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Crude Tumbles Below $50 After Biggest Cushing Build Since Jan 2009
Crude prices are lower this morning following API's huge reported build at Cushing (biggest since 2008) and fears over OPEC deal realities. With expectations for a crude draw (on lower imports), DOE confirmed a bigger than expected overall draw but also Cushing saw a 3.78mm barrel build - the biggest since Jan 2009. Both Distillates and Gasoline (most since Jan) also saw bigger than expected builds as US production dropped very modestly.
API
Crude -2.21mm (-1.37mm exp)
Cushing +4.01mm (+2.87mm exp) - biggest since 2008
Gasoline +828k (+1.59mm exp)
Distillates +4.08mm (+1.24mm exp)
DOE
Crude -2.389mm (-1.37mm exp)
Cushing +3.783mm (+2.87mm exp) - biggest since Jan 2009
Gasoline +3.425mm (+1.59mm exp) - biggest since Jan 2016
Distillates +2.501mm (+1.24mm exp)
Biggest Cushing build since Jan 2009 offsets the bigger than expected draw in crude overall...
Here is the breakdown, courtesy of Reuters.
Commercial crude stocks -2.4 million bbl to 486 million bbl last week, now +32 million bbl (+7.1%) above prior year level
Crude imports jumped last week to 8.3 million b/d, up from 7.5 million b/d the prior week.
Gasoline stocks rose +3.4 million bbl to 230 million bbl last week and are now +11.9 million bbl (+5.4%) above 2015 level:
Distillate stocks rose +2.5 million bbl to 157 million last wk at time of year when they would normally be falling thanks to warm weather
* * *
As Bloomberg notes, demand for petroleum products fell to the lowest levels since February. Not uncommon for this time of year.
As the US rig count continues to rise so the trend of US crude production has turned, but it dropped very modestly over the last week...
And the reaction in crude (after overnight weakness but energy stock strength) was evident, breaking back below $50...
Energy stocks - which were up almost 1% with oil already lower - have tumbled back to unch...
In context, OPEC deal gains are disappearing...
Notably the surge in Cushing inventories has put more pressure on the front-month spread...
http://www.zerohedge.com/news/2016-12-07/crude-tumbles-below-50-after-biggest-cushing-build-2008
Why Rigs Could Boost Your Bearish Bets
By Robert Scott | Dec 7, 2016 8:31 am EST
Key Insights into Crude Oil Market: How Will Prices Move? PART 2 OF 4
Latest oil rig data
The US crude oil rig count was 477 in the week ended December 2, 2016, a rise of three rigs compared to the previous week, according to data released by Baker Hughes (BHI).
Why Rigs Could Boost Your Bearish Bets
On December 6, 2016, crude oil (USO) (USL) (OIIL) (DWTI) (UWTI) (SCO) prices were ~52.5% lower than their post-2008 crisis high on June 20, 2014, based on closing prices.
Oil prices started their downturn on June 20, 2014. Since then, the number of active oil rigs has fallen 69.1%. US crude oil production is ~9.5% lower than it was at its peak in June 2015, according to weekly data from the EIA (U.S. Energy Information Administration).
Rig counts, crude oil production, and prices
Over the past ten years, the oil rig count’s bottoms and peaks and the crude oil price bottoms and peaks have been between three and four months apart, according to research from Morgan Stanley. After the subprime crisis, when crude oil touched multiyear lows in January 2009, the rig count bottomed out in May 2009.
Crude oil touched a 12-year low on February 11, 2016, but it had rebounded 94.3% by December 6, 2016. According to the pattern mentioned above, the rig count should have hit bottom in June 2016.
The rig count rose for the first time in 11 weeks in the week ended June 3, 2016. The count has risen 152 rigs as of the week ended December 2, 2016, a rise of 50.9% from its bottom. During that period, crude oil production fell ~0.4%, according to weekly data. But the pace of the fall has been slowing. In fact, weekly US oil production data has been showing an uptick in the last two weeks. If the rising trend in rigs continues, crude oil production could also turn upward again.
Rigs, energy companies, and oil prices
Upstream companies’ capital expenditure reductions resulted in a lower rig count and a fall in US crude oil production. Rising rig counts indicate that upstream companies are starting to increase their drilling activities. Eventually, it could result in higher crude oil production and once again pressure prices. US crude oil active futures have risen 4.8% since June 3, 2016.
