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India and China have seen exponential growth in oil demand over the past 25 years. Combined, they consume 16 percent of the world’s oil–second only to the U.S. at 20 percent. And analysts expect that by 2040, these two growing economies will double their combined consumption to 30 percent. These are game-changing numbers that have all major producers seeking inroads to this territory.

Most spectacularly, new trade routes are being established and Indian refiners are moving away from long-term contracts with Middle East nations, favouring African spot purchases, reports Reuters.

At the start of the decade, Russia supplied about 7 percent of total imports to China, compared to 20 percent supplied to China by Saudi Arabia. However, Russia has overtaken the Saudis as the largest supplier to China four times in 2015, which is significant because Saudi Arabia had lost the top spot only six times in the preceding five years, according to data from RBC Capital markets.

RBC Capital Markets’ commodity strategist Michael Tran pointed out that seven countries have beaten the growth rate achieved by Saudi Arabia in the past five years, as shown in the chart above.

“Meanwhile, Saudi Arabia is losing its crown as its selling prices in Asia haven’t been attractive enough,” claimed Gao Jian, an analyst at SCI International, a Shandong-based energy consultant, to Bloomberg in June 2015.

On the other hand, Nigeria overtook Saudi Arabia as the largest supplier to India back in 2015, as reported by Reuters.

…click on the above link to read the rest of the article…

A Desperate China Begged Fed For “Plunge Protection Playbook” As Its Market Crashed

March 21, 2016

A Desperate China Begged Fed For “Plunge Protection Playbook” As Its Market Crashed

Last June, China’s stock market miracle ended in tears.

The SHCOMP’s inexorable, parabolic ascent was to a large degree facilitated by an explosion of margin debt, the likes of which could not be found in any other major market across the globe. For instance, by the end of June, the outstanding balance of margin transactions as a percentage of the SHCOMP’s free float market cap was nearly 14% compared to just 5.5% for the S&P and less than 1% for the TOPIX.

A dramatic unwind in the half dozen backdoor margin lending channels that had funneled an additional CNY1.5 trillion into equities brought the party to a thunderous end and by late July, the market was off by more than 30% from its peak.

Chinese officials had already begun to panic by mid-month and then, on the 27th, the bottom fell out.

A harrowing bout of late day selling led the SHCOMP to post its worst one-day drop since February of 2007 and its second worst single session decline in history as the market collapsed by 8.5%.

More than two-thirds of stocks in the index traded limit down that day.

At that point, China was out of ideas. It had been nearly three weeks since Beijing announced it would inject capital into China Securities Finance Corp., effectively giving the PBoC a mandate to not only underwrite brokers’ margin lending businesses but in fact to buy A-shares directly, and nothing seemed to be working to arrest the slide.

Indeed, starting on June 27 (by which time the Shenzhen had fallen by more than 20% from its peak) the PBoC unleashed an eye watering array of measures that encompassed everything from an RRR cut to the easing of regulations to state mandated investments by pension funds to verbal interventions in the form of threats against “malicious” shorts. Nothing was working.

…click on the above link to read the rest of the article…

The Liquidity Endgame Begins: Whiting’s Revolver Cut By $1.2 Billion As Banks Start Slashing Credit Lines

March 15, 2016

The Liquidity Endgame Begins: Whiting’s Revolver Cut By $1.2 Billion As Banks Start Slashing Credit Lines

Earlier today we reminded readers about the circular (and why note fraudulent conveyance) scheme hatched by JPMorgan to reduce its secured loan exposure to Weatherford, when just two weeks ago none other than JPM underwrote an WFT equity offering in which it sold equity in the company, and which proceeds were promptly used by the company to repay the JPMorgan revolver.

We then showed that it wasn’t just Weatherford: most of the “uses of funds” from the recent record surge in oil and gas equity offerings, have been used to repay the secured debt/revolver facilities, thereby eliminating funded and unfunded balance sheet exposure of major US banks.

But while lender banks are all too eager to take advantage of the brief surge in equity prices just so they can “help” their clients dilute their shareholder base so to repay the very same lender banks, they know quite well that the equity offering window is rapidly closing; in fact it will slam shut as soon as the price of oil resumes its downward trajectory.

