Brent just above $80.
It's not all downside: there is a chance that OPEC will agree on a 1 million barrel or more cut, which would actually send prices higher:
"The market really wants to see that OPEC is still functioning ... if there is a small cut, with an accompanying statement of coherence from OPEC that presents  a united front, and talks about seeing demand recovery, and some moderation of supply growth, then Brent could move up to $80-$90."  "Prices below $80 are putting significant strain on the cartel's weakest members such as Venezuela," said Nicolas Robin, a commodities fund manager at Threadneedle. He said a bigger cut -- of 1 million bpd or more -- was an "outlier scenario", but such a move would rapidly push prices above $85.
Then again, even thay may be insufficient if the market prices in an ongoing deterioration in global end-demand: "Doug King, chief investment officer of RCMA Capital, sees Brent falling to $70, even with a cut of 1 million bpd."
So in a worst case scenario, where Brent does indeed tumble to $60, what happens? We already know the answer, as it was presented in "If WTI Drops To $60, It Will "Trigger A Broader HY Market Default Cycle", Says Deutsche":
... it is not just the shale companies that are starting to look impaired. According to a Deutsche Bank analysis looking at what the "tipping point" for highly levered companies is in "oil price terms", things start to get really ugly should crude drop another $15 or so per barrell. Its conclusion: "we would expect to see 1/3rd of US energy Bs/CCCs to restructure, which would imply a 15% default rate for overall US HY energy, and a 2.5% contribution to the broad US HY default rate.... A shock of that magnitude could be sufficient to trigger a  broader HY market default cycle, if materialized. "
This explains why the HY space has been far less exuberant in recent weeks, and the correlation between HY and the S&P 500 has completely broken down.

Brent Plunge To $60 If OPEC Fails To Cut, Junk Bond Rout, Default Cycle, "Profit Recession" To Follow
Finally it is not just the junk bond sector that is poised for a rout should there be no meaningful supply cuts later this week: recall that in another note over the weekend, DB said that should crude prices take another leg lower, then the most likely next outcome is a Profit recession, which while left unsaid, will almost certainly assure a full-blown, economic one as well.
Brent Plunge To $60 If OPEC Fails To Cut, Junk Bond Rout, Default Cycle, "Profit Recession" To Follow
So keep an eye on Vienna this Thanksgiving: the black swan may just be coated with an layer of crude oil this year.

Tuesday, November 18, 2014

Polar Vortex 2.0 Arrives - All 50 States Will Freeze Tonight

3 months ago we warned US economic growth faced a challenge more powerful than any Fed-sponsored miracle could handle and 3 weeks ago Yellen's worst nightmare began to loom on the chilly horizon. But tonight, from the depths of the night, the cruel monetary-policy-nullifying devil of Polar Vortex 2.0 arrives as all 50 states (yes even Hawaii) will see temperatures drop below freezing...


Polar Vortex 2.0 Arrives - All 50 States Will Freeze Tonight
On the bright side, companies will have more than just strong dollar and weak foreign growth to blame for earnings weakness... weather is back baby!!
Polar Vortex 2.0 Arrives - All 50 States Will Freeze Tonight
h/t @Met_mdClark
*  *  *
Just one thing for those celebrating the drop in gas prices at the pump as some tax cut for the consumer(which it is not - it merely allocates the same aggregate spending dollars from gas to a different consumable - leaving aggregate spending just the same - or less in fact should consumers, as in Japan's balance sheet recession, choose to minimize debt as opposed to maximize profits or living standards with their extra cash)... this is what happened to home electricity bills last year... (now is that a tax hike for the consumer?)

