Tag Archives: Energy

‘Well-Timed’ OPEC Talk Forces Oil Bears Into Record Reversal

Bloomberg, Aug 22, 2016

* Speculators cut wagers on falling WTI crude price by 26%: CFTC
* OPEC could freeze output as big members pump flat-out: Khelil

OPEC has done it again.

Talk of a potential deal to freeze output helped push oil close to $50 a barrel and prompted money managers to cut bets on falling prices by the most ever. West Texas Intermediate, the U.S. benchmark, went from a bear to a bull market in less than three weeks.

OPEC is on course to agree to a production freeze because its biggest members are pumping flat-out, said Chakib Khelil, the group’s former president. Saudi Energy Minister Khalid Al-Falih said that the talks may lead to action to stabilize the market.

“This is all courtesy of some very well-timed comments from the Saudi oil minister,” said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. “They’ve been successful over the last year in jawboning the market, and this is the latest example.”

Hedge funds trimmed their short position in WTI by 56,907 futures and options during the week ended Aug. 16, the most in data going back to 2006, according to the Commodity Futures Trading Commission. Futures rose 8.9 percent to $46.58 a barrel in the report week and traded at $47.41 as of 11:16 a.m. in London on Monday. WTI is up 20 percent from its Aug. 2 low, meeting the common definition of a bull market.

“This was a very short market so we were bound to get some covering,” said Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania. “You probably won’t hear a lot from OPEC with prices up here, but if we get down to where we were a few weeks ago we can expect to hear more.”

Informal Talks

The Organization of Petroleum Exporting Countries plans to hold informal talks to discuss the market at the International Energy Forum next month in Algiers. Russian Energy Minister Alexander Novak said that the nation — not an OPEC member — was open to discussing a freeze.

Talks to implement a production cap collapsed in April when Saudi Arabia said it wouldn’t take part without Iranian participation. Iran was restoring exports after sanctions over its nuclear program were lifted in January.

Saudi Arabia, Iran, Iraq and Russia are producing at, or close to, maximum capacity, Khelil said in a Bloomberg Television interview on Aug. 17. Saudi Arabia told OPEC that its production rose to an all-time high of 10.67 million barrels a day in July, according to a report from the group.

Ample Stockpiles

Declining crude and gasoline stockpiles in the U.S. also bolstered the market last week. Crude supplies dropped by 2.51 million barrels as of Aug. 12, Energy Information Administration data show. Gasoline inventories slipped 2.72 million barrels during the period. Stockpiles of both crude and gasoline remain at the highest seasonal levels in decades even after the declines.

“There’s a high level of uncertainty right now, so fairly small news can move the market a lot,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It still remains the case that we have a huge surplus of supply and aren’t going to see it disappear anytime soon.”

Money managers’ short position in WTI dropped to 163,232 futures and options. Longs, or bets on rising prices, increased 0.1 percent, while net longs advanced 56 percent, the most since July 2010.

In other markets, net-bearish bets on gasoline climbed 54 percent to 1,970 contracts. Gasoline futures rose 5.7 percent in the report week. Net-long wagers on U.S. ultra low sulfur diesel increased more than fivefold to 10,835 contracts. Futures advanced 9.8 percent.

More Rigs

A backlog of drilled but uncompleted wells, or DUCs, helps support the bearish case, said Ed Morse, head of commodities research at Citigroup Inc. in New York. There’s also been an upsurge in drilling as prices have climbed. U.S. producers added oil rigs for an eighth week, the longest run since April 2014, according to Baker Hughes Inc. data on Aug. 19.

The EIA increased its domestic output forecast for 2017 to 8.31 million barrels a day from 8.2 million projected in July, according to its monthly Short-Term Energy Outlook released Aug. 10.

“In the U.S., DUC completion and the drilling of new wells are changing the production outlook,” Morse said. “We might see U.S. production rise next year instead of falling.”


Energy Hasn’t Been This Hot Since They Invented Fire

Bloomberg, Nov 12, 2015

And the revolution is just beginning.