That does not mean they are out of options to reduce their exposure to US shale, however. Quite the contrary, and in fact the “exposure reduction” is about to begin in earnest. We hinted at what it would look like in early January when we reported that already some 25 of the most distressed shale companies have seen their revolving bases slashed by as much as 50%.

These were just the beginning. As Bloomberg wrote earlier, U.S. exploration and production companies must brace for further cuts to their borrowing-base credit lines this spring, as part of the spring 2016 borrowing base redeterminations.

…click on the above link to read the rest of the article…

Caught On Tape: “Enormous Crowds” Of Unemployed Chinese Miners Take To The Streets, Clash With Riot Police

March 14, 2016

Caught On Tape: “Enormous Crowds” Of Unemployed Chinese Miners Take To The Streets, Clash With Riot Police

In early November, we said that far from the traditional risk factors affecting China’s economy, including the slowing economy, the stock market (and now housing 2.0) bubble, the soaring NPLs, and record debt, the most under-reported risk facing China is the “breakdown in recent “agreeable” labor conditions, wage cuts and rising unemployment, leading to labor strikes and in some cases, violence.”

Some recent articles probing the severity of China’s collapsing labor market were the following:

A clear indication of this was the exponential rise in labor strikes on the mainland as tracked by the China Labor Bulletin:

While so far most Chinese worker strikes had been largely peaceful, two weeks ago we said it was only a matter of time before these turned violent after Reuters reported that “China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution.”

All this changed overnight when as AFP reports, thousands of miners in China’s coal-rich (or poor depending on one’s perspective) north have gone on strike over months of unpaid wages and fears that government calls to restructure their state-owned employer will lead to mass layoffs.

Citing the video shown below, AFP reported that thousands of protesters were marching through the streets of Shuangyashan city in Heilongjiang province, venting their frustration at Longmay Mining Holding Group, the biggest coal firm in northeast China. Pictures showed enormous crowds filling the streets.

…click on the above link to read the rest of the article…

“They Should Leave Us Alone”: Iran Wants No Part Of Oil Freeze Until Output Higher

March 13, 2016

“They Should Leave Us Alone”: Iran Wants No Part Of Oil Freeze Until Output Higher

On Tuesday, Kuwait’s oil minister Anas al-Saleh delivered a rather stark warning to the rest of OPEC when he said the following about the much ballyhooed crude output freeze: “I’ll go full power if there’s no agreement. Every barrel I produce I’ll sell.”

That was a response to a question about what Kuwait would do if all major producers failed to agree to the freeze. Of course “all major producers” includes Iran and having just now begun to enjoy the financial benefits of being free to sell its oil without the overhang of crippling international sanctions, Tehran isn’t exactly thrilled about the idea of capping production at the current run rate of around 3 million b/d.

As soon as sanctions were lifted, Iran immediately committed to boosting production by 500,000 b/d and said that by the end of the year, it would bring an additional 500,000 b/d of supply online. That would put Iranian production at around 4 million b/d total and, as we noted back in January, would mean the country will be raking in between $3 and $5 billion every month by the end of 2016.

Whether or not those numbers are ultimately achievable is debatable, but the point is, Iran came back to market at a rather inauspicious time. President Hassan Rouhani is attempting to rebuild his country’s economy and Tehran is attempting to attract tens of billions in investments. Taking the foot off the pedal now would be a bitter pill to swallow.

On Sunday, we got the latest from Iranian Oil Minister Bijan Zanganeh and the message was unequivocal: “They should leave us alone as long as Iran’s crude oil has not reached 4 million. We will accompany them afterwards.”

…click on the above link to read the rest of the article…

Fukushima Five Years Later: “The Fuel Rods Melted Through Containment And Nobody Knows Where They Are Now”

March 11, 2016

Fukushima Five Years Later: “The Fuel Rods Melted Through Containment And Nobody Knows Where They Are Now”

Today, Japan marks the fifth anniversary of the tragic and catastrophic meltdown of the Fukushima nuclear plant. On March 11, 2011, a massive earthquake and tsunami hit the northeast coast of Japan, killing 20,000 people. Another 160,000 then fled the radiation in Fukushima. It was the world’s worst nuclear disaster since Chernobyl, and according to some it would be far worse, if the Japanese government did not cover up the true severity of the devastation.

