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Canadian Stocks in Bear Market, Loonie Swoons, Crude Crashes to $16, Consumer & Business Confidence Dives…

January 13, 2016

Canadian Stocks in Bear Market, Loonie Swoons, Crude Crashes to $16, Consumer & Business Confidence Dives…

“Investment and hiring intentions lowest since 2009”: Bank of Canada

Since Christmas Eve, the Toronto Stock Exchange index has dropped every single day, 10 trading days in a row, including so far today as I’m writing this, the longest losing streak since 2002. Now at 12,210, it’s down 21% from its 52-week high, set on April 17, and thus in bear market purgatory.

Beaten down energy producers, at about 20% of the index, have had a big impact. But the problems are broader. Among the standouts is the must-own, super-growth, TSX mega-cap Valeant, whose shares have plunged 65% from their 52-week high.

The Canadian dollar just dropped below US$0.70 for the first time since spring 2003, to US$0.6996. It now takes C$1.43 to buy a US dollar, up from about parity in 2011, 2012, and much of 2013. That year, Stephen Poloz became governor of the Bank of Canada. His solution was to demolish the currency. So he took it down 28% against the US dollar, with a big supporting hand from the collapsing prices of the commodities that Canada exports. Oil joined them in mid-2014.

The US benchmark WTI is trading just above $30 a barrel. Pundits at major investment banks have their eyes set on $20. Doom-and-gloomers see $10.

Canadian producers aren’t so lucky. Alberta’s heavy crude blend, Western Canada Select, plunged 30% so far this year, and on Monday hit US$16.51 a barrel, according to PSAC. “Lowest close on record,” according to the Globe and Mail.

Canadian producers are already experiencing what doom-and-gloomers are predicting for WTI. The swoon of the Canadian dollar is in part a reflection of this. Poloz is patting himself on the back. He sees benefits for big exporters outside the resource sector, such as auto manufacturing plants and component suppliers to the US auto industry that compete with Mexico.

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

WTI Slides After API Reports Massive Build In Gasoline & Distillate Inventories

January 12, 2016

WTI Slides After API Reports Massive Build In Gasoline & Distillate Inventories

With the seasonally drawdown-prone December completed, we begin seasonally build-prone January with expectations for a 2mm barrel build. However, according to API, both total and Cushing inventory levels tumbled (-3.9mm and 300k respectively). Great news – so why is crude tumbling? Simple – massive builds in end-products again with Gasoline up a massive 7mm barrels and Distillates up 3.6mm barrels. Having ramped off sub-$30 levels aftwr NYMEX closed, and lifted by the Iran-US news, WTI is sliding back rapidly.

December saw a very flat inventory overall (despite being a seasonally extreme period for drawdowns into year-end tax planning)…

Judging from history, as Bloomberg notes, it should resume as soon as the festive season is over: Stocks have built by 3.2 million barrels on average in January since 1921.

Chart Of The Day: Canadian Heavy Crude Falls To $19.81—–Down From $100 In 2011

January 8, 2016

Chart Of The Day: Canadian Heavy Crude Falls To $19.81—–Down From $100 In 2011

For Commodities, This Is The Next Great Depression

January 7, 2016

For Commodities, This Is The Next Great Depression

While the “sell in 1973, and go away” plan had worked out for some in the commodity space, the destruction of the last decade has only one historical comparison… the middle of The Great Depression.

The 10-year rolling annualized return for commodities is -5.1% – the lowest since 1938…

During the same period Stocks are up 7.3% annualized, Bonds 6.6%, and Cash unchanged. Dip-buying opportunity? Maybe.

UBS thinks so: Tactically we can see a bounce in Q1 before the capitulation starts

Tactically, in September 2015, we actually expected a more significant oversold bounce in commodities from last year’s late September risk bottom into ideally early Q2 2016 before we anticipated more weakness into later 2016. So far, the bounce failed since particularly in the energy complex we saw further weakness into December and the metals have been actually just trading sideways. Nonetheless, according to our Q1 US dollar pullback call, we still see the chance for another rebound attempt in commodities into later Q1, and if so the move can be significant (short covering). Such a rebound would however not change our underlying cyclical roadmap for commodities, and this means that any rebound in Q1 should be limited in price and time before we expect another and potential final capitulation wave to start into H2 2016, where we expect the CCI index to minimum test its 2008 low at 350 to worst case 320.

Commodities… on the way into a multi-year buying opportunity

All in all we are sticking to our last year’s projection and strategy call that commodities are on the way into an important H2 2016/early2017 cyclical bottom. What is missing in our view is the final act in this first bear market.