Nothing in the energy business can compete with oil for volatility, geopolitical drama, or sheer utility. Its low price per barrel, currently under $50, won’t last forever. But it may last through the year ahead.

What will be changing at a historic pace in 2016? Everything else. Gas. Coal. Solar. Wind. Batteries. Cars.

This is every energy source for itself, one clawing its way over another for markets, financing, subsidies, and friendly policies.

Coal is the biggest loser, broken and bleeding, as banks—Citigroup being only the latest—decline to lay out funds for new plants. New laws, such as President Obama’s Clean Power Plan, are locking in less polluting fuels, and the international climate movement is trying to zero out carbon emissions in the decades ahead. This year, the coal industry is expected to see its biggest drop in consumption ever.

Beyond coal’s pain, change is so monumental that it’s difficult to say who the winner will be. It’s easier to say what won’t be. Nuclear won’t. It’s kind of running in place, benefiting from its status as a low-carbon power source but suffering from its expense and most everyone’s reluctance to welcome new reactors in their backyards.

Natural gas is the coal killer, undercutting coal’s price as a power generation fuel. The abundance of American gas will keep the world market for liquefied natural gas supplied well through 2020. Low prices are great for destroying competitors, but they can leave investors hurting.

Renewables are no longer “alternative energy.” Solar power is competitive with fossil electricity in more and more places every year—watch China, India, and Chile in 2016. Global demand for the sun reached a new high this year, and solar is that rare thing that liberals and many free-market conservatives in the U.S. can agree to love. Wind power is cheaper than coal in Germany and the U.K., which may close all its coal plants by 2023.

Which brings us back to oil. Prices may stay low thanks to resilient U.S. output, renewed Iranian exports, and Saudi Arabia’s strategy to sell at whatever price it needs to maintain market share. And there’s a funny thing about oil that you might not have noticed. It doesn’t really compete with the other energy sources. It powers cars, ships, and planes. The others generate electricity.

So the true wild card for oil, beyond any 2016 price whips, is how fast cars start to run on electricity instead of gasoline. If electric vehicles unify transportation and generation, that would draw the lifeblood of civilization into the no-holds-barred energy slugfest.


$50 Oil for 15 Years Isn’t What Scares Bank of Russia Governor

Bloomberg, Oct 14, 2015

Elvira NabiullinaElvira Nabiullina

* Slow pace of economic overhaul is bigger worry for Nabiullina
* Russia remains hamstrung by corruption, weak institutions

Fifteen years of oil at $50 a barrel isn’t the worst nightmare for Russian central bank GovernorElvira Nabiullina.

“What worries me more is the pace of reforms in the economy that could stimulate private investment,” Nabiullina, 51, said in a Bloomberg Television interview on Tuesday. “What’s very important is a whole set of conditions to make Russia more attractive to private investments. And what’s worrisome is the pace of such changes.”

It’s a shot across the bow to PresidentVladimir Putin, who’s faced growing pressure from inside and outside the government for new measures to pull the world’s largest energy exporter out of its first recession in six years. While Russia has adjusted to the collapse in oil prices by allowing theruble to lose almost half its value since January 2014 and letting consumer demand bear the brunt of the downturn, its economy remains hamstrung by corruption and inefficiencies.

Russia ranks alongside Nigeria and Kyrgyzstan at 136th, out of 174 countries, in Transparency International’s 2014 ranking of perceived levels of corruption, down from 82nd in 2000, a year after Putin came to power. Its property rights rank 120th and the level of judicial independence 109th of 144 nations in the World Economic Forum’s latest Global Competitiveness Report.

Investment Crash

While compounded by U.S. and European sanctions and turmoil on commodities markets, the slump in Russian investment predates the standoff over Ukraine. It’s now reached 20 months, the longest stretch of declines since at least 1995, when Bloomberg started compiling the figures. September data set to be released next week will show capital spending fell 7.3 percent from a year earlier, according to themedian of 13 estimates in a Bloomberg survey.

The central bank forecasts the economy won’t return to annual growth until 2017, meaning Russia is on track for the longest recession in two decades. Gross domestic product will contract 3.9 percent to 4.4 percent this year and may shrink as much as 1 percent next year, according to a Bank of Russia forecast that projects oil staying at $50 in 2016-2018.