At least 100,000 people from the region have not yet returned to their homes. A full cleanup of the site is expected to take at least 40 years. Representative of the families of the victims spoke during Friday’s memorial ceremony in Tokyo. This is what Kuniyuki Sakuma, a former resident of Fukushima Province said:

For those who remain, we are seized with anxieties and uncertainties that are beyond words. We spend life away from our homes. Families are divided and scattered. As our experiences continue into another year, we wonder: ‘When will we be able to return to our homes? Will a day come when our families are united again?’

There are many problems in areas affected by the disaster, such as high radiation levels in parts of Fukushima Prefecture that need to be overcome. Even so, as a representative of the families that survived the disaster, I make a vow once more to the souls and spirits of the victims of the great disaster; I vow that we will make the utmost efforts to continue to promote the recovery and reconstruction of our hometowns.

…click on the above link to read the rest of the article…

China Proposes Unprecedented Nationalization Of Insolvent Companies: Banks Will Equitize Non-Performing Loans

March 10, 2016

China Proposes Unprecedented Nationalization Of Insolvent Companies: Banks Will Equitize Non-Performing Loans

In what may be the biggest news of the day, and certainly with far greater implications than whatever Mario Draghi will announce in a few hours when we will again witness the ECB doing not “whatever it takes” but “whatever it can do”, moments ago Reuters reported that China is preparing for an unprecedented overhaul in how it treats it trillions in non-performing loans.

Recall that as we first wrote last summer, and as subsequently Kyle Bass made it the centerpiece of his “short Yuan” investment thesis, the “neutron bomb” in the heart of China’s impaired financial system is the trillions – officially at $614 billion but realistically anywhere between 8% and 20% of China’s total $35 trillion in bank assets – in non-performing loans. It is the unknown treatment of these NPLs that has been the greatest threat to China’s just as vast deposit base amounting to well over $20 trillion, which has been the fundamental catalyst behind China’s record capital flight as depositors have been eager to move their savings as far from China’s domestic banks as possible.

As a result, conventional thinking such as that proposed by Bass, Ray Dalio, KKR and many others, speculated that China will have to devalue its currency in order to inflate away what is fundamentally an excess debt problem as the alternative is unleashing a massive debt default tsunami and “admitting” to the world just how insolvent China’s state-owned banks truly are, not to mention leading to the layoffs of tens of millions of workers by these zombie companies.

However, China now appears to be taking a surprisingly different track, and according to a Reuters report China’s central bank is preparing regulations that would allow commercial banks to swap non-performing loans of companies for stakes in those firms. Reuters sources said the release of a new document explaining the regulatory change was imminent.

…click on the above link to read the rest of the article…

“I’ll Go Full Power If There’s No Agreement” – Kuwait Breaks OPEC Production Freeze

March 8, 2016

“I’ll Go Full Power If There’s No Agreement” – Kuwait Breaks OPEC Production Freeze

Back in late February, when crude prices had just hit a 13 year low, one catalyst unleashed a furious short-covering rally: a WSJ report which cited a delayed SkyNews interview with the UAE energy minister, according to which OPEC would freeze, if not cut production. Since then we learned, courtesy of the Saudi oil minister Al-Naimi himself, that the Saudis will never reduce output, however, in a utterly meaningless gesture, Saudi Arabia and Russia agreed to “freeze” production at levels which are already at maximum capacity and under one condition: that all other OPEC members join the freeze, with the possible exception of Iran which may be allowed to produce until it hits its pre-embargo export levels.

Of course, even said “freeze” is nothing but a stalling tactic employed by an OPEC member (Saudi Arabia), to give the impression that OPEC still exists as a production-throttling cartel when OPEC ceased to exist in that capacity in November 2014. Everything since then has been one surreal redux of “Weekend at Bernies” where everyone pretends not to notice the corpse in the room.

