Tag: news

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“Whatever it takes.”

Saudi Energy Minister Khalid al-Falih and Russia’s Energy Minister Alexander Novak

That’s what Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak said in a statement overnight in Beijing they would to reduce the global oil inventory overhang, using the immortal phrase coined by ECB President Mario Draghi five years ago in his successful bid to defend the euro. For OPEC, however, “whatever it takes” may not be enough.

As reported earlier oil surged today, with Brent rising above its 50 and 200 DMA, after Saudi Arabia and Russia announced an agreement that the OPEC production cuts of 1.2MMbbls agreed upon last year in Vienna, should be extended through the end of the first quarter of 2018, effectively assuring that the May 25 OPEC summit later this month will agree on the same. There is, however, a problem: based on the simple math, a simple extension will not be nearly enough to bring the oil market back into balance. 

First there is the problem of excess supply, and not just resurgent US shale production, which is set to surpass an all time high 10 million barrels per day in the near future.

Over the weekend, Libya – the OPEC member with Africa’s largest crude reserves – announced it was pumping more than 814,000 barrels a day, thanks mostly to rising output from two fields that re-started last month, Jadalla Alaokali, a board member at the National Oil Corp., told Bloomberg on Sunday. At the end of April, Libya was producing about 700,000 barrels a day.

While output from the politically divided country is at its highest since October 2014 when it pumped 850,000 barrels a day, in an ideal world its output could grow substantially from here. Prior to the Arab Spring uprising, Libya – which together with Iran and Nigeria was exempted from OPEC’s cuts due to internal strife – pumped as much as 1.6 million barrels a day. It’s targeting production of 1.32 million barrels a day by the end of this year, the NOC said last week in a statement, some 500kb/d higher.

Then there is Nigeria, where the Forcados pipeline came back online last week and the Qua Iboe pipeline is being tested currently, with both together allowing output to reach its pre-disruption level of 1.8 mb/d. The oil ministry said that Nigerian oil output averaged 1.45mb/d suggesting an increase of 300kb/s in the near future is all too possible absent another set of production disruptions.

Of course, in the interim, North American output is booming, and where according to Baker Hughes, the number of US rigs has risen for 17 consecutive weeks, the highest level since the week of April 17, 2015, and the longest stretch of increases in six years.

 

Furthermore, the U.S. DOE recently published a new forecast that revised the country’s oil output up yet again. And yes, it was revised higher. Crude-oil production is now expected to rise by 960,000 barrels a day between December 2016 and December 2017. That compares with a 210,00 barrel a day increase it foresaw just before OPEC’s November gathering. Add in a 470,000 barrel a day ramp up in the production of natural gas liquids, and OPEC’s entire cut is more than offset.

Then there is OPEC’s own forecast, according to which the cartel trimmed its estimate of the need for OPEC crude this year by 300,000 barrels a day. At that level of production – 31.92 million barrels a day – inventories will remain static, assuming demand and non-OPEC supply forecasts are correct. As a reminder, based on secondary sources, OPEC produced 31.74 million barrels a day in April. According to Bloomberg’s Julian Lee, simply rolling that level forward for another six months will exhaust the excess at an average rate of 722,000 barrels a day in the second half and will see about 120 million barrels removed from inventories in the nine months begun at the end of March. “That may seem like a lot, but OPEC puts the excess at the end of the first quarter at 276 million barrels — and that’s just in the developed countries of the OECD.”

Then there is the question of demand.

We look at India first, where as Reuters’ Christopher Johnson points out, citing JBC numbers, oil demand growth continues to slow and is now expected to be only 185,000bpd this year, vs 290,000 in 2016.

