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WTI 48.55 -0.46 -0.94%
79.30 Up 5.16(6.96%) 9:57AM EDT - Nasdaq Real Time Price
VelocityShares 3x Inverse Crude Oil ETN (DWTI)
WTI 48.51 -0.59 -1.20%
WTI 48.68 -0.42 -0.86%
WTI 48.81 -0.29 -0.59%
WTI 48.92 -0.41 -0.83%
WTI 49.47 +0.14 +0.28%
WTI: 49.60 +0.27 +0.55%
[color=red][/color]Why oil prices will head back toward $20 next winter
By Ivan Martchev
Published: May 26, 2016 3:46 a.m. ET
Demand is more important than the dollar for oil
One of today's more fascinating examples of a widespread misunderstandings of cause and effect is that of the relationship between the U.S. dollar and crude oil or, if you prefer, the larger definition of the same problem — the dollar vs. commodity prices.
Commodity prices are down over the last two years, but not because the dollar is strong. They are down because there is too much supply and not enough demand. That causes commodity-related currencies — such as the Brazilian real, Russian ruble, South African rand, and the Canadian and Australian dollars — to be weak against the U.S. dollar (from a long-term perspective, not a couple of months).
Then, there is the issue of the tapering of QE and the threat of more rate hikes in the U.S. (which should be cancelled, in my opinion), plus the acceleration of QE in the eurozone and Japan, and the global experimentation with negative interest rates.
The exchange rate of the U.S. dollar is a multi-variable equation and certainly not just a function of Fed policy, although that remains one of its rather important drivers. That said, there is a certain degree of reflexivity when the seasonal rally in oil is being mistaken for a major bottom.
“I can state the core idea in two relatively simple propositions. One is that in situations that have thinking participants, the participants' view of the world is always partial and distorted. That is the principle of fallibility. The other is that these distorted views can influence the situation to which they relate because false views lead to inappropriate actions. That is the principle of reflexivity. For instance, treating drug addicts as criminals creates criminal behavior. It misconstrues the problem and interferes with the proper treatment of addicts. As another example, declaring that government is bad tends to make for bad government."
—George Soros’ “General Theory of Reflexivity”
Oil demand tends to be stronger in the March-to-September period and much weaker during the fall and winter months. That's because more people live in the Northern hemisphere, so there is more oil consumed for transportation purposes during the warmer months. This seasonal rebound is also helping multiple commodity currency pairs, previously under pressure, to rebound and cause a decline in the Broad Trade-Weighted Dollar Index (see chart here).
With oil inventories high, and with global and U.S. production also at high levels, I think we are headed back toward $20 per barrel oil prices come next fall or winter. Since the seasonal rally in oil started in February — earlier than usual — the price may also top out earlier than it did last year.
I do not expect significant upside past the present level of crude oil prices, barring unforeseen escalation in military activity in the Middle East, which presently is experiencing a lull in disturbing headlines — which is not the same as a lull in actual hostilities. I think that the Broad Trade-Weighted Dollar Index will surpass the high we saw in January of this year when the oil price takes out its January low, which should happen in the next six to 12 months.
What commodities mean for a potential rate hike
This seasonal rebound in commodity prices has also helped many developed-market currencies like the euro. This commodity-price rebound is alleviating concerns about entrenched deflation in the eurozone, but I think this amounts to a false hope. I fully expect the euro to resume its decline and ultimately reach parity to the dollar (1:1), which may not be the end of its long-term decline.
The eurozone inflation rate is now -0.2%, while German inflation is 0.1% and German 10-year bunds yield a hefty 0.14%. European Financial Stability Facility 10-year bonds, which are currently being taken for eurozone-area "confederate" bonds, now yield -0.3%. It appears that the ECB QE maneuvers are "too little too late" and are not producing results on the eurozone deflationary front. This means that the ECB will likely accelerate QE, or eurozone deflation will get worse.
In either case, that means the EURUSD cross rate is likely headed lower. It is possible that both will happen — the ECB accelerates QE and the deflation picture gets worse — at which point the end result for the euro exchange rate is still a decline.
In this global deflationary environment, it has been fascinating to see plans for more Fed fund rate hikes, which I view as nothing but absurd. I don't think that the U.S. economy is that weak that it cannot handle somewhat higher interest rates, but I think the global economy is much weaker than the Fed appreciates.
I think the Fed could have gotten away with some more rate hikes if they had started a year or so earlier, but at this point, things have gotten so out of hand in Europe, Japan, and now China, that the present Fed rate-hiking cycle now looks ludicrous.
December fed fund futures (ZQZ16) rallied as high as 99.525 in reaction to the employment report, which market participants originally viewed as reason enough for rate hike cancellations. At present, Fed fund futures are again selling off on the renewed jawboning by the Fed over the past week for a June rate hike. I don't doubt the ability of the Federal Reserve to hike one more time in 2016, but that would be a mistake.