However, while many had pretended to at least play along with the charade, today a core OPEC member effectively broke ranks when Kuwait said it would only agree to an output freeze if all major producers take part including Iran.

According to Reuters, Kuwait’s oil minister said on Tuesday that his country’s participation in an output freeze would require all major oil producers, including Iran, to be on board.

“I’ll go full power if there’s no agreement. Every barrel I produce I’ll sell,” Anas al-Saleh told reporters in Kuwait City.

…click on the above link to read the rest of the article…

The Global Run On Physical Cash Has Begun: Why It Pays To Panic First

February 28, 2016

The Global Run On Physical Cash Has Begun: Why It Pays To Panic First

Back in August 2012, when negative interest rates were still merely viewed as sheer monetary lunacy instead of pervasive global monetary reality that has pushed over $6 trillion in global bonds into negative yield territory, the NY Fed mused hypothetically about negative rates and wrote “Be Careful What You Wish For” saying that “if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.”

Well, maybe not… especially if physical currency is gradually phased out in favor of some digital currency “equivalent” as so many “erudite economists” and corporate media have suggested recently, for the simple reason that in a world of negative rates, physical currency – just like physical gold – provides a convenient loophole to the financial repression of keeping one’s savings in digital form in a bank where said savings are taxed at -0.1%, or -1% or -10% or more per year by a central bank and government both hoping to force consumers to spend instead of save.

For now cash is still legal, and NIRP – while a reality for the banks – has yet to be fully passed on to depositors.

The bigger problem is that in all countries that have launched NIRP, instead of forcing spending precisely the opposite has happened: as we showed last October, when Bank of America looked at savings patterns in European nations with NIRP, instead of facilitating spending, what has happened is precisely the opposite: “as the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”

…click on the above link to read the rest of the article…

Caught On Tape: U.S. Test Fires Nuclear ICBM, Warns “We Are Prepared To Use Nuclear Weapons”

February 26, 2016

Caught On Tape: U.S. Test Fires Nuclear ICBM, Warns “We Are Prepared To Use Nuclear Weapons”

Less than two years ago, news of Russia test-firing an ICBM just as the east Ukraine civil war was heating up, was sufficient to send the stock market into a brief tailspin. Since then, the launches of nuclear-tipped intercontinental ballistic missiles has become an almost daily occurrence, with the market hardly batting an eyelid.

In fact, it happened just last night at 11:01pm PST at Vandenberg Air Force Base in California, where – for the second time this week – the US test-fired its second intercontinental ballistic missile in the past seven days, seeking to demonstrate its nuclear arms capacity at a time of rising strategic tensions with Russia, North Korea, China and the middle east.

The unarmed Minuteman III missile roared out of a silo at Vandenberg Air Force Base in California late at night, raced across the sky at speeds of up to 15,000 mph (24,000 kph) and landed a half hour later in a target area 4,200 miles (6,500 km) away near Kwajalein Atoll in the Marshall Islands of the South Pacific.

The entire launch was caught on the following video, which was released by Vandenberg just 4 days after the previous ICBM launch.

What was more disturbing than the actual launch, however, was the rhetoric behind it: instead of passing it off as another routine test, and letting US “adversaries” make up their own mind about what is going on, Deputy Defense Secretary Robert Work, who witnessed the launch, said the U.S. tests, conducted at least 15 times since January 2011, send a message to strategic rivals like Russia, China and North Korea that Washington has an effective nuclear arsenal. “That’s exactly why we do this,” Work told reporters before the launch.

…click on the above link to read the rest of the article…

G-20 Needs To “Man Up” Or Risk Sparking Market Chaos, Citi Warns

February 26, 2016

G-20 Needs To “Man Up” Or Risk Sparking Market Chaos, Citi Warns

Two days ago, the man who now signs your Federal Reserve notes threw cold water on hopes for a so-called “Shanghai Accord.”

Over the past month or so, anticipation has built among market participants for some manner of coordinated policy response at this weekend’s G20 summit in Shanghai. The hoped for agreement would ideally be something akin to the 1985 Plaza Accord between the United States, France, West Germany, Japan, and the United Kingdom, which agreed to weaken the USD to shore up America’s trade deficit and boost economic growth.

