1) The document analyzes the current state of commodities and credit markets, presenting an investment outlook and recommendations.
2) It examines factors like geopolitical tensions, oversupply of oil from shale production and other sources, weakening global demand from China, and tightening credit conditions as interest rates rise in the US.
3) The outlook is bearish for commodities and related assets in the short to medium term due to these conditions sustaining low prices, though opportunities may arise if stockpiles are drawn down and political conflicts are resolved.
Oil Prices have been extremely volatile during the last decade due to extensive speculative pressures on the commodity. in this episode of Energy Risk Management Series we show one of the methods of countering the same.
Bloomberg Commodity Index: January 2018 ReportSergii Kurbatov
Commodities are favored in 2018, with mean reversion trends supporting gains. While energy is extended and agriculture subdued, metals provide a steady bull market lead. The document analyzes performance drivers and outlooks for various commodity sectors, finding that grains may be poised to advance on weather normalization, while crude oil faces liquidation risks at elevated price levels. Metals should remain strong overall, though industrial metals face resistance without copper's participation in the recent rally.
This document discusses trends in global commodity and financial markets in the first half of 2015. It notes that while commodity prices continued declining in early 2015, some saw slight rebounds in the second quarter. Oil prices rose from January lows as supply increased from Iran, Russia, and the US, while demand grew in Europe and China. However, excess supply remained high globally. The document predicts that competition for market share between OPEC and shale producers could further widen excess supply in the second half of 2015, putting downward pressure on prices. It also summarizes trends in other commodity markets like agriculture and metals.
1) The oil market is historically volatile due to inelastic supply and demand. When shocks occur from either side, large price changes are needed to restore equilibrium.
2) Global oil demand has steadily increased over time and is projected to continue growing, driven largely by developing nations like China and India. However, supply is also growing, led by US shale oil production, keeping prices low.
3) Saudi Arabia aims to regain control of OPEC by forcing compliance through low prices, though others argue it seeks to undermine competitors. Extended low prices could last until supply and demand rebalance.
Greetings,
Attached FYI ( NewBase Special 17 April March 2016 ) , from Hawk Energy Services Dubai . Daily energy news covering the MENA area and related worldwide energy news. In today’s issue you will find news about:-
• Today world’s oil producer will gather in Doha & what are the Expectations
• US:ExxonMobil exports first cargo of offshore Gulf of Mexico crude
• Turkmenistan: TAPI gas pipeline Ashgabad outlines plans
• Indonesia to offer 14 oil, gas blocks in 2016, says official
• U.S. natural gas production reaches record high in 2015
• US oil closes at $40.36, and Brent at $43.18 , ahead of Doha
• Surging oil output, low prices dare Doha talks
we would appreciate your actions to send to all interested parties that you may wish. Also note that if you or your organization wish to include your own article or advert in our circulations, please send it to :-
khdmohd@hotmail.com or khdmohd@hawkenergy.net
Best Regards.
Khaled Al Awadi
Energy Consultant & NewBase Chairman - Senior Chief Editor
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME meme since 1995
Hawk Energy since 2010
Saudi Aramco and Sinopec have started test runs at their new 400,000 barrel per day Yanbu refinery in Saudi Arabia, which is scheduled to begin commercial exports in October or November. The startup of new refining capacity in Saudi Arabia adds to oversupply concerns and downward pressure on oil prices from increased competition in refined fuel markets. Asian refiners are struggling with weak margins due to disappointing demand growth and excess refined product supply from the Middle East. Saudi Aramco cut its October crude prices for Asian customers more than expected in response to weak Asian demand and falling price spreads between Brent and Dubai crude benchmarks. Global oil inventories have risen sharply in recent months as benchmark crude prices have fallen, indicating over
New base 976 special 16 december 2016 energy newsKhaled Al Awadi
OPEC's decision to cut oil production will significantly change global oil trade flows. Middle Eastern producers like Saudi Arabia and Kuwait plan to prioritize maintaining oil shipments to fast-growing Asian markets while reducing flows to oversupplied Western markets in Europe and North America. This will impact oil shipping routes and revenues. It remains to be seen how different oil grades will be affected and which producers may see opportunities to fill supply gaps. Saudi Arabia has started notifying customers of upcoming supply cuts, focusing first on reducing shipments to Europe and North America.
Iraq's Impact on Oil Markets, ASX Listed Energy Producer plus S&P500 OpportunityInvast Financial Services
During this week's Invast Insights we cover:
► The impact of Iraq on oil markets
► The depression in mining won’t last forever
► Australian listed energy producer
► S&P500 looks like a good short
GRAB A 4 WEEK INVAST INSIGHTS FREE TRIAL (WEEKLY NEWSLETTER)
http://invast.com.au/insights
CONNECT WITH INVAST TODAY
Facebook ► https://www.facebook.com/invastglobal
Twitter ► http://twitter.com/InvastGlobal
Linkedin ► http://www.linkedin.com/company/invast
Invast ► http://www.invast.com.au
Google+ ► https://plus.google.com/+InvastAu/
Oil Prices have been extremely volatile during the last decade due to extensive speculative pressures on the commodity. in this episode of Energy Risk Management Series we show one of the methods of countering the same.
Bloomberg Commodity Index: January 2018 ReportSergii Kurbatov
Commodities are favored in 2018, with mean reversion trends supporting gains. While energy is extended and agriculture subdued, metals provide a steady bull market lead. The document analyzes performance drivers and outlooks for various commodity sectors, finding that grains may be poised to advance on weather normalization, while crude oil faces liquidation risks at elevated price levels. Metals should remain strong overall, though industrial metals face resistance without copper's participation in the recent rally.
This document discusses trends in global commodity and financial markets in the first half of 2015. It notes that while commodity prices continued declining in early 2015, some saw slight rebounds in the second quarter. Oil prices rose from January lows as supply increased from Iran, Russia, and the US, while demand grew in Europe and China. However, excess supply remained high globally. The document predicts that competition for market share between OPEC and shale producers could further widen excess supply in the second half of 2015, putting downward pressure on prices. It also summarizes trends in other commodity markets like agriculture and metals.
1) The oil market is historically volatile due to inelastic supply and demand. When shocks occur from either side, large price changes are needed to restore equilibrium.
2) Global oil demand has steadily increased over time and is projected to continue growing, driven largely by developing nations like China and India. However, supply is also growing, led by US shale oil production, keeping prices low.
3) Saudi Arabia aims to regain control of OPEC by forcing compliance through low prices, though others argue it seeks to undermine competitors. Extended low prices could last until supply and demand rebalance.
Greetings,
Attached FYI ( NewBase Special 17 April March 2016 ) , from Hawk Energy Services Dubai . Daily energy news covering the MENA area and related worldwide energy news. In today’s issue you will find news about:-
• Today world’s oil producer will gather in Doha & what are the Expectations
• US:ExxonMobil exports first cargo of offshore Gulf of Mexico crude
• Turkmenistan: TAPI gas pipeline Ashgabad outlines plans
• Indonesia to offer 14 oil, gas blocks in 2016, says official
• U.S. natural gas production reaches record high in 2015
• US oil closes at $40.36, and Brent at $43.18 , ahead of Doha
• Surging oil output, low prices dare Doha talks
we would appreciate your actions to send to all interested parties that you may wish. Also note that if you or your organization wish to include your own article or advert in our circulations, please send it to :-
khdmohd@hotmail.com or khdmohd@hawkenergy.net
Best Regards.