Putin’s Backing

While Putin scolded the central bank last year for not reacting more quickly to the currency crisis, he’s since rarely wavered in his support for Nabiullina, including her switch to a free-floating exchange rate last November. The policy shift was “correct and timely” despite “some negative consequences” for the economy and households, Putinsaid Tuesday at a conference organized by VTB Capital in Moscow.

The Bank of Russiasaid Wednesday that it won’t “artificially restrain the ruble rate,” responding to a report in the Financial Times that the government is discussing limits on how much the currency may strengthen against the dollar to ease the country’s economic dependence on commodities.

What Russia needs is a growth model based on crude prices that “aren’t very high,” according to Nabiullina, a former economy minister in Putin’s cabinet. The government, which relies on oil and gas for almost half of its revenue, is drafting next year’s budget by assuming an average oil price of $50 a barrel.

“The main thing for us now is to learn to live under the conditions of relatively low prices for oil,” Nabiullina said. “That’s the reality for which we must be mentally ready. The financial sector is ready for the reality that forced an adjustment in the balance of payments. Now the economy is adjusting to this reality”


Oil Surges the Most in Two Weeks After U.S. Inventories Decline

Bloomberg, Sep 16, 2015

* EIA reports 2.1 million-barrel drop in crude stockpiles
* Venezuelan proposals for oil-producers summit `advancing’

Oil rose the most this month after a government report showed U.S. crude inventories declined as refineries bolstered operating rates.

Stockpiles slipped 2.1 million barrels last week, according to the Energy Information Administration. Refineries increased operating rates for the first time since July, and supplies of gasoline and distillate fuels surged. Stocks of oil exploration and production companies rallied, while those of refiners fell.

Oil hasfluctuated since slumping below $40 a barrel last month as concern that China’s growth was slowing fueled volatility in markets. OPEC-member Venezuela’s proposals for an oil-producers summit are advancing, Foreign MinisterDelcy Rodriguez said after talks with Saudi Arabian officials.

“The major reason for the inventory decline is that refiners ramped up production,”Craig Bethune, a fund manager at Manulife Asset Management Ltd. in Toronto who focuses on energy and natural resources investments, said by phone. “They probably wanted to take advantage of the lower crude price.”

Surging Volume

West Texas Intermediate forOctober delivery rose $2.56, or 5.7 percent, to settle at $47.15 a barrel on the New York Mercantile Exchange. It was the highest close and biggest one-day gain since Aug. 31. Volume was 42 percent above the100-day average at 2:55 p.m.

Brent for November settlement climbed $2, or 4.2 percent, to end the session at $49.75 a barrel on the London-based ICE Futures Europe exchange.

E&P stocks in the Standard & Poor’s 500 index rose, led by a 6.1 percent gain for Apache Corp. as of 3:25 p.m. in New York. Marathon Petroleum Corp. led losses among refiners, with a 1.9 percent decline.

The stockpile gain left nationwide crude inventories at 455.9 million in the week ended Sept. 11, the EIA said. Supplies atCushing, Oklahoma, the delivery point for WTI contracts and the nation’s biggest oil-storage hub, declined by 1.91 million barrels to 54.5 million, the lowest level since March.

U.S.crude output slipped 18,000 barrels a day to 9.12 million last week, the lowest since November, the EIA said. Crudeimports dropped 270,000 barrels a day to 7.19 million, the least since July.

“Crude imports were down a second week, which is positive for the market,” James Mick, a managing director and portfolio manager at Tortoise Capital Advisors LLC in Leawood, Kansas, who helps manage $15.6 billion, said by phone. “We need to see imports drop off to work off these inventories.”

Refinery Upswing

Refineries increased operating rates by the most since April, the report showed. U.S. refiners typically slow during September to perform maintenance after the end of the summer peak driving season.

“The rise in refinery activity is counterintuitive for the time of year,”Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. “The product build was probably due to the crash in demand after Labor Day.”

