Traders Look for Lower Oil Prices

 

Oil traders lose faith in

 recent rally, position

 for lower prices

Oil traders have ramped up their bets in the futures and options market that April's rally will run out of steam, as the outlook for demand weakens and with few clear signs of an end in sight to a supply glut.

While prices for front-month delivery Brent crude futures rallied by as much as 20 percent this month, sparking hopes of an end to a rout that had previously pulled the market down by as much as 70 percent since 2014, data for contracts for later delivery looks much weaker.

The spread between Brent for delivery in December 2017 and those for delivery next month has halved since March 1 to just $4.40 per barrel, and in some cases even wiping out the contango, a price curve where contracts are more expensive going forward than for prompt delivery

  

U.S. bank Morgan Stanley said in a note to clients that it was "bearish oil prices" into the second half of the year and that "given producer hedging appetite into 2017 and the storage situation (full tanks), which requires at least some contango."

With no end in sight to a production glut and also increasing worries on the demand side, with the Organization of the Petroleum Exporting Countries (OPEC) cutting its consumption forecast this week, traders are positioning themselves for further price falls.

In the options arena, the number of put options tied to the July $30 strike price has increased by 150 percent, or 4,700 contracts, since mid-March, indicating a swell in bearish sentiment tied to that time frame.

Put options give a trader the opportunity to sell a product at a certain price, so a July put at $30 per barrel would make money if prices, currently around $43.50 per barrel, hit that level by summer.

Reuters

Today's ENERGY News - April 14, 2016

Top Stories 

IMF Cuts 2016 Global Economic Growth Outlook to 3.2%

The world economy is increasingly at risk of stalling, the International Monetary Fund warned Tuesday as it once again cut its forecast for global growth prospects. The IMF said it was forced to downgrade its growth forecast for this year to 3.2%, down by 0.2 percentage point from its projection issued in January. China’s slowdown and weak commodity prices are taking a deeper toll on emerging markets than expected and rich countries are still struggling to escape the legacies of the financial crisis, the fund said. The downward revision is the fourth straight cut in a year, putting world economic growth just a hair over last year’s 3.1% and only marginally above the 3% rate the IMF has previously considered a technical recession globally. “Consecutive downgrades of future economic prospects carry the risk of […]

 www.wsj.com

Venezuela says U.S. seeking to scuttle OPEC, non-OPEC deal

The United States is seeking to block a deal between OPEC and non-OPEC nations to stabilize oil markets, Venezuelan President Nicolas Maduro said on Tuesday, accusing Washington of applying “war-like” pressure to prevent an agreement. “You can’t imagine all the pressure that is coming from Washington to ensure the failure of the efforts we have made during the last year to create a common strategy among OPEC and non-OPEC producers to stabilize the market and prices,” Maduro said during his weekly televised broadcast. “These are almost war-like pressure on governments, on heads of state,” he said, adding that U.S. policy makers have a “fatal obsession” with Russia, OPEC and Venezuela’s leftist government. Maduro’s government said last week that at least 18 countries have confirmed they will attend […]

 www.reuters.com

Schlumberger to Pare Venezuela Services on Lack of Payments

Schlumberger Ltd. will reduce activity in Venezuela after the world’s largest oil services provider failed to collect enough payments from the national oil company. The reduction will take place this month in close coordination with all customers in Venezuela to continue servicing those with available cash flow, the Houston- and Paris-based contractor said in a statement Tuesday. Venezuela, which holds the biggest oil reserves of any country, has been battered by the collapse of prices as most of the government’s revenue comes from petrodollars. In October, Schlumberger was said to be shifting some of its workers from Brazil to Venezuela, reinforcing the contractor’s commitment at the time as others in the industry pulled back. By late January, Schlumberger said it had entered into a deal with Petroleos de Venezuela SA during the fourth quarter to receive certain fixed assets in lieu of payment of about $200 million of accounts […]