#India #oil demand growth is slowing and may be only +185,000 bpd this year, says JBC #Energy, vs +290,000 in 2016 ( @IEA )#OPEC #OOTT #gas http://pic.twitter.com/7xe5gdUilx

— Christopher Johnson (@chris1reuters) May 15, 2017

Then there is China, where oil imports likewise declined from record highs according to the latest trade data. Buying by China, which overtook the U.S. during the first quarter as the world’s biggest importer, averaged 8.4 million barrels a day in April, down 8.8% from a record the previous month. At the same time, net exports of oil products fell almost 49% from March to 1.01 million tons

The import decline from a record in March was due to seasonal refining maintenance picking up and independent processors, known as teapots, reaching their buying quotas, according to Jean Zou, an analyst at Shanghai-based commodities researcher ICIS-China. “Teapot buying in April eased a bit after the high level in March,” Zou said. Imports last month by the independent refiners in Shandong province, where the majority are based, dropped to about 7.8 million metric tons, from 9.9 million in March, she said.

However, even that may mask the true level of underlying demand.

According to researcher SCI99, crude inventories at major ports in Shandong province in East China rose to 9-month high last week, suggesting that much of the newly imported oil is simply being held in inert storage with little downstream demand. Echoing what Zou said, energy research consultancy Energy Aspects said that the increase of crude inventories at major ports in Shandong is linked to uncertainty over import quotas for teapot refiners. “The quotas are a key factor in this build-up,” analyst Michal Meidan said in emailed response to questions Friday, and added that refinery maintenance could also be a factor.

Making matters worse, according to a BMI Research note on Monday, a second round of quotas for Chinese independent refiners won’t provide a “significant” boost to nation’s imports. As a result, the scope for government-set quotas surprising to the upside remains low as Beijing moves to gradually curb import quotas allocated to domestic refiners to manage a persistent refined fuels glut at home.

More to the matter at hand, China’s decision to keep restrictions on teapots from exporting refined fuels independently for 2nd consecutive quarter could also lead to lower crude runs, as exporting fuels through state-owned cos. is both costly and cumbersome, and as competition intensifies in domestic market.

And with a mini-glut of upstream crude already piled up, Chinese demand over the next few months will surely dip, especially if recent teapot quotas are not restored.

* * *

As a result, simply adding up the supply increases among Libya, Nigeria, Iran and US production, offset by the demand reduction in India and China means that merely extending the cuts won’t bring oil inventories anywhere close to their five-year average level by the end of December, or even end of March. And, as Bloomberg’s Lee also notes, “let’s set aside the fact that the five-year average has been inflated by two years of surplus, which means stockpiles will have to come down significantly below that to return to normal levels.”

So what does OPEC need to do in addition to extending production cuts? The answer: it needs to double them.

According to Bloomberg calculations, OPEC’s own numbers show the group needs to limit its total production to 30.88 million barrels a day from July to deplete the excess OECD inventory – a decrease of 900,000 barrels a day from current levels. But with Libya and Nigeria, which are exempt from the supply-reduction deal, both restoring production after months-long disruptions, deeper cuts will be required still.

Lee’s conclusion: “If OPEC wants to drain surplus inventories by the end of the year, its members are going to have to accept some real pain. Even then, the risk is that their actions spur more supply from U.S. shale. It’s time for some tough decisions.”

Finally, none other than Goldman confirmed as much in a note earlier today, when it specified the two conditions OPEC’s production cut will need to meet for the revised extension cuts to work:

For the strategy to work we believe that (1) compliance needs to remain high and (2) long-term oil prices need to remain low to prevent shale producers from ramping up investment significantly more. In fact, an extension of the cuts should go hand in hand with guidance of future production increases by low cost producers, in our view, with an already notable emphasis by Saudi and others that oil prices will likely remain in a $45-55/bbl long-term range, in line with our forecasts

It will take the market time to digest the unrevised math, not to mention the Saudi unwillingness to “accept some real pain.” Until then, we expect algos to ignite a buying frenzy every time bullish OPEC headlines cross the tape, as has been the case for the past year. In the meantime, having flipped from near-record long positions, futures specs have seen their net long positions tumble in recent weeks. We expect this to reverse as the momentum resumes chasing price higher once again, until yet another surge in bullishness leads to mass liquidations, resulting in yet another mini flash crash such as the one observed two weeks ago when Pierre Andurand – one of the world’s biggest oil bulls and largest oil hedge fund traders – ended up liquidating his long positions.

