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Assume Crash Positions: Goldman Cuts Brent Price Target To $30 “With Possible Dips Near $20”

Assume Crash Positions: Goldman Cuts Brent Price Target To $30 “With Possible Dips Near $20”

When we discussed Saudi Arabia’s shocking decision on Saturday to reverse on years of prudent oil policy following Friday’s stunning collapse of OPEC+, with the kingdom now set to obliterate the OPEC cartel by flooding the market with heavily discounted oil in hopes of sending its price plunging, crippling competitors (such as US shale producers) and capturing market share (a repeat of what Saudi Arabia unsucessfully attempted back in Nov 2014), we made the following assessment on what the Saudi decision could to the price of oil once oil resumed on Sunday:

According to preliminary estimates, with Brent trading at $45, a flood of Saudi supply as demand is in freefall, could send oil into the $20s if not teens, in a shock move lower as speculators puke on long positions in what Goldman calls periodically a “negative convexity” event…. Oil traders are looking to historical charts for an indication of how low prices could go. One potential target is $27.10 a barrel, reached in 2016 during the last price war. But some believe the market could go even lower.

… those wondering what is the worst case scenario for oil prices, consider that Brent traded at an all time low of $9.55 a barrel in December 1998, during one of the rare price wars that Saudi Arabia has launched over the last 40 years… similar to just now.

In retrospect, one difference between the oil supply shock of 1998 and now, is that back then there was no concurrent demand shock. Instead, to find the last combo of both a positive oil supply shock and a massive negative demand shock, one would have to go to the depths of the Great Depression as Rapidian Energy notes in a WSJ article:

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

Saudis Urge More Than 1 Million Bpd Oil Cut To Prop Up Prices, Russia Opposes

Saudis Urge More Than 1 Million Bpd Oil Cut To Prop Up Prices, Russia Opposes

Update (0800ET): The Wall Street Journal reports that Russia opposes the Saudi plan to deepen OPEC+ cuts by 1.2mm b/d.

Developing…

*  *  *

As we detailed earlier, Brent crude futures were up 75 cents, or 1.45%, at 52.61 a barrel at 0700ET Wednesday after a three-day move of +10%, following expectations that major oil producers could make significant production cuts at the OPEC meeting on March 5. 

Brent has tumbled into a bear market, down 26.5% in 38 sessions, following the outbreak of Covid-19 in China, now spreading across the world, has slashed global oil demand.

“This is a sudden, instant demand shock,” said Jim Burkhard, vice president and head of oil markets at IHS Markit Ltd.

“The scale of the decline is unprecedented.”

OPEC+ Joint Ministerial Monitoring Committee, the body that oversees production, will meet on Wednesday, ahead of the formal meeting, to discuss cuts. Saudi Arabia is urging OPEC+ to come to an agreeance ahead of Thursday for a reduction of 1 million barrels per day to compensate for lost demand seen by the virus crisis, Bloomberg notes. 

“The recommended 600,000-barrel-a-day additional cut for the second quarter of 2020 will be seen as too little,” Mohammad Darwazah of consultant Medley Global Advisors said in a note. “It is clear that the group is mulling a deeper production pullback.”

The push for deep cuts comes as crude had its worst weekly decline since the 2008 financial crisis on mounting macroeconomic headwinds developing because of the virus spread, which forced Saudi Arabia to demand Russia jump on board with production cuts. 

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

Former Malaysian PM Warns Of “Economic Crisis” If Brent Trades Below $70

Najib Razak, the former prime minister of Malaysia, warned that the country is headed for an economic collision of massive proportions should ICE Brent Crude contracts trade below $70. As of Friday, Brent Crude contracts settled at 70.18, which he also warned that Moody’s decision to downgrade the country’s credit rating to negative could be imminent.

The former prime minister, who was previously arrested in July for involvement in the 1MDB scandal, explained in a Facebook post that the recent bear market in oil would see the country’s deficit explode and the Malaysian ringgit continue to depreciate as the Federal Reserve signals further rate hikes.

“The pressure on the government’s fiscal position will double,” Razak warned.

This, Razak said, the country would have to issue a higher dividend to cushion the shortfall in revenue for Petronas, the country’s national petroleum company.

In doing so, he said that could severely impact Malaysia’s credit rating for 2019.

“This is when oil prices are said to be high and stable. But what if oil prices drop?… What buffer do we have to cushion an oil crisis, if it happens again?,” he questioned.