Crude oil production levels impact the Fidelity MSCI Energy ETF (FENY), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), and the iShares US Oil Equipment & Services (IEZ).
In the next part, we’ll look at the relationship between crude oil inventories and crude oil prices.
http://marketrealist.com/2016/12/oil-shorts-rigs-boost-bearish-bets/?utm_source=yahoo&utm_medium=feed
WTI 50.39 -0.54 -1.06%
Oil Reacts Stoically As API Reports Biggest Cushing Inventory Build Since 2008
By Zainab Calcuttawala - Dec 06, 2016, 4:31 PM CST
This week’s American Petroleum Institution (API) report showed the second consecutive week of crude inventory draws that exceeded expert predictions.
The report estimates a 2.21 million barrel drop in inventories, as opposed to the 1.37 million barrel decline expected by industry insiders.
Meanwhile, the API estimates that supplies at the Cushing, Oklahoma, storage facility have risen by a massive 4.01 million barrels, as opposed to the 2.87 million unit rise that was forecasted—the largest build at the Cushing facility since 2008.
There was instant reaction for West Texas Intermediate (WTI) prices that brought barrel prices up roughly 10 cents after the report was released, but within 45 minutes, prices had dipped $0.88 from its opening mark, likely focused on the colossal Cushing inventory increase.
This week’s API report also showed that distillates also grew by a hefty 4.08 million barrels, surpassing the more conservative expectation of a 1.24-million-barrel build.
Last week, the API report came in just one day before the Organization of Petroleum Exporting Countries’ (OPEC) official meeting in Vienna – where the cartel’s members finalized the terms of a freeze deal to reduce the supply glut tanking oil prices. That report showed the largest build in Cushing since March 2015, along with a small draw in U.S. crude oil inventories.
The Energy Information Administration report from Wednesday last week reported an anticlimactic 900,000-barrel decline in U.S. commercial crude inventories, bringing the total to 488.1 million barrels, within the average for this time of year, though close to the upper limit.
The volatile response in the oil price market may be a sign that the industry is not completely satisfied with the OPEC deal, or with its pending negotiations with certain non-OPEC members later this week.
By Zainab Calcuttawala for Oilprice.com
http://oilprice.com/Latest-Energy-News/World-News/Oil-Reacts-Stoically-As-API-Reports-Biggest-Cushing-Inventory-Build-Since-2008.html
WTI 50.55 -0.38 -0.75%
One of the market’s most popular — and volatile — oil plays is going out with a bang
ShawnLanglois
December 6, 2016
The sun is setting on one of Wall Street's most popular oil plays.
The wickedly volatile oil play that emerged as the “YOLO” favorite of millennial traders in recent years is just days from being delisted, and, as one might expect, it’s not going away quietly.
Credit Suisse’s Velocityshares 3x Long Crude ETN UWTI, -1.95% according to Bloomberg data, is seeing the kind of big daily volume numbers reserved for some of the stock market’s biggest names leading up to its delisting date of Dec. 8.
Def unusual: $UWTI/$DWTI 5-day $ volume is as much as Exxon and Chevron with two days till delisting. If it were a stock, it would rank 14th
— Eric Balchunas (@EricBalchunas) 12:26 PM - 6 Dec 2016
UWTI, which will still trade over-the-counter after its delisting, exploded in popularity last year as a means to get leveraged exposure to fluctuations in the oil market. Just last month, it surged about 25% after word of the OPEC deal to cut production sent oil prices flying.
Because of moves like that, UWTI quickly became a favorite of Reddit’s Wall Street Bets, a particularly brash corner of the internet where young traders would compare notes and talk trash about their daily profits and losses. In fact, UWTI ranked fifth in TD Ameritrade’s top 10 list of shares most traded by millennials in 2015; it wasn’t among the top 10 most traded by older investors.
UWTI is not something to be tucked away for the long term, and investors realize that, with the average holding period less than six days, according at Deutsche Bank.
Nowadays, even though the volume remains strong during the countdown to delisting, UWTI is no longer the buzzy play it once was, according to Wall Street Bets creator Jaime Rogozinski.
“It was simply the leveraged synthetic derivative of the month,” he said, adding that members are more focused on Donald Trump and marijuana stocks at the moment. “I’m sure the day that 5x leveraged ETFs come out they’ll be the hot topic as well.”
