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It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.

“Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.

graph of difference in inventory levels as of January 22, 2016 to previous 5-year average, as explained in the article text

Finally, we went on to present two alarm bells that offer the best evidence yet that inventories are reaching nosebleed levels: 1) some counterparties are experiencing delays in delivering crude due to unspecified “terminalling and pump” issues (basically, it’s hard to move barrels around at this point because there’s so much oil sitting in storage); 2) the cash roll is negative.

On Wednesday, BP CEO Robert Dudley – who earlier this month reported the worst annual loss in company history – is out warning that storage tanks will be completely full by the end of H1. “We are very bearish for the first half of the year,” Dudley said at the IP Week conference in London Wednesday. “In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in,” he added. “The market will start balancing in the second half of this year.”

Maybe. Or maybe excess supply will simply be dumped on the market once all the “swimming pools” are full.

If that happens, don’t be surprised to see crude crash into the teens as attempts to clear and dump excess inventory spread like wildfire across the market.

Earlier this week, the IEA called any respite for crude prices “a false dawn.” Here’s why (via The Guardian):

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

Deutsche Bank Is Scared: “What Needs To Be Done” In Its Own Words

February 9, 2016

Deutsche Bank Is Scared: “What Needs To Be Done” In Its Own Words

It all started in mid/late 2014, when the first whispers of a Fed rate hike emerged, which in turn led to relentless increase in the value of the US dollar and the plunge in the price of oil and all commodities, unleashing the worst commodity bear market in history.

The immediate implication of these two concurrent events was missed by most, although we wrote about it and previewed the implications in November of that year in “How The Petrodollar Quietly Died, And Nobody Noticed.”

The conclusion was simple: Fed tightening and the resulting plunge in commodity prices, would lead (as it did) to the collapse of the great petrodollar cycle which had worked efficiently for 18 years and which led to petrodollar nations serving as a source of demand for $10 trillion in US assets, and when finished, would result in the Quantitative Tightening which has offset all central bank attempts to inject liquidity in the markets, a tightening which has since been unleashed by not only most emerging markets and petro-exporters but most notably China, and whose impact has been to not only pressure stocks lower but bring economic growth across the entire world to a grinding halt.

The second, and just as important development, was observed in early 2015: 11 months ago we wrote that “The Global Dollar Funding Shortage Is Back With A Vengeance And “This Time It’s Different” and followed up on it later in the year in “Global Dollar Funding Shortage Intensifies To Worst Level Since 2012” a problem which has manifested itself most notably in Africa where as we wrote recently, virtually every petroleum exporting nation has run out of actual physical dollars.

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

North Dakota’s Economy Has Been “Completely Devastated” By Oil’s Collapse

February 5, 2016

North Dakota’s Economy Has Been “Completely Devastated” By Oil’s Collapse

Yesterday, on the way to documenting the malaise China’s hard landing has inflicted on Minnesota’s mining country, we discussed the dramatic impact falling crude prices have had on the American and Canadian oil patches.

Take Texas, for instance, where a year of crude carnage has wreaked havoc upon what, until last year anyway, was the engine driving the “robust” US labor market. As we showed in November, layoffs in Lone Star land far outrun job losses in any other state. In Houston (which was already staring down a worsening pension crisis), vacant office space is “piling up.” As WSJ wrote last week, “the amount of sublease space on the market in the Houston area hit 7.6 million square feet, or the size of more than two Empire State Buildings.”

“The unemployment rate in Texas rose sharply to 9.2% in 1986, an all-time high for the state,” Goldman wrote recently, recalling a previous period of low oil prices in a note entitled “How Bad Can Texas Get?”

“Real house prices fell 30% peak to trough, and the number of bankruptcy filings (including both business and non-business filings) more than doubled from 1984 to 1986,” the bank added.

North of the border, things are even worse. As regular readers are no doubt aware, Alberta is a veritable nightmare as suicide rates rise, the number of jobless multiplies, food bank usage soars, and property crime in Calgary spikes.

“Lower for longer” has been a disaster for many state and local governments in the US, as revenue projections devised before oil’s historic plunge prove increasingly optimistic.

Take Louisiana for example, where Lt. Gov. Jay Dardenne recently announced that the state is facing a $750 million deficit.

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

Vancouver Real Estate Goes Full-Retard; Average Home Price Now $1.8 Million

February 3, 2016

Vancouver Real Estate Goes Full-Retard; Average Home Price Now $1.8 Million

Last week we identified a “bargain” in Canadian real estate.