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

Saudi Devaluation Odds Highest In 20 Years, Kingdom Now More Likely To Default Than Portugal

January 7, 2016

Saudi Devaluation Odds Highest In 20 Years, Kingdom Now More Likely To Default Than Portugal

On Monday, we brought you “Saudi Default, Devaluation Odds Spike As Mid-East Careens Into Chaos,” in which we outlined the jump in riyal forwards and widening of CDS spreads that Riyadh witnessed in the aftermath of the kingdom’s move to cut diplomatic ties with Iran.

In short: the market is getting worried that Riyadh is about to careen into crisis. In the face of slumping crude, the Saudis are staring down double digit budget deficits and the prospect of having to once again tap debt markets in order to offset the SAMA burn and keep the kingdom from having to implement further subsidy cuts.

The open hostilities with Iran all but guarantee the war in Yemen will escalate (just today for instance, Tehran accused the Saudis of bombing the Iranian embassy in Sana’a) and that entails a further drain on the kingdom’s finances as the monarchy will be forced to fund a prolonged and intractable struggle with the Houthis.

Additionally, the more tension there is between Riyadh and Tehran, the more fractious OPEC will become and with Iranian supply set to rise in the new year as international sanctions are lifted, this may well be one Mid-East conflict that drives oil prices lower rather than higher – especially if the SAR peg falls.

On Thursday, in the wake of a veritable meltdown in markets across the globe, riyal forwards hit their highest level in almost two decades as oil plummeted. As Bloomberg notes, “twelve-month forward contracts for the riyal climbed 260 points to 950 as of 3:49 p.m. in Riyadh, set for the steepest close since December 1996 [reflecting] growing speculation the world’s biggest oil exporter may allow its currency to slide against the dollar for the first time since 1986.”

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

WTI Crude Plunges To $34 Handle After Record Gasoline Inventory Build

January 6, 2016

WTI Crude Plunges To $34 Handle After Record Gasoline Inventory Build

Following last night’s API-reported large draw in overall crude inventories (year-end and exports driven), DOE reports a 5.09mm draw (more than expectations of a 4.1mm draw but less than API’s 5.6mm draw). However, Cushing inventories rose for the 9th week in a row (+917k) and more troubling for the future is gasoline inventories soared 10.58mm barrels – an all-time record (and distillates rose 6.31mm barrels). Crude prices already gave up their API gains and are tumbling back below $35 on this build news.

DOE conmfirms API’s reported large draw but Cushing continues to build for the 9th week in a row…

But…

*GASOLINE INVENTORIES ROSE 4.78%, EIA SAYS
*DISTILLATE INVENTORIES ROSE 4.12%, EIA SAYS

A record build in gasoline stocks!!

The build in distillates means that primary product may be gettiung shipped away but there is no demand. So exporting oil from US helps with overall inventory decline, but massive build of gas, distillate shows clear production surplus

And even more worrisome, Domestic Supply in lower 48 up 20,000 boe/d and HIGHER than a year ago.

Crude jumped on the API news but gave it all up as growth fears rose overnight…

As we continue to remind traders – December ALWAYS see notably drawdowns as firms lighten up inventories on their balance sheet ahead of year-end to reduce tax burdens…

And judging from history, as Bloomberg notes, it should resume as soon as the festive season is over: Stocks have built by 3.2 million barrels on average in January since 1921.

Charts: Bloomberg

It’s On: Saudis Sever Diplomatic Ties With Iran, Will Confront Iranian “Hostility”

January 3, 2016

It’s On: Saudis Sever Diplomatic Ties With Iran, Will Confront Iranian “Hostility”

Earlier today, as Iranian police struggled to disperse protesters gathered outside the Saudi consulate in Mashhad, we said the following about the rapidly deteriorating situation:

If crude needed an excuse to rally, then surely this is it as it now appears that in addition to the fact that Riyadh and Tehran are squaring off in Syria (where Iran is present and the Saudis fight by proxy) and Yemen (where the Saudis are present and the Iranians fight by proxy), the two countries are on the verge of a historic diplomatic crisis which has the potential to stoke sectarian violence across the Muslim world.

