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Gulf Markets Melting Down: Saudi Arabia Plunges 7%, Dubai Sold
Gulf Markets Melting Down: Saudi Arabia Plunges 7%, Dubai Sold
Following the end of a horrible week for petroleum importers (not to mention shale producers) despite WTI briefly dipping under $40 (wasn’t this supposed to be great news for the US economy?) we have the start of a just as ugly week for the Persian Gulf oil exporters, whose Sunday market open can be described as a continuation of last week’s broad risk carnage, and where Saudi Arabia, until recently the region’s best performing market, is now down 10% for the year and down 30% compared to 12 months ago.
Appropriately enough following our overnight article lamenting the death of the Petrodollar, the WSJ opens with a description of “stock markets in the petrodollar-dependent Persian Gulf tumbled Sunday to multi-month lows, spooked by sharply lower oil prices and a global equities selloff on growing concerns about China’s economy.”
Some examples:
Saudi Arabia, the Middle East’s biggest market, led the regionwide decline to finish the day nearly 7% lower. Dubai stocks dropped by a similar percentage, while regional peers Abu Dhabi and Doha’s markets both fell 5% each to extend recent losses.Dubai stocks lost 7% to end at 3451.48, while its neighbor in the United Arab Emirates, Abu Dhabi’s market, dropped 5% to 4286.49. Qatar’s main stocks benchmark finished down 5.3% at 10,750. The Gulf stock markets are open for trading Sunday through Thursday.
Investors took a lead from Saudi Arabia, the region’s biggest economy. Its stocks closed 6.9% lower at 7463.32 after Fitch Ratings on Friday downgraded its outlook for the kingdom to negative from stable because of weaker oil prices.
The Saudi economy is heavily dependent on oil, which accounts for 90% of fiscal revenues, 80% of current account revenues and 40% of the gross domestic product, analysts at Fitch noted.
…click on the above link to read the rest of the article…
Has The E&P Industry Lost Touch With Reality?
Has The E&P Industry Lost Touch With Reality?
The U.S. rig count increased by 19 this week as oil prices dropped below $48 per barrel–the latest sign that the E&P industry is out of touch with reality.
Getty Images from The New York Times (July 26, 2015)
The last time the rig count increased this much was the week ending August 8, 2014 when WTI was $98 and Brent was $103 per barrel.
What are they thinking?
In fairness, the contracts to add more rigs were probably signed in May and June when WTI prices were around $60 per barrel (Figure 1) and some felt that a bottom had been found, left behind in January through March, and that prices would continue to increase.
Related: Oil Price Rout Set To Inflict Real Pain On Russia
Figure 1. Daily WTI crude oil prices, January 2-July 24, 2015. Source: EIA and NYMEX futures prices (July 21-24).
(click image to enlarge)
Even then, however, the fundamentals of supply, demand and inventories pointed toward lower prices–and still, companies decided to add rigs.
In mid-May, I wrote in a post called “Oil Prices Will Fall: A Lesson in Gravity”,
“The data so far says that the problem that moved prices to almost $40 per barrel in January has only gotten worse. That means that recent gains may vanish and old lows might be replaced by lower lows.”
In mid-June, I wrote in a post called “For Oil Price, Bad Is The New Good”,
“Right now, oil prices are profoundly out of balance with fundamentals. Look for a correction.”
Oil prices began falling in early July and fell another 6% last week. Some of that was because of the Iran nuclear deal, the Greek debt crisis and the drop in Chinese stock markets. But everyone knew that the first two were coming, and there were plenty of warnings about the Chinese stock exchanges long before July.
…click on the above link to read the rest of the article…
Bearish News For Oil Growing By The Day
Bearish News For Oil Growing By The Day
Oil hit its lowest point in two months on July 1, falling on a combination of market turmoil and bearish oil figures.
WTI dipped below $57 and Brent dropped to around $62 per barrel, breaking out of a narrow range within which the two benchmarks have been trading for several months.