As you might recall, the Canadian economy is in a bit of a tailspin, and that goes double for the country’s dying oil patch. Indeed, we’ve documented Alberta’s painful experience with slumping crude exhaustively, noting that the steep decline in oil prices has triggered job losses (which hit their highest level in 34 years in 2015), depression, suicides, soaring food bank usage, and a marked uptick in property crime.

Through it all, parts of the real estate market in Canada remain red hot. In stark contrast to the millions of square feet of office space sitting vacant in beleaguered Calgary, Toronto and Vancouver are on fire.

Housing sales in the Toronto area rose 8.2% last month from a year earlier. The average selling price: $631,092.

In Vancouver, the numbers are simply astonishing. Residential property sales in Greater Vancouver rose 31.7% in January. That’s 46% above the 10-year sales average for the first month of the year and the second highest January ever, the Greater Vancouver Real Estate Board notes. The benchmark price for a detached home in Vancouver: $1,293,700. The benchmark price for an apartment: $456,600.

But it gets still crazier. The “benchmark” price represents what the Real Estate Board says a “typical” home would go for on the market. If we simply take the arithmetic mean (i.e. the average), the numbers are even more astounding. As CTV news reports, the average selling price of detached homes was much higher last month – at an astronomical $1.82 million.

“Home buyer demand is at near record heights and home seller supply is as low as we’ve seen in many years,” REBGV President Darcy McLeod said.

So a seller’s market. Got it.

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

Global Trade Collapsed In January: Bellwether South Korea Exports Crash “Most Since Lehman”

January 31, 2016

Global Trade Collapsed In January: Bellwether South Korea Exports Crash “Most Since Lehman”

As the first major exporting nation to report each month, all eyes and hopeful speculative capital was glued to tonight’s South Korean trade data. After a brief respite in November, December’s drop was worrisome, but January’s just reported 18.5% crash – the most since the financial crisis – has only been seen during a US economic recession. Worse still, South Korean imports plunged over 20% in January as it appears crashing crude and cliff-diving freight indices are less about supply and more about demand (there is none) after all.

Annother red flag in the US recession looming camp…

Furthermore, with China accounting for around one quarter of South Korean exports – and following a 16.5% YoY plunge in December – tonight’s headline data suggests January was a total disaster for the Chinese economy also… though later we will get the PMI data to explain everything.

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

January 31, 2016

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

Having urged “don’t panic” just 4 short months ago, it appears Nigeria just did just that as the global dollar short squeeze forces the eight-month-old government of President Muhammadu Buhari to beg The World Bank and African Development Bank for $3.5bn in emergency loans to help fund a $15bn deficit in a budget heavy on public spending amid collapsing oil revenues. Just as we warned in December, the dollar shortage has arrived, perhaps now is time to panic after all.

In September, Nigerian central bank Governor Godwin Emefiele ruled out a naira devaluation on Thursday and told people not to panic about a government order which risks draining billions of dollars from the financial system.

In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from commercial banks into a “Treasury Single Account” (TSA) at the central bank.

The policy is part of new President Muhammadu Buhari’s drive to fight corruption, but analysts say it could suck up as much as 10 percent of banking sector deposits in Africa’s biggest economy – playing havoc with banks’ liquidity ratios.

With global oil prices tumbling, banks and companies are already struggling with the consequences of a dive in Nigeria’s energy revenues that has hit the naira currency and triggered flows of capital out of the country.

Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves.

Since taking office in May, Buhari has vowed to rein in Nigeria’s dependency on oil exports which account for 90 percent of foreign currency earnings.

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

Alberta Loses Most Jobs In 34 Years As Oil Crunch Cripples Labor Market

January 27, 2016

Alberta Loses Most Jobs In 34 Years As Oil Crunch Cripples Labor Market

Times are tough in Alberta and to be sure, we’ve piled it on heavy when it comes to cataloguing the long list of pitiable outcomes that have accompanied crude’s steep slide.

The province is at the center of Canada’s dying oil patch and as crude extended its seemingly endless decline last year, Alberta saw oil and gas investment plunge by a third. That’s bad news for authorities who count on resources for 30% of provincial revenues.

Rig activity fell by half in the first seven months of 2015 and as the job losses mounted, the sorrow deepened – literally. Suicide rates jumped by 30% and in Calgary commercial break-ins almost doubled from a year earlier, while bank robberies were up 65% and home invasions increased 52% (read more here).

Meanwhile, food bank usage spiked as those who used to be donors found themselves depending on the free meals for subsistence.

And speaking of food, prices for fresh fruit and vegetables are seeing double-digit inflation thanks to the plunging loonie.