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Equity strategists are cooling on the prospects for further gains in European stocks just as investors poured a record amount of money into the region’s equity funds…

After a French election victory for centrist Emmanuel Macron and analysts suggesting that optimism over better profits is largely priced in, forecasters now see fewer triggers for the rally to continue in 2017.

Equity strategists, “having been torched for their prior optimism in the past, might be cautious in continuing to call Europe up after a very good run,” saidMichael Ingram, a market strategist at BGC Partners in London.

 

“It’s difficult to identify any near-term catalysts for continued outperformance as most of the political tripwires appear to have been negotiated, easy monetary policy is priced in and the European earnings season is essentially done.”

As Bloomberg reports, the Euro Stoxx 50 Index of the biggest euro-area stocks will finish the year at 3,498, 3.8 percent lower than Friday’s close, according to the average in asurvey of 15 banks compiled by Bloomberg. For the Stoxx 600, nine banks expect the gauge to end the year 2.4 percent lower than Friday’s level, a mean of their predictions shows.

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Authored by Irina Slav via OilPrice.com,

The average gasoline tax in the U.S. is 49.5 cents per gallon, according to data from the American Petroleum Institute. That’s not too bad as far as averages go, but it has been climbing over the last five years and it will continue rising as states lose hope that the federal government will chip in for infrastructure construction and maintenance, and transportation.

Washington has been wary of raising the federal fuel tax. So wary, in fact, that the last time it adjusted the rate was more than two decades ago. Meanwhile, international oil prices have been jumping up and down, cars have become much more fuel efficient, and inflation has been biting into state income from gas taxes. In addition, there is a whole new challenge in the shape of electric vehicles that in the future will increasingly undermine fuel sales income for states.

Left with no options, 22 states have raised their fuel tax since 2012 and more will likely resort to the unpopular measure in the coming years. Since January 2017, Governing magazine notes, three states have passed laws to increase the gas excise tax: California, Tennessee, and Indiana. In California, the total tax, state plus federal, is now 57.20 cents per gallon. In Tennessee, the figure is 39.80 cents. In Indiana, the overall tax consumers pay on a gallon of gas is 51.24 cents.

According to one research organization, the Institute on Taxation and Economic Policy, the number of states that have already introduced higher gas taxes is unusual, and what’s more, this number will continue to rise, with another seven states likely to pass higher gas tax laws before the end of the year: Alaska, Louisiana, Wisconsin, South Carolina, Oregon, and Oklahoma, and West Virginia. Why? Because, although taxpayers can hardly be too happy about it, business groups are backing the higher taxes, ITEP analyst Carl Davies.

It’s a simple truth, though not a widely liked one, that states—and national governments—need income from taxes to produce goods and services for the people who pay the taxes. While it’s true that in the last decade there have been good reasons to keep prices at the pump steadily taxed, now that demand for road infrastructure and transport services is growing, states are finding themselves short of the money needed to respond to this demand.

The Great Recession saw prices shoot up to above US$3 per gallon, and by 2014 they’d gone above US$3.50 per gallon. That would have been a very bad time to even consider raising the tax. Yet now prices are at historic lows thanks to shale and to a global glut. In fact, prices are so low that on some part of the States, rivalry between two or more gas stations has led to prices as low as US$0.95 and even US$0.78 per gallon. True, these extremes were touched for a few hours but they are indicative of price developments prompted by global fundamental trends.

So, drivers across the states that have not yet hiked their gas tax can reasonably expect that, in the not too distant future, they will have to pay more for gas, regardless of which way global prices go. That’s the bad news. The good news is that these global prices are unlikely to go much higher than they are now, as long as shale producers continue ramping up their output and lowering production prices. Unless, of course, it turns out that the shale boom is actually a bubble as some observers argue.

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Nothing says buying panic like a “constitutional crisis” in America, crashing US ‘soft’ economic data, the world’s largest cyberattack ever, a slowing Chinese economy, and a higher VIX…

S&P 500 tops 2400 once again…

 

The S&P has gone nowhere since March 1st…

 

Sometimes you have to laugh.