Calls for coordinated action come on the heels of a turbulent January in which collapsing crude, RMB jitters, and worries that central banks are out of bullets have sowed fear in the minds of investors. “We remain sellers into strength in coming weeks/months of risk assets at least until a coordinated and aggressive global policy response (e.g. Shanghai Accord) begins to reverse the deterioration in global profit expectations and credit conditions,” BofA said last week, ahead of the summit.

“Don’t expect a crisis response in a non-crisis environment,” Lew said in an interview broadcast Wednesday with David Westin of Bloomberg Television. “This is a moment where you’ve got real economies doing better than markets think in some cases.”

Whether or not you agree with Lew’s assessment of “real economies” or not, the message was clear. The US isn’t set to support some kind of joint statement on fiscal stimulus and may not even be willing to be part of a consensus on the need to implement emergency measures to juice global growth and trade.

On Friday, the soundbites are rolling in as the world’s financial heavyweights opine on the state of the decelerating global economy and the turmoil that likely lies ahead for markets.

…click on the above link to read the rest of the article…

European Disunion

February 26, 2016

European Disunion

Greece vs. Austria: Non-Friendly Acts

Two days ago we came across a headline at Reuters, informing us that “Greece rages at neighbors as fears migrants could be halted”. Say what? What the hell is this supposed to mean? Is this even English? Possibly Reuters employs the same headline editor as Bloomberg….he or she is definitely equally bad.

Kotzias, enraged Nikos Kotzias (νίκοσ κοτζιάσ), a former member of the Central Committee of the Greek Communist Party. Nowadays, oddly enough, he is Greece’s foreign minister. Here seen enraged. Photo credit: Simela Pantzartzi

Anyway, we delved into the article to see what it was about. Here are a few pertinent excerpts:

“Greece raged at neighbors and began busing refugees and migrants back from its northern border on Tuesday, after new restrictions by countries on the main land route to Western Europe trapped hundreds behind a bottleneck at the frontier. Athens filed a rare diplomatic protest with fellow EU member Austria for excluding Greek officials from a high-level meeting on measures aimed at curbing Europe’s biggest inward migration since World War Two.

[…]

Austria is due to host west Balkan states on Wednesday to discuss efforts to manage and curb the flow, but did not invite Greece. In unusually heated language that shows how the migration crisis has raised passions across Europe, Greek Foreign Minister Nikos Kotzias described the snub as a “unilateral and non-friendly act”.

“The exclusion of our country at this meeting is seen as a non-friendly act since it gives the impression that some, in our absence, are expediting decisions which directly concern us.”

[…]

Austria, the last country on the overland route to Germany, said last week it had imposed a daily limit of 3,200 migrants passing through, and 80 asylum claims.

…click on the above link to read the rest of the article…

‘OK, big brother’: Turkish military cooperate with ISIS on border, telephone calls reveal

February 23, 2016

‘OK, big brother’: Turkish military cooperate with ISIS on border, telephone calls reveal

Further proof of ties between the Turkish military and Islamic State fighters operating on the Syrian-Turkish border has been revealed in the Cumhuriyet newspaper, which published more transcripts of telephone calls between the jihadists and officers.

The documents are said to come from an ongoing court case on Islamic State at the Ankara 3rd High Criminal Court. The investigation was reportedly prompted after six Turkish citizens reported to police that their relatives had joined the terrorists. At least 19 people came under surveillance as a result and prosecutors then charged 27 individuals. The daily published the first batch in December.

The new transcripts published by the daily Monday are said to be conversations between Turkish officers and Mustafa Demir, a member of Islamic State (IS, formerly ISIL/ISIS) who is a leading figure on the Syrian-Turkish border.

“The transcripts and the documents in the investigation revealed that Demir received money… from smugglers at the border and cooperated with the officers as far as [border] crossings are concerned,”Cumhuriyet said.

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‘Don’t let people die’: Turkish TV show accused of ‘terrorist propaganda’, investigated http://on.rt.com/71md

5:35 PM – 12 Jan 2016

In the first transcript, translated into English by Today’s Zaman, Demir is talking to a Turkish military officer.