On Thursday, Moody’s affirmed the A1 domestic issuer and foreign currency senior unsecured ratings of Petronas but altered its outlook from stable to negative.

“The rating agency also affirmed the A1 rating for Petronas Capital Ltd’s senior unsecured notes and the US$15 billion medium-term note (MTN) programme as well as sukuk issued through Petronas Global Sukuk Ltd, but changed its outlook to negative from stable.

Moody’s said the rating action was due to the government’s announcement that Petronas would be paying RM26 billion in dividends in 2018 and RM54 billion (inclusive of a one-off special dividend of RM30 billion) in 2019,” Free Malaysia Today.

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

Emerging Markets Slammed By Soaring Oil Prices

US consumers may be cursing rising gasoline prices which are rapidly approaching an average of $3.00 across the nation as Brent hits a new 4 year high above $84, but that is nothing compared to the horror that motorists across most emerging markets are facing.

With currencies across the developing world tumbling as a result of a toxic mix of global trade tensions, the strong dollar and rising U.S. interest rates, dollar-denominated crude has become all the more expensive. And while the price of Brent crude, the international oil price gauge, has risen by 22% this year in dollar terms, its cost has doubled if you’re buying in Turkish lira. It is up 39% in Indian rupees and 34% in Indonesian rupiah. And don’t even mention Argentina.

The soaring prices are forcing emerging-market countries and central banks to act. According to the WSJ, India, the world’s third-biggest oil importer, is weighing temporarily limiting oil imports, while Brazil and Malaysia have introduced fuel subsidies. On Thursday, central banks in Indonesia and the Philippines both raised interest rates to tame rising inflation.

In South Africa, where fuel prices are at a record high, the central bank said in a statement last week that “the impact of elevated oil prices and a weaker exchange rate on domestic fuel costs is increasingly evident.”

“Emerging markets already have a lot of problems as it is, and when you throw an oil price spike to the mix, that creates another big risk factor,” said Jon Harrison, managing director for emerging markets strategy at TS Lombard.

The sharp spike in oil – and gasoline prices – assures a double whammy to the economy as local infrastructure is forced to, literally, slow down. And absent a major change, such as a sharp drop in the dollar or oil prices, the large developing nations like Turkey, India, the Philippines and South Africa are out of luck as they import all or most of their oil.

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

Oil Jumps Above $80 For The First Time Since Nov. 2014

Two weeks after Saudi Arabia said it was targeting $80/bbl oil, this morning Riyadh got its wishes early when Brent hit the Saudi target, jumping as much as 1% to $80.18, following the latest drop in U.S. crude inventories and as traders continued to fret about the consequences of renewed sanctions on Iran.

This was the highest price since November 2014.

Today’s jump followed a reported from Goldman titled simply “The case for commodities strengthens ” according to which America’s surging shale output won’t be able to replace the potential drop in Iranian oil shipments after the U.S. reimposed sanctions on OPEC’s third-largest producer.

US shale cannot solve the current oil supply problems. Even if only 200-300 kb/d of Iran exports are at risk by year-end, OPEC is not likely to preempt this loss, only react to it. Further, any response will reduce spare capacity in an increasingly tighter market. The erosion in Venezuela and Angola oil output is accelerating at the same time ex-US growth is stalling. Only the US has seen supply surprises, but is facing growing pains with filled pipeline capacity, constraining US growth into 2019.

Goldman also noted that physical markets continued to ignore growth concerns – just yesterday the IEA warned that the surge in prices will kill demand – rising rates and USD.

Only financial markets care, which is why only gold has traded substantially lower with the risk-off sentiment. Growth concerns will likely prove temporary, realized demand remains robust and OPEC has never been able to catch late-cycle demand growth to replenish inventories before a recession occurs. And even if growth were to decelerate further, it would take global GDP growth collapsing to 2.5% yoy to simply balance the oil market! We recommend not ‘riding this one out.’

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

Oil Plunges To $28 Cycle Lows As Iran Supply Looms, Stocks Slide

Oil Plunges To $28 Cycle Lows As Iran Supply Looms, Stocks Slide

February WTI Crude futures have plunged to new cycle lows at $28.60 (down 2.7%) as Iran supply looms over an already over-glutted global crude market. Brent is down even more (-3.7%). Dow futures are down 60 points at the open.

