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IA’s Dire Oil Forecast: $34 Crude Due To Far More Resilient Production, Oversupply And Lower Demand
IA’s Dire Oil Forecast: $34 Crude Due To Far More Resilient Production, Oversupply And Lower Demand
Instead, the pain is only just beginning, after the EIA revised its 2016 supply forecast higher as “production is more resilient to lower prices than previously expected” – why thank you desperate momentum chasing “investors” of other people’s money, who can’t wait for that secondary offering to repay JPMorgan’s credit facility.
The EIA also revised its forecast demand lower as a result of a decline in global economic growth.
Yes, someone finally admitted that demand is lower.
End result: a cut in forecast oil prices for 2016 and 2017 from $37 and $50 to just $34 and $40.
Here is the summary, with the troubling parts highlighted:
Global oil inventories are forecast to increase by an annual average of 1.6 million b/d in 2016 and by an additional 0.6 million b/d in 2017. These inventory builds are larger than previously expected, delaying the rebalancing of the oil market and contributing to lower forecast oil prices. Compared with last month’s STEO, EIA has revised forecast supply growth higher for 2016 and revised forecast demand growth lower for both 2016 and 2017. Higher 2016 supply in this month’s STEO is based on indications that production is more resilient to lower prices than previously expected. Notably, revisions to historical Russian data, which raised the baseline for Russian production, carry through much of the forecast. Additionally, lower expectations for global economic growth contributed to a reduction in the oil demand forecast.
And the details:
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The Oil Short Squeeze Explained: Why Banks Are Aggressively Propping Up Energy Stocks
The Oil Short Squeeze Explained: Why Banks Are Aggressively Propping Up Energy Stocks
Last week, during the peak of the commodity short squeeze, we pointed out how this default cycle is shaping up to be vastly different from previous one: recovery rates for both secured and unsecured debts are at record low levels. More importantly, we noted how this notable variance is impacting lender behavior, explaining that banks – aware that the next leg lower in commodities is imminent – are not only forcing the squeeze in the most trashed stocks (by pulling borrow) but are doing everything in their power to “assist” energy companies to sell equity, and use the proceeds to take out as much of the banks’ balance sheet exposure as possible, so that when the default tsunami finally arrives, banks will be as far away as possible from the carnage. All of this was predicated on prior lender conversations with the Dallas Fed and the OCC, discussions which the Dallas Fed vocally deniedaccusing us of lying, yet which the WSJ confirmed, confirming the Dallas Fed was openly lying.
This was the punchline:
[Record low] recovery rate explain what we discussed earlier, namely the desire of banks to force an equity short squeeze in energy stocks, so these distressed names are able to issue equity with which to repay secured loans to banks who are scrambling to get out of the capital structure of distressed E&P names. Or as MatlinPatterson’s Michael Lipsky put it: “we always assume that secured lenders would roll into the bankruptcy become the DIP lenders, emerge from bankruptcy as the new secured debt of the company. But they don’t want to be there, so you are buying the debt behind them and you could find yourself in a situation where you could lose 100% of your money.“
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