  www.bloomberg.com

Cheapest Gasoline in 12 Years a Boon for Summer Motorists

Americans driving on their summer vacations will enjoy the cheapest gasoline in 12 years as prices stall just above $2 a gallon. Drivers will pay 59 cents a gallon less at the pump this summer than a year ago and $1.55 below 2014, when oil prices peaked above $100 a barrel, the Energy Information Administration said Tuesday. Gasoline demand this summer will increase 1.4 percent from last year to a record. “Low pump prices and continuing growth in employment contribute to more driving, resulting in a forecast of record-high gasoline demand this summer,” EIA Administrator Adam Sieminski said in an e-mailed statement. “For all of 2016, the average household will save about $350 on gasoline purchases compared to last year.” Americans might save as much as $15 billion on gasoline during June, July and August, compared to the same period last year, which would work out to about $70 […]

 www.bloomberg.com

China export surge points to improving economic outlook

China reported stronger than expected trade data on Wednesday, the latest sign of a tentative revival in fortunes that paves the way for Friday’s release of first-quarter economic growth.  Exports surged 18.7 per cent in renminbi terms in March over the same month last year, after declines in both January and February. Imports also stabilised, dropping just 1.7 per cent compared with an 8 per cent fall in February.  In dollar terms, exports rose 11.5 per cent while imports fell 7.6 per cent for the period, reflecting the renminbi’s recent rise. The currency has gained 1.9 per cent against the dollar over the past two months.  China’s export sector has been buffeted by the slowdown in global trade, the dollar value of which has been shrinking since 2012 largely because of the slump in international commodities prices.  The International Monetary Fund this week warned that the world risked a “synchronised slowdown” but highlighted China as a rare bright spot among major economies. Chinese officials have been working to counter international investors’ increasingly negative outlook for the country’s economy.  Their cause has been boosted by a slew of better than expected data releases, including March inflation figures that showed producer price deflation had moderated.

 www.ft.com

Today's ENERGY News - April 13, 2016

Top Stories

Banks Face Massive New Headache on Oil Loans

J.P. Morgan Chase Chairman and CEO James Dimon in February called the unfunded loans are… The $147 billion question for banks: Will energy companies max out their credit lines? When big banks announce earnings starting on Wednesday, the spotlight will be on massive energy loans that most investors didn’t know much about until recently. These unfunded loans have been promised to energy companies that haven’t yet tapped the money. Many banks historically haven’t disclosed these loans but have begun to recently following the extended slide in oil and gas prices. In the first quarter, a handful of energy borrowers announced more than $3 billion of drawdowns against these types of loans. Those commitments are expected to trickle down to bank earnings and saddle firms with more energy exposure at a time they are trying to pare it back. “Let’s not sugarcoat it, this is not necessarily a loan a […]

 www.wsj.com

Natural Gas Production Is About To Plummet

Summary As one of the seven largest natural gas producing regions in the U.S., the Eagle Ford is a significant area to understand for natural gas-oriented investors. In this article, I dig into the government’s data regarding production and forecast what output should look like by year-end. What I discovered is that, if something doesn’t change fast, we should see production fall materially in the region this year, which is bullish news for investors. In the past, I’ve written articles regarding the Eagle Ford and the oil production trend that we’ve seen coming out of the region. However, I have yet to analyze the amount of natural gas to come from the area and to see what the production trend of that commodity should look like moving forward. Now, after having the opportunity to dig into the data from the EIA’s (Energy Information Administration’s) Drilling Productivity Report and after […]

  peakoil.com

Wells Fargo Misjudged the Risks of Energy Financing

At its annual investor conference in San Francisco in May 2014, with oil trading at $102 a barrel, Wells Fargo & Co. boasted that in just two years it had almost doubled its energy exposure and seized the title of Wall Street’s top oil and gas banker. The timing couldn’t have been worse. Crude prices peaked a month later and have since plummeted to $40. Wells Fargo has downgraded 38 percent of its energy loans and set aside $1.2 billion to cover potential losses, according to company filings. The loans are coming under increasing scrutiny from regulators and investors, even though they make up only 2 percent of the bank’s portfolio. Wells Fargo’s foray into oil shows how Wall Street misjudged the risks hidden in an esoteric type of energy financing long thought to be bulletproof. To fuel the growth of its energy desk, the bank targeted some of […]

  www.bloomberg.com

The Halliburton-Baker Hughes Merger is Falling Apart. What Happens Next?