All in all, a very bad situation indeed and on Tuesday we learned that the picture was actually materially worse than an initial round of statistics led us to believe.

“Statscan’s annual revisions of its national Labour Force Survey data ratcheted up Alberta’s net job losses last year to 19,600, from the 14,600 the statistical agency originally reported in its final 2015 survey released in early January,” The Globe And Mail reports, adding that the losses “exceed the 17,000 jobs Alberta shed in the Great Recession in 2009.”

In fact, 2015 was the worst year for job losses in the province since 1982.

By the end of last year, Alberta’s unemployment rate had risen to 7.1% from just 4.8% at the end of 2014. As The Globe And Mail goes on to note, that’s the highest level in two decades. And it’s projected to get worse. Alberta could see unemployment rise to 7.5% in H1.

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

Oil Crash Only The Tip Of The Iceberg

January 25, 2016

Oil Crash Only The Tip Of The Iceberg

At this point, it’s not likely a question of ‘if’, or even ‘when’, the next financial crisis will hit. It’s more likely just a question of how big it will be.

In the early ‘80s, OPEC members—Saudi Arabia aside—were producing oil above the agreed upon caps. By 1986, Saudi Arabia, frustrated with all the cheating, gave up on limiting its own production. It flooded the oil market and sparked a 55% freefall in prices. Not so long after, the stock market plummeted 22.6% in a single day—the single biggest loss in the market’s history.

And then there was the 2008 housing crash, which came after a pattern of reckless lending and inflated housing prices. Housing prices collapsed, leaving the banks holding unrecoverable debts. Gradually, the crisis expanded into The Great Recession. Again, oil played a role here, having dropped more than $40 per barrel in less than six months in early 2008.

The common denominator here has always been falling oil prices.

And so here we are again—on the brink of another disaster in the wake of plummeting oil prices, rampant OPEC production, and skittish investors.

The Dallas Fed estimates that the actual cost of the 2008 recession was somewhere near $14 trillion. Ominously, today’s oil prices are well below the 2008/2009 lows, now down more than 75% from their highs just 18 months back.

In January 2015, Goldman Sachs said that at $70/bbl, around $2 trillion of future investments all over the world were at risk. Today’s prices are hovering between $28 and $30 per barrel.

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

Weekly Commentary: Draghi Ready to Fight

January 24, 2016

Weekly Commentary: Draghi Ready to Fight

A few Friday Bloomberg headlines: “Asian Stocks Jump by Most in Four Months on Stimulus Speculation;” “Japanese Stocks Surge by Most in Four Months as Bears Retreat;” “Hong Kong Dollar Jumps Most in 12 Years as Global Stocks Rally.” It was quite a week.

Back in early December I posited that Mario Draghi had evolved into the world’s most powerful central banker. I also stated my view that his inability to orchestrate a larger ECB QE program was likely an inflection point in the markets’ confidence in Draghi and central banking more generally. Mario’s not going down without a fight.

Global markets were too close to dislocating this week. Wednesday saw the S&P500 trade decisively below August lows. Japan’s Nikkei 225 Index sank to test November 2014 lows. Emerging stocks fell to six-year lows, with European equities at 13-month lows. Wednesday also saw WTI crude trade below $27 (sinking almost 7%), boosting y-t-d losses to 25%. Credit spreads were blowing out, and currency markets were increasingly disorderly. Early Thursday trading saw the Russian ruble down 5.3% (at a record low vs. dollar), with Brazil’s real also under intense pressure. The Hong Kong dollar peg was looking vulnerable. The VIX traded to the highest level since the August “flash crash,” while the Japanese yen traded to one-year highs (vs. $). De-risking/de-leveraging dynamics were quickly overwhelming global markets.

The Italian banking sector sank 7% Wednesday, pushing y-t-d losses above 20% (down 32% from 2015 highs). Fears of mounting bad loans and undercapitalization have been weighing on Italian and European bank shares and bonds. This week also saw a notable widening of sovereign spreads to bunds. Despite a post-Draghi narrowing of risk premiums, Italian spreads to bunds widened another seven bps this week, with Portuguese spreads blowing out 35 bps. A fragile European financial sector was rapidly succumbing to a deepening global financial crisis.

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

A Closer Look at OPEC

January 24, 2016

A Closer Look at OPEC

Taking a closer look at OPEC. All OPEC and price data below is through December. All production data is in thousand barrels per day.

Iran and Libya have had serious political disruptions in their production numbers. Simply adding them to the OPEC numbers distorts the picture. To try to figure out what has been happening to OPEC we need to look at OPEC without Iran and Libya.