Khaled Al Awadi
Energy Consultant & NewBase Chairman - Senior Chief Editor
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME meme since 1995
Hawk Energy since 2010
Saudi Aramco and Sinopec have started test runs at their new 400,000 barrel per day Yanbu refinery in Saudi Arabia, which is scheduled to begin commercial exports in October or November. The startup of new refining capacity in Saudi Arabia adds to oversupply concerns and downward pressure on oil prices from increased competition in refined fuel markets. Asian refiners are struggling with weak margins due to disappointing demand growth and excess refined product supply from the Middle East. Saudi Aramco cut its October crude prices for Asian customers more than expected in response to weak Asian demand and falling price spreads between Brent and Dubai crude benchmarks. Global oil inventories have risen sharply in recent months as benchmark crude prices have fallen, indicating over
New base 976 special 16 december 2016 energy newsKhaled Al Awadi
OPEC's decision to cut oil production will significantly change global oil trade flows. Middle Eastern producers like Saudi Arabia and Kuwait plan to prioritize maintaining oil shipments to fast-growing Asian markets while reducing flows to oversupplied Western markets in Europe and North America. This will impact oil shipping routes and revenues. It remains to be seen how different oil grades will be affected and which producers may see opportunities to fill supply gaps. Saudi Arabia has started notifying customers of upcoming supply cuts, focusing first on reducing shipments to Europe and North America.
Iraq's Impact on Oil Markets, ASX Listed Energy Producer plus S&P500 OpportunityInvast Financial Services
During this week's Invast Insights we cover:
► The impact of Iraq on oil markets
► The depression in mining won’t last forever
► Australian listed energy producer
► S&P500 looks like a good short
GRAB A 4 WEEK INVAST INSIGHTS FREE TRIAL (WEEKLY NEWSLETTER)
http://invast.com.au/insights
CONNECT WITH INVAST TODAY
Facebook ► https://www.facebook.com/invastglobal
Twitter ► http://twitter.com/InvastGlobal
Linkedin ► http://www.linkedin.com/company/invast
Invast ► http://www.invast.com.au
Google+ ► https://plus.google.com/+InvastAu/
Is investments in oil wells still attractive?S Glente
The document discusses whether investment in oil wells is still attractive given recent sharp declines in oil prices. It notes that oil prices fell 25% in the first 20 days of 2016 and over 80% from their peak in 2008. Historically, large market crashes often result in declines of 70-90% from the peak. The document suggests this may make investing in oil wells attractive for long-term investors. Global oil demand is still expected to rise in 2016 while supply could decline as existing wells deplete and new projects are not launched due to low prices. The author believes current environment presents an attractive opportunity to invest in US oil wells, which can provide annual dividends of 15-20% even at current low oil prices.
Mercer Capital's Value Focus: Energy Industry | Q2 2019 | Region: Permian BasinMercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
Tesoro Corporation is a leading U.S. refiner and marketer of petroleum products. The analysts recommend holding Tesoro stock. Tesoro operates six refineries producing 850,000 barrels per day. Revenue increased to $40.63 billion in 2014. However, Tesoro's growth will be limited as it approaches refining capacity. The analysts expect slower growth and declining profit margins. Interest rate increases could also negatively impact Tesoro due to its debt levels.
This report discusses the recent decline in oil prices and the battle between OPEC and the United States for control of the oil market. Oil prices fell from over $110 per barrel in 2014 to under $50 per barrel in early 2015 due to increased production from the U.S. and other non-OPEC countries. While lower prices benefited consumers and some economies, they hurt oil-producing countries. The U.S. has significantly increased oil production in recent years through fracking and other methods. As a result, OPEC is losing its dominance over the oil market and control over prices. The oversupply of oil from both OPEC and non-OPEC producers means prices are expected to remain low
The North American Crude Boom: Impacts on U.S. & PADD IV RefinersTmc2920
John Auers of Turner, Mason & Company presented on the impacts of increasing North American crude oil production on US and PADD IV refiners. Production is forecasted to significantly increase in the US and Canada through 2020. This will change the crude slate available, providing more light sweet crude from areas like the Bakken and heavier sour crude from Canada. This is expected to displace some imported crude and cause regional crude price imbalances. PADD IV in particular will see a growing crude surplus that refiners must find markets for through pipelines, rail, or exports. PADD IV refiners should continue to experience strong margins due to lower local crude costs and demand growth above the US average.
Saudi Arabia is purposefully continuing to fuel low crude oil prices in order to weaken competitors and minimize the impact of North American shale oil. As the largest producer with extremely low production costs and vast financial reserves, Saudi Arabia can sustain low prices for 3-5 years without major economic issues, unlike higher-cost producers such as Iran, Russia, and Venezuela. Saudi Arabia aims to make shale and tar sands oil production unprofitable and force other countries to cut production and lose market share to the Saudis.
- Global oil prices have declined dramatically since 2014, falling over 50% from $110 per barrel in mid-2014 to under $30 per barrel currently. This is due to a large supply glut as production from US shale oil, Iraq, and elsewhere increased sharply while demand growth has slowed.
- The decline has had significant economic consequences around the world, hurting oil-exporting countries like Russia, Venezuela, Iran and Saudi Arabia while benefiting oil-importing nations. The future of oil prices remains highly uncertain depending on future supply and demand dynamics.
The document discusses the potential impact of conflict in Iraq on global oil markets and prices in Q3 2014. It notes that Iraq has become a key OPEC producer in recent years, exporting over 3.3 million barrels per day. The rise of Sunni militant groups in Iraq threatens to disrupt oil production and exports. If Iraqi supply is significantly reduced due to violence, global oil prices are likely to remain elevated through the end of the year as other OPEC producers may not be able to fully compensate for the lost supply. The conflict casts uncertainty over the outlook for oil prices in Q3 and raises concerns about tight global oil markets if Iraqi exports are curtailed.
Special Report - Is the OPEC Agreement a Game Changer?Amir Khan
Contrary to expectations, OPEC managed to reach an agreement at the sidelines of the Global Energy Forum held in Algiers. But it's too early to say this will be turning for the oil market.
Petroleum Executive of the Year Keynote, by H.E. Khalid Al-FalihEnergy Intelligence
37th Oil & Money Conference
www.oilandmoney.com
For more information news@oilandmoney.net
Keynote by H.E. Khalid Al-Falih, Minister for Energy, Industry and Mineral Resources, Kingdom of Saudi Arabia and Chairman of the Board of Directors - Saudi Aramco
1) The Bord Gáis Energy Index fell 1% in August as modest increases in the Brent crude oil price were offset by falls in the wholesale prices of gas, coal, and electricity.
2) Commodity prices have fallen significantly from their highs in recent years due to oversupply issues in almost all raw materials markets driven by slowing demand from China.
3) The US administration took steps toward ending its ban on crude oil exports, which could benefit US oil producers and allies while hurting countries like Russia, Venezuela, and Iran if the ban is fully lifted. However, many political and economic issues still need to be addressed.
Please find attached our complimentary copy of our Oil Buyer's Guide 2013 Review. This is just a sample of incredible content our subscribers receive each day. Visit bloombergbriefs.com for more information.
This weekly newsletter discusses commodity market trends and provides trading signals. It summarizes that commodities prices continue to weaken due to slowing global growth, especially in China, which is hurting demand. Commodity prices often decline before recessions, so the markets may be signaling an increased recession risk. Short positions are recommended for crude oil, gasoline, diesel and natural gas based on supply/demand fundamentals and technical factors like prices breaching psychological barriers. The dollar's strength is also cited as a bearish influence for commodity prices.
