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North Sea Oil Has Escaped Its Death Spiral

March 22, 2018

North Sea Oil Has Escaped Its Death Spiral

Oseberg offshore

The oil industry is expected to increase spending in the North Sea and the number of projects that could receive a greenlight is set to rise this year for the first time in half a decade.

An estimated 12 to 16 green-and brown-field projects are expected to be sanctioned in 2018, according to a report from Oil & Gas UK. To put that in context, only 17 projects moved forward between 2014 and 2017, combined.

That would translate into additional spending of about 5 billion pounds and the production of 450 million barrels of oil equivalent over time. As a result, revenues for oilfield service and supply chain companies will rise for the first time in years, the report predicts.

More spending and drilling will ultimately mean more oil and gas production from the UK North Sea over the next two years, although the level of spending and drilling “still falls short of the level required to sustain long-term production at current levels,” Oil & Gas UK said.

“While the project landscape for 2018 is the healthiest the industry has seen since 2013,” the industry will still need “greater exploration success” and will also need to boost production in existing assets in order to avoid decline. For its part, Standard Chartered says that without more gains in spending and the sanctioning of new projects, output will once again head into decline after 2019.

The lack of investment from the last few years will soon start to bite. “Between 2014 and 2017, 33 new fields came on stream. This year, just four to six new field start-ups are expected,” Standard Chartered wrote in a note. “Drilling remains an ongoing concern; exploration, appraisal and development continue to falter.”

The bank says that only 94 wells were drilled in 2017, the lowest figure since 1973.

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

 

“There’s A Feeling Of Bits Of Ice Cracking All At Once” – This Is The ‘Big New Threat’ To Oil Prices

February 27, 2016

“There’s A Feeling Of Bits Of Ice Cracking All At Once” – This Is The ‘Big New Threat’ To Oil Prices

One week ago, we reported that even as traders were focusing on the daily headline barrage out of OPEC members discussing whether or not they would cut production (they won’t) or merely freeze it (at fresh record levels as Russia reported earlier today) a bigger threat in the near-term will be whether the relentless supply of excess oil will force Cushing, and PADD 2 in general, inventory to reach operational capacity.

As Genscape added in a recent presentation, when looking specifically at Cushing, the storage facility is virtually operationally full (at 80%) with just 4-5 more months at current inventory build left until the choke point is breached, and as we have reported previously, storage requests for specific grades have already been denied.

Goldman summarizes the dire near-term options before the industry as follows:

The large builds in gasoline and crude stocks have brought PADD 2 storage utilization near record high levels. While the recent decline in Midcontinent refining margins should help avoid breaching storage capacity, by finally bringing gasoline back into deficit, this will likely only exacerbate the build in crude inventories in coming months and should require further weakness in PADD2 crude prices to spread this build to the USGC. Weaker gasoline demand/exports, or higher margins/runs or finally resilient crude imports/production, could create binding storage issues beyond the intermittent Cushing WTI cash price weakness observed so far, which would require another large leg lower in crude prices to shut production in the Midcontinent and Canada. As we have argued, this continued testing of storage constraints should keep price and margin volatility elevated.

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

Larry Summers Launches The War On Paper Money: “It’s Time To Kill The $100 Bill”

February 16, 2016

Larry Summers Launches The War On Paper Money: “It’s Time To Kill The $100 Bill”

Yesterday we reported that the ECB has begun contemplating the death of the €500 EURO note, a fate which is now virtually assured for the one banknote which not only makes up 30% of the total European paper currency in circulation by value, but provides the best, most cost-efficient alternative (in terms of sheer bulk and storage costs) to Europe’s tax on money known as NIRP.

That also explains why Mario Draghi is so intent on eradicating it first, then the €200 bill, then the €100 bill, and so on.

We also noted that according to a Bank of America analysis, the scrapping of the largest denominated European note “would be negative for the currency”, to which we said that BofA is right, unless of course, in this global race to the bottom, first the SNB “scraps” the CHF1000 bill, and then the Federal Reserve follows suit and listens to Harvard “scholar” and former Standard Chartered CEO Peter Sands who just last week said the US should ban the $100 note as it would “deter tax evasion, financial crime, terrorism and corruption.”