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Governments and companies around the world began to gain the upper hand against the first wave of the unrivaled global cyberattack this morning.

More than 200,000 computers in at least 150 countries have so far been infected, according to Europol, the European Union’s law enforcement agency. The U.K.’s National Cyber Security Centre said new cases of so-called ransomware are possible “at a significant scale.”

 

"For now, it does not look like the number of infected computers is increasing," said a Europol spokesman. "We will get a decryption tool eventually, but for the moment, it’s still a live threat and we’re still in disaster recovery mode."

The initial attack was stifled when a security researcher disabled a key mechanism used by the worm to spread, but experts warned the hackers were likely to mount a second attack because so many users of personal computers with Microsoft operating systems couldn’t or didn’t download a security patch released in March that Microsoft had labeled “critical.”

“I will confess that I was unaware registering the domain would stop the malware until after I registered it, so initially it was accidental,” wrote the researcher, who uses the Twitter name @MalwareTechBlog.

 

“So long as the domain isn’t revoked, this particular strain will no longer cause harm, but patch your systems ASAP as they will try again.”

But the world is still digging out…

Europol executive director Rob Wainwright told Britain's ITV television on Sunday that the attack had been "unprecedented". "We've never seen anything like this," he said.

 

In China, "hundreds of thousands" of computers were affected, including petrol stations, cash machines and universities, according to Qihoo 360, one of China's largest providers of antivirus software. The malware affected computers at “several” unspecified Chinese government departments, the country’s Cyberspace Administration said on its WeChat blog Monday. Since that initial attack, agencies and companies from the police to banks and communications firms have put preventive measures in place, while Qihoo 360 Technology Co., Tencent Holdings Ltd. and other cybersecurity firms have begun making protection tools available, the internet overseer said.

 

French carmaker Renault said its Douai plant, one of its biggest sites in France employing 5,500 people, would be shut on Monday as systems were upgraded.

 

At Germany’s national Deutsche Bahn railroad, workers were laboring under "high pressure" Monday to repair remaining glitches with train stations’ electronic departure boards, a spokesman said.

 

In Japan, Hitachi Ltd. said that some of its computers had been affected.

 

In South Korea, CJ CGV Co., the country’s largest cinema chain, said advertising servers and displays at film theaters were hit by ransomware. Movie servers weren’t affected and are running as normal, it said in a text message Monday.

 

Indonesia’s government reported two hospitals in Jakarta were affected.

 

About 97 percent of U.K. facilities and doctors disabled by the attack were back to normal operation, Home Secretary Amber Rudd said Saturday after a government meeting. At the height of the attack Friday and early Saturday, 48 organizations in the NHS were affected, and hospitals in London, North West England and Central England urged people with non-emergency conditions to stay away as technicians tried to stop the spread of the malicious software.

As Microsoft's president and chief legal officer, Brad Smith, said in a blog post Sunday:

"An equivalent scenario with conventional weapons would be the US military having some of its Tomahawk missiles stolen," Smith wrote.

 

"The governments of the world should treat this attack as a wake up call."

And waking up they seem to be…(as Axios notes)

President Trump's homeland security adviser, Tom Bossert, said that Friday's global cyberattack is something that "for right now, we've got under control" in the U.S., reports AP:

 

"Bossert tells ABC's 'Good Morning America' that the malware is an "extremely serious threat" that could inspire copycat attacks. But Microsoft's security patch released in March should protect U.S. networks for those who install it."

 

"Micrsoft's top lawyer has criticized U.S. intelligence for 'stockpiling' software code that can aid hackers. Cybersecurity experts say the unknown hackers behind the latest attacks used a vulnerability exposed in U.S. government documents leaked online."

 

"Bossert said 'criminals' are responsible, not the U.S. government. Bossert says the U.S. hasn't ruled out involvement by a foreign government, but that the recent ransom demands suggest a criminal network."