OPEC Less Iran and Libya

Here is OPEC less Iran and Libya, or the OPEC 10 if you will. I have marked August 2012 as what I call the “Price Peak”. Not the peak in oil prices but the production peak that was brought about by the increase in the price of oil. That price increase began in early 2009 and by March 2011 was well above $100 a barrel. And the price of oil did not drop below $100 a barrel until late August 2014.

OPEC 10

Here are is the production change from August 2012 to December 2015. As you can see the lions share of increase came from Iraq with a little help from Saudi Arabia and the UAE.

OPEC 9

Removing Iraq from the mix and the remaining 9 OPEC nations were actually down during that period. Except for Iraq, OPEC production from August 2012 until the present, is actually down in spite of the price of oil being in excess of $100. And that is not even counting the huge decline from Libya during this period. The Iranian decline was prior to this period.

The price data in the chart below is from the Mundi Index and is the average of three spot prices; Dated Brent, West Texas Intermediate, and the Dubai Fateh, US Dollars per Barrel.

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

Risk Premium Returns To Oil Markets As Geopolitical Tensions Rise

January 24, 2016

Risk Premium Returns To Oil Markets As Geopolitical Tensions Rise

“The risk of an attack is greater than 50pc, which means it is more likely than not,” president of consultancy ESAI Sarah Emerson said on the sidelines of the Argus Americas Crude Summit.

Oil prices recently plunged to 13-year lows, to sub-$30/bbl, amid expectations a market oversupply will worsen as major supplier Iran ramps up exports following a lifting of sanctions, while the demand outlook remains weak as consumption in key market China slows. The supply-demand mismatch has kept investor attention away from the geopolitical unrest in the Middle East and the worsening economic and social crisis in producers such as Venezuela.

“Everybody has so far been focused on the oversupply,” chief commodity strategist at RBC Capital Markets Helima Croft said, explaining the lack of a risk premium in the market right now. The high level of global oil inventories is giving the market confidence that any disruption in supplies will be quickly filled in, she said.

The latest escalation in the row between OPEC members Saudi Arabia and Iran came earlier this month after Riyadh severed its diplomatic relations with Tehran in response to the storming of its embassy by Iranian protesters angry at the execution of Saudi Shiite cleric Nimr al-Nimr.

Members of the Iranian diplomatic mission to Riyadh have been asked to leave Saudi Arabia within 48 hours, Saudi foreign minister Adel Jubeir said yesterday. Jubeir said the attack on the Saudi embassy in Tehran was similar to attacks against the British embassy several years earlier, as well as on the U.S. embassy in 1979.

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

Attention Finally Turns To Saudi Arabia’s “Secret” US Treasury Holdings

January 22, 2016

Attention Finally Turns To Saudi Arabia’s “Secret” US Treasury Holdings

In November of 2014, we announced the quiet death of the petrodollar.

The system which underwrote decades of dollar dominance and kept a perpetual bid under USD assets met an untimely demise when the Saudis moved to bankrupt the US shale complex by deliberately suppressing oil prices.

The implications, we said, would be far-reaching.

For years, oil producing nations plowed their USD crude proceeds into USTs and other dollar assets in a virtuous loop both for the currency and for the nation that printed it. The “Great Accumulation” (as Deutsche Bank calls it) of USD FX reserves ended for good in early 2015 but no one noticed until China began to liquidate mountains of US paper in an attempt to manage a runaway devaluation effort.

By the start of September, all anyone wanted to talk about was the depletion of EM FX war chests as the world suddenly came to understand that the selling of FX reserves amounts to QE in reverse and might therefore serve to tighten global monetary conditions, drive up yields on core paper, and sap liquidity as traditional net exporters of capital suddenly stopped buying amid slumping commodity prices and the yuan fiasco. Some wondered if the reserve drawdowns would cause the Fed to delay liftoff as the FOMC would effectively be tightening into a tightening.

Against this backdrop we said that the most important chart in the world may well be one that depicts the combined FX reserves of Saudi Arabia and China.

Now that Saudi Arabia’s oil price gambit has backfired on the way to blowing a hole in the kingdom’s budget that amounted to 16% of GDP last year, the market is speculating that Riyadh’s vast SAMA reserves could disappear altogether – especially considering the added cost of funding the war in Yemen and maintaining the riyal peg.