Well sure enough, just hours later, Saudi Foreign Minister Adel Al-Ahmad Al-Jubeir announced that Riyadh has cut diplomatic ties with Tehran. The Saudis have demanded the Iran mission leave the country within 48 hours. Riyadh also claims Iran did not attempt to stop protesters from storming the consulate. Here’s are the bullet points:

SAUDI TO FIGHT TERRORISM IN ALL OF ITS FORMS: AL-JUBEIR
IRAN HAS SPREAD CHAOS, SECTARIANISM IN REGION, MINISTER SAYS
AL-JUBEIR COMMENTS BROADCAST ON AL-EKHBARIYA SAUDI STATE TV
ALL OPTIONS ON TABLE TO PROTECT SAUDIS, FOREIGN MINISTER SAYS
IRAQ PROMISED TO PROTECT SAUDI DIPLOMATIC MISSIONS: AL-JUBEIR
SAUDI ARABIA DETERMINED NOT TO ALLOW IRAN TO UNDERMINE SAUDI SECURITY-FOREIGN MINISTER

For those who might have missed it, the situation began to unravel on Saturday after Riyadh said it had executed prominent Shiite cleric Nimr al-Nimr along with 46 other prisoners. Protesters poured into the streets from Bahrain to Pakistan and before the night was done, the Saudi embassy in Tehran was in flames.

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

Oil Spike Risk: Iran Police Use Water Cannon On Angry Protesters Near Saudi Consulate

January 3, 2016

Oil Spike Risk: Iran Police Use Water Cannon On Angry Protesters Near Saudi Consulate

Despite official pleas for “calm” following the death of prominent Shiite cleric Nimr al-Nimr, Iranians are in no mood to stand down.

Perhaps the Ayatollah’s calls for “divine vengeance” have incited a riot or perhaps the Shiite world has simply had enough of the House of Saud, but whatever the case, crowds once again gathered outside the Saudi consulate in Mashhad on Sunday where riot police tried in vain to disperse the mob with water cannons just hours after angry protesters torched the Saudi embassy in Tehran.

Below, find images from the scene which underscore just how precarious the situation has become in the wake of Saturday’s executions in Saudi Arabia.

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

Stunning Drone Footage Of The Midwest Flooding Wreaking Havoc On US Oil

January 2, 2016

Stunning Drone Footage Of The Midwest Flooding Wreaking Havoc On US Oil

After the first deadly winter storm this season, now come the floods: the near-record water level across the U.S. Midwest has disrupted everything from oil to agriculture, forcing pipelines, terminals and grain elevators to close. This is the worst flood in the region since May 2011, when rising water on the Mississippi and its tributaries deluged cities, slowed barge traffic and threatened refinery and chemical operations and is just shy of the worst flood of breaking 30-year records.

According to Bloomberg, the floods have killed at least 20 people and shut hundreds of roads across Missouri and Illinois, according to AccuWeather Inc. Rain-swollen rivers will set records in the Mississippi River basin through much of January. Fifty miles (80 kilometers) of the Illinois River remain closed, according to the U.S. Coast Guard, as well as five miles of the Mississippi River.

Additionally, the Coast Guard issued a high-water safety advisory for 566 miles of Mississippi River between Caruthersville, Missouri, and Natchez, Mississippi. It also instituted high-water towing limitations near Morgan City, Louisiana, for vessels heading south that are 600 feet or shorter, it said in a statement.

And while water levels have started to recede in some areas, closures and restrictions remain in place for safety, said Jonathan Lally, a spokesman for the U.S. Coast Guard. “The high water is kind of moving in a big glob and it’s on its way down,” he said Friday in a telephone interview from New Orleans.

The impact of the flood has hit farmers, with hog producers in southern Illinois calling other farmers, hoping to find extra barn space to relocate pigs. Processors are sending additional trucks to retrieve market-ready pigs, she said. In one case, an overflowing creek took out electricity and made roads impassable, causing 2,000 pigs to drown.

But the flood’s most adverse economic impact may be on oil, which may see an even greater increase in stockpiles as a result, pushing the price of oil even lower.

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

Protesters Storm, Set Fire To Saudi Embassy In Iran

January 2, 2016

Protesters Storm, Set Fire To Saudi Embassy In Iran

Earlier today, Saudi Arabia announced it had staged its largest mass execution in 25 years.

43 al-Qaeda conspirators were killed along with 4 Shiites accused of shooting policemen in the anti-government protests which broke out during the Arab Spring. Among the Shiites killed: prominent cleric Nimr al-Nimr.

His death drew sharp criticism from Iran and Hezbollah with the latter calling the execution a “grave mistake.” Protests erupted in the Qatif district of Saudi Arabia’s Eastern Province as well as in Bahrain, where hundreds took to the streets, burning tires and braving tear gas fired by police. As we reported earlier today, protesters had also converged on the Saudi embassy in Iran.