Polar Vortex 2.0 Arrives - All 50 States Will Freeze Tonight
*  *  *
Now, the only question is how the resultant tumble in Q4 GDP will be used by the Fed and econo-pundit talking heads to justify a further delay in rate hikes, which consensus expects to take place in Q2 2015 at the latest as a result of recent seasonally massaged "strong data", or better yet, force the Fed to resume liquidity injections once it is revealed that the ECB's intervention is limited to verbal jawboning, while Japan's runaway import cost inflation and plunging real wages lead to a revulsion against Abenomics and Abe in 2015, and a premature end to Japan's epic hyper-reflation experiment and the best laid plans of Goldman Sachs to boost "risk assets" and Goldman year end bonuses.
*  *  *

Friday, November 14, 2014

Oil Plunges As Saudis Dismiss Price War "No Basis In Reality"

WTI Crude oil prices tumbled to a $75 handle this morning as Saudi oil minister al-Naimi dismissed claims of a price-war as having "no basis in reality" noting that "Saudi oil policy has remained constant for the past few decades and it has not change today," suggesting expectations of a supply cut at the looming OPEC meetings are overdone. This comment comes after Qatar said it "may" cut output by 500k barrels/day.

Oil Plunges As Saudis Dismiss Price War "No Basis In Reality"

As Bloomberg reports,
Saudi Arabia’s oil minister dismissed talk of a price war as having “no basis in reality” in his first public comments since crude plunged into a bear market last month.

“Saudi oil policy has remained constant for the past few decades and it has not changed today,” Ali al-Naimi said at a conference in Acapulco, Mexico, yesterday. “We want stable oil markets and steady prices, because this is good for producers, consumers and investors.”

“Talk of a price war is a sign of misunderstanding -- deliberate or otherwise -- and has no basis in reality,” al-Naimi said at a natural gas forum. “Saudi Aramco prices oil according to sound marketing procedures -- no more, no less.”

Monday, November 10, 2014

Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas

As we previewed on Friday, when we reported that "Russia Nears Completion Of Second "Holy Grail" Gas Deal With China", moments ago during the Asia-Pacific Economic Cooperation forum taking place this weekend in Beijing, Russia and China signed 17 documents Sunday, greenlighting a second "mega" Russian natural gas to China via the so-called "western" or "Altay" route, which as previously reported, would supply 30 billion cubic meters (bcm) of gas a year to China.
Among the documents signed between Russian President Vladimir Putin and Chinese leader Xi Jinping were the memorandum on the delivery of Russian natural gas to China via the western route, the framework agreement on gas supplies between Russia's Gazprom and China's CNPC and the memorandum of understanding between the Russian energy giant and the Chinese state-owned oil and gas corporation.
“We have reached an understanding in principle concerning the opening of the western route,” Putin said. “We have already agreed on many technical and commercial aspects of this project, laying a good basis for reaching final arrangements.”
Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas
RIA adds, citing Gazprom CEO Alexei Miller, that the documents signed by Russia and China on Sunday define the western route as a priority project for the gas cooperation between the two countries.
Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas
"First of all these documents stipulate that the "western route" is becoming a priority project for our gas cooperation," Miller said, adding that the documents provide for the export of 30 billion cubic meters of Russian gas to China annually for a 30-year period.
Miller noted that with the increase of deliveries via the western route, the total volume of Russian gas deliveries to China may exceed the current levels of export to Europe in the medium-term perspective. In other words, China has now eclipsed Europe as Russia's biggest, and most strategic natural gas clientMore:
Miller, who heads Russia's state-run energy giant, told reporters that "taking into account the increase in deliveries via 'western route,' the volume of supplied [natural gas] to China could exceed European exports in the mid-term perspective."

This came after Russian and Chinese energy executives signed on Sunday a package of 17 documents, including a framework deal between Gazprom and China's energy giant CNPC to deliver gas to China via the western route pipeline.

Miller said Gazprom and CNPC were in talks on a memorandum of understanding that would see Russia bring gas to China through the western route pipeline, as well as a framework agreement between the two state-owned companies to carry out the deliveries.
The western route will connect fields in western Siberia with northwest China through the Altai Republic. Second and third sections may be added to the pipeline at a later date, bringing its capacity up to 100 billion cubic meters a year.
The facts and figures of the Altay deal are broken down in the following map courtesy of RT:
Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas
Also of note, among the business issues discussed by Putin and Xi at their fifth meeting this year was the possibility of payment in Chinese yuan, including for defense deals military, Russian presidential spokesman Dmitry Peskov was cited as saying by RIA Novosti. More from RIA:
Russia's President Vladimir Putin and China's President Xi Jinping have discussed the possibility of using the yuan in mutual transactions in different fields of cooperation, Kremlin spokesman Dmitry Peskov said Sunday.