The long wait is finally over; the U.S. Justice Department has announced it will sue to block the merger of Halliburton and Baker Hughes. This makes the merger much less likely to be consummated – so much so that I think it’s fair to operate using a base assumption that the deal is dead, even if that position is not yet official. A key tenant in industrial organization theory is that it takes three strong competitors to make an efficient market. Without three competitors, industries and companies fall prey to problems of tacit collusion, resulting in slowly higher prices and less overall economic efficiency. The HAL/BHI merger was done in by the lack of a third strong competitor. While Halliburton showed a willingness to do whatever it took to get the deal done by agreeing to divest billions of dollars of assets, in the end it was not enough. […]

 oilprice.com

Exxon faces calls for climate change ‘stress test’

Dozens of investors are backing the call for ExxonMobil, the US oil group, to “stress test” the potential impact on its business of policies to address the threat of climate change.Shareholders have submitted proposals for the annual meetings of Exxon and eight other US energy companies, recommending that they analyse the financial risks they face if governments attempt to limit the increase in global temperatures to 2C, which was the objective agreed at the Paris climate talks at the end of last year. Calpers, the California state retirement fund that had $301bn under management as of last June, has registered with the Securities and Exchange Commission, the US regulator, to be able to lobby other investors in support of the proposal at Exxon. The moves reflect growing interest among investors in the financial implications of climate change. They also show how environmental campaigners have become increasingly adept at working with shareholders in fossil fuel companies to raise awareness of the issue. The New York state retirement fund and the Church of England submitted the proposal at Exxon, asking the company to publish an annual assessment of the financial impact on its proved reserves and potential resources of restrictions on carbon intended to hit the 2C target.

  next.ft.com

BULLS Lead BIG Charge in #Crude

Crude Charging Higher Ahead Of Big Week

By Matt Smith

Thirty-three years after REM released their debut album, and the crude complex today is being driven by murmurs again. As the producer meeting in Doha approaches (but not fast enough…), here are seven things to consider in the oil market today:

1) Economic data flow was kicked off overnight by a weaker print for Chinese inflation in March. Inflation dropped on the prior month by -0.4 percent, limiting the year-on-year rise to 2.3 percent, below consensus of +2.5 percent. Nonetheless,food prices increased by 7.6 percent, driven by rising vegetable and pork costs.

2) As for Chinese producer prices, despite being negative on a year-over-year basis since 2012, the first month-on-month increase was seen since 2013. Year-on-year prices are showing easing deflation, down less than expected at -4.3 percent.

Related: Horizontal Land Rig Count Summary 8th April 2016

3) Economic data is thin on the ground elsewhere today. Fortunately, us energy folk get the EIA’s monthly drilling productivity report today, assessing the health of oil and gas production at key U.S. shale plays. We then get the triumvirate of key monthly oil reports, with the EIA’s short term energy outlook tomorrow, OPEC’s oil market report out on Wednesday, with the IEA the caboose on Thursday. Doha lurks in the distance on Sunday.

4) Despite the worldwide rig count reaching its lowest level since September 1999 at 1,551, rigs in Saudi Arabia, Kuwait and UAE have been on the rise.

While the worldwide rig count has dropped 60 percent in little over a year, the three countries on the Arabian Peninsula have seen rigs more than double in recent years as they attempt to boost production capacity:

5) According to the International Group of LNG importers, global supplies of LNG are set to be boosted by 14 percent this year as new capacity comes online, predominantly from Australia.

Related: Oil Up As Bullish Sentiment Returns To Markets 

Hence, as capacity continues to outpace demand – and is set to through the duration of the decade – LNG prices are set to remain under pressure. Singapore Spot LNG prices have slumped to $4/MMBtu, falling from $14/MMBtu back in September 2014, when price assessments started.

6) The latest CFTC data show that hedge funds are once again increasing short positions in WTI crude oil. Shorts increased, while long positions were little changed; this meant that the net long position held by speculators dropped for a second consecutive week.