  • *WTI OIL FALLS AS MUCH AS 2.7%, BRENT CRUDE DROPS 3.7%

Feb futures (which have just rolled) are under $29…

And the new on the run March contract is trading $29.60, down 2.6%…

Weighing on US equities… Dow futures down 65 points

Why We May Never See $100-a-Barrel Oil Again

Why We May Never See $100-a-Barrel Oil Again

‘Race for What’s Left’ author surveys geopolitical fortunes in aftermath of a pricequake.

Oil-Barrels

Pricequake: Recent turmoil could spell doom — not just for ‘tough oil’ projects now underway — but for some over-extended companies (and governments) that own them. Oil barrel photo via Shutterstock.

As 2015 drew to a close, many in the global energy industry were praying that the price of oil would bounce back from the abyss, restoring the petroleum-centric world of the past half-century. All evidence, however, points to a continuing depression in oil prices in 2016 — one that may, in fact, stretch into the 2020s and beyond. Given the centrality of oil (and oil revenues) in the global power equation, this is bound to translate into a profound shakeup in the political order, with petroleum-producing states from Saudi Arabia to Russia losing both prominence and geopolitical clout.

To put things in perspective, it was not so long ago — in June 2014, to be exact — that Brent crude, the global benchmark for oil, was selling at $115 per barrel. Energy analysts then generally assumed that the price of oil would remain well over $100 deep into the future and might gradually rise to even more stratospheric levels. Such predictions inspired the giant energy companies to invest hundreds of billions of dollars in what were then termed “unconventional” reserves: Arctic oil, Canadian tar sands, deep offshore reserves, and dense shale formations. It seemed obvious then that whatever the problems with, and the cost of extracting, such energy reserves, sooner or later handsome profits would be made. It mattered little that the cost of exploiting such reserves might reach $50 or more a barrel.

As of this moment, however, Brent crude is selling at $33 per barrel, one-third of its price 18 months ago and way below the break-even price for most unconventional “tough oil” endeavours [Editor’s note: Since this story first appeared, prices fell below $30 per barrel].

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

Oil Plunges To Lowest Since March 2009 ($43 WTI) As EURUSD 1.05 Battle Continues

Oil Plunges To Lowest Since March 2009 ($43 WTI) As EURUSD 1.05 Battle Continues

Update: *WTI CRUDE TRADES AT LOWEST INTRADAY PRICE SINCE MARCH 2009 – $43.57

Despite ‘trouble’ in Saudi Arabia, and chatter of SPR buying, it appears the re-opening of all Houston shipping channels, comments from Greenspan, yet another refinery shut (Exxon’s Joliet lost power), and the rapidly filling storage capacity has awakened the realization that the month-long dead-cat-bounce is over in crude. Brent broke below $53.50 and WTI back to a $43 handle (close to the lowest levels in 6 years) at the open. One can only imagine the pressure on USO (Oil ETF) holders as the contango continues to gap wider. EURUSD is teasing the crucial 1.05 level again…

Tumble to a $43 handle briefly…

 

The lowest in the cycle (based on the April contract)…

 

as the contango blows sky high…

 

Looks a little different this time…

 

And EURUSD is teasing 1.05 once again…

 

Charts: Bloomberg

 

 

This Week In Energy: ExxonMobil On The Hunt

This Week In Energy: ExxonMobil On The Hunt

Oil prices continued to pick up steam for the week ending on February 13. Brent crude traded above $60 per barrel for the first time in 2015, a psychological threshold that caught the markets by surprise and points to a potential price rebound quicker than many had previously thought.

The price surge is underpinned by a continued pull back by the industry. There were also several catalysts this week that pushed oil higher. Apache Corporation (NYSE: APA) reported its fourth quarter earnings this week, and announced a significant draw down in its drilling plans for the year. One of the biggest drillers in Texas, and in the Permian basin in particular, Apache plans on reducing its drilling fleet by 70%, and revised its estimated production growth down to essentially zero.

Also, Royal Dutch Shell’s (NYSE: RDS.A) CEO Ben van Beurden warned investorsabout the potential for prices to spike in the next two years or so. Echoing prior comments from OPEC officials, van Buerden said that severe cutbacks in investment and drilling could result in a supply shortage, not necessarily in 2015, but in the coming years.

Several other background indicators supported oil prices, including positive news coming out of Europe. German GDP figures beat estimates, reducing fears of a European-wide recession. The markets also raised hopes that a resolution to the Greek debt situation would be less intractable than previously thought. Greek officials are meeting with international creditors on February 13. Moreover, the U.S. dollar weakened a bit this week. Retail sales in the U.S. disappointed, falling 0.8% in January from a month earlier. That contributed to a 1% decline in the dollar index. Since oil is priced in U.S. dollars, the depreciation helped push up oil prices.