"Much attention has been paid to the topic of mutual payments in diverse fields ... in yuans which will help to strengthen the yuan as the region's reserve currency," Peskov said commenting on the meeting held between Putin and Xi on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Beijing.

On October 13, Russian Economic Development Minister Alexei Ulyukayev announced that Russia was considering Chinese market to partially substitute access to the financial resources of the European Union and the United States.

The European Union and the United States have imposed several rounds of economic sanctions on Russia over its alleged involvement in the Ukrainian crisis, a claim Moscow has repeatedly denied. The restrictions prohibit major Russian companies from seeking financing on western capital markets.
Meanwhile, as China and Russia keep forging ahead in a world in which the two becomes tied ever closer in a symtiotic, dollar-free relationship, this is how the US is faring at the same meeting: "China, U.S. Parry Over Preferred Trade Pacts at APEC: Little Progress Made on Separate Trade Deals at Asia-Pacific Economic Cooperation Forum."
The U.S. blocked China’s initiatives because it worried that launching FTAAP talks would impede progress on a separate trade deal, the Trans-Pacific Partnership. The ministers’ statement said that any FTAAP deal would build on “ongoing regional undertakings”—a reference to TPP and other regional trade deals.

Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas

The Chinese got all they could expect—a reaffirmation that we all share in the vision of having a regional integrated model” for trade, said U.S. Chamber of Commerce Executive Vice President Myron Brilliant.

U.S. Secretary of State John Kerry said Saturday that negotiating the TPP “is a battle that we absolutely must win.” Ministers from the 12 TPP nations met Saturday afternoon to try to narrow differences, including disputes between the U.S. and Japan over agriculture and auto trade. On Monday, the leaders of the TPP nations are again scheduled to discuss the trade deal, although no breakthrough is expected.

The U.S. is trying to tie an ITA deal to progress on other trade deals with China, as a way to increase its leverage with Beijing. “How the ITA negotiations proceed is an important and useful data point” on China’s ability to negotiate an investment treaty with the U.S., Mr. Froman said.

Trade analysts say the U.S. also hopes to use China’s desire to have the Beijing conference produce concrete results as leverage. This is the first major international summit held in China since Xi Jinping took over as Communist Party chief in 2012, and the government wants to use the session to affirm China’s greater role in the world.
Good luck trying to "increase US leverage with Beijing" using a trade conference being held in Beijing as the venue.
In other words instead of actual trade agreements, the US merely jawboned and "shared visions."
Then again, as noted here since 2010, in a world in which one can merely "print one's way to prosperity", what is the need for actual trade? Surely, which China and Russia are expanding their commercial ties at the expense of Europe, the US can continue to pretend it is the world's only superpower and has no need for either Russia or China. After all, Mr. Chairmanwoman can always go back to work and print some more of that "world reserve currency."

Friday, November 7, 2014

WTI Crude Tumbles Under $78 As OPEC Slashes Growth & Demand Expectations

While it has been obvious to many that the drop in oil prices is a weak demand issue (amid a desperate over-supply pump for revenues in a decling growth world), talking-heads have remain unashamedly bullish of growthiness and shrugged at commodities dumping at the fastest pace since Lehman. However, it appears OPEC just burst that little bubble of hope by slashing demand forecasts. Crude prices tumbled on the admission.

OPEC's World Oil Outlook slashes GDP growth expectations from last year
WTI Crude Tumbles Under $78 As OPEC Slashes Growth & Demand Expectations

With OECD demand tumbling
WTI Crude Tumbles Under $78 As OPEC Slashes Growth & Demand Expectations

And the result...
WTI Crude Tumbles Under $78 As OPEC Slashes Growth & Demand Expectations

Thursday, November 6, 2014

Oil Prices Spike On Saudi Fears

Oil prices are spiking (WTI crude is up $3 off this morning's lows) following the pipeline explosion in Saudi Arabia. Of course, energy stocks are surging on the news too and we are just waiting for some clever talking head to proclaim this surge as demand-driven showing how strong the economy is...
Oil is surging...
Oil Prices Spike On Saudi Fears

Wednesday, November 5, 2014

Oil: "It's The Economy, Stupid"