New base energy news 17 march 2020 issue no. 1324 senior editor eng. khale...Khaled Al Awadi
- Oil storage rates at major trading hubs like Cushing, Oklahoma are surging as traders scramble to secure tank space to store excess crude amid the price war between Saudi Arabia and Russia and falling demand due to the coronavirus pandemic. Storage rates in Cushing have doubled in the past month.
- Analysts estimate the current crude oil glut could reach over 1 billion barrels as demand has plunged. Countries are buying cheap oil to fill strategic reserves but that will only eliminate some of the surplus supply.
- Saudi Aramco is cutting its planned 2020 capital spending to between $25-30 billion, down from a previously announced $35-40 billion, in response to the oil price war and its impact on Aram
This document analyzes the winners and losers from the recent oil price collapse, beginning with historical context. It finds the period from 1985-1986 most analogous, when a supply glut from non-OPEC countries like the analysis suggests rationalizing US light tight oil supply is key to balancing the market. It then examines economic implications for net importers like India and China and exporters like Saudi Arabia. The outlook expects a "U-shaped" rather than "V-shaped" recovery due to reduced Chinese demand growth and increased US LTO flexibility. The document recommends investment positions in integrated oil & gas, oilfield services, and midstream MLPs.
The document summarizes a speech given by David Greer, CEO of Regal Petroleum, about challenges facing the oil and gas industry in the coming decade. It discusses how the 2008 financial crisis impacted both "Drillers" (E&P companies) and "Dealers" (bankers), forcing them to adjust business models. It also examines uncertainties around the economic recovery, future oil and gas demand and supply, and ensuring adequate skilled labor in the industry. The outlook for Drillers and Dealers remains uncertain as they must adapt to new challenges in seeking to meet global energy needs over the long term.
EY Price Point: global oil and gas market outlookEY
As the last quarter of the second pandemic year draws to a close, we continue to see heightened contrast
between the medical and economic points of view. While COVID-19 cases are close to their all-time highs, so
are equity prices, and a leading investment bank declared (on 2 December, 2021 after the Omicron outbreak in South Africa) that it was “optimistic about the possibility of a vibrant 2022.” When news of the variant hit in
late November, the markets were rocked by the prospect of yet another round of local mobility restrictions and
an interrupted return to normal international travel patterns, on top of the Biden Administration’s announced
release of 50 million barrels of crude from the US Strategic Petroleum Reserve. So far though, with OPEC
standing by its planned gradual return to normal production, oil prices have stabilized, albeit below where they
were in mid-November. Henry Hub prices, always at the mercy of the weather, responded predictably to a
warmer-than-normal early winter in the US, falling from US$6.60/MMBtu in early October to below
US$4.00/MMBtu by mid-December. In Europe and Asia, following a short reprieve at the start of the quarter,
piped natural gas prices have spiked again on concerns triggered by Russian troop buildups on the Ukraine
border and uncertainties surrounding the Nordstream 2 pipeline. Looking forward, OPEC and the U.S. Energy
Information Administration (EIA) in their last forecasts of the year both projected that 2022 oil demand would
be above what we saw in 2019. Although time will tell if those forecasts are realized and other events could
intervene, the response to new virus outbreaks is well-practiced and the trade-off between public health and
economic reality has tipped toward a cautiously optimistic view.
Mercer Capital's Value Focus: Exploration and Production | Q3 2018 | Segment:...Mercer Capital
Mercer Capital's Exploration and Production newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
The Saturday Economist Oil Market Update 2015John Ashcroft
The document analyzes factors influencing falling oil prices, including increased US shale oil production and OPEC's decision not to cut production. While lower prices benefit net oil importing countries, they hurt oil exporters. The 50% price drop is seen as disproportionate to actual supply/demand changes and may reflect speculative forces. Lower prices have mixed economic impacts, stimulating growth in importers but reducing revenues and potentially destabilizing exporters. The analysis suggests prices will rebound as speculative influences fade and fundamentals reassert themselves.
The document discusses the Q2 2016 outlook for oil and natural gas markets from Eagle Equity Holdings. It notes that while oil prices have rebounded to the $45-55 range, political and economic uncertainty continues to cause volatility. Natural gas prices have risen sharply from $1.65 to almost $3 since March due to lower production and higher demand. The summary concludes that supply and demand rebalancing in both markets will provide support for prices going forward, and that weather patterns linked to an expected La Niña could create opportunities in natural gas markets over the winter.
Mercer Capital's Value Focus: Energy Industry | Q1 2020 | Region Focus: Eagle...Mercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
EY Price Point: global oil and gas market outlook, Q2, April 2020EY
The first quarter of this year has seen some extraordinary events. As if chronic oversupply, prices stuck below sustainable levels, the looming energy transition, and investor pressure to decarbonize weren’t enough, our industry now faces a dramatic, but hopefully temporary, downturn in demand as a result of the ongoing COVID-19 outbreak.
Is investments in oil wells still attractive?S Glente
The document discusses whether investment in oil wells is still attractive given recent sharp declines in oil prices. It notes that oil prices fell 25% in the first 20 days of 2016 and over 80% from their peak in 2008. Historically, large market crashes often result in declines of 70-90% from the peak. The document suggests this may make investing in oil wells attractive for long-term investors. Global oil demand is still expected to rise in 2016 while supply could decline as existing wells deplete and new projects are not launched due to low prices. The author believes current environment presents an attractive opportunity to invest in US oil wells, which can provide annual dividends of 15-20% even at current low oil prices.
Mercer Capital's Value Focus: Energy Industry | Q2 2019 | Region: Permian BasinMercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
Tesoro Corporation is a leading U.S. refiner and marketer of petroleum products. The analysts recommend holding Tesoro stock. Tesoro operates six refineries producing 850,000 barrels per day. Revenue increased to $40.63 billion in 2014. However, Tesoro's growth will be limited as it approaches refining capacity. The analysts expect slower growth and declining profit margins. Interest rate increases could also negatively impact Tesoro due to its debt levels.
This report discusses the recent decline in oil prices and the battle between OPEC and the United States for control of the oil market. Oil prices fell from over $110 per barrel in 2014 to under $50 per barrel in early 2015 due to increased production from the U.S. and other non-OPEC countries. While lower prices benefited consumers and some economies, they hurt oil-producing countries. The U.S. has significantly increased oil production in recent years through fracking and other methods. As a result, OPEC is losing its dominance over the oil market and control over prices. The oversupply of oil from both OPEC and non-OPEC producers means prices are expected to remain low
The North American Crude Boom: Impacts on U.S. & PADD IV RefinersTmc2920
John Auers of Turner, Mason & Company presented on the impacts of increasing North American crude oil production on US and PADD IV refiners. Production is forecasted to significantly increase in the US and Canada through 2020. This will change the crude slate available, providing more light sweet crude from areas like the Bakken and heavier sour crude from Canada. This is expected to displace some imported crude and cause regional crude price imbalances. PADD IV in particular will see a growing crude surplus that refiners must find markets for through pipelines, rail, or exports. PADD IV refiners should continue to experience strong margins due to lower local crude costs and demand growth above the US average.
Saudi Arabia is purposefully continuing to fuel low crude oil prices in order to weaken competitors and minimize the impact of North American shale oil. As the largest producer with extremely low production costs and vast financial reserves, Saudi Arabia can sustain low prices for 3-5 years without major economic issues, unlike higher-cost producers such as Iran, Russia, and Venezuela. Saudi Arabia aims to make shale and tar sands oil production unprofitable and force other countries to cut production and lose market share to the Saudis.
- Global oil prices have declined dramatically since 2014, falling over 50% from $110 per barrel in mid-2014 to under $30 per barrel currently. This is due to a large supply glut as production from US shale oil, Iraq, and elsewhere increased sharply while demand growth has slowed.