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

Maduro “Wake Up” Call For OPEC As Venezuela Crude Crashes To 13 Year Lows

January 22, 2016

Maduro “Wake Up” Call For OPEC As Venezuela Crude Crashes To 13 Year Lows

Venezuela’s crude oil basket price collapsed to as low as $20.20 yesterday, according to the socialist utopia’s President Maduro. Having already “passed the point of no return,” Maduro rages that OPEC producers appear to be “finally waking up” to what they have unleashed noting that, according to him, Russia’s Putin has agreed to “work on oil price issues.”

More jawboning and hope…

*VENEZUELA’S MADURO SAYS HE SPOKE W/RUSSIA’S PUTIN ON OIL
*RUSSIA’S PUTIN AGREED TO WORK ON OIL PRICE ISSUES: MADURO
*SOME OPEC PRODUCERS ‘WAKING UP’ TO OIL SITUATION: MADURO
*VENEZUELA OIL PRICE REACHED $20.20/BBL YESTERDAY, MADURO SAYS
*VENEZUELA SHOULD REPLACE OIL AS MAIN FX INCOME SOURCE: MADURO
*VENEZUELA’S MADURO SAYS HE HOPES OIL MARKET RECOVERS

“Some OPEC countries that flooded the oil market are now waking up,” President Nicolas Maduro said on state television.

Flooding oil market was “suicidal policy” by some oil producers: Maduro

Maduro said he spoke with Russia President Vladimir Putin on oil prices – “We agreed to continue working on a common vision, a common plan”

Hope is not a strategy…

As we concluded previously, what all this translates to is simple: first default, then revolution.

Which is good news for those who buy CDS. Our only hope for those who have held so far is that the counterparty you will have to novate with will still be around once the sparks fly, because once this first OPEC member goes bankrupt, things will start moving very fast.

Finally, for all those who are praying for an oil bounce, your day may be near, because nothing will send the price of crude soaring quite as fast as one entire OPEC nation suddenly entering a death spiral of chaos.

The Birth Of The PetroYuan (In 2 Pictures)

January 21, 2016

The Birth Of The PetroYuan (In 2 Pictures)

Give me that!!

It belongs to the Chinese now!

h/t @FedPorn

As we previously detailed, two topics we’ve deemed critically important to a thorough understanding of both global finance and the shifting geopolitical landscape are the death of the petrodollar and the idea of yuan hegemony.

In November 2014, in “How The Petrodollar Quietly Died And No One Noticed,” we said the following about the slow motion demise of the system that has served to perpetuate decades of dollar dominance:

Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company – the end of the system that according to many has framed and facilitated the US Dollar’s reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop.

The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, “developed world” status quo spearheaded by the IMF, global trade would increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And sure enough, this has certainly been taking place, as first Russia and China, together with Iran, and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead engaging in bilateral trade arrangements.

Falling crude prices served to accelerate the petrodollar’s demise and in 2014, OPEC nations drained liquidityfrom financial markets for the first time in nearly two decades:

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

Canada’s “Other” Problem: Record High Household Debt

January 20, 2016

Canada’s “Other” Problem: Record High Household Debt

Earlier today, the Bank of Canada surprised some market participants by failing to cut rates.

True, the loonie was plunging and another rate cut might very well have accelerated the decline, further eroding the purchasing power of Canadians who are already struggling to keep up with the inexorable rise in food prices, but there are other, more pressing concerns.

Like the fact that some analysts say the CAD should shoulder even more of the burden as Canada struggles to adjust to a world of sub-$30 crude. In short, if Stephen Poloz could manage to drive the loonie lower, the CAD-denominated price of WCS might stand a chance of remaining above the marginal cost of production. Barring that, the shut-ins will start and that means even more job losses in Canada’s oil patch, which shed some 100,000 total positions in 2015.

Alas, Poloz elected to stay put, characterizing the current state of monetary policy as “appropriate.”

We’re reasonably sure that assessment won’t hold once the layoffs pick up and as we noted earlier, the longer Poloz waits, the larger the next cut will ultimately have to be, which means that if the BOC waits too long, Poloz may have to rethink his contention that the effective lower bound is -0.50%.

While there are a laundry list of concerns when it comes to assessing the state of the Canadian economy and the impact of either higher rates (the loonie is supported but growth is further choked off) or lower rates (the economy gets a boost but consumer spending is stifled as Canadians watch their purchasing power evaporate), perhaps the most important thing to remember is that Canada is now the most leveraged country in the G7.

According to a new report from the Parliamentary Budget Officer (PBO) the household debt-to-income ratio is now a whopping 171% which means, for anyone who is confused, “that for every $100 in disposable income, households had debt obligations of $171.”

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

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