The cacophony of various talking heads proclaiming this morning that oil price weakness is not due to weak demand but to over-supply (which are obviously merely different sides to the same coin) was deafening. While he hate to steal the jam from their aggregate donuts, the following chart may just provide a hint at what is really driving oil prices... "it's the economy, stupid!"
Correlation is not causation but.. well in this case, it is
Oil: "It's The Economy, Stupid"

But while this chart is an inconvenient truth, we are sure the meme of US growth saving the world will continue to be spewed as gospel (oh wait a minute... isn't the entire sell-side now taking a chainsaw to their Q3/Q4 GDP growth estimates after construction spending and trade deficit data?) 
Chart: Bloomberg

Tuesday, November 4, 2014

WTI Tumbles To 29-Month Lows After Saudi Price Cut

After initially jerking higher after Saudi Arabia released its new 'lower-prices-for-the-US' strategy, it appears the market began to realize that in fact - as we warned - Saudi Arabia may be willing to accept prices "lower for longer." WTI futures are trading below $78.50 - the lowest since June 2012 (and its dragging Trannies lower today)...

WTI Tumbles To 29-Month Lows After Saudi Price Cut


Saudi Arabia, the world’s biggest oil exporter, is telling the market it won’t cut output to lift crude back to $100 a barrel and that prices must fall further before it does so, according to consultant FACTS Global Energy.

Swelling supplies from non-OPEC producers drove Brent crude into a bear market on Oct. 8 amid waning demand from China, the world’s second-largest importer. The Organization of Petroleum Exporting Countries meets Nov. 27 to consider changing its production target in the face of the highest U.S. crude output in almost 30 years.

“Production of shale oil in the U.S. will not be hit as hard as the Saudis think” by the price decline, FGE Chairman Fereidun Fesharaki said at a conference today in Doha, Qatar. Producers in the U.S. “can withstand a lot of pressure” by reining in their operating costs before they curb investment in new wells and production, he said.

Friday, October 24, 2014

This Is Who Is Quietly Buying All The Cheap Oil

With the US Shale Oil industry up in arms, Venezuela screaming, and Russia awkwardly quiet (as the Ruble slides with the falling oil price stabilizing domestic inflows)the 'secret' Saudi-US oil deal that pressured prices for crude down to $80 (18-month lows today) has 'hurt' a lot of the world's producer nations. However, as Bloomberg reports, there is one nation that is very grateful. The number of supertankers sailing toward China’s ports surged to a nine-month high as over 80 very large crude carriers (VLCCs) - the industry’s biggest ships - sail toward the Asian country’s ports. At an average of 2 million barrels each, the 160 million barrels will help refill China's 727 million barrel SPR which it started in 2012.

This Is Who Is Quietly Buying All The Cheap Oil


The number of supertankers sailing toward China’s ports surged to a nine-month high amid speculation an oil-price slump is encouraging the world’s second-biggest crude importer to accelerate purchases.

There are 80 very large crude carriers, the industry’s biggest ships, sailing toward the Asian country’s ports, according to IHS Fairplay vessel-tracking signals compiled by Bloomberg at about 10 a.m. today. That’s the highest since Jan. 3. Average shipments are 2 million barrels.

Brent crude, the global benchmark, plunged to a four-year low yesterday amid speculation Saudi Arabia, Kuwait and other nations in the Organization of Petroleum Exporting Countries won’t curb production. The slump is likely encouraging buying to fill China’s strategic stocks, according to Energy Aspects Ltd., a London-based consultant.

“There’s a lot of bargain hunting going on,” Richard Mallinson, an analyst at Energy Aspects, said by phone. “Whilst prices are low we think there’ll be buying for Strategic Petroleum Reserve filling and also just trying to capture these discounted crudes.”

...

The 80 bound for China compare with an average of 63 for the past two years and match a record in data that started in October 2011.
*  *  *
In summary, just like Chinese gold imports rise when the price of gold drops; so China does the logical thing with other commodities, (i.e. oil) when prices tumble and instead of selling into the paper rout, it buys all the physical it can get its hands on.