Ivan Martchev is an investment specialist with institutional money manager Navellier and Associates . The opinions expressed are his own. Navellier and Associates holds no positions in any investments mentioned in this article. This is neither a recommendation to buy nor sell the securities mentioned in this article. Investors should consult their financial adviser prior to making any decision to buy or sell the above mentioned securities. Investing in non-U.S. securities including ADRs involves significant risks, such as fluctuation of exchange rates, that may have adverse effects on the value of the security. Securities of some foreign companies may be less liquid and prices more volatile. Information regarding securities of non-U.S. issuers may be limited.
http://www.marketwatch.com/story/demand-is-more-important-than-the-dollar-when-it-comes-to-oil-2016-05-25?mod=MW_story_recommended_tab
WTI 48.81 -0.67 -1.35%
WTI 49.12 -0.36 -0.73%
WTI 49.39 -0.17 -0.34%
DWTI is at 72.44.
WTI Crude Tops $50 For First Time Since October Amid Supply Disruptions
Submitted by Tyler Durden on 05/26/2016 08:13 -0400
WTI and Brent Crude oil prices have both broken above $50 for the first time since October 2015 this morning - almost doubling off its Feb 11th 26.05 lows. The immediate catalyst appears to be a combination of inventory drawdowns in US crude, continud US production cuts, and further supply disruptions (Nigeria specifically), none of which scream demand or growth is going to make a dent in the glut.
July WTI tops $50...
“The immediate driver is a good draw on U.S. crude stockpiles, helping to nudge the price up a bit further,” says Ric Spooner, chief analyst at CMC Markets in Sydney. “The market hasn’t had any bad news to knock it off its perch but the price is likely to struggle if it gets into the $50s. There is still quite a bit of inventory around”
With July WTI back at its highest since 11/5/15...
As Bloomnerg notes, other factors seen driving prices higher include:
Canada wildfires said to cut 1m b/d or more of oil sands output; output still returning
Nigeria oil output slumps to 20-yr low amid series of attacks
Venezuela has difficulties maintaining output amid power cuts, restriction of field services and theft
U.S. active oil rig count shrinks to least since Oct. 2009
IEA raises 2016 world oil demand fcast by 100k b/d to 95.9m b/d, non-OPEC supply to drop 800k b/d to 56.8m; “global supply surplus of oil will shrink dramatically later this year”
But we note that while everyone celebrates the recent rally, the curve has actually flattened notably since Nov 2015...
Charts: Bloomberg
http://www.zerohedge.com/news/2016-05-26/wti-crude-tops-50-first-time-october-amind-supply-disruptions
Why oil jumping above $50 is actually disastrous for crude
By Sara Sjolin
Published: May 26, 2016 8:41 a.m. ET
Critical information ahead of the U.S. market’s open
Uh oh.
It happened — after weeks of dancing teasingly close to the $50 handle, Brent and WTI crude finally broke above the key mark.
And it’s been a long wait indeed. The last time Brent LCON6, +1.19% hugged $50 a barrel was back in early November, and it hit a 12-year low in the time since then, slumped to about $27 in January.
But since the winter, both Brent and West Texas Intermediate have staged a remarkable rebound, scoring gains of around a whopping 80%. Not bad for any asset class, this whole low-yield world considered.
Few predicted such a sharp comeback — definitely not Dennis Gartman, publisher of The Gartman Letter, who famously said oil wouldn’t even hit $44 in “my lifetime.” Nor the International Energy Agency, which warned at the start of the year the oil market “could drown in oversupply.”
As blogger Valueplays over at ValueWalk puts it: “Gotta love it ... as I’ve said before, oil is the only thing I know of that can go from glut to shortage in the blink of an eye.”
Enough with the history — traders are losing no time in moving on. The question this morning: Where will oil prices go next? Craig Erlam from Oanda says now we should be watching for $50 to $55 a barrel. But crude may struggle to reach that range, according to our call of the day.
http://www.marketwatch.com/story/why-oil-jumping-above-50-is-actually-disastrous-for-crude-2016-05-26
DWTI is at 69.36 in pre-market right now.
Looks like I added more DWTI too soon.
WTI 50.06 +0.50 +1.01%
Can Oil Prices Hold Onto Gains At $50 Per Barrel?
May 17, 2016, 4:18 PM
For the past few weeks, maintenance, sabotage, wildfire, strikes and rebel attacks have added to supply-side disruptions, as shown in the chart below. So now, everyone’s celebrating the disasters, and even ultra-bearish Goldman Sachs is suddenly bullish on oil—but how far is this rally really going to go?
Supply from Nigeria is at its lowest in decades; Canadian output has suffered due to massive wildfires, U.S. oil production is at 8.8 million barrels per day owing to the bankruptcies of shale oil drillers, and Venezuela is in a crisis that could reduce its output by more than 188,000 b/d. Oh, and the majority of Libya’s production from its eastern fields has been sidelined due to rival government squabbling that’s left its eastern port under blockade.
Related: Oil Markets Balancing Much Faster Than Thought
Considering the shortages, Goldman has revised its forecast of crude oil prices for the second quarter of 2016 from $35/b to $45/b. For the second half of the year, the bank expects prices to touch $50/b.
However, for the first quarter of 2017, the bank forecast $45/b, but by the end of next year, the bank believes crude oil can reach $60/b.