7) We have discussed recently how the reversal in crude prices from January lows has been in tandem with a return to dollar weakness and a risk-on appetite. Hence, as equities start the week moving higher as quarterly earnings season is kicked off after-hours, the yen has rallied to its highest level versus the dollar since late 2014, while the euro is pushing on above 1.14 for the first time since last fall.

Related: The Oilfield Services Model Is Broken

Crude is pushing higher once again, while emerging market currencies are on a tear. As the chart below illustrates, crude has rallied over 40 percent since late January, while the Ruble has appreciated by over 20 percent.

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Today's ENERGY News - April 12, 2016

Top Stories 

U.S. shale oil firms feel credit squeeze as banks grow cautious

Nearly two years into an epic oil rout, U.S. shale drillers that have upended global energy markets are finally feeling a credit squeeze as banks make their biggest cuts yet to their loans. Every six months, oil and gas producers and their banks negotiate how much credit they should be given based on the value of their reserves in the ground. In previous reviews, banks were willing to offer borrowers some leeway, encouraged by producers’ hedges against falling prices and their ability to keep cutting costs in step with crude’s slide that began in mid-2014. This time, with many companies’ hedges largely gone and crude prices used in the reviews as much as 20 percent lower than six months earlier, banks are getting tough. Just a few weeks into […]

  www.reuters.com

Cheap Gasoline Creates Illusion of Abundance for American Motorists and Policymakers

The U.S. saw average retail gasoline prices drop below $2 per gallon in early January, the lowest prices observed since 2009 during the depths of the global financial crisis. Cheap gas is fueling a driving boom in the United States, with consumption well above the five-year average for this time of year. It is still early, but the U.S. is on course to set a new record in gasoline consumption in 2016, breaking the previous high set in 2007. The EIA releases weekly estimates on gasoline consumption, which are less precise than the retrospective monthly surveys, but assuming the latest data is accurate, the U.S. is currently consuming gasoline at a rate typically seen at peak driving season in the summer months. As a result, the upcoming summer could be a blockbuster for American gasoline demand. Fuel efficiency gains secured? In 2009, U.S. President Barack Obama issued new standards […]

  energyfuse.org

U.S. oil job cuts reach about 118,000

The U.S. oil industry handed out 23,200 pink slips in the first three months of the year as companies began cutting their once-flush spending budgets deeper than in the ferocious mid-1980s oil bust. The latest round of layoffs, including recent cuts by Chevron Corp., BP and Anadarko Petroleum Corp., has brought oil-and-gas job cuts across the nation to nearly 118,000 since the beginning of 2015. That’s more than one in every five workers the industry had when crude prices began to tumble, the Federal Reserve Bank of Dallas said Friday. “You won’t see job cuts bottom out until the middle of the year, if then,” said John Graves, a Houston oil consultant who has tracked the industry’s layoffs. The dramatic and ongoing exit of more than a fifth of the industry’s workforce comes as drillers sideline three-quarters of the drilling rigs they used to power the nation’s biggest oil […]

 www.houstonchronicle.com

Russia’s Most Important Bank Needs a Bailout

When the Russian government needed to build up infrastructure in the southern city of Sochi ahead of the 2014 Winter Olympic Games, it turned to Russia’s most important lender: Vnesheconombank, the country’s state-owned development bank. Russian President Vladimir Putin said private investors would be responsible for most of the Olympic costs, which ballooned to an estimated $50 billion. But VEB ended up picking up much of the tab, eventually holding the equivalent of at least $2.9 billion in overdue loans. Now, the bill is coming due. VEB for years kept its books in balance by borrowing heavily from foreign lenders. But after being slapped with sanctions by Europe and the U.S. following Russia’s annexation of Crimea in 2014, the bank faces the task of paying off about $20 billion in foreign-currency debt, about $3 […]

 www.wsj.com

Ford tests Fusion Hybrid autonomous research vehicles driving in complete darkness