Gasoline supplies climbed 2.84 million barrels to 217.4 million, the highest level in two months.Implied demand for the fuel dropped 0.4 percent to 8.98 million barrels a day, the least since May.

Inventories ofdistillate fuel, a category that includes diesel and heating oil, increased 3.01 million barrels to 154 million, rising a 17th week, which is the longest stretch of advances since 1988.

“There’s always a concern that you’ll move the glut from crude to the products,” Mick said. “That doesn’t seem to happened yet, but I’m concerned about distillate.”


Ruble Pain Threshold Seen Higher as Oil Slump Ravages Economy

Bloomberg, Aug 28, 2015


* Economists in survey see 80 per dollar as intervention trigger
* Russia may start draining reserves if oil settles at $40

The Bank of Russia is becoming more comfortable with a weaker ruble as sinking oil prices take their toll on the world’s largest energy exporter, economists said in a Bloomberg survey.

Thecentral bank will allow the ruble to weaken to 80 per dollar before selling foreign currency, according to the median estimate of 26 analysts. It will tap reserves to rescue the currency if oil slips to $40 a barrel and stays there through year-end, 19 of 30 economists in the Aug. 24-26 survey said.

Faced with Russia’s firstrecession in six years and the worst currency rout since a 1998 default, the central bank floated the ruble in November, sparking a slide of about a third against the dollar. Its commitment to that decision is being tested as a new round of energy-price weakness feeds into the currency. While that boosts the ruble value of dollar-based oil revenue, it also stokes inflation, curbing purchasing power, a major economic driver.

“The central bank doesn’t mind the ruble weakening as the budget painfully needs it to adjust to the low oil price,”Vladimir Miklashevsky, a strategist atDanske Bank, said by e-mail. “It seems the Bank of Russia has become more cautious with use of interventions or policy tightening as those measures haven’t historically brought any relief.”

The ruble is the world’s worst-performing currency in the past 12 months, sinking 45 percent, data compiled by Bloomberg show. It’s only oncebreached 80 per dollar, an all-time low, in intraday trading on Dec. 16.

The central bank last intervened the day before that as it raised its benchmark interest rate by 6.5 percentage points, the most in 16 years, to quell the currency storm. At that stage, the ruble was trading at about 64 per dollar. It also bought rubles at the end of January when the rate was near 69. The ruble traded 3.1 percent stronger at 66.72 on Thursday.

Policy makers will probably only use reserves on a limited and targeted basis, according toAndreas Schwabe, an economist atRaiffeisen Bank International AG in Vienna.

“It would be futile to burn tens of billions of dollars in the face of a low oil price,” he said by e-mail. “But there have to be measures in place to avoid market panics like last December.”

Policy makers are already providing support. The central bank will renew a 12-month loan program halted in June, and may prolong anti-crisis measures due to expire in October, GovernorElvira Nabiullina told a government meeting with PresidentVladimir Putin Wednesday.

Economists in a separate survey forecast that Russia’s economy will shrink 3.7 percent this year, worse than the 3.5 percent contraction they projected last month, before rebounding by 0.5 percent in 2016. The ruble trading weaker than 70 rubles per dollar for a sustained period would add another percentage point to this year’s slump, they said.

Gross domestic product maycontract“slightly” next year if oil prices average $40, Economy MinisterAlexei Ulyukayev told reporters Thursday, though he said there isn’t a high probability of this scenario playing out.

Crude prices aredown by more than a third from this year’s closing peak, reached in June, amid speculation that slowing demand in China will amplify a global supply glut.

Oil at $30 will begin to erode Putin’s popularity, which has surged past 80 percent since he annexed the Black Sea peninsula of Crimea from Ukraine in March 2014, according to the survey. Russia’s financial system will collapse if oil prices decline to $22.50, the analysts said.

“The Russian population’s tolerance for economic misery is higher than in any other even semi-developed economy,”Wolf-Fabian Hungerland, a Hamburg-based economist at Berenberg Bank, said by e-mail. “If one thing is certain about the Russian economy, it’s that Putin’s popularity isn’t carried by economic progress. When the economy nosedives, Russians adjust rather than panicking or turning against the Kremlin.”