Well, not even 24 hours later, and another Harvard “scholar” and Fed chairman wannabe, Larry Summers, has just released an oped in the left-leaning Amazon Washington Post, titled “It’s time to kill the $100 bill” in which he makes it clear that the pursuit of paper money is only just starting. Not surprisingly, just like in Europe, the argument is that killing the Benjamins would somehow eradicate crime, saying that “a moratorium on printing new high denomination notes would make the world a better place.”

Yes, for central bankers, as all this modest proposal will do is make it that much easier to unleash NIRP, because recall that of the $1.4 trillion in total U.S. currency in circulation, $1.1 trillion is in the form of $100 bills.

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

The War On Paper Currency Begins: ECB Votes To “Scrap” 500 Euro Bill

February 15, 2016

The War On Paper Currency Begins: ECB Votes To “Scrap” 500 Euro Bill

Update: in case there was any doubt about the ECB’s true intentions, we just got the official “denial”:
  • DRAGHI: ANY ECB ACTION ON EU500 NOTE IS NOT ABOUT REDUCING CASH

Translation: the ECB action is only about reducing physical cash, some 30% of it to be specific.

* * *

The first shot in the global war on cash was just fired, by none other than the ECB, which moments ago Handelsblatt reported…

… and Bloomberg confirmed – ECB COUNCIL VOTES TO SCRAP EU500 NOTE: HANDELSBLATT – has voted to scrap the second highest denominated European bank note in circulation:

… after the CHF 1000 note.

So what, big deal, eliminate it. The people will still have 5, 10, 20, 50, 100 and 200 euro bills right.

As we wrote just one week ago, the answer is not that simple at all. Recall that the €500 note is the second highest currency denomination in G10, after the CHF1,000 note. More importantly, the total value of €500 notes in circulation amounts to €306.8bn and has been rising as shown in this BofA chart:

Furthermore, as a share of the value of total euros in circulation, the €500 note is the second-highest, after the €50 note.

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

It’s Official: Cash is Now Public Enemy Number One

February 10, 2016

It’s Official: Cash is Now Public Enemy Number One

First Major Offensive in War on Cash

Terrorists are no longer public enemy number one. Nor are drug lords, people traffickers, arms dealers, cyber terrorists, or any other unsavory do-badder. Today, the biggest threat to global peace and security is physical cash, a means of exchange that has flourished for over 4,000 years but which now stands accused of being the world’s biggest enabler of criminality.

A Criminal’s Accomplice

The latest person to publicly highlight the deadly threat posed by cash is Peter Sands, the former CEO of the British bank Standard Chartered, who just published a report for Harvard Kennedy School of Government imploring central banks around the world to stop issuing high-denomination notes and bills. They include the €500 note, the $100 bill, the CHF1,000 note and the £50 note.

“Such notes are the preferred payment mechanism of those pursuing illicit activities, given the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved,” the report warns. In other words, only criminals use cash. High-denomination notes, the report adds, “play little role in the functioning of the legitimate economy, yet a crucial role in the underground economy.”

Sands is no doubt a leading authority on the role of cash in the criminal economy, having led a company that schemed with the government of Iran to avoid U.S. sanctions and “hide from regulators roughly 60,000 secret transactions, involving at least $250bn, and reaping SCB hundreds of millions of dollars in fees.”

That’s according to the New York State department, which in 2012 fined Standard Chartered close to a billion dollars for leaving the US financial system “vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity.”

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

 

China Takes “10 Steps Back,” Slaps 20% Reserve Requirement On Currency Forwards

September 1, 2015

China Takes “10 Steps Back,” Slaps 20% Reserve Requirement On Currency Forwards

Overnight, China decided to take steps to reduce “macro financial risks.”

And by that they mean “do something quick to help ease pressure on the yuan” and by extension, on the PBoC’s rapidly depleting FX reserves.

To that end, starting October 15 banks will have to hold the equivalent of 20% of clients’ FX forward positions with the PBoC, where the money will sit, frozen, for a year, at 0% interest.

Obviously, that will drive up the cost of taking speculative positions which the PBoC hopes will help narrow the gap between onshore and offshore yuan and bring down volatility, although the degree to which this will help fill the CNY-CNH spread looks like an open question.

“It’s a move to ease the reduction in foreign-exchange reserves,” Tommy Ong, managing director for treasury and markets at DBS Bank Hong Kong, tells Bloomberg. “It will also remove lots of speculative trades that aim at short-term gains as the reserves have a minimum lock-up period of one year,” adds Stan Chart’s Becky Liu.