Wednesday, October 15, 2014

Crude Crashing: Brent Is Most. Oversold. EVER

Yesterday we lamented the ridiculously oversold levels in West Texas Intermediate, which as BofA calculated, has hit "oversold" levels for only the third time in six years. We assumed that this could be the basis for a short-term rebound. We were wrong, because we clearly had no idea just how determined the Saudis are to crush Putin into the ground courtesy of plunging oil prices.
As of moments ago, WTI has tumbled nearly $4, some 5%, to just over $81...
Crude Crashing: Brent Is Most. Oversold. EVER

... which just goes to show how idiotic any reliance on charts is in a centrally-planned world, in which commodities are nothing but political weapons. Bottom line: based on its weekly RSI chart, WTI has just hit the most oversold levels since Lehman.

Crude Crashing: Brent Is Most. Oversold. EVER

But to our rather great dismay, what is gong on with Brent turned out to be far worse, and as the weekly RSI indicator shows the selloff in Brent is now the worst, well, ever!

Crude Crashing: Brent Is Most. Oversold. EVER

5 Reasons Oil Prices Are Dropping

5 Reasons Oil Prices Are Dropping
As oil prices continue to fall, analysts and producers are trying to wrap their heads around the reasons and identify a floor price. Even though crude benchmarks like Brent and WTI keep dropping, the cost of finding oil continues to rise. What are some of the key drivers that have created this paradox?
1. The U.S. Oil Boom
America’s oil boom is well documented. Shale oil production has grown by roughly 4 million barrels per day (mbpd) since 2008. Imports from OPEC have been cut in half and for the first time in 30 years, the U.S. has stopped importing crude from Nigeria.
2. Libya is Back
Because of internal strife, analysts have until recently assumed that Libya’s output would hover around 150,000-250,000 thousand barrels per day. It turns out that Libya has sorted out their disruptions much quicker than anticipated, producing 810,000 barrels per day in September. Libyan officials told the Wall Street Journal last week that they expect to produce a million barrels per day by the end of the month and 1.2 million barrels a day by early next year.
3. OPEC Infighting
There have been numerous reports about the discord between OPEC members, leading many to believe that OPEC will not be able to reign in production like it has done so in the past. The Saudis and Kuwaitis have reportedly been in an oil price war, repeatedly lowering their prices in order to maintain their market share in Asia. John Kingston, the news director at Platts, believes that the Saudis will not be willing to give up market share like they have done during previous price drops.
4. Negative European Economic Outlook
European Central Bank president Mario Draghi has left investors concerned about the continent’s slow growth. Germany’s exports were down 5.8 percent in August, stoking the fears of anxious investors that the EU’s largest economy had double dipped into recession last quarter. Across the Eurozone, the IMF again lowered its growth forecast to 0.8 percent in 2014 and 1.3 percent in 2015.
5. Tepid Asian Demand
Beyond slow economic growth and currency depreciation, a number of Asian countries have begun cutting energy subsidies, resulting in higher fuel costs despite a drop in global oil prices. In 2012, Asia’s top spenders on energy subsidies, as a percentage of GDP included: Indonesia 3 percent; Thailand 2.6 percent; Vietnam 2.5 percent, Malaysia 2.3 percent, and India 2.3 percent. India is a primary example. Between 2008-2012, India’s diesel demand grew between 6 percent and 11 percent annually. In January 2013, the country started cutting the subsidies of diesel. Since then, diesel consumption has plateaued.