"The oil market has gone from nearing storage saturation to being in deficit much earlier than we expected," Goldman said. "The market likely shifted into deficit in May ... driven by both sustained strong demand as well as sharply declining production," the investment bank said.
According to the International Energy Agency (IEA), non-OPEC supply dropped by 125,000 barrels a day (b/d) to 56.6 million b/d, whereas OPEC supply rose by 330,000 b/d to 32.76 million b/d.
The rise in OPEC production is due to Iran increasing its output to pre-sanction levels. Iran produced 3.56 million b/d crude oil in April, out of which it exported 2 million b/d of oil.
The OPEC nations consider the current outages in supply as an opportunity to support prices, hence, Kuwait’s Deputy Foreign Minister Khaled Jarallah has called upon Iran to consider freezing production. "Iran should learn from the market. The market does not give an opportunity to increase production," Mr. Jarallah said, according to the state news agency KUNA.
However, the Iranian Minister of Petroleum Bijan Zangeneh rejected the freeze demands and reiterated the nation’s resolve to increase production to 4 million b/d.
On the demand side, the EIA has maintained the growth of 1.2 million b/d for 2016 and has cautioned that any revision is likely to be on the upside.
“Any changes to our current 2016 global demand outlook are now more likely to be upward than downward, as gasoline demand grows strongly in nearly every key market, more than offsetting weakness in middle distillates,” the IEA said, reports the Wall Street Journal.
Amid all the bullish news and rising prices, it’s important to note that the oil producers and merchants have increased their short positions to the highest levels since September 2011, according to Commodity Futures Trading Commission data for the week ending 10 May 2016.
Hence, a further increase in crude oil price is likely to face stiff resistance near the $50/b mark.
“Price has been making an unbroken series of higher highs and higher lows amidst a weaker fundamental environment of higher supply. Strong resistance is expected around $48-$49 [per barrel] levels for WTI and $50-$51 [per barrel] for Brent,” said Gnanasekar Thiagarajan, a director with Commtrendz Research, told Gulf News.
Ole Hansen, head of commodities strategy at Saxo Bank also echoed a similar opinion. “While we may see a pop towards $50 per barrel during the current quarter, the risk increasingly remains skewed to the downside,” Mr. Hansen said.
Once prices reach and stay close to the $50/b mark, all eyes will shift to the two dark horses, Iran, and the U.S. shale oil drillers. Both are capable of offsetting any temporary supply outage.
Oil prices have already played out the upside target projected by Goldman Sachs. Hence, traders should exercise caution while taking any fresh long positions considering strong overhead technical resistance.
By Rakesh Upadhyay for Oilprice.com
http://oilprice.com/Energy/Energy-General/Can-Oil-Prices-Hold-Onto-Gains-At-50-Per-Barrel.html
Something Stunning Is Taking Place Off The Coast Of Singapore
Submitted by Tyler Durden on 05/20/2016 23:58 -0400
"I've been coming to Singapore once a year for the last 15 years, and flying in I have never seen the waters so full of idle tankers,"
- Senior European oil trader a day after arriving in the city-state.
Back in November, when the world-record crude inventory glut was still in its early innings, we showed what we then thought was a disturbing image of dozens of oil tankers on anchor near the US oil hub of Galveston, TX, unwilling to unload their cargo at what the owners of the oil thought was too low prices.
* * *
Little did we know that just a few months later this seemingly unprecedented sight of clustered VLCCs would be a daily occurrence as oil producers, concerned by Cushing hitting its operating capacity, would take advantage of oil curve contango to store their oil offshore indefinitely.
However, while the "parking lot" off Galveston has since normalized, something shocking has emerged and continued to grow half way around the world, just off the coat of Singapore. This.
The red dots show ships either at anchor or barely moving, either oil tankers or cargo, which have made the Straits of Malacca, one of the world's most important shipping lanes which carries about a quarter of all seaborne oil primarily from the Persian Gulf headed to China, into a "bumper to bumper" parking lots of ships with tens of millions of barrels in combustible cargo.
it is also the topic of the latest Reuters expose on the historic physical crude oil glut which continues to build behind the scenes, and which so far has proven totally immune to dissipation as a result of the sharp increase in oil prices over the past three months.
Indeed, as Reuters notes, prices for oil futures have jumped by almost a quarter since April, lifted by severe supply disruptions caused by triggers such as Canadian wildfires, acts of sabotage in Nigeria, and civil war in Libya. And yet flying into Singapore, the oil trading hub for the world's biggest consumer region, Asia, reveals another picture: that a global glut that pulled down prices by over 70 percent between 2014 and early 2016 is nowhere near over, and that financial traders betting on higher crude oil futures may be in for a surprise from the physical market.
"I've been coming to Singapore once a year for the last 15 years, and flying in I have never seen the waters so full of idle tankers," said a senior European oil trader a day after arriving in the city-state.
As Asia's main physical oil trading hub, the number of parked tankers sitting off Singapore's coast or in nearby Malaysian waters is seen by many as a gauge of the industry's health. Judging by this, oil markets are still sickly: a fleet of 40 supertankers is currently anchored in the region's coastal waters for use as floating storage facilities.