Here’s a bit of color from FX strategy desks via Bloomberg:

  • Andy Ji, Singapore-based currency strategist at CBA:
    • This is typical FX control, as it limits the FX forward positions
    • PBOC has intervened before in the forward market, but imposing the 20% limit on outstanding forward position will require less intervention effort
    • Spread on CNY and CNH may not substantially narrow on this move alone, as global demand on dollar remains high and China economic grow remains slow
  • Fiona Lim, Singapore-based senior FX analyst at Maybank:
    • This seems to be another move to discourage yuan forward selling and to lower yuan depreciation expectations
    • Offshore-onshore yuan gap has been pretty persistent because of yuan depreciation expectations and officials want to narrow the gap
    • Gap will be sustained as the economy continues to remain under pressure 

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

 

Brazil Throws In Towel On Budget; Citi Compares Fiscal Outlook To “Bloody Terror Film”

August 31, 2015

Brazil Throws In Towel On Budget; Citi Compares Fiscal Outlook To “Bloody Terror Film”

Late last week, Brazil officially entered a recession as the economy contracted 1.9% in Q2, a quarter in which Brazilians suffered through the worst stagflation in over ten years.

What was perhaps worse than the GDP print however, was budget data for July which was meaningfully worse than expected. “On a 12-month trailing basis the consolidated public sector recorded a 0.9% of GDP primary deficit in July, worse than the 0.6% of GDP deficit recorded in December and, therefore, increasingly distant from the new unimpressive +0.15% of GDP surplus target,” Goldman noted.

We summed the situation up as follows: “No primary surplus for you!” 

And while analyzing LatAm fiscal policy doesn’t make for the most exciting reading in the universe, this particular budget battle is critical for a number of reasons, the most important of which is that Brazil’s investment grade credit rating might just depend on it and to the extent the country is forced to concede that it will not, after all, hit its primary surplus target this year, junk status could be just around the corner. Needless to say, if Brazil is cut to junk, that will do exactly nothing to help the country combat a bout of extremely negative market sentiment tied to Brazil’s rather prominent role in the great emerging market unwind.

Sure enough, government sources have now confirmed that embattled President Dilma Rousseff – whose political woes are making it nearly impossible to pass legislation designed to plug gaps – will now submit a 2016 budget proposal that projects a deficit. Here’s Bloomberg:

 

The Brazilian government will send to Congress Monday a budget proposal for 2016 that projects a primary deficit instead of the previously expected surplus, according to two government sources familiar with the matter.

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

Will Greek “Hope” Offset “Limit Down” Contagion From The “Frozen” China Crash

July 8, 2015

Will Greek “Hope” Offset “Limit Down” Contagion From The “Frozen” China Crash

Today’s market battle will be between those (central banks) “hoping” that a Greek deal over the weekend is finallyimminent (which on one hand looks possible after a major backpeddling by Tsipras – who may never have wanted to win the Greferendum in the first place – yesterday in Brussels and today during his speech in the Euro Parliament, but on the other will be a nearly impossible sell to Greece as any deal terms will be far harsher than the deal offered by the Troika 2 weeks ago and will have no debt reduction), and those who finally noticed that the Chinese central planners have effectively lost control.

For those who may have missed the overnight fireworks, here are some more indicative Bloomberg headlines about China:

  • China’s Stocks Plunge as State Intervention Fails to Stop Rout
  • China Freezes Trading in 1,300 Companies as Stock Market Tumbles
  • China’s State-Owned Firms Ordered Not to Cut Share Holdings
  • China’s Market Rescue Makes Matters Worse as Prices Lose Meaning
  • China Ramps Up Policy Response as Panic Grips Stock Market

While pundits have been eager to downplay what is now a historic rout in Chinese risk assets, one that is matched by the depression of 2008 and which has sent the SHCOMP from up 60% for the year 3 weeks ago to barely green losing some 15 Greeces in market cap since mid-June…

… the same pundits to whom neither the oil crash nor a Grexit nor the imminent collapse in Q2 corporate revenues and GAAP EPS, or anything else matters, the reality is that the Chinese stock rout is very clearly starting to have contagion effects on the rest of the economy, crashing commodities such as crude, gold, copper, iron and virtually everything else where China has been a marginal source of demand, but leading to forced selling of anything that is not nailed down.

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

 

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