If The Oil Plunge Continues, "Now May Be A Time To Panic" For US Shale Companies

Over the past 5 years, the shale industry, fabricated or real reserves notwithstanding, has been a significant boon to the US economy for four main reasons: it has been the target of billions in fixed investment and CapEx spending, it has resulted in tens of thousands of high-paying jobs, its output has been a major tailwind for the US trade deficit, and has generally been a significant contributor to GDP (not to mention various Buffett-controlled or otherwise railway corporations). And perhaps, most importantly, it has become a huge buffer to the price of global oil, as the cost curve of US shale is horizontal, with a massive 10,000 kbls/day available within pennies of $85/bl.
Goldman's explanation:
We believe that the vast reserves that have been opened for development through shale oil in the US have flattened the cost curve meaningfully, at around a US$85/bl Brent oil price. We estimate shale reserves from the top three fields in the US onshore (the Permian, Bakken and Eagle Ford) at around 91bn boe, which to put it in context, is equivalent to roughly one third of Saudi Arabia’s current stated reserves (ZH: this number may be vastly overstated). Most of this resource has become available in the past five years, with few barriers to exploiting the reserves. Production in the US as a result is growing strongly, by more than 1mbpd currently, and we expect this pace of growth to continue over the coming three years as capital continues to be drawn in to these developments. The consequence is that costs of production and E&P capex/bl should stabilise as the marginal cost of production remains stable. We believe that shale oil has become effectively the marginal source of supply, providing the bulk of non- OPEC production growth. This is also the key driver of our oil price view: we continue to expect Brent oil to stay at c.US$100/bl for the coming few years.
For once, Goldman is spot on (even if their Brent price target may be a bit off): with shale oil profitable only above its virtually horizontal cost curve, it means that a whopping 11,000 kbls/day are available as long as Brent is above $85, a clear "red line" for all OPEC producers.
The red line is conveniently shown on the chart below:
If The Oil Plunge Continues, "Now May Be A Time To Panic" For US Shale Companies

Furthermore, in the following chart, it is clear how lower rates of Fed-sponsored cheap-funding have enabled more and more mal-invested wells to drilled chasing 'only-increasing' shale oil... if rates rise (high-yield credit spreads broke 400bps today - the highest in 13 months) then the breakevens become even more expensive and that cost curve even more compromising to the marginal producer...
If The Oil Plunge Continues, "Now May Be A Time To Panic" For US Shale Companies

However, should the price drop below $85, and very bad things start to happen, not the least of which is what we warned about in May that "Shale Boom Goes Bust As Costs Soar." That was when Brent was $110. It is now at $85 and sliding lower.
As a further reminder, we noted two days ago that shale is now in a bear market:
If The Oil Plunge Continues, "Now May Be A Time To Panic" For US Shale Companies

But that is nothing compared to the no bid market the (very, very levered) shale companies will find themselves in if and when, for whatever reason, Brent drops below $85 to a price where only Qatar is profitable on the global Brent cost curve.
So while we understand if Saudi Arabia is employing a dumping strategy to punish the Kremlin as per the "deal" with Obama's White House, very soon there will be a very vocal, very insolvent and very domestic shale community demanding answers from the Obama administration, as once again the "costs" meant to punish Russia end up crippling the only truly viable industry under the current presidency.
As a reminder, the last time Obama threatened Russia with "costs", he sent Europe into a triple-dip recession.
It would truly be the crowning achievement of Obama's career if, amazingly, he manages to bankrupt the US shale "miracle" next.

Friday, October 10, 2014

Crude Enters Bear Market As Gold Posts Longest Winning Streak In 7 Months

WTI Crude oil has now entered a bear market, down over 20% from its June highs (and energy stocks are not off the lows) edging closer and closer to 28 month lows. Meanwhile, gold prices have risen for 4 days in a row - the longest winning streak in 7 months...


Oil in a bear market...
Crude Enters Bear Market As Gold Posts Longest Winning Streak In 7 Months

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Thursday, October 2, 2014

WTI Crude Slips Below $90 declines 9.9 percent this year.

WTI Crude Slips Below $90 declines 9.9 percent this year.
West Texas Intermediate oil fell below $90 for the first time in 17 months amid signs that supplies from Russia, Saudi Arabia and the U.S. are outstripping demand. Brent, Europe’s benchmark, headed for a bear market.
WTI futures dropped as much as 2.8 percent to $88.20 a barrel in New York, bringing the decline to 9.9 percent this year. Declines in WTI below $90 would slow U.S. production, Goldman Sachs Group Inc. said yesterday. The nation’s output will rise next year to the highest since 1970, the Energy Information Administration forecast Sept. 9.
The shale boom has turned the U.S. into the world’s largest producer of liquid petroleum, reducing its appetite for imports just as global demand growth slows. Saudi Arabia, the world’s largest oil exporter, yesterday cut its official selling price for crude to Asia to the lowest since 2008. Russian data showed the country’s output rose to a near post-Soviet era record. Kurdistan’s oil production over the next 15 months may increase by more than Chinese demand growth over the period.
“We have more than enough supply out there and demand is not catching up,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “U.S. production is just incredible. Fundamentally we are just producing so much oil.”
WTI for November delivery traded at $88.73 a barrel at 12:03 p.m. in London. It’s below $90 for the first time since April 24, 2013. Futures declined 13 percent in the three months to Sept. 30, the worst quarterly performance in more than two years.
Average retail gasoline prices in the U.S. fell to $3.328 a gallon yesterday, the lowest since February, according to data from the Automobile Association.