The glut is not only constant but is rising with every passing week: the tankers are filled with 47.7 million barrels of oil, mostly crude, up 10 percent from the previous week, according to newly collected freight data in Thomson Reuters Eikon.
What is curious is that the glut is persisting despite seemingly relentless demand by China. Earlier today Bloomberg calculated that 74 VLCCs are bound for China, the highest in 3 weeks, and up from 69 a week earlier. Still the inert glut off Singapore is enough oil to satisfy five working days of Chinese demand, suggesting recent supply disruptions - which have mostly occurred in the Americas, Africa and Europe - have done little to tighten supply in Asia as Middle East producers keep output near record volumes in a bid to win market share.
"The volumes of oil stored at sea in South East Asia - predominantly Singapore and Malaysia - appear to have increased significantly," said Erik Broekhuizen, Global Manager of tanker research and consultancy at New York-based shipping brokerage Poten & Partners. "The current volumes are the highest for at least the last five years."
What is taking place in the oil market appears to be merely the latest disconnect between the paper and physical markets, something quite familiar to precious metals traders in recent years. As Reuters notes, many participants in the physical market dispute recent notes from financial players like Goldman Sachs that forecast a further rise in crude futures. "There has been quite a bit of bullishness from hedge funds in recent months, betting on higher oil prices, and even the analysts at Goldman Sachs have recently turned more bullish on oil prices," said Ralph Leszczynski, head of research at ship broker Banchero Costa.
"Prices are unlikely to rise too much as the specter of glut is still there," he said. However, Leszczynski may be discounting just how powerful algo-driven momentum can be if, or especially when, it is completely disconnected from fundamentals.
* * *
While the sight of tankers at anchor is nothing new, this time something has changed.
Unlike before, when the contango of the oil curve made storing oil offshore profitable, this is no longer the case as contago-funded offshore profits have all but disappeared.
As a reminder, storing oil on ships can be profitable when prices for future delivery of crude are higher than in spot market, a term structure known as contango, as long as future prices are high enough to offset tanker charter costs. However, with the one-year contango for Brent futures collapsing from $7.60 per barrel in January to just $4, far below the $10 that traders say is currently required to make floating storage financially attractive, suddenly parking oil offshore leads to storage losses. The same goes for WTI.
At a charter cost of more than $40,000 a day for a Very Large Crude Carrier (VLCC) that can store 2 million barrels, the contango is nowhere near steep enough to make it profitable to store oil on tankers for sale at a later date.
This has led to a dramatic development in the oil market: debt-funded storage. Reuters writes that the need to store oil is so strong that traders are calling up banks to finance storage charters despite there being no profit in keeping fuel in tankers at current rates.
"We are receiving unusually high amounts of queries to finance storage charters," said a senior oil trade financier with a major bank in Asia. "These queries come from traders fully aware that they will not make a profit from storing the oil. This isn't a trade play, it's the oil market looking for places to store unsold fuel," he added.
So why are the traders doing this?
Simple: they hope that oil prices will rise fast and soon enough where the capital appreciation in crude will more than make up for the incurrence of new debt which will be repaid with proceeds from "selling higher." The risk, of course, is that oil does not rise and should prices tumble, traders will not only have a capital loss on their hands, but be forced to deal with the excess leverage they had hoped would promptly disappear.
To be sure, while we have warned in the past about the danger of offshore storage becoming unprofitable and being brought back onto the land market, in the process launching a liquidation dumping scramble, it has never been this bad. A trade financier at a European bank said there had been a "spike in interest from oil traders to finance their storage needs" since the start of the year as onshore facilities were almost full.
Still, with record amounts of oil stored offshore and with the profit on such storage now shifting into a loss, many are scratching their heads how much longer this imbalanced, and bank funded, situation can persist.
"Floating storage is unattractive economically, given the current term structure in crude futures," BMI Research said this week. Despite this, BMI said that "the volume of crude in floating storage has risen sharply in recent months," adding that the phenomenon was global, with floating storage up 19.5 percent between the first quarters of 2015 and 2016.
"There is clearly still far too much physical crude going around for the glut to be over," said the European oil trader after flying in to Singapore.
The trader's conclusion: "And the paper market seems blissfully unaware of it."
He is right... for now. Because all that will take for even the algos to give up their relentless upward momentum, is for some of these tens of millions of barrels to finally come onshore, which now that contango is no longer profitable, is just a matter of time.
In the meantime, just keep track of the unprecedented parking lot of ships off the coast of Singapore: the larger it gets, the more violent the price drop will be once banks say “no more" to funding money losing charters.
http://www.zerohedge.com/news/2016-05-20/something-stunning-taking-place-coast-singapore
WTI 49.08 +0.31 +0.64%
WTI 48.85 +0.08 +0.16%
WTI 48.27 +0.08 +0.17%
One needs to be "quick" on weeks like this!
GLTA
WTI 46.84 -1.35 -2.80%
WTI 47.28 -0.91 -1.89%
Day's Range: 46.98 - 48.11
WTI 48.57 +0.26 +0.54%
Senate passes bill allowing 9/11 victims to sue Saudi Arabia
By Jordain Carney
May 17, 2016, 12:35 pm
The Senate on Tuesday approved legislation that would allow victims of the 9/11 terror attacks to sue Saudi Arabia, defying vocal opposition from the White House.