The ongoing crisis in Greece is weighing on global markets. The Greek government has called a referendum set for July 5th that will largely test the Greek public’s desire to endure more austerity or else risk a more uncertain path. Greece’s creditors have declined to negotiate an extension of the bailout package until after the referendum, and EU member states led by Germany have suggested the vote would be tantamount to a decision on whether or not Greece would remain in the Eurozone. Meanwhile, Greece’s banks are closed for the week, and tempers will likely flare as the days pass with people unable to withdraw cash.
Related: BP Agrees To Pay $18.7 Billion To Settle Deepwater Horizon Spill
The crisis is causing broader worries over the stability of global markets. Although Greece is a small country, and makes up only a fraction of the Eurozone’s GDP, the markets are keeping a wary eye on the ongoing predicament, watching for any signs that the euro itself could be affected. All of this is dragging down stock markets and oil prices.
A second major factor that suddenly pushed down oil prices is the latest EIA figures released on July 1, which showed a very surprising uptick in the level of crude oil storage. Oil inventories climbed by 2.4 million barrels, the first increase in two months. Since mid-April, the U.S. has begun drawing down its record high inventory levels, with refineries working their way through the glut and producers leveling off their production.
…click on the above link to read the rest of the article…
Oil Price Recovery May Be Too Much Too Soon
Oil Price Recovery May Be Too Much Too Soon
Oil prices have hit their highest levels in 2015, with WTI surging above $60 per barrel. Crude oil inventories in the U.S. declined for the first time since December 2014, perhaps indicating that the glut could be easing.
The EIA reported that oil stockpiles fell by 3.9 million barrels for the week ending on May 1, a larger drop than expected. With rig counts falling by more than half since last year, this could be the beginning of a longer contraction. Both weekly production figures and the stock build appeared to have peaked, suggesting that supplies are adjusting lower and demand is rising.
That has oil prices surging from their March lows, with WTI jumping over $15 per barrel, and Brent about $20 per barrel.
Related: Oil Sector May Not Cause Financial Apocalypse After All
But have the markets overreacted? The rise in oil prices over the last few weeks has been so rapid that few predicted it. Speculators have raised their bullish betsto the highest level in years. The optimism may not be justified. In the past, bets to such a degree have often been followed by a fallback in prices, the head of commodity strategy at Saxo Bank told Reuters in an interview. Similarly, the top commodities official at Commerzbank told CNBC that the price rise was “premature,” and oil prices could dip back below $50 per barrel once the markets come to their senses.
In other words, the markets may have overshot, rising beyond levels warranted by the underlying fundamentals. Oil inventories are still at 80 year highs. The 487 million barrels of oil sitting in storage will take quite a while to drawdown. Crucially, oil production is still exceeding demand, leaving oil markets well-supplied.
…click on the above link to read the rest of the article…
Top 12 Media Myths On Oil Prices
Top 12 Media Myths On Oil Prices
The upstream oil and gas industry is not a black hole. There’s no mystery wrapped in an enigma here.
There are a lot of meetings with engineers, chemists and geologists. There’s a constantly evolving learning curve. And then there’s all the regulations and compliance. But all-in-all it’s pretty straight forward, that is, until the media gets a hold of it. That’s when it becomes complicated. It’s as though we are getting reports from the mysteries of the deep ocean or life in the great galaxies beyond. There is so much hyperbole and unsupported guesswork that investors don’t have a chance. So, in a small effort to set the record straight, let’s see if we can’t dispel some of the misinformation.
Misperception #1: Goldman Sachs knows what is going on. This is incorrect. Goldman Sachs should not be quoted extensively. They are notoriously wrong when forecasting tops and bottoms. What they are good at is jumping on the band wagon and stoking fires. Their forecasting always seems to be done through a rear view mirror and their calls for peaks and troughs are always overdone. Back in July 2014 when WTI was peaking, they were calling for more, even as the dollar was showing signs of strength (and we know what happened there) and as oil inventories were beginning to wash up over our ankles. And then when we are forming a bottom in January and retesting it in March, they were calling for a deeper bottom. And then there was 2008. Remember the calls for $150 and $200 oil from Goldman and Morgan Stanley? That was right before we went to $40 and then some. (To be fair, Ed Morse from Citi called the top but he overshot the bottom. We’re not going into the 20s).