 

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

And On The Seventh Day God Shorted His People – The Automatic Earth

And On The Seventh Day God Shorted His People – The Automatic Earth.

And on the Seventh Day, God sold his shares? What do you think, is He short the market? Short oil? Oil does look up a tad, but then the dollar lost about a percent vs the euro, so that definitely feels like a headfake from where I’m sitting. The dollar lost more vs the euro than oil gained against the dollar. Gold and silver have somewhat more solid looking gains, but that’s against the same feverish buck, so what does it really mean? We’ll have to wait and see.

Now, be honest, who’s getting nervous yet? WTI oil yesterday fell 4.5% and tumbled through $63. $63, brother, you remember when it was $80 and you were thinking wow, that’s a long way down? That’s when you took that suit to the cleaners, and that feels like just yesterday, don’t it, and here we are, it’s down another 20%+. Anyone worried about their Christmas bonuses yet? New Year’s?

The central-bank-propped-up stock exchanges didn’t even like what they saw anymore either yesterday, let alone today. Greece down -13%, Shanghai -5.4%, Argentina -7.1%, Europe on average -2.5%. And that’s on a weak dollar day… Think we’ll have a lot of those days? Think God is short the greenback?

Is oil going to break the whole facade? What do YOU think? You think that maybe we’ve had enough of this charade? Is this the one God, let alone the Yellens and Draghis on this planet can’t manipulate from their comfy seats? The Fed can buy Exxon and Conoco, and Draghi can try and support Shell and BP, or maybe the Bank of England should, but oil is a global thing, it’s not like Treasuries or Greek debt that you can just buy a $1 trillion handful of every week or so.

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

Oil Slumps to Five-Year Low as OPEC Decision Spurs Forecast Cuts – Bloomberg

Oil Slumps to Five-Year Low as OPEC Decision Spurs Forecast Cuts – Bloomberg.

Brent crude slumped to a new five-year low as OPEC’s decision last month to maintain output at a time of oversupply prompted a growing number of banks to cut price forecasts. West Texas Intermediate also slumped.

Futures dropped as much as 2.5 percent in London and 1.9 percent in New York. Morgan Stanley lowered its 2015 estimate by 29 percent in a report on Dec. 5, citing a decision by the Organization of Petroleum Exporting Countries not to lower a 30 million-barrel-a-day output target. Banks including BNP Paribas SA, Credit Suisse Group AG, UBS Group AG and Barclays Plc have also cut since the 12-nation group’s Nov. 27 meeting.

“The major forecasters continue to cut price expectations, especially for the first two quarters of 2015,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by e-mail. He forecasts Brent may drop as low as $60 a barrel within the next several months, a slump of about 12 percent from current prices.

Oil is trading in a bear market amid signs that U.S. output is expanding even after the decision by OPEC, which is responsible for about 40 percent of global supplies. Explorers in the U.S. increased the number of operating rigs last week, defying predictions of a drilling slowdown, according to data from Baker Hughes Inc.

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

Brent Rebounds From $70 as Oil Rout Stutters After OPEC Inaction – Bloomberg

Brent Rebounds From $70 as Oil Rout Stutters After OPEC Inaction – Bloomberg.

Brent crude rebounded from near $70 a barrel as the market rout prompted by OPEC’s failure to curb production falters. West Texas Intermediate rose for the second day in three.

Futures advanced as much as 1.3 percent in London and 1.6 percent in New York. The global benchmarks fell 18 percent last month after the Organization of Petroleum Exporting Countries maintained its output target at 30 million barrels a day, opting to let low oil prices force U.S. shale producers to cut supply. Saudi Arabia won’t give up market share “at this time for anybody,” said Prince Turki Al-Faisal, the kingdom’s former intelligence chief.

Crude is in a bear market as the U.S. pumps the most oil in more than three decades while global demand slows. OPEC, responsible for about 40 percent of the world’s supply, resisted calls from members including Venezuela to reduce its quota at the Nov. 27 meeting in Vienna.

“The market is still trying to find its feet following the OPEC meeting last week,” Jens Naervig Pedersen, a commodities analyst at Danske Bank A/S, said by e-mail from Copenhagen today. “There seems to be some short-term support around the $70 to $72-a-barrel mark for Brent. But overall the market is still plagued by uncertainty.”