Saudi Stance

Brent for November settlement tumbled as much as $2.61, or 2.8 percent, to $91.55 a barrel on the London-based ICE Futures Europe exchange, the lowest since June 28, 2012. It’s down 20 percent since closing at $115.06 a barrel on June 19. The grade’s premium to WTI was at $3.32 a barrel, little changed from yesterday.
U.S. crude oil production rose to the highest level since 1986 last month, while OPEC output climbed to the highest in a year. The International Energy Agency last month reduced its projections for demand growth this year and in 2015, citing a weakening economic outlook.
U.S. producers may halt rigs and low production if WTI “keeps falling below $90,” Jeff Currie, Goldman Sachs’s head of commodities research, said in an interview in London yesterday.

Saudi Cuts

Saudi Arabia reduced the price for Arab Light to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest since December 2008. Official selling prices, or OSPs, are regional adjustments Aramco makes to price formulas to compete against oil from other countries.
The price reduction followed a cut of 408,000 barrels a day in Saudi production in August to 9.6 million a day, according to data the country submitted to the Organization of Petroleum Exporting Countries. The kingdom will maintain output at that level until the end of the year, a person familiar with its policy said Sept. 26.
“The real story seems to me to be that the Saudis want to protect their market share and not act as an OPEC swing producer, as they have done sometimes in the past,” Christopher Bellew, senior broker at Jefferies International Ltd. said by e-mail. “The excess supply of oil in the market is pressuring prices downwards again. It would be a mistake to try to call the bottom of the market.”

Kurdish Oil

Kurdistan will pump 1 million barrels a day by the end of next year compared with about 320,000 barrels a day now, Sherko Jawdat, head of the natural resources committee in the Kurdish region’s parliament said in an interview. The increase of 680,000 barrels would be more than China’s 2015 demand growth, which the International Energy Agency says will be 320,000 barrels a day.
Eight of the 10 most-traded WTI options yesterday were puts, which give investors the right to sell oil at a designated price. The most actively traded were contracts to sell WTI at $80 a barrel, according to Nymex data compiled by Bloomberg.
U.S. oil consumption will decline to 18.92 million barrels a day this year from 18.96 million in 2013, the EIA said in the monthly Short-Term Energy Outlook. Demand averaged 19.4 million in the four weeks ended Sept. 19, the lowest since July 25, the Energy Department’s statistical arm said Sept. 24 in a separate weekly report.

Global Demand

Global demand growth slowed in the second quarter to the weakest since 2011, according to the Paris-based IEA. The adviser to 29 nations has cut its 2015 global consumption forecast by 300,000 barrels a day since July to 93.8 million a day.
“What’s pushing oil prices down is probably the steep decline in demand,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “The weakness in the demand sector is causing a lot of people to sell oil.”
The EIA reduced its price forecasts for WTI in the monthly report. WTI will average $98.28 a barrel this year, down from last month’s projection of $100.45.
The share of total U.S. petroleum and other liquids consumption met by net imports fell to 32 percent in 2013 from 60 percent in 2005, according to the EIA. The rate will decline to 21 percent in 2015, which would be the lowest level since 1968.
Prices also slipped as OPEC output increased in September as Libyan output rebounded to the highest level in more than a year, according to a Bloomberg survey. Production from the 12-member group rose by 413,000 barrels a day to 30.935 million, the survey of oil companies, producers and analysts showed.
OPEC has yet to decide to cut its production target, the United Arab Emirates’ energy minister said on Sept. 23. All 12 members of the group must agree before any reduction in its official limit of 30 million barrels a day, the U.A.E.’s Suhail Al Mazrouei said, a week after OPEC’s secretary-general said it may lower the ceiling in 2015.