…click on the above link to read the rest of the article…
Low Oil Prices Not Enough To Kill Off Oil Sands, Yet
Low Oil Prices Not Enough To Kill Off Oil Sands, Yet
On Friday I visited the University of Alberta in Edmonton, where falling oil prices have brought a record provincial budget deficit despite aggressive tax increases and spending cuts. Here I pass along some of what I learned about how the plunge in oil prices is affecting Alberta’s oil sands operations.
A couple of factors have cushioned Canadian oil producers slightly from the collapse in oil prices in the U.S. First, while the dollar price of West Texas Intermediate has fallen 45% since June, the Canadian dollar depreciated against the U.S. dollar by 18% over the same period, and now stands at CAD $1.26 per U.S. dollar. Since the costs of the oil sands producers are denominated in Canadian dollars, the currency depreciation is an important offset. There has also been some narrowing of the spread between synthetic and other crudes. As a result of these factors, the University of Alberta’s Andrew Leach calculated that when WTI was selling for US $50 a barrel, Canadian producers were receiving CAD $60 per barrel of synthetic crude.
Related: U.S. Oil Glut Story Grossly Exaggerated
Source: Andrew Leach.
Oil sands and U.S. tight oil production have been the world’s primary marginal oil producers in recent years, by which I mean the key source to which the world could turn in order to get an additional barrel of oil produced. Ultimately, in this regime, it is the long-run marginal cost of the most costly producing operation that puts a floor under the price of oil.
…click on the above link to read the rest of the article…
Just as Global Oil Glut Deepens, China Cuts Oil Imports
Just as Global Oil Glut Deepens, China Cuts Oil Imports
“We don’t want to lose our share in the market,” Kuwait Oil Minister Ali al-Omair said on Thursday. OPEC had to maintain production despite the plunge in price since last summer, he said, underscoring Saudi Arabia’s position. OPEC would not cut production to goose prices. It would not let the American fracking boom off the hook.
The price of oil promptly dropped. West Texas Intermediate is trading at $43.79 a barrel as I’m writing this, having annihilated much of the Fed-inspired rally on Wednesday.
No one wants to cut production. In fact, in the US production is still soaring. Demand is lackluster. What gives? Crude oil is piling up around the globe.
Commercial inventories across all OECD countries can now supply 28 days’ of OECD demand, near the very top of the range, the EIA reported.
In the US, the amount of oil in commercial storage facilities (not counting the Strategic Petroleum Reserve) is at historic highs. Another 9.6 million barrels were added during the latest week. To put that in perspective: the US produces 9.3 million barrels per day. So in one week, the US added nearly one day’s production to its already high crude oil stocks! According to the EIA, stocks now amount to 458.5 million barrels, up 22% from a year ago.
By another measure, at the end of February the US was sitting on 29 days’ supply, the most since the 1980s when the last big oil bust was wreaking havoc in the American oil patch.
…click on the above link to read the rest of the article…
Kuwait “Over-Supply” Concerns Send WTI Tumbling Back To $42 Handle
Kuwait “Over-Supply” Concerns Send WTI Tumbling Back To $42 Handle
Reversing all of yesterday’s FOMC-inspired idiocy, WTI has plunged back to reality this morning. Following comments by Kuwait’s comments that OPEC had no choice but to keep production steady, refocusing the market on global oversupply, April WTI is back down to a $42 handle.
All of yesterday’s idiocy unwound…
Kuwait’s oil minister said on Thursday he was concerned by the 50 percent drop in oil prices since June because of its impact on the Gulf Arab state’s budget, but saidOPEC had no choice but to keep output steady.
“We don’t want to lose our share in the market,” Ali al-Omair told reporters.
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Investors Crushed as US Natural Gas Drillers Blow Up
Investors Crushed as US Natural Gas Drillers Blow Up
The Fed speaks, the dollar crashes. The dollar was ripe. The entire world had been bullish on it. Down nearly 3% against the euro, before recovering some. The biggest drop since March 2009. Everything else jumped. Stocks, Treasuries, gold, even oil.