- The decline has had significant economic consequences around the world, hurting oil-exporting countries like Russia, Venezuela, Iran and Saudi Arabia while benefiting oil-importing nations. The future of oil prices remains highly uncertain depending on future supply and demand dynamics.
The document discusses the potential impact of conflict in Iraq on global oil markets and prices in Q3 2014. It notes that Iraq has become a key OPEC producer in recent years, exporting over 3.3 million barrels per day. The rise of Sunni militant groups in Iraq threatens to disrupt oil production and exports. If Iraqi supply is significantly reduced due to violence, global oil prices are likely to remain elevated through the end of the year as other OPEC producers may not be able to fully compensate for the lost supply. The conflict casts uncertainty over the outlook for oil prices in Q3 and raises concerns about tight global oil markets if Iraqi exports are curtailed.
Special Report - Is the OPEC Agreement a Game Changer?Amir Khan
Contrary to expectations, OPEC managed to reach an agreement at the sidelines of the Global Energy Forum held in Algiers. But it's too early to say this will be turning for the oil market.
Petroleum Executive of the Year Keynote, by H.E. Khalid Al-FalihEnergy Intelligence
37th Oil & Money Conference
www.oilandmoney.com
For more information news@oilandmoney.net
Keynote by H.E. Khalid Al-Falih, Minister for Energy, Industry and Mineral Resources, Kingdom of Saudi Arabia and Chairman of the Board of Directors - Saudi Aramco
1) The Bord Gáis Energy Index fell 1% in August as modest increases in the Brent crude oil price were offset by falls in the wholesale prices of gas, coal, and electricity.
2) Commodity prices have fallen significantly from their highs in recent years due to oversupply issues in almost all raw materials markets driven by slowing demand from China.
3) The US administration took steps toward ending its ban on crude oil exports, which could benefit US oil producers and allies while hurting countries like Russia, Venezuela, and Iran if the ban is fully lifted. However, many political and economic issues still need to be addressed.
Please find attached our complimentary copy of our Oil Buyer's Guide 2013 Review. This is just a sample of incredible content our subscribers receive each day. Visit bloombergbriefs.com for more information.
This weekly newsletter discusses commodity market trends and provides trading signals. It summarizes that commodities prices continue to weaken due to slowing global growth, especially in China, which is hurting demand. Commodity prices often decline before recessions, so the markets may be signaling an increased recession risk. Short positions are recommended for crude oil, gasoline, diesel and natural gas based on supply/demand fundamentals and technical factors like prices breaching psychological barriers. The dollar's strength is also cited as a bearish influence for commodity prices.
New base energy news 17 march 2020 issue no. 1324 senior editor eng. khale...Khaled Al Awadi
- Oil storage rates at major trading hubs like Cushing, Oklahoma are surging as traders scramble to secure tank space to store excess crude amid the price war between Saudi Arabia and Russia and falling demand due to the coronavirus pandemic. Storage rates in Cushing have doubled in the past month.
- Analysts estimate the current crude oil glut could reach over 1 billion barrels as demand has plunged. Countries are buying cheap oil to fill strategic reserves but that will only eliminate some of the surplus supply.
- Saudi Aramco is cutting its planned 2020 capital spending to between $25-30 billion, down from a previously announced $35-40 billion, in response to the oil price war and its impact on Aram
This document analyzes the winners and losers from the recent oil price collapse, beginning with historical context. It finds the period from 1985-1986 most analogous, when a supply glut from non-OPEC countries like the analysis suggests rationalizing US light tight oil supply is key to balancing the market. It then examines economic implications for net importers like India and China and exporters like Saudi Arabia. The outlook expects a "U-shaped" rather than "V-shaped" recovery due to reduced Chinese demand growth and increased US LTO flexibility. The document recommends investment positions in integrated oil & gas, oilfield services, and midstream MLPs.
The document summarizes a speech given by David Greer, CEO of Regal Petroleum, about challenges facing the oil and gas industry in the coming decade. It discusses how the 2008 financial crisis impacted both "Drillers" (E&P companies) and "Dealers" (bankers), forcing them to adjust business models. It also examines uncertainties around the economic recovery, future oil and gas demand and supply, and ensuring adequate skilled labor in the industry. The outlook for Drillers and Dealers remains uncertain as they must adapt to new challenges in seeking to meet global energy needs over the long term.
EY Price Point: global oil and gas market outlookEY
As the last quarter of the second pandemic year draws to a close, we continue to see heightened contrast
between the medical and economic points of view. While COVID-19 cases are close to their all-time highs, so
are equity prices, and a leading investment bank declared (on 2 December, 2021 after the Omicron outbreak in South Africa) that it was “optimistic about the possibility of a vibrant 2022.” When news of the variant hit in
late November, the markets were rocked by the prospect of yet another round of local mobility restrictions and
an interrupted return to normal international travel patterns, on top of the Biden Administration’s announced
release of 50 million barrels of crude from the US Strategic Petroleum Reserve. So far though, with OPEC
standing by its planned gradual return to normal production, oil prices have stabilized, albeit below where they
were in mid-November. Henry Hub prices, always at the mercy of the weather, responded predictably to a
warmer-than-normal early winter in the US, falling from US$6.60/MMBtu in early October to below
US$4.00/MMBtu by mid-December. In Europe and Asia, following a short reprieve at the start of the quarter,
piped natural gas prices have spiked again on concerns triggered by Russian troop buildups on the Ukraine
border and uncertainties surrounding the Nordstream 2 pipeline. Looking forward, OPEC and the U.S. Energy
Information Administration (EIA) in their last forecasts of the year both projected that 2022 oil demand would
be above what we saw in 2019. Although time will tell if those forecasts are realized and other events could
intervene, the response to new virus outbreaks is well-practiced and the trade-off between public health and
economic reality has tipped toward a cautiously optimistic view.
Mercer Capital's Value Focus: Exploration and Production | Q3 2018 | Segment:...Mercer Capital
Mercer Capital's Exploration and Production newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
The Saturday Economist Oil Market Update 2015John Ashcroft
The document analyzes factors influencing falling oil prices, including increased US shale oil production and OPEC's decision not to cut production. While lower prices benefit net oil importing countries, they hurt oil exporters. The 50% price drop is seen as disproportionate to actual supply/demand changes and may reflect speculative forces. Lower prices have mixed economic impacts, stimulating growth in importers but reducing revenues and potentially destabilizing exporters. The analysis suggests prices will rebound as speculative influences fade and fundamentals reassert themselves.
The document discusses the Q2 2016 outlook for oil and natural gas markets from Eagle Equity Holdings. It notes that while oil prices have rebounded to the $45-55 range, political and economic uncertainty continues to cause volatility. Natural gas prices have risen sharply from $1.65 to almost $3 since March due to lower production and higher demand. The summary concludes that supply and demand rebalancing in both markets will provide support for prices going forward, and that weather patterns linked to an expected La Niña could create opportunities in natural gas markets over the winter.
Mercer Capital's Value Focus: Energy Industry | Q1 2020 | Region Focus: Eagle...Mercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
EY Price Point: global oil and gas market outlook, Q2, April 2020EY
The first quarter of this year has seen some extraordinary events. As if chronic oversupply, prices stuck below sustainable levels, the looming energy transition, and investor pressure to decarbonize weren’t enough, our industry now faces a dramatic, but hopefully temporary, downturn in demand as a result of the ongoing COVID-19 outbreak.