Brent for January settlement gained as much as 92 cents to $71.46 a barrel on the London-based ICE Futures Europe exchange and was at $70.81 at 10:41 a.m. London time. It dropped $2 yesterday to $70.54. The European benchmark crude traded at a premium of $3.46 to WTI. Prices are down 36 percent this year.

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

Oil Prices Collapse After OPEC Keeps Oil Production Unchanged – Live Conference Feed | Zero Hedge

Oil Prices Collapse After OPEC Keeps Oil Production Unchanged – Live Conference Feed | Zero Hedge.

But, but, but… all the clever talking heads said they wil have to cut…

  • *OPEC KEEPS OIL PRODUCTION TARGET UNCHANGED AT 30M B/D: DELEGATE

WTI ($70 handle) and Brent Crude (under $75 for first time sicne Sept 2010) are collapsing… as will US Shale oil company stocks and bonds (and thus all of high yield credit) tomorrow. The Saudis are “very happy” with the decision, Venzuela ‘stormed out, red faced, furious.’ Commentary from various OPEC members appears focused on the need for non-OPEC (cough US Shale cough) nations to “share the burden”and cut production (just as the Saudis warned yesterday).

It appears OPEC members have varying opinions…

  • *KUWAIT’S OIL MINISTER SAYS HAPPY WITH OPEC OUTPUT DECISION
  • *OPEC DECISION IS `VERY HAPPY’ ONE: [SAUDI ARABIA] NAIMI
  • *IRANIAN OIL MINISTER SAYS HE’S `NOT ANGRY’ WITH OPEC DECISION
  • #OPEC Venezuela Ramirez storms out red faced. Looked furious.
  • *OPEC, NON-OPEC MUST SHARE OIL MKT BURDEN: NIGERIA MINISTER
  • *OPEC `NOT PLAYING HARDBALL’ IN OIL MARKET: NIGERIA MINISTER
  • *OPEC DECISION WAS BEST THING TO DO AT THIS TIME: NIGERIA
  • *OPEC MADE A GOOD DECISION: ECUADOR OIL MINISTER
  • *WE ARE MAINTAINING OPEC UNITY: ECUADOR MINISTER

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

Oil Tumbles to 4-Year Low Before OPEC, Pulling Down Krone – Bloomberg

Oil Tumbles to 4-Year Low Before OPEC, Pulling Down Krone – Bloomberg.

Oil slid to a four-year low amid speculation OPEC will refrain from cutting output at today’s meeting, dragging down shares of energy companies, Gulf-region stocks, and the Norwegian krone. Government bonds rose, with yields in Europe falling to record lows.

West Texas Intermediate crude tumbled 2.1 percent to $72.15 a barrel at 11:07 a.m. London time, a fourth-straight decline. While the Stoxx Europe 600 Index gained 0.2 percent after data showed record-low German unemployment, a gauge of energy producers slid 1.3 percent. Qatar and Oman led stocks lower in the Gulf region, and Norway’s krone weakened against all its 16 major counterparts. France’s 10-year yield fell to an all-time low of 1.006 percent.

Representatives from the 12-member Organization of Petroleum Exporting Countries are meeting in Vienna, with oil prices mired in abear market. The 27 percent drop this year has pulled the Stoxx 600 Oil & Gas Index down 6.5 percent, weakened currencies of commodity-producing nations and damped inflation, helping fuel a rally in fixed-income assets. Germany will release consumer-price data today as investors weigh whether the European Central Bank will step up stimulus. Most U.S. markets are closed for Thanksgiving.

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

Soaring Dollar, Plunging Oil, Crummy Global Growth | Wolf Street

Soaring Dollar, Plunging Oil, Crummy Global Growth | Wolf Street.

This chart juxtaposes the price of Brent crude oil and the US Dollar Index (the outdated currency basket composed of the euro, yen, UK pound, Canadian dollar, Swiss franc, and Swedish krona). As the dollar has soared, the price of Brent crude in dollars has plunged.

Or we might say that the euro has dropped and the yen has plunged for reasons of their own, including their central banks’ commitment to a total currency war. So the hapless consumers in Japan won’t even be able to benefit at the pump from the plunge in the price of oil, as we’re doing in the US. Thanks to the Bank of Japan’s yen-destruction policies, they have to pay for it with their rapidly shrinking yen.

It gives us a near-perfect mirror image of the price of Brent and the Dollar Index:

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

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