West Texas Intermediate had been experiencing its biggest weekly plunge since January, trading at just above $42 a barrel, a new low in the current oil bust. When the Fed released its magic words, WTI soared to $45.34 a barrel before re-sagging some. Even natural gas rose 1.8%. Energy related bonds had been drowning in red ink; they too rose when oil roared higher. It was one heck of a party.
But it was too late for some players mired in the oil and gas bust where the series of Chapter 11 bankruptcy filings continues. Next in line was Quicksilver Resources.
It had focused on producing natural gas. Natural gas was where the fracking boom got started. Fracking has a special characteristic. After a well is fracked, it produces a terrific surge of hydrocarbons during first few months, and particularly on the first day. Many drillers used the first-day production numbers, which some of them enhanced in various ways, in their investor materials. Investors drooled and threw more money at these companies that then drilled this money into the ground.
…click on the above link to read the rest of the article…
WTI Slumps To New Cycle Lows As Iran Supply Fears Loom
WTI Slumps To New Cycle Lows As Iran Supply Fears Loom
Just a few short days ago we were the first to bring attention to the potential of an Iran nuclear deal being a catalyst for the next big leg lower in the energy complex and sure enough, not only is the market startuing to leg lower in a hurry as the deadline looms, but the mainstream media is catching on too. WTI hit fresh cycle lows this morning at $42.63 with the contango continuing to surge.
WTI makes new cycle lows…
As the contango continues to surge higher…
Iran could raise oil exports by 1 million barrels a day without international sanctions, its oil minister said as talks resumed with the U.S. over the nation’s nuclear program.“If sanctions are lifted, we can raise our exports by one million barrels per day within a few months,” Oil Minister Bijan Namdar Zanganeh said Monday in Assaluyeh, Iran. The Persian Gulf nation shipped 1.2 million barrels a day last month, the International Energy Agency said in a March 13 report.
And here is what we noted last week,
There is a possibility of a nuclear deal being agreed between the P5 + 1 nations and Iran next Friday, 20th March. This may be the precursor for energy stocks to recouple to downside and for spending cuts to spread from capex to dividends for majors.
…click on the above link to read the rest of the article…
Rig Count Drops For 14th Week In A Row, Fastest Rate In 29 Years
Rig Count Drops For 14th Week In A Row, Fastest Rate In 29 Years
For the 14th week in a row, the US rig count fell 67 rigs to 1125, (a 5.6% drop to 41.4%, bigger than March 09’s previous record 14-week decline of 41%). The decline in rigs contionues to tyrack the lagged oil price perfectly but has shown absolutely no impact on production levels as firms push for cashflows in a race to the bottom. As one analyst rightly noted, while rig counts continue to drop, companies are high-grading (shifting to more efficient wells), “the real thing that needs to change is U.S. production and that is not happening at the moment.” April WTI Crude tested $45.01 before the data and bounced very modestly on the data.
- *U.S. TOTAL RIG COUNT -67 TO 1,125, BAKER HUGHES SAYS
- *U.S. OIL RIG COUNT -56 TO 866, BAKER HUGHES SAYS
The 14th weekly drop in a row continues to track the lagged oil price…
For an aggregate XX% plunge (the fastest plunge since 1986)
Rig counts drop but production rises…
* * *
Finally, as a reminder, here is Bloomberg to explain the ‘link’ between wells, production, and rigs…
…click on the above link to read the rest of the article…
Could Oil Prices Plummet A Second Time?
Could Oil Prices Plummet A Second Time?
Are oil prices heading for a double dip?
The surge in shale production has produced a temporary glut in supplies causing oil prices to experience a massive bust. After tanking to a low of $44 per barrel in January, falling rig counts and enormous reductions in exploration budgets have fueled speculation that the market will correct sometime later this year.
However, there is a possibility that the recent rise to $51 for WTI and $60 for Brent may only be temporary. In fact, several trends are conspiring to force prices down for a second time.