The document provides an overview of the oil industry, including its history, key players such as OPEC countries and the US, and current market fundamentals. It analyzes factors influencing current low oil prices, such as oversupply from Saudi Arabia and shale oil producers. The author believes prices will recover once high-cost producers like shale oil companies face bankruptcies and supply is reduced, noting that OPEC countries can withstand lower prices longer than shale oil producers. Geopolitical tensions or agreements between OPEC and non-OPEC producers to establish quotas could also impact prices.
EY Price Point: global oil and gas market outlook (Q4, October 2020)EY
Oil and gas prices have recovered steadily from their lows and are relatively stable, but that stability is supported by the combination of purposeful withholding of production by oil-producing countries and economic stress on upstream independents. Oil prices closed the quarter roughly where they started it, while refining spreads were down slightly. LNG spreads were substantially higher at the end of Q3 than they were at the beginning of the quarter but are still roughly half of what is generally thought of as sustainable.
Going forward, the market will be looking closely at how the economy and demand respond to new developments with respect to a potential COVID-19 vaccine and the US election.
- The Covid-19 outbreak and collapse of the OPEC+ alliance have created a perfect storm in the oil markets, with both a reduction in demand due to the economic slowdown and a coming oversupply as Saudi Arabia and Russia increase production.
- Oil prices have collapsed to around $36 per barrel and could fall further, pressuring the budgets of oil producing countries who need higher prices. This will weaken the economies of Russia, Saudi Arabia, and other OPEC members.
- The renewable energy sector may also see delays and slower growth as supply chains are disrupted and economic difficulties reduce investment and subsidies. Gas markets will remain oversupplied and depressed.
- The European Green Deal faces challenges
- The Bord Gáis Energy Index fell 5% in November 2015 to its lowest ever point of 90, as the wholesale prices of Brent crude oil, UK gas, European coal, and Irish electricity all declined month-over-month.
- The document discusses how low oil prices are significantly impacting oil-exporting countries in the Gulf region, with Saudi Arabia still relying on oil for 85% of its budget despite efforts to diversify its economy.
- OPEC failed to agree on output limits at its December 2015 meeting, allowing oil production to remain high and adding to the global supply glut that is depressing prices.
Between 2014-2015, crude oil prices fell more than 50% due to excess supply and uncertain demand. The US has increased shale oil production, reducing imports and maintaining high stock levels. China's economic slowdown has weakened oil demand. Saudi Arabia wants to maintain market share by keeping production high to weaken shale producers' profitability. Low prices are expected to continue into 2018 as supply remains high and demand growth slows. Energy companies must optimize operations to improve efficiency in this challenging market.
Special Report - Aferthoughts on the OPEC agreementAmir Khan
1. OPEC and non-OPEC countries agreed to cut oil production by 1.8 million barrels per day in an effort to boost falling oil prices. OPEC will cut around 1.2 million bpd, with the largest cuts from Saudi Arabia, Iraq, UAE, and Kuwait. Russia and other non-OPEC countries will cut around 0.6 million bpd, led by 0.3 million from Russia.
2. The agreement led to an initial spike in oil prices over 15% to $54/barrel. However, implementation risks remain from countries like Iraq and uncertainties around continued cooperation from Russia. Oil prices are expected to remain in a $50-60/
The oil industry, with its history of booms and busts, is in its deepest downturn since the 1990s, if not earlier.
Earnings are down for companies that made record profits in recent years, leading them to decommission more than two-thirds of their rigs and sharply cut investment in exploration and production. Scores of companies have gone bankrupt and an estimated 250,000 oil workers have lost their jobs.
The cause is the plunging price of a barrel of oil, which has fallen more than 70 percent since June 2014.
Prices recovered a few times last year, but a barrel of oil has already sunk this year to its lowest level since 2004. Executives think it will be years before oil returns to $90 or $100 a barrel, a price that was pretty much the norm over the last decade.
Brent crude, the main international benchmark, was trading at around $29.64 ( 21st February 2016) a barrel on Saturday.
United States production has surged in recent years as the shale boom took off. That has helped create a glut of oil as major producers like Saudi Arabia continue to pump at high levels.
EY Price Point: global oil and gas market outlookEY
As we close the second quarter of 2020, in most of Europe and Asia, the first (and hopefully last) wave of the COVID-19 crisis appears to be abating. In the parts of the US where the virus hit early, the profile has largely matched Europe’s, while in other parts, the urge to reopen businesses has trumped the desire to contain the virus and uncertainty looms. In the developing world, the crisis has just begun, but without the economic headroom and resources necessary to contain it. As the crisis unfolded, the effect on oil and gas demand has been predictable but difficult to gauge precisely and therefore difficult to manage.
Oil prices have crept up steadily as production has been curtailed through coordinated action (OPEC+) and because of economic reality (unconventional oil in North America). That trend has been subject to momentary spasms when bad news hit the market. It would be understandable if traders were nervous, and it seems that they are. Although nowhere near where it was at the peak of the crisis, option implied volatility is still at historically high levels. Gas markets, without the benefit of coordination on the supply side, continue to deal with the market implications of storage at or near capacity. Interfuel competition in power generation has always provided something of a floor, but those lows have been, and will continue to be, tested.
EY Price Point: global oil and gas market outlookEY
The theme for this quarter is reprieve. Crude prices rose steadily throughout 1Q19 as OPEC+ reigned in production to counteract the impact of North American production growth. What lies ahead is uncertain, but downward pressures loom over the marketplace.
This document provides a summary of the crude oil market in early 2016. It notes that crude oil prices had fallen dramatically to around $30/barrel from over $100/barrel previously. It analyzes factors contributing to lower oil prices such as increased US shale oil production, the lifting of the US oil export ban, and the market share war being waged by Saudi Arabia. The document also examines projections for global oil supply and demand in 2016-2017 and the expected impacts on production levels from US shale declines, OPEC, and potential increased exports from Iran.
This document provides a summary of the crude oil market in early 2016. It notes that crude oil prices had fallen dramatically to around $30/barrel from over $100/barrel previously. It analyzes factors contributing to lower oil prices such as increased US shale oil production, the lifting of the US oil export ban, and the market share war being waged by Saudi Arabia. The document also examines projections for global oil supply and demand in 2016-2017 and the expected impacts on production from US shale declines, OPEC, and the potential for increased Iranian exports.
EY Price Point: global oil and gas market outlook – Q2EY
The document provides an outlook on the global oil and gas markets for Q2 2018. Some key points:
1) In Q1 2018, oil markets reached a sustainable equilibrium as demand grew steadily while production was predictable and pricing was in producers' control. Geopolitical risks could impact prices but no foreseeable developments were significant enough to move markets substantially.
2) The theme for Q2 is sustainability - whether geopolitical risks will drive higher prices or markets will remain stable. OPEC production cuts, shale growth, and trade wars could impact demand.
3) Most forecasts predict continued growth of 1 million barrels per day from North American shale as producers face pressure to return capital to investors, constraining
New base energy news issue 915 dated 25 august 2016Khaled Al Awadi
Greetings,
Attached FYI (NewBase 25 August 2016 ) , from Hawk Energy Services Dubai . Daily energy news covering the MENA area and related worldwide energy news. In today’s issue you will find news about:-
• LNG IN THE NEW OIL PRICE ERA, By Morten Frisch
• Saudi Arabia Holds China Market Share Lead on Record Oil Output
• China Oil Giants Unmoved by Bull Rally After Worst-Ever Earnings
• Norway's Oil Investments To Fall Again In 2017
• Kenya: Work Begins on 2D Seismic Survey in Wajir Kenya
• Kenya: First Kenyan Oil Due by March 2017; Exports to Follow
• Oil prices fall as market focus returns to global supply overhang
• As Japan and South Korea import less LNG, other Asian countries begin to import more
we would appreciate your actions to send to all interested parties that you may wish. Also note that if you or your organization wish to include your own article or advert in our circulations, please send it to :-
khdmohd@hotmail.com or khdmohd@hawkenergy.net
Best Regards.