The upper chamber approved the Justice Against Sponsors of Terrorism Act by unanimous consent.
"This bill is very near and dear to my heart as a New Yorker because it would allow the victims of 9/11 to pursue some small measure of justice," Sen. Charles Schumer (D-N.Y.) said. "[This is] another example of the [John] Cornyn-Schumer collaboration, which works pretty well around here."
President Obama has threatened to veto the bill. Schumer said he wouldn’t uphold a veto, and expects that most senators wouldn't, either.
"I think we easily get the two-thirds override if the president should veto," Schumer said.
Sen. John Cornyn (R-Texas) said he and Schumer are talking with leadership in both parties to get an "expedited" vote on the bill in the House.
White House press secretary Josh Earnest reiterated Obama's opposition to the bill on Tuesday.
“Given the concerns we have expressed, it’s difficult to imagine the president signing this legislation,” Earnest said.
The bill would allow victims of terror attacks on U.S. soil or surviving family members to bring lawsuits against nation-states for activities supporting terrorism.
Despite bipartisan support for the legislation, it hit a snag last month when Sen. Lindsey Graham (R-S.C.) said he was blocking the legislation over concerns it would open up the U.S. to lawsuits from foreigners accusing Washington of supporting terrorism.
But Graham's office said he dropped his hold over the recent recess. Cornyn thanked Graham and other GOP senators for "their willingness to work with us to deal with their concerns."
The legislation will now head to the House, where lawmakers have also introduced their own version of the bill.
Speaker Paul Ryan (R-Wis.) has voiced skepticism about the legislation.
"I think we need to look at it," Ryan told reporters last month. "I think we need to review it to make sure we are not making mistakes with our allies and we're not catching people in this that shouldn't be caught up in this."
The comments created a rare area of agreement between GOP lawmakers and the White House, which struggled to convince Democrats that the legislation could undermine national security.
Earnest told reporters last month that he was "gratified" by Ryan's comments.
The legislation has also drawn criticism from the Saudi government. Top Saudi officials reportedly threatened to sell off billions of dollars in U.S. assets if Congress passed the bill.
Saudi Arabia's foreign minister, Adel al-Jubeir, pushed back against the reports in Geneva earlier this month while warning that the legislation could impact Saudi investments, according to Reuters.
The senators pressed back against criticism that the legislation targets Saudi Arabia, noting that the legislation only allows a lawsuit.
"Look, if the Saudis did not participate in this terrorism, they have nothing to fear about going to court," Schumer said. "If they did, they should be held accountable."
Cornyn called the potential that Saudi Arabia could sell U.S. assets a "hollow threat," saying, "they're not going to suffer a huge financial loss in order to make a point."
Updated at 2:36 p.m. Jordan Fabian contributed.
TAGS:Charles Schumer, Lindsey Graham, John Cornyn, Paul Ryan
http://thehill.com/blogs/floor-action/senate/280179-senate-passes-bill-allowing-9-11-victims-to-sue-saudi-arabia
Energy Bankruptcies Accelerate
BY ERIN AILWORTH AND STEPHANIE GLEASON
SandRidge Energy Inc., an early player in the American shale boom and onetime Wall Street darling, became the latest oil and gas company to file for bankruptcy Monday in what is becoming the largest wave of corporate restructurings since the financial crisis.
The Oklahoma City-based driller is the fifth energy company to file for bankruptcy in five days, part of an accelerating parade of defaults in a sector that has been struggling with low oil prices for more than 18 months.
Some 77 North American energy companies have now declared bankruptcy since the start of 2015, soon after oil prices collapsed from a peak of more than $100 a barrel and began weighing on balance sheets, according to Houston law firm Haynes & Boone LLP.
This year, 175 oil-and-gas producers around the world are in danger of declaring bankruptcy, and the situation is nearly as dire for another 160 companies, many in the U.S., according to a report from Deloitte’s energy consultants.
Casualties of the bust will continue even though the price of crude has rebounded to more than $47 Monday since hitting a 13-year low of around $26 a barrel in mid-February. For many American oil companies, the oil market’s revival is too little, too late.
Most of the companies facing financial duress are small and midsize U.S. shale producers and the service companies that help them drill. Fueled by cheap debt from Wall Street, these companies rapidly expanded over the last decade as the U.S. unlocked vast new oiland- gas reserves with advanced technologies like hydraulic fracturing, or fracking.
Linn Energy LLC, Berry Petroleum Co. and Penn Virginia Corp. all filed in recent days in Texas; Breitburn Energy Partners LP declared bankruptcy late Sunday in a New York court. Exco Resources Inc. said Friday that it hired advisers and formed a special committee to explore alternatives, including seeking bankruptcy protection.
“Keep an eye out, there’ll be more,” said Charles Beckham Jr., a law partner at Haynes & Boone. “For the industry it’s kind of a dreadful watch.”
A subsidiary of American Energy Partners LP, a firm formerly led by late shale pioneer Aubrey McClendon, has defaulted on a $450 million loan, according to people familiar with the situation.