Now, in what looks like a repeat of the Iran Hostage Crisis, the protesters in Tehran have reportedly broken into the Saudi embassy and set it ablaze with Molotov cocktails.

Sobhan Hassanvand

✔@Hassanvand

RIGHT NOW: Saudi embassy in Tehran on fire after stormed by protesters over exec execution of Shiite leader al-Nimr pic.twitter.com/k92bTkh5hb

Sobhan Hassanvand

✔@Hassanvand

Video shows pro

protesters inside Saudi embassy in Tehran

4:26 PM – 2 Jan 2016

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

Bank of Montreal Asks If “Oil Prices Could Collapse To $20”; Answers: “Yes”

December 27, 2015

Bank of Montreal Asks If “Oil Prices Could Collapse To $20”; Answers: “Yes”

When looking at the price of oil in 2015, Canada’s Bank of Montreal admits it was wrong. Very, very wrong.

In our “2015 Year Ahead” report we laid out three plausible scenarios: (1) our base case, which forecast Brent crude oil prices of $50-60/bbl over the first half of 2015 and $60-80/bbl over the second half of the year; (2) a bull case, which forecast a Brent trading range of $85-95; and a bear case, which suggested a Brent trading range of $50-60/bbl. The actual trading range in 2015 proved to be even more ‘bearish’ than our bear case, with Brent generally trading between $36 and $60/bbl. So what did we get wrong?

The answer: pretty much everything but mostly the fact that in the race to the production bottom (“we’ll make up for plunging prices with soaring volumes”) only dramatic outcomes, which shock the status quo, have any impact, to wit:

“we assumed that Iraq production would average 2.9 million bpd; actual production was roughly 1 million bpd higher. We also assumed that Saudi Arabia would be content to hold production at 9.2 million bpd whereas actual production was roughly 800,000 bpd higher. In our view, this incremental 1.8 million bpd of production was the principal reason that global oil inventories swelled by more than 340 million barrels to a record high of approximately 3.1 billion barrels and why crude oil prices have collapsed.”

Well, that, and the fact that the financial BTFD community finally threw in the towel on the most financialized commodity, and following two failed attempts at dead cat bounces, may have thrown in the towel. That said, just looking at speculative positions, oil may have a long way to drop still.

Which may also explain why, as noted last week, someone has made material directional (and/or hedge) bets via puts that oil will slide to $25, $20, even as low as $15.

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

Oil Bankruptcies Hit Highest Level Since Crisis And There’s “More To Come”, Fed Warns

December 25, 2015

Oil Bankruptcies Hit Highest Level Since Crisis And There’s “More To Come”, Fed Warns

“Two things become clear in an analysis of the financial health of US hydrocarbon production: 1) the sector is not at all homogenous, exhibiting a range of financial health; 2) some of the sector indeed looks exposed to distress [and] lifelines for distressed producers could include public equity markets, asset sales, private equity, or consolidation. If all else fails, Chapter 11 may be necessary.” That’s Citi’s assessment of America’s “shale revolution”, which the Saudis have been desperately trying to crush for more than a year now.

As Citi and others have noted – a year or so after we discussed the issue at length – uneconomic producers in the US are almost entirely dependent on capital markets for their continued survival. “The shale sector is now being financially stress-tested, exposing shale’s dirty secret: many shale producers depend on capital market injections to fund ongoing activity because they have thus far greatly outspent cash flow,” Citi wrote in September. Here’s a look at what the bank means:

Of course this all worked out fine in an environment characterized by relatively high crude prices and ultra accommodative monetary policy. The cost of capital was low and yield-starved investors were forgiving, allowing the US oil patch to keeping drilling and pumping long after it should have been bankrupt. Now, the proverbial chickens have come home to roost. In the wake of the Fed hike, HY is rolling over and as UBS noted over the summer, “the commodity related industries total 22.8% of the overall HY market index on a par-weighted basis; sectors most at-risk for defaults (defined as failure to pay, bankruptcy and distressed restructurings) total 18.2% of the index and include the oil/gas producer (10.6%), metals/mining (4.7%), and oil service/equipment (2.9%) industries.”

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

This Is Canada’s Depression: Surging Crime, Soaring Suicides, Overwhelmed Food Banks “And The Worst Is Yet To Come”

December 23, 2015

This Is Canada’s Depression: Surging Crime, Soaring Suicides, Overwhelmed Food Banks “And The Worst Is Yet To Come”

Back in March, we brought you “Drugs, Prostitution, Violence Plague Oil Boom Towns Gone Bust,” in which we detailed the plight of towns like Sidney and Bainville, Montana, where the slump in oil revenue has made it all but impossible for local authorities to cope with surging crime rates that some attribute to the influx of oil workers the communities experienced in the good old days of high crude prices.