Khaled Al Awadi
Energy Consultant & NewBase Chairman - Senior Chief Editor
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME meme since 1995
Hawk Energy since 2010
EY Price Point: Global Oil and Gas Market Outlook - Q3EY
The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY’s Global Oil & Gas Sector supports a global network of more than 10,000 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oil field sub-sectors.
EY Price Point: global oil and gas market outlook, Q319EY
The theme for this quarter is consistency: in the significant trends impacting prices, at least. The forces that impacted oil prices in the second quarter were the same as those that have impacted prices quarter after quarter for the past several years. Surging North American production counterbalanced by OPEC+ production cuts has kept prices in a fairly narrow range. The market has become remarkably resilient. For some time now, long-dated oil futures have traded at a price very close to the market’s view of the break-even price of unconventional oil in North America.
This is the SPRE presentation from four experts on their 2017 oil price outlooks at the October 2016 full-house Society of Petroleum Resources Economists' meeting in Houston. They included Carl Larry (Frost & Sullivan), Raoul LeBlanc (IHS), Afo Ogunnaike (Wood Mackenzie) and Tony Starkey (S&P Global, Platts). The meeting was opened by JC Rovillain (Enhanced Value Recovery) and the panel discussion was moderated by Javan Meinwald (Marketing Upstream). Check out the YouTube video for the compete presentations and the panel discussion. https://www.youtube.com/channel/UC1sXSv6-jXlbBCQwtcB3kUA
EY Price Point: global oil and gas market outlook, Q2 April 2021EY
The theme for this quarter is governed. Apparent market balance at prices that could be sustainable is the product of calculated choices by market leaders and the cooperation of those who follow them. Economics played their customary role as well, with capital scarcity in North America taking about 2 million barrels per day out of the market, about half of the remaining gap in demand. While inventories are close to their pre-COVID-19 levels, there is still uncertainty. The resolution of the pandemic is in sight, but timing is unclear. Vaccine distribution in the US is having an impact but Europe is struggling to contain a third wave of infections. The taps have opened on economic stimulus, but it remains to be seen if policymakers have done enough or if they have overshot the mark.
The shape of the crude oil forward curve has fundamentally changed since the end of the last quarter. In late December of last year, the Brent forward curve was gradually increasing while today, the curve is backwardated. This is a clear sign that the market sees a short-term dynamic that is disconnected from the medium-to-long-term fundamentals. The lasting impact of the COVID-19 pandemic remains to be seen. While many have opined that COVID-19 marks a turning point in energy transition, the IEA recently released a five-year forecast of oil demand that shows steady growth, albeit at rates that are below historical expectations.
Gas markets are a paradox. At the Henry Hub and at LNG destinations, demand grows, investment lags and prices will occasionally attract attention. Traders, so far though, are unconvinced and futures prices don’t indicate imminent scarcity at any link in the value chain.
The sustainability of trading profits has always been questioned. Volatility has returned to pre-crisis levels and, absent more disruption, the size of the opportunity will shrink.
See this week's edition of EY Price Point
1. Sitting at the bottom of the commodities bear market, with a turning of the US debt cycle in
place, we analyze the current state of affairs, present our investment outlook for the short to
medium term and give recommendations on how to proceed.
[16th
March 2016]
LOWER FOR LONGER
BIS Commodities & Credit Team
2. 1
Executive Summary
A Broad Macro Play
With a huge variety of factors in play across these two asset
classes, we have split our analysis across four key segments,
as follows:
Geopolitical Concerns
Examining the ISIS business model, tensions between OPEC
members internally and with other large oil nations in order to
show why swift action may be curtailed.
Johnny Battle & Ben Russell
Supply Pressures
Acknowledging the rapid shale revolution, the current outlook
for providers in this space, the broader supply glut and
mounting global concerns pushing forward green energy.
Luke Sanders & Will Diamond
Demand Weakness
As a vital engine of growth and crucial commodities buyer,
China’s transition and broader global demand weakness are
examined.
Chris Collins & Ruadhan Nethercott
Credit Tightening
Fed liftoff has finally taken place; monetary conditions and
borrowing ease are shifting. Firms have lived through the
‘easy money’ stage – how will they fair beyond this point?
Diana Drobyshevskaya & Joseph Murphy
We hope this piece is informative and helps gives a succinct
understanding of our expectations for these intertwined
markets.
- Adam Pickett, Markets Investment Head
All the views expressed are opinions of the Bristol Banking And Investment Society
members and can in no way be associated with the University of Bristol. All the
financial recommendations offered are for educational purposes only.
CONTENTS
• Executive Summary 1
• Geopolitical Concerns 2
• Supply Pressures 4
• Demand Weakness 6
• Credit Tightening 8
• Investment Suggestions 10
• Risks & Conclusion 10
For feedback, enquiries or info on any team members please contact adam.michael.pickett@gmail.com
3. 2
Geopolitical Concerns
Political Impasses
Despite consensus that current low oil prices are in a large part due to unprecedented
oversupply there has been little movement to address the issue. It has taken until early 2016
for any manner of OPEC supply deal to occur, as a supply freeze (not even a cut). With Saudi
Arabia and Russia backing opposite sides of the Syrian conflict and Saudi-Iranian relationships
under significant strain following the January executions, we see plenty of risk that deals
outcomes will either be minimal, contain concessions for key parties (given to Iran in 1999) or
even fall through (as has been seen thus far). The deal is yet to be fully ratified. Iran has
rejected the deal as “ridiculous”.
Iran has its own priorities anyway. Sanctions limited the country’s oil exports, but have been
lifted since January and they are now looking to regain the market share it lost. The likelihood
of Iran agreeing to freeze, or even cut, its output hence looks unlikely – despite any comments
made to the contrary.
In some sense the standoff between Iran and Saudi Arabia brings to mind the “prisoner’s
dilemma” of classical game theory. If both countries were to cooperate the global supply glut
could be decreased and oil prices would rise. But instead neither country is willing to make that
first move, and hence the likelihood is they will both come off worse.
Not Enough
Even if the recent deal between OPEC and Russia does result in a freeze of production at
January levels this would be a ‘minimal’ outcome. Russia’s oil output is near post-Soviet highs
while Saudi Arabia’s is at levels that were only topped last June. Combined freeze level would
be just above 21 million barrels day, more than 20% of current global [over]supply levels.
Goldman Sachs analysts have “such a freeze will have little impact on the oil market as
proposed, while there remains high uncertainty that it even materialises. As a result, our oil
supply and demand estimates remain unchanged and we reiterate our view that oil prices will
remain volatile.”
Indeed some reports are of the opinion that due to the huge supply glut present at the moment
from overproduction, even a cut in production from OPEC and Russia may not increase the
price for some time - whilst the excess supply already extracted remains unused.
For feedback, enquiries or info on any team members please contact adam.michael.pickett@gmail.com
4. 3
Tangled Web
Saudi Arabia risk losing their market share by cutting production and, as previously discussed,
a cut will benefit ‘rivals’ Iran more than itself. However, with the ongoing standoff between the
US and Russia - seemingly advancing military intensions in East Europe (towards the Crimea
and beyond) - Saudi Arabia may find itself in a difficult situation in attempting to please both
partners. Furthermore, the with waning US energy dependency on the Middle East and lower
exposure to price changes from the region, the US reconsider their relationship with Saudi
Arabia, Russia and other Middle Eastern states in their struggle to contain Islamic State and
other militant groups in the region.