SandRidge was created in 2006. Above, one of its rigs in Kansas.
ORLIN WAGNER/ASSOCIATED PRESS
Oil and gas companies this year have defaulted on $26 billion, according to Fitch Ratings data. That figure already surpasses the total for 2015, $17.5 billion.
These numbers have driven the number of corporate defaults overall to levels not seen since 2009, according to S& P Global Ratings.
Investors poured capital into American oil producers when prices were high, and many companies pursued wells that were only economic when the price of crude was $70 or more. As oil prices began to plunge in the fall of 2014 due to a global glut the U.S. drillers helped create, much drilling activity from Texas to North Dakota to Pennsylvania became unprofitable.
SandRidge, created in 2006 by Tom Ward, who co-founded Chesapeake Energy Corp. with Mr. McClendon in 1989. Mr. Ward paid $500 million to take control of a natural-gas producer, which he renamed SandRidge and built into a leading shale producer with a market capitalization of more than $11 billion.
The company attracted an array of investors including TPG-Axon Capital Management LP and Mount Kellett Capital Management LP. Each lost more than $150 million in the company’s decline, as did a longtime supporter of Mr. Ward, veteran Canadian investor Prem Watsa, the Journal reported earlier this year.
On Monday, SandRidge said it had reached a prearranged debt-restructuring pact with creditors, which still requires court approval, to swap $3.7 billion in debt for control of the company. The plan should allow SandRidge to emerge from bankruptcy in short order, said James Bennett, who became its chief executive after Mr. Ward was ousted by activist investors in 2013.
SandRidge completed several debt deals in 2015, including a $50 million equity-fordebt exchange and $1.25 billion private offering of second- lien notes last May.
Funds raised in the private offering were used to repay money borrowed from Sand-Ridge’s revolving credit line. Issued at par, that debt recently traded hands at just 34 cents, according to Fitch Ratings. Current shareholders aren’t expected to recover anything in the company’s bankruptcy. —Lynn Cook and Matt Jarzemsky contributed to this article.
Oil and gas firms this year defaulted on $26 billion, says Fitch Ratings.
WTI 48.17 -0.14 -0.29%
Will Supply Disruptions Actually Dent The Global Oil Glut?
By Ellen R. Wald, Ph.D.
CommoditiesMay 17, 2016 06:30AM ET
The big question this week is whether supply disruptions will make a dent in the oil market’s ever-present global supply glut.
The answers in a nutshell: disruptions in Nigeria, Canada, and Libya are likely transient, whereas Venezuelan production poses a long-term problem. U.S. production will continue its slow decline, even if oil prices reach $50. On the other side, Iranian production will continue to increase—slowly—and Saudi Arabia will increase production rapidly. As for where the price of oil is headed – your guess is as good as mine.
Nigeria
The Nigerian National Petroleum Company generally produces about 2.5 mbpd, making it Africa’s largest oil producer. However, recent acts of terrorism and sabotage have cut this number to 1.65 mbpd. Both Shell (NYSE:RDSa) and Chevron (NYSE:CVX) have suspended oil production in areas affected by this activity.
Insurgencies targeting Nigeria’s oil production are not a new phenomenon. In fact, Nigeria’s previous president, Jonathan Goodluck, pioneered a program in 2009 that provided former oil terrorists in the Niger Delta region with monthly stipends to keep them from attacking oil facilities. This seemed to keep a lid on violence in the region. Nigeria’s new president, Muhammadu Buhair, recently reduced the program’s funding by 70% and would like to cancel it entirely within two years.
The Niger Delta Avengers (who perpetrated the most recent attack on an offshore oil platform) claim to be fighting for independence for the Niger Delta and also demand a larger share of oil profits. If Nigeria can clamp down on this latest wave of attacks (which it appears to be doing in a recent series of arrests) and placate the militant separatists, then the country should be able to recover production in the short-term. The fact that the issues are political rather than structural suggests that oil investment and production should not suffer for long.
In fact, Exxon (NYSE:XOM) just announced plans to ramp up Nigeria crude production this week.
Canada
Wildfires in the Alberta tar sands region caused about a 1 mbpd drop in Canadian oil production over the past two weeks. The EIA expects some delays and outages throughout the summer, but the EIA does expect production to recover by the fall. However, other sources say that Canadian production will recover much sooner, likely by the end of May. This is one reason to doubt the usefulness of the recent Goldman Sachs forecast, which cites supply disruptions in Canada as a significant factor in resolving the global oil glut.
Libya
Production from Libya should be at about 1.5 mbpd, but attacks from Islamic militants and violent factional fighting throughout the country have caused significant disruptions (on the scale of 75%) to that supply. In particular, a political rift has grown and caused a short-term UN embargo when a faction in eastern Libya tried to illegally export oil outside of the Libyan National Oil Corporation. The UN blockaded oil from the eastern group’s port, resulting in additional supply disruptions over the past two weeks. However, the blockade has since been partially lifted and the two factions appear to be moving towards a compromise. Only 150,000 bpd remain embargoed. (This is a miniscule amount, compared to the nearly 100 million bpd consumed globally). According to the IEA, once the remaining ports are reopened, Libyan production could immediately grow by 700,000 bpd.