The problem, apparently, was that despite the dramatic slump in oil, companies hadn’t yet begun to cut jobs or slash capex and so, officials were left with less money to put towards policing their growing populations.

As dangerous as it may be for small towns to experience exponential growth in what The Washington Post describedas “highly paid oil workers living in sprawling ‘man camps’ with limited spending opportunities,” what’s even more dangerous is the prospect that suddenly, the majority of those workers will be jobless. That is, if there’s anything that’s more conducive to raising the crime rate than legions of highly paid young men living in small towns with “limited spending opportunities,” it’s legions of formerly highly paid young men stuck in small towns with limited job opportunities.

With that in mind, America can look north to Calgary for a preview of what’s in store for America’s oil boom towns.

Although Alberta’s largest city bares little resemblance to Sidney and Bainville, the three do have one thing in common: oil. “Calgary boasted one of the lowest jobless rates in Canada as crude prices rose over $100 a barrel [but] it’s now reeling after a global glut pushed prices down by two-thirds,” Bloomberg notes.

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

“Canadians Should Be Concerned” As Energy Sector Job Losses Spike To 100,000 This Year

December 22, 2015

“Canadians Should Be Concerned” As Energy Sector Job Losses Spike To 100,000 This Year

It’s grim up north… and getting grimmer. Amid soaring suicide rates, Canada’s once-booming oil patch is rapidly accelerating its downward trajectory. “Canadians should be concerned in times like these,” warned Tim McMillan, president and chief executive of the Canadian Association of Petroleum Producers, noting that the oil and gas sector will see 100,000 job losses by the end of this year. Even if oil prices rise early and fast next year, Financial Post reports, it may take a while for Canadian oilsands to rebound as the industry has mothballed a number of long-term projects.

Over the past year, we have extensively chronicled the tragic story of Alberta – Canada’s once booming oilpatch – disintegrate slowly at first, then very fast, into an economic and financial wasteland:

And, in one of the latest articles of this sad series describing the Alberta “bloodbath”, we said that the worst casualty of Canada’s recession has been the local commercial real estate market, where office vacancies are about to surpass the aftermath of the (first) great financial crisis.

But, it turns out the biggest casualty of Canada’s recession, which unless oil rebounds strongly soon will follow Brazil into an all out depression, are people themselves. As CBC reports the suicide rate in Alberta has increased dramatically in the wake of mounting job losses across the province.

Sadly, as The Financial Post reports, the situation looks set to get worse… as policy uncertainty has exacerbated the pain of low prices…

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

“I Know Of No One Who Predicted This”: Russian Oil Production Hits Record As Saudi Gambit Fails

December 21, 2015

“I Know Of No One Who Predicted This”: Russian Oil Production Hits Record As Saudi Gambit Fails

In late October, we noted that for the second time this year, Russia overtook Saudi Arabia as the biggest exporter of crude to China.

Russia also took the top spot in May, marking the first time in history that Moscow beat out Riyadh when it comes to crude exports to Beijing. “Moscow is wrestling with crippling Western economic sanctions and building closer ties with Beijing is key to mitigating the pain,” we said in October, on the way to explaining that closer ties between Russia and China as it relates to energy are part and parcel of a burgeoning relationship between the two countries who have voted together on the Security Council on matters of geopolitical significance. Here’s a look at the longer-term trend:

You may also recall that Gazprom Neft (which is the number three oil producer in Russia) began settling all sales to China in yuan starting in January. This, we said, is yet another sign of the petrodollar’s imminent demise.

On Monday, we learn that for the third time in 2015, Russia has once again bested the Saudis for the top spot on China’s crude suppliers list. “Russia overtook Saudi Arabia for the third time this year in November as China’s largest crude oil supplier,” Reuters writes, adding that “China brought in about 949,925 barrels per day (bpd) of Russian crude in November, compared with 886,950 bpd from Saudi Arabia.”

This is an annoyance for Riyadh. China was the world’s second-largest oil consumer in 2014 and closer ties between Moscow and Beijing not only represent a threat in terms of crude revenue, but also in terms of geopolitics as the last thing the Saudis need is for Xi to begin poking around militarily in the Arabian Peninsula on behalf of Moscow and Tehran.

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

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