Daesh Inc.
The threat posed by the terrorist group Daesh poses not just great dangers for immediate
safety but also for oil production from the Middle East. The greatest oil related risk currently
posed by Daesh is access to Libya, home to Africa’s largest oil reserves with around 48 billion
barrels. For examples sake, this conservatively represents an extra 500 days of current world
supply levels, just through Libya alone.
After the ousting of Gadaffi, Daesh has grown stronger within the failed state of Libya and is
constantly looking to expand into further territory. Daesh have been selling oil to the region
filling the gaps left by sanctions: their market includes local people and businesses, and even
the rebels whom they are fighting against. The sale of this oil has helped Daesh increasing
cash supplies, which in turn is being used to consolidate their position and help their end goal
of being able to run a caliphate in the region. Once the stronghold in Libya, headquartered at
Sirte, has been established Daesh plan to exploit the political and economic weakness of
Tunisia, one of the limited success stories of the Arab Spring.
Their oil production and sales has becoming an increasingly professionalized. The group has
been recruiting engineers in great quantities putting Daesh in a dangerously efficient position
as territorially near Libya’s oil crescent (Economist, below) where the most supply is situated.
For feedback, enquiries or info on any team members please contact adam.michael.pickett@gmail.com
5. 4
Supply Pressures
Shale Revolution
US production of shale gas is still relatively high. New drilling has suffered, but on the whole,
considering the deep scale of the price fall, production has remained surprisingly resilient.
Furthermore, even if some of the producers are forced to leave the market with prices at the
current level, the nimble nature (faster turnaround) of the shale rigs means with an uptick in
prices they will be able to enter the market again soon, with this ‘optionality’ creating a long-
term price ceiling. BP’s ‘Long-Term Energy Outlook’ report predicts that US Shale gas output
will continue to rise over the next few decades to a plateau of about 80 million barrels per day,
which is almost double current levels. Moreover, there is a strong political motivation in the
West to keep shale production alive in order to avoid a dependence on politically unstable
areas such as Russia and the Middle East. Producers like EOG Resources are seeing
breakeven prices around $31 (SeekingAlpha) so further technological advances along these
lines will mean further shale industry resilience and downward supply pressure.
New Swing Producers
The recent rise of US production in liquid energy has made them the largest producer in the
world and the old order of OPEC and a few other significant countries has weakened. OPEC,
led by Saudi Arabia, can no longer control the price of oil to the extent it once could.
Incremental oil production is now mostly in the hands of North America and Iran (below, EIA).
Current Glut
The large global excesses in oil inventories will have to be drawn down over the next few years
before prices experiences any meaningful rise. In 2014 supply outpaced demand by a factor of
three, a problem that was exacerbated in 2015 when OPEC decided against action. The
coordinated OPEC freeze will not be enough to overcome the excess supply. This may also
only be the start off the problem; analysts at Goldman Sachs believe that once stockpiles
become full and there is, in effect, no more room to store oil the price may fall even further,
reaching as far as the low $20 range, according to their estimates. The storage spaces most at
risk are those that are landlocked. For example, the delivery point for crude futures - Cushing,
Oklahoma – representing about 13% of US oil storage – has a working capacity of
approximately 73 million barrels has been sitting around 85-90% full in recent months. The
International Energy Agency (IEA) forecasts inventories continuing to accumulate until the end
of 2017 and says large inventory drawdowns are necessary before a significant price rise.
History has set precedence, as referenced by Goldman Sachs analysts: after the Asian
financial crisis prices continued dropping even as OPEC made output cuts in March and then
June of 1998, slipping below $10 a barrel in London in December of that year. Only after
storage levels in developed economies started dropping in early 1999 did the recovery begin.
For feedback, enquiries or info on any team members please contact adam.michael.pickett@gmail.com
6. 5
Iran Online
Before the nuclear sanctions were instituted in 2012, Iran was OPEC’s second largest supplier
of crude, producing around 4 million barrels a day, of which it exported some 2.3 million
barrels. Iran’s oil infrastructure was neither damaged nor destroyed, so there is potential for
supply to ramp up relatively quickly. With sanctions lifted on the countries exporting ability,
immediate plans to increase shipment were put in place. In January, the country planned to
increase exports by 500,000 barrels per day. Additionally, Iran’s government have stated that
they plan to rebuild industries with the $50billion in frozen overseas accounts to which they
have just been granted access. Therefore, the country now has funds to put towards
increasing oil output even further should they wish to do so.
Green Alternatives
The deployment of renewable energies is growing constantly. The US is on course to install 12
gigawatts of renewable capacity this year as wind and solar capacities are set to increase
substantially. In 2014, global clean-energy investments rose 17% to $270 billion demonstrating
the rate at which the clean-energy market is growing.
These numbers may be impressive, but perhaps may not have as strong an implication on oil
price as expected. The majority of energy produced via sustainable methods is used to power
homes with heating and electricity. Although this is a use of oil, in the grand scheme of things
oil is predominantly used at a transportation fuel. In the US, approximately 70% of oil produced
is used in transportation but accounts for less than 1% of power generation across the country.
Research into sustainable methods of producing transportation fuel is underway. However, at
this point in time sustainable fuels do not pose a great threat as a substitute for oil as they are
not produced on anywhere near the same scale. The main competitive supply threat may
come from advances in transportation driving higher fuel efficiency, political pushes towards
CO2 limits on vehicles and advances in electricity-powered engineering as shown by Tesla.
For feedback, enquiries or info on any team members please contact adam.michael.pickett@gmail.com
7. 6
Demand Weakness
Macro Scenario
Major challenges regions need to contend with include banking sector weakness and large
sovereign debt piles in Europe, depressed commodity prices negatively effecting revenues and
investment in the EMEA and Asia, developments in Japan and the slowdown of China
impacting nearby Asian trading partners, as well as recessions across LatAm. Recent NFP
data suggests improved US growth but they are a still a minority consumer of global oil.
Chinese Transition
The Chinese economy is restructuring from an energy intensive manufacturing economy to a
service economy whose growth is not as strongly linked to commodity consumption. This has
lead to a slowdown in economic growth. The IMF expects the Chinese economic growth to fall
to 6.3% in 2016, down from 6.9% in 2015. This has huge implications for the global economy
with the China providing 35% of the global growth over the past 5 years according to IMF data
and having large affects on the trade and currency channels of commodity exporting nations.
Currency Headwinds
Monetary policy divergence between the US and the rest of the world (recent Fed rate rise,
hawkish economic data vs. negative rates and further QE in Europe, Japan) should cause
medium to longer-term USD appreciation. As oil contracts are settled in dollars, stronger USD
makes it more expensive for buyers paying in foreign currencies, thus reducing demand. The
Yuan has been devalued by the PBOC in order to help their exporters, but this also reduced
their purchasing power for oil imports. This could add to the pressure on oil prices, as China is
the worlds biggest oil importer. Janet Yellen has warned about potential rate rises due to the
recent strong economic performance of the US, such as unemployment rate falling to 4.9%.
Global Transportation
As can be seen in Figure 1 (OPEC World Oil Outlook 2015 – all figures in this segment), 59%
of demand for oil (currently, projected to grow) stems from use in transportation, such as
passenger and commercial vehicles, aviation, rail and internal waterways. Passenger and
commercial vehicle ownership is highly correlated with GDP (Figure 2) and whilst in the long
term car ownership in developing countries is expected to increase significantly, consumption
of durable goods such as these are often postponed in periods of uncertainty and the
requirements for commercial vehicles in trade may be subdued in the current climate.