Venezuela
In 2015, Venezuela produced about 2.78 mbpd of oil. The country’s economic woes, including significant outages in electricity production (Venezuela largely relies on hydroelectric for domestic power, not oil) have stunted its oil production by at least 188,000 bpd. The dire economic situation in Venezuela promises to exacerbate and prolong their production failures. There is no guessing how low Venezuela’s production levels may get in the coming months due to extreme austerity and economic and political upheaval.
Of all the supply disruptions addressed here, Venezuela’s will have the most significant impact on the market, because the problems facing its oil production are structural and have been brewing for many years. Other than securing a temporary bandage via an “oil for loans” deal with China for about $50 billion, the Maduro government does not seem to have any plans to alleviate the situation. Right now, estimates indicate Venezuela would need sustained prices of $80 per barrel just to get production back up to 2015 levels. Until Venezuela improves its production capacity, it cannot bring in the revenue it needs; and Venezuela cannot improve its production capacity until it brings in more revenue.
Iran
Iranian oil production appears to be up at 4 mbpd, but political issues have stymied the release of new terms for its foreign oil contracts. Since the New Year, Iran has increased its oil delivery contracts, signing new ones with ENI (NYSE:E), Total(NYSE:TOT) and South Korea. Iran hopes these contracts will lead to investment in Iran’s aging oil industry. As of yet, only the Chinese have been willing to return to Iranian oil development at pre-sanction oil contract terms. However, the latest news is that Iran will have its foreign oil contracts ready in June … or perhaps July.
Saudi Arabia
Despite recent changes in the Saudi oil ministry, there are few questions about the world’s largest oil producer’s intentions. Oil production in Saudi Arabia is set to rise. Production in Saudi Arabia generally grows during the summer months to accommodate increased domestic electricity demands, but this planned expansion is more long-lasting. Citing growing demand from India and China, Aramco is planning to bring additional capacity online from its Shaybah field shortly and from its Khurais field in 2018. Shaybah alone will bring an additional 1 mbpd to the market.
United States
American oil production continues to slowly decline as additional shale oil companies file for bankruptcy. Since 2016, about 69 oil and gas producers in North America have filed for bankruptcy protection. Despite the recent rise in the price of oil, the financial troubles continue. Fourteen oil companies have filed for bankruptcy since April, some with debt in the billions of dollars. Even with oil prices edging towards $50 (a price which may not be sustained), more firms are likely to file, leading to further decreases in production and the continued slow process of consolidation.
Will Supply Disruptions Actually Dent The Global Oil Glut?
http://www.investing.com/analysis/will-oil-supply-disruptions-dent-the-global-glut-200130246
May 17, 2016 06:30AM ET
Oil was up on news (which will be temporary) of outages in Nigeria and interruptions in Venezuela.
Is Glencore Manipulating The Price Of Oil: Swiss Trader Holds Over 30% Of June Brent Supply
Submitted by Tyler Durden on 05/12/2016 20:43 -0400
While oil bulls were delighted by yesterday's DOE news of an inventory drawdown refuting the prior day's API news of a major build, what was ignored was the build in Cushing storage (more on that shortly), which according to Genscape hit a utilization just shy of 80%, or more than 70 million barrels, a record high since Genscape began monitoring the hub in 2009. To be sure, the risk of running out of land storage has been one we have previously discussed on various occasions and hinted that one way this is being circumvented is with substantial amounts of oil being stored on tankers at sea, mostly by commodity trading companies who take advantage of the oil contango to generate month to month profits as producers choose to keep their product away from the market until prices rise.
As it turns out, not only is this the case, but according to Reuters, one particular energy trader - a name well-known to Zero Hedge readers - Glencore, has built up a massive inventory stake in the Brent market where it now holds an unprecedented 30% position in Brent, which it is holding for offshore storage in its tankers in hopes of pushing the price of Brent, and thus the entire energy complex higher, by limiting supply.
As Reuters details, citing trade sources, Glencore has built up one of the largest positions in part of the Brent crude market which acts as a benchmark for global oil prices since the start of the year.
For those unfamiliar, the Brent market is based on four North Sea crude oils - Brent, Forties, Oseberg and Ekofisk, or BFOE. And, according to Reuters Glencore is quietly cornering the Brent market, by holding more than a third of the 37 BFOE cargoes loading in June and is expected to acquire more.
The report details that Glencore has been acquiring June BFOE cargoes through the "chains" - a forward market in which cargoes soon to be assigned loading dates are traded, according to trade sources citing data from pricing agency Platts.
"It's definitely a bold statement of market view by Glencore," said a trading source with another company operating in the North Sea. "You'd have to be in their heads and in their books to know exactly what's going on."
To be sure, Glencore has been alleged to "warehouse" oil previously, most recently in January when Bloomberg reported that "Glencore is said to be storing oil on ships off the coast of Singapore and Malaysia as a market structure known as contango allows traders to benefit from holding on to supplies for sale later. The commodities trader has at least 4 very large crude carriers, each of which can hold about 2 million barrels, floating at sea off the nations’ coast in Southeast Asia."