However, new variants of the rapidly replicating malware were discovered Sunday. One did not include the so-called kill switch that allowed researchers to interrupt the malware's spread Friday by diverting it to a dead end on the internet.

As Bloomberg reports that Matt Suiche, founder of United Arab Emirates-based cyber security firm Comae Technologies warns a new version of the ransomware may have also been spreading over the weekend.

About 50% of machines that would have spread the infection by the second variation of the malware have Russian I.P. addresses, according to Suiche.

Over 40,000 machines appear to have been infected by the second variation of the malware already.

Ryan Kalember, senior vice president at Proofpoint Inc., which helped stop its spread, said the version without a kill switch could spread. It was benign because it contained a flaw that prevented it from taking over computers and demanding ransom to unlock files but other more malicious ones will likely pop up.

"We haven't fully dodged this bullet at all until we're patched against the vulnerability itself," Kalember said.

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One day after Emmanuel Macron was inaugurated as France‘s youngest ever president, he announced the appointment of a centre-right Republican Edouard Philippe, the 46-year-old mayor of the port city of Le Havre, as France’s new prime minister tasked with implementing Macron’s economic reforms and to galvanize public support as France’s centrist president seeks to build a majority in parliament for his year-old party.

According to Bloomberg, which cited to French press reports, Philippe is an aficionado of Bruce Springsteen, his favorite actor is Sean Connery, and he’s a fan of the “Godfather” movies. Since 2010, Philippe has been mayor of Le Havre, France’s second-largest port, which was a longtime communist stronghold before drifting to the center-right as its economy diversified. Like Macron, he’s a graduate of France’s elite ENA, the National School of Administration.

Philippe is a Republican party MP close to Alain Juppe, the former prime minister who lost the Republican party’s presidential nomination to François Fillon in primary elections last year. By picking Philippe, Macron, who was a former minister in Socialist Francois Hollande’s government, is looking to broaden his appeal ahead of the legislative elections in June which many have predicted would be an even greater hurdle for the youngest ever French president than defeating Marine Le Pen.

Macron needs a majority or at least enough seats in parliament to govern or form a coalition. Without that, he could find himself a figurehead from the get-go, incapable of putting into action his campaign promises of economic modernization. Having already split the Socialist Party with his run for the presidency, Macron’s act of luring one of the leading young lights of the centrist wing of the Republicans now threatens to splinter that party as well.

Whether Philippe’s government can last beyond a few months depends on whether Macron’s young political movement can win a majority in the June 11 and 18 parliamentary elections or even take enough seats to lead a coalition. If a rival political formation takes command of parliament, it can vote out the government and impose a new one.

As for Philippe, he has alternated between being an elected official, adviser to various ministers, working as a lawyer, and as the head of public affairs for state-controlled energy company Areva.  Despite Fillon’s poor showing, the Republicans are still hoping to win a significant bloc in the National Assembly, the lower house, after five years of unpopular Socialist presidency, the FT adds. They are counting on a network of local elected officials and the political inexperience of Mr Macron’s party, La Republique en Marche.

Philippe’s appointment may scupper those plans by unsettling the more moderate Republicans. Like Mr Macron, he is liberal on social issues and pro-business on the economy.

Philippe was briefly a member of the Socialist party in his twenties. A graduate of ENA, the elite university that grooms high civil servants, he worked as an adviser to Mr Juppe when the mayor of Bordeaux became a minister during Mr Sarkozy’s presidency. He wrote a weekly column in left wing daily newspaper Liberation during the presidential campaign.

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The market rig of the last two weeks has finally ended.

The Russell 2000 has broken down. This index leads the S&P 500: note how the blue line soared before the black line followed suit back in December 2016. If the Russell 2000 is breaking down now, it’s only a matter of time before the S&P 500 follows suit.

Worse for the economy bulls, the Dow Jones Transportation Index is also breaking down. This is the most economically sensitive index. And it’s telling us that those investors who believe the economy is “roaring” are about to get destroyed.

Buckle up, it’s a long ways down.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

 

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