As part of its LiDAR sensor development, Ford has tested Fusion Hybrid autonomous research vehicles in complete darkness without headlights on desert roads, demonstrating the capability to perform beyond the limits of human drivers. Driving in pitch black at Ford Arizona Proving Ground marks the next step on the company’s efforts to delivering fully autonomous vehicles. The development shows that even without cameras, which rely on light, Ford’s LiDAR (units from Velodyne), working with the car’s virtual driver software, is robust enough to steer flawlessly around winding roads. While it’s ideal to have all three modes of sensors—radar, cameras and LiDAR—the latter can function independently on roads without stoplights. National Highway Traffic Safety Administration data has found the passenger vehicle occupant fatality rate during dark hours to be about three times higher than the daytime rate. Thanks to LiDAR, the test cars aren’t reliant on the sun shining, nor […]

 www.greencarcongress.com

Peak Oil Today - April 11, 2016

"PEAK OIL TODAY"

The End Of Fossil Energy 

The very best weekly analysis and evaluation of the global peak oil situation with additional briefings, charts and videos, added by the curator from accredited professional sources, to enhance the informed investor's knowledge and understanding of its deep complexities and evolving outlooks. 

Everyone should "Bookmark ' this very important weekly post to stay abreast of this most critical aspect of global economics and life on this planet.

 

Peak Oil Review – 11 April 2016 

By Tom Whipple

Quote of the Week

“Generally, it takes 18 months before the world has a decent picture of supply and demand. This is little consolation to those trying to do real time analysis on the direction of prices. That is why I can say categorically “the fix is in”. In other words, fields are declining, meaning investment is far below levels required just to replace production. The only thing that will change the vector of these declines is more spending, lots more spending, and the only thing will spur lots more spending is higher prices. Significantly higher than $40/bbl.”
 

Brad Beago, Oilprice.com,   Fortune Magazine

 

  

Contents

1.  Oil and the Global Economy

2.  The Middle East & North Africa

3.  China

4.  Russia/Ukraine

5. The Briefs

1.  Oil and the Global Economy 

Oil prices surged 8 percent last Friday and are now back at levels seen at the top of the last price surge in mid-March. This time strengthening the US and German economies, a falling dollar, and the OPEC price freeze meeting on April 17^th was seen as the trigger behind the rally.  Friday’s rally was the 12^thtime in the last two months that daily prices have surged by 5 percent or more showing that there is a lot of money eager to participate in big price rise that will come someday. However, this rally was mostly based on hopes that things are going to get better rather than any specific news, other than the recent increases in US gasoline consumption which are likely to short-lived as retail prices move higher.
 Many traders and fund managers believe that the $26 bottom we saw on February 11th was the end of the nearly two-year price decline and are ready to buy into oil futures on any good news. Other traders continue to warn that the oil production remains relatively steady, oil stocks are still close to an all-time high, and that the OPEC meeting likely will turn out to be meaningless for global production. There is still talk that storage capacity is running short in some areas which could lead to a downturn in prices once again. New York futures closed the week at $39.72 and barrel and London at $41.94.
 
US natural gas prices jumped 10 cents per million BTU’s on Friday to close above $2 for the first time in nearly two months. The move was attributed to cooler-than-normal weather in the Northeast and came despite US natural gas stocks increasing to 2.48 trillion cubic feet, a record for this time of year. Prices have been at historic lows in recent weeks because to the continuing glut of natural gas which is 54 percent larger than normal for this time of year. The low prices are starting to lure speculators who see the bottom as being reached and the prices have nowhere to go but up.


 
Last week the infamous Keystone pipeline, which moves 590,000 b/d of Canadian crude to the US, ruptured in South Dakota.  The leak released about 17,000 gallons of crude but did little environmental damage. After a week of repairs, the pipeline was to reopen at reduced pressure over the weekend. Due to the glut of oil I US storage facilities, the markets largely ignored the one-week shutdown.
 
Goldman Sachs published an interesting theory last week that a price of $35 a barrel is the ideal “Goldilocks” price for US crude oil. The idea is that prices around $30-35 a barrel are enough to keep many oil producers in business until the markets are again rebalanced, but is not high enough to stimulate a surge in production that will only prolong the glut.





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