However taking advantage of contango for contango purposes is one thing. Attempting to corner the entire market is something entirely different, and has direct implications on the price of oil, something Glencore can further benefit from if it were to be concurrently long Brent.
According to Reuters, just under half of June's supply of the four benchmark crude grades amounts to nearly 10 million barrels of oil - over 10 percent of daily world production. "Glencore have got big positions all over the place in BFOE," said another North Sea trading source. "They are consistently keeping cargoes in the chains."
The company has taken this position as supply underpinning the Brent contract is set to be smaller than in a typical month. In June, output of the BFOE crudes will fall to 740,000 barrels per day - the lowest in almost two years - mainly because of maintenance at Ekofisk oilfields. This, say analysts, helped Brent futures for June delivery strengthen against the July contract and eventually trade at a premium - a structure known as backwardation and unusual when supply is generally ample.
It also means that Glencore was likely losing money on the actual month to month roll of its inventory, however it was more than offsetting losses if it was concurrently long Brent as removing 30% of the overall market supply has certainly pushed the price of Brent notably higher.
Reuters sources agreed with this assessment: "Glencore have obviously been very bullish," the first trade source said. "Part of the explanation would be that they recognised there would be next to no Ekofisk around and the North Sea market would tighten up. So, why not?"
Why not? Well, because to some this stockpiling reeks of manipulation of the price by keeping a major amount of monthly supply off the market. And snce Brent and WTI tend to trade largely in tandem, the answer to "why not" is because millions of consumers would end up paying far more at the pump than if Glencore was not choking supply just to boost its own earnings.
One way to see the impact of this may be to look at the strip which both in Brent and WTI has flattened substantially as can be seen on the chart below, as prompt month manipulation by the likes of Glencore pushes spot higher even as hedgers and long-term investors continue to sell the long end on expectations of declining future prices.
With the expiry of the June Brent futures contract at the end of April, the spread between the first-month Brent contract moved to a discount to the second month, known as contango and a more typical structure when supply is ample.
Trading houses such as Glencore, along with rivals Vitol, Trafigura, Gunvor and Mercuria, buy and sell physical commodities, from natural gas, to copper or crude oil, moving millions of tonnes of raw materials around the world each year. But because there are a small number of participants in the Brent market and it is far easier to manipulate the price, and it is therefore both not uncommon, and in fact frequent, for them to take large positions, which sometimes lead to unusual patterns in related physical and paper markets, according to other traders.
Glencore is not the first one who has done this: in January, Shell accumulated a large number of Forties cargoes and was expected to ship many of them to South Korea. This coincided with the last time the first-month Brent contract traded in backwardation to the second.
As for the market impact on both Brent (and indirectly WTI) it is elementary finance that when supply is throttled, the equilibrium price will rise substantially, as has been the case in recent weeks.
Finally, one question remains: who benefits? Well, one look at the net spec Brent long position shows that someone has been very bullish the Brent price. In fact, as of the past few weeks, net specs longs have never been higher.
And now that we know which trader has been cornering the Brent physical market, we can also make an educated guess which (same) trader has also made huge profits by betting on the recent surge in the price of Brent. Which, since the (same) trader controls the actual supply of Brent, is about as close to a “no-brainer” trade as we have ever seen.
http://www.zerohedge.com/news/2016-05-12/glencore-manipulating-price-oil-swiss-trader-holds-over-30-june-brent-supply
WTI 46.19 -0.51 -1.09%
Gold Hurt By Dollar Strength As Indecision Haunts All Markets
Thursday May 12, 2016 18:23
It’s hard to label recent action in markets across the board as volatile. It is more a matter a sort of indecisive approach first by traders in equities, switching then to precious metals, then crude, then currencies, then bonds – round and round and round we go.
Different instruments, sectors and stocks have been operating independently rather than as a unified herd. Strength within groups of stocks has been rotating, as well.
Crude oil is off its settlement high of 46.70, which in turn is off its 6-month high. There is some chatter about an improvement in the demand landscape and some speculation that Venezuela, Libya and Nigeria were being forced to cut back production for various reasons peculiar to each country.
There was a 550K-barrel build in reserves at the Cushing, (Oklahoma), stockpiles facilities. This happened in spite of the Alberta fire last week when 1 million bpd were off line.
Demand? Higher gasoline prices suppress demand. And we are entering the warm months when there is virtually no demand for heavy home oils except for that used to heat water.
We remain unconvinced of a longer-term rally in crude futures. Maybe $50 or $55 per barrel is possible but at that point, all hell breaks loose as the U.S. shale sector dives back into the market with a vengeance.
Gary Wagner
Thegoldforecast.com
http://www.kitco.com/commentaries/2016-05-12/Gold-Hurt-By-Dollar-Strength-As-Indecision-Haunts-All-Markets.html
I added some Big D pre-market this morning at 81.87.
WTI 46.80 +0.57 +1.23%
WTI 46.17 -0.06 -0.13%
HOD for WTI was 46.22 so far. How high will it go today?
WTI 44.74 +0.08 +0.18%