Drillers are consciously deciding to delay the completion of their wells, holding off in hopes that oil prices will rebound, according to E&E’s EnergyWire. The decision to put well completions on hold could provide a critical boost to the ultimate profitability of many projects. Higher oil prices in the months ahead will provide companies with more money for each barrel sold. But also, with the bulk of a given shale well’s lifetime production coming within the first year or two, it becomes all the more important to bring a well online when oil prices are favorable. With prices still depressed – WTI is hovering just above $50 per barrel – drillers are waiting for sunnier days.
…click on the above link to read the rest of the article…
Here’s What Will Send Oil Prices Back Up Again
Here’s What Will Send Oil Prices Back Up Again
Oil’s rapid decline since August of last year has been dramatic. To listen to some commentators you would also think it is unprecedented and irreversible. Those claiming that oil will continue to fall from here and remain low for evermore, however, are flying in the face of both history and common sense. The question we should be asking ourselves is not if oil prices will recover, but when they will.
Figure 1: Inflation adjusted WTI since Jan 1985. Chart from Macrotrends.net
From June of 2014 until now, the price of a barrel of West Texas Intermediate (WTI) crude oil has fallen approximately 57 percent. As the above chart shows, there have been drops of a similar percentage five times in the last 30 years. The rate of recovery has been different each time, but recovery has come. In addition, since 1999 the chart shows a consistent pattern of higher lows. In other words, oil is a volatile market, but prices are in a long term upward trend.
…click on the above link to read the rest of the article…
Oil Prices Most Volatile Since 2009
Oil Prices Most Volatile Since 2009
The nearly 20 percent rally in oil prices over the past week raised hopes in the oil industry that the financial bloodshed might be over. But hopes were quickly dashed on February 4 when prices erased much of their gains – March deliveries of WTI dropped by a whopping 8 percent in a single day.
Oil prices had risen over a three-day stretch on the back of major capital expenditure cuts among the oil majors. BP, ExxonMobil, Chevron, ConocoPhillips, and Royal Dutch Shell have all promised multi-billion dollar reductions in their spending for the year, recognizing the bear market for crude. The realignment in spending encouraged oil markets as investors hoped that the production overhang was close to balancing out. On top of that, rig counts dropped at the quickest rate on record the end of January.
As such, many thought that the supply-side was quickly correcting to the new low-price environment. But the storm may not be over.
Related: The Cure For Low Oil Prices Is Low Oil Prices
The Energy Information Administration (EIA) released its weekly status updateon crude oil inventories across the country. The EIA reported that oil stockpiles (excluding the Strategic Petroleum Reserve) increased by 6.3 million barrels, way above analysts’ estimates of about 3.7 million barrels. That has total oil inventories at 413 million barrels, the highest level in over 80 years.
…click on the above link to read the rest of the article…
Why Oil Won’t Go Below $40
Why Oil Won’t Go Below $40
When I made my energy predictions for 2015, I made some very aggressive predictions. Perhaps the most aggressive was that the closing price of West Texas Intermediate would not fall below $40/barrel (bbl) in 2015. Why do I consider this a particularly aggressive prediction? Because on the day I made it, the price of WTI closed at $48.80, but in each of the previous three months the price of WTI had dropped at least $10/bbl over the course of the month. So if WTI had maintained the same downward trajectory, it could have easily ended January below $40/bbl. My prediction could have been proven wrong before we even got out of January, so I really stuck my neck out on that one.
It’s not that there is anything special about $40, and I acknowledge that it’s possible that we could overshoot. But I made the prediction to highlight my conviction that $40 oil simply isn’t a sustainable price in today’s world.
A number of respected pundits are projecting that we will go below $40/bbl, withsome suggesting that crude could even crash all the way to $30/bbl. Last week on CNBC, respected oil analyst Stephen Schork said “I do think this is a dead cat bounce”, elaborating that at least over the next 2 to 3 months that there is too much oil supply relative to current demand. My point is that it has been a widely held belief that oil is going to fall below $40/bbl, so I am definitely on the wrong side of conventional wisdom on this prediction. That’s not a safe place to be, because when you are wrong in that case people think “Everyone read this correctly except for you.”
But I think conventional wisdom is wrong in this case.
…click on the above link to read the rest of the article…