Empirical evidence suggests that aviation and shipping industries are highly correlated with
GDP growth (Figure 3). The demand for aviation services such as tourism and business travel
increases with disposable income and increased trade flows between nations increases
demand for freighting and shipping services, both of which may be negatively impacted by a
global slowdown in growth.
For feedback, enquiries or info on any team members please contact adam.michael.pickett@gmail.com
8. 7
Resource Competition
25% of oil demand is from the petrochemical industry and is used to create a wide range of
essential household and industrial products. Historically the oil industry has experienced a
modest upward trend in demand insulated from economic fluctuations but in recent years oil
has lost significant market share throughout OECD America to gas (Figure 4). The issue of
climate change is gathering large political momentum; increasingly stringent fuel efficiency
regulations are being imposed on vehicle manufacturers reducing oil use per vehicle.
Bringing It All Together
Many factors affect the demand for oil (including fuel efficiency technologies and relative oil
prices) however GDP and international trade are considered to be two of the most important
determinants, both of which are highly uncertain in the current climate. In January 2016 the
IMF revised global growth projections down 0.2% to 3.4% whilst Chinese think tank CASS
estimates a growth rate of as low as 3%, reflecting the difficult worldwide economic conditions.
The European central bank has also reduced the Eurozone growth estimations from 1.7% to
1.4% and from 1.9%to 1.7% in 2016 and 2017 respectively. To summarise, the mid-term
outlook is less positive due a combination of factors that are contributing to global slow down in
growth and international trade, which has significant implications in the transportation sector.
FIGURE 1 FIGURE 2
FIGURE 3 FIGURE 4
For feedback, enquiries or info on any team members please contact adam.michael.pickett@gmail.com
9. 8
Credit Tightening
Monetary Policy
When raising 25 basis points in December, the data-dependent Fed’s dots implied four further
25bp moves by 2016 end. Despite this, the theme for markets into the New Year was very
much of risk-aversion following uncertainty over the global economy, namely China, and talk
that the US may have been bordering on recession.
Various indicators, such as the risk premium on junk bonds and the contraction in spread
between short and long term treasury yields, creating a flattening of the yield curve, typical for
calling downturns, signalled a somewhat pessimistic future for the US economy. Such talk had
questions raised over whether the Fed would achieve 4 hikes with some suggesting a rate cut
and the market pricing in a significantly more dovish outlook than The Fed.
After four consecutive weeks of equities rallying and moderately strong employment and
inflation data, though, those concerns have dampened. This raises the prospect of further
tightening (right, Bloomberg), with the majority of analysts eyeing the June meeting (left, WSJ)
for the year’s first hike and the market pricing in for a 1.00% deposit rate by year-end.
This month we saw the ECB ramp up their experimental monetary easing, lowering the deposit
rate further into negative territory, to -0.40%, whilst expanding QE both in breadth and depth,
increasing purchases to 80 billion euros a month whilst incorporating non-bank corporate debt
into their purchases. Despite an initial, unexpected appreciation of the Euro following the news
this will apply further pressure on the currency against the Dollar.
For feedback, enquiries or info on any team members please contact adam.michael.pickett@gmail.com
10. 9
Debt Outlook
A more expensive dollar increases the dollar-denominated debt of firms thus making the debt
more expensive to repay, detracting from net profits. In the bond market, this increases the risk
of default and pushes yields up making refinancing more expensive.
On the one hand, the availability of cheap borrowing should stimulate investment expenditure
and an economic growth. But what we observed in reality is that the drastic fall in commodities
prices slashed companies’ revenues, made them cut dividend payments, significantly reduce
the headcount, freeze investments in new projects and hammer capital expenditure and forced
them to take on even more debt. It is possible that many energy companies were able to
finance its debt only due to the extremely low interest rates and if interest rates rise, increased
levels of defaults on corporate debts will be inevitable.
According to S&P, the outlook for corporate borrowers worldwide is the worst since the global
financial crisis. In December 2015 S&P considered cutting ratings of 17 percent of the
companies that it covers. Credit spreads, which reflect the risk premium or the percentage
difference between government and corporate bond yields, tend to widen the lower the rating
on a bond becomes. For example, the CDX High Yield Index, which is a measure of insurance
aimed to protect investors from losses in high yield debt and which is composed of credit
default swaps written on a basket of 100 junk rated companies, has “priced in about a
21 percent loss over a five-year period” (Anindya Basu, Citigroup) in December 2015, whereas
the highest we have ever seen over a five-year period is 14.2 percent, and that included 2009.
While this level has lowered, broader credit conditions have not significantly changed, perhaps
meaning this risk is still present.
Globally, according to Bloomberg, “commodity companies on average had negative leverage
five years ago and now are over 8 times geared”. So as lower rated US energy companies –
originally financed by previously cheaper credit facilities – tackle this debt wall (Bloomberg,
left) alongside broader models of US credit tightening such as the Wu-Xia Shadow Fed Funds
Rate rising (Atlanta Fed, right), downgrades could occur.
For feedback, enquiries or info on any team members please contact adam.michael.pickett@gmail.com
11. 10
Investment Suggestions
Given the factors discussed, our view is for caution towards downside risk of exposure to oil
and US HY credit, even more so for combinations of the two. Barclays analysts have recently
warned that “on balance, the evidence is that commodity markets have moved ahead too far,
too fast over the past few weeks and we continue to expect retracement before long…prices
should not set fresh lows, but despite conflicting signals, our view is that the fragile state of the
global economy and the underlying weakness in commodity demand mean that a turning point
for commodities is still some way away.” In light of this, our suggestions are as follows:
Hedging Opportunities Amid The Recent Oil Rally
• As market sentiment remains overly positive, investors and corporates should look to
hedge medium-term WTI exposure closer to $40 to lock in these levels.
• The S&P/ISDA CDS U.S. Energy Select 10 OTR Index is up 249bps YoY, flat YTD and
(crucially) down 220bps in March alone. This represents a good opportunity to buy
combined, targeted protection on both the specific asset class risks discussed.
• Similarly, the S&P 500 Energy Corporate Bond Index is down 9.01% YoY, up 1.35%
YTD but seems overbought currently, up 4.66% in March. For a broader, less ‘tail-risk’
hedging opportunity, look for short exposure to this index, potentially on swap.
Directional Positions
• Short term sentiment changes, data announcements and the conclusion of short
squeeze buying could lead to momentum based reversals in oil prices.
• Related to our $40 hedge, and taking into account Ian Taylor’s (Vitol CEO) prediction of
a decade of prices bound around a $50 midpoint, a bearish option spread (bear call or
put spread, depending on cheapness) could capture short term reversals, while once
prices stabilise in the medium term, selling range bound iron condors with selectively
chosen prices between these two levels could prove profitable for the option experts.
• Portfolio shifts away from US oil & gas debt may be wise as “48 N. American producers
filed for bankruptcy in 2015… more will follow this year” (Haynes & Boone LLP).
Risks
Be wary that accelerated ratification of the supply freeze deal, any supply cut discussions,
steadying global demand or dovish Fed policy, alongside general market unwillingness to
accept fundamental may give upside risk to our bearish US credit and oil suggestions.
Conclusion
These ideas advise how to avoid two potential pitfalls present in the current investing climate
rather than for outright speculation and, as stated before, are for educational purposes only.
For feedback, enquiries or info on any team members please contact adam.michael.pickett@gmail.com