– […] where are you, big brother? At the place where I told you to be?

– Yeah. We also saw you, your men…

– Is it possible for you to arrange that I talk with the commander here, regarding the business here? What if we could establish a contact here as we helped you…

– Okay […] I’ll pass this now. I have two military posts there. If the worst comes to the worst, I’ll tell that to the commander of the station and have him take a look…

…click on the above link to read the rest of the article…

One Third Of Energy Companies Could Go Bankrupt Deloitte Warns As Credit Risk Hits Record High

February 16, 2016

One Third Of Energy Companies Could Go Bankrupt Deloitte Warns As Credit Risk Hits Record High

At 1600bps, the extra yield investors are demanding to take on US energy credit risk has never been higher. However, if a new report from Deloitte proves true, this is far from enough as they forecast roughly a third of oil producers are at high risk of slipping into bankruptcy this year as low commodity prices crimp their access to cash and ability to cut debt.

Record high US Energy credit risk…

The report, as Reuters reports, based on a review of more than 500 publicly traded oil and natural gas exploration and production companies across the globe, highlights the deep unease permeating the energy sector as crude prices sit near their lowest levels in more than a decade, eroding margins, forcing budget cuts and thousands of layoffs.

The roughly 175 companies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash, Deloitte said in the report, released Tuesday.

“These companies have kicked the can down the road as long as they can and now they’re in danger of kicking the bucket,” said William Snyder, head of corporate restructuring at Deloitte, in an interview. “It’s all about liquidity.”

Some oil producers are also choosing to liquidate hedges for a quick infusion of cash, a risky bet.

“2016 is the year of hard decisions, where it will all come to a head,” John England, vice chairman of Deloitte, said in an interview.

For now, however, there is a corner of the market that offers perhaps a smidge of saefty…

…click on the above link to read the rest of the article…

Road To World War III: Turkish Army Enters Syria After Second Day Of Shelling As Saudi Warplanes Arrive

February 14, 2016

Road To World War III: Turkish Army Enters Syria After Second Day Of Shelling As Saudi Warplanes Arrive

Update: Reports indicate the Turkish army has crossed the border into Syria.

Новости ДОЖДЯ @tvrain_live

Дамаск заявил овхождении турецких военных в Сирию http://tvrain.ru/news/damask-403651/ …

10:56 AM – 14 Feb 2016

Дамаск заявил о вхождении турецких военных в Сирию

12 пикапов, оборудованных пулеметами, пересекли сирийско-турецкую границу и оказались на территории Сирии. Об этом в воскресенье, 14 февраля, сообщает сирийское агентство SANA со ссылкой на сирийское…

tvrain.ru

“The Syrian government says Turkish forces were believed to be among 100 gunmen it said entered Syria on Saturday accompanied by 12 pick-up trucks mounted with heavy machine guns, in an ongoing supply operation to insurgents fighting Damascus,” Reuters reports. “The operation of supplying ammunition and weapons is continuing via the Bab al-Salama crossing to the Syrian area of Azaz,” the Assad government says.

Meanwhile, since all that would take to unleash a full-blown war is for some Russian to be unexpectedly blown up, events like this do not inspire much confidence in the Syrian “ceasefire”:

Michael Horowitz @michaelh992

#Breaking Several mortars reportedly impacted the vicinity of the Russian embassy in Damascus #Syria

10:52 AM – 14 Feb 2016

On Saturday, the geopolitical world was shocked when Turkey began shelling Aleppo, where the Syrian opposition has its back against the wall in the face of an aggressive advance by Hezbollah and the IRGC supported, of course, by Russian airstrikes.

To be sure, everyone knew Ankara and Riyadh would have to do something quick if they wanted to preserve the rebellion. Their proxies are being rolled up rapidly by Hassan Nasrallah’s army and Vladimir Putin’s air force juggernaut. But few expected the escalation would come so quickly.

But Recep Tayyip Erdogan is unpredictable (just ask the lone surviving pilot of the Su-24 Turkey shot down in November) and this weekend, he decided that there’s no time like the present when it comes to starting World War III.

…click on the above link to read the rest of the article…

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