Perhaps another oil play will emerge to fill the void. Just two weeks after Credit Suisse announced the UWTI delisting, U.S. Commodity Funds filed a preliminary prospectus for a triple-leveraged exchange-traded fund linked to light, sweet crude futures.
http://www.marketwatch.com/story/one-of-the-markets-most-popular-and-volatile-oil-plays-is-going-out-with-a-bang-2016-12-06?siteid=yhoof2
Looking For A New Leveraged Oil ETF? Where To Go When UWTI, DWTI Delist
By Johanna Bennett
December 6, 2016
There’s been no shortage of opinions rendered by ETF experts since news broke last month that Credit Suisse (CS) plans to delist two of the most popular and controversial oil ETFs. As of Thursday, the (DWTI) will no longer be viable options for most traders.
But just because they won’t available to trade doesn’t mean the demand for these types of products is disappearing anytime soon. Investors have just two day to find alternative products to get the leveraged oil exposure they want.
As the Wall Street Journal reported recently, it’s a space that ProShare Advisors is looking to fill, and they will do battle with U.S. Commodity Funds.
ProShares announced on Monday announced on Monday its plans to launch triple-leveraged oil exchange-traded funds. That comes roughly two weeks after US Commodity Funds, the company behind the U.S. Oil Fund ETF (USO), filed a preliminary prospectus to do the same on Nov. 29.
Proshares already offers two oil futures ETFs, which provide doubled exposure to the rise and fall of oil prices. The ProShares Ultra Bloomberg Crude Oil (UCO) is the largest competitor to UWTI, while its sister, the ProShares UltraShort Bloomberg Crude Oil (SCO) is an alternative to DWTI.
And then there are the leveraged oil ETFs offered by Direxion — the Direxion Daily Energy Bull 3x Shares (ERX), the Direxion Daily Energy Bear 3x Shares (ERY). Both funds provide triple leveraged exposure, but to energy stocks rather than oil prices.
http://blogs.barrons.com/focusonfunds/2016/12/06/looking-for-a-new-leveraged-oil-etf-where-to-go-when-uwti-dwti-delist/?mod=yahoobarrons&ru=yahoo
Read my post #5899 for more details.
There are new triple crude ETF's coming the first quarter of 2017 but not associated with Credit Suisse.
WTI 50.55 -1.24 -2.39%
Oil’s Most Popular Trading Products May Soon Be Shut Down
By Michael McDonald - Dec 05, 2016, 4:26 PM CST
For most retail investors, buying physical crude oil as a commodity is not an option. Instead, many investors turn to exchange traded notes (ETNs) as a way to speculate on changes in oil prices themselves.
But direct oil investment products like USO have always been dicey as investment choices. More sophisticated investors with big Wall Street banks who have high speed trading and information advantages can essentially front run products like USO which trade oil contracts on a predictable basis. As a result, USO has been a far from perfect tool to replicate oil’s price movements.
By the same token, leveraged structured products including some oil ETNs are an even worse choice. For evidence of that, one need look no further than UWTI, the leveraged exchange traded note run by Credit Suisse. Credit Suisse recently announced that it was shutting down UWTI and a similar but slightly smaller leveraged ETN also focused on oil.
The problem with products like UWTI is not that the product is unsuccessful, but rather that it is broken. UWTI was supposed to give investors triple the daily exposure to a crude oil index. That meant gains or losses from speculating on oil could be substantially magnified by investors using the product. For that reason, the daily dollar trading value of UWTI was roughly the same as the dollar value of megacap Exxon Mobil’s daily trading volume.
Similarly, UWTI has incredible liquidity – roughly half its shares turned over on any given day. That was largely driven by the fact that ETNs are not appropriate long term investments because of the transactions costs they incur in operations. Unfortunately for traders, those transactions costs add up over time – that’s true in the case of UWTI and virtually all other leveraged ETNs.
In the case of UWTI, this meant that the shares lost 99.6 percent of their value over the last four years even as oil has only fallen by 50 percent. The only thing that stopped UWTI from ending up as one of the cheapest of penny stock investments is that the shares went through multiple reverse splits. Investors in UWTI were virtually guaranteed to lose money on the shares if they held them for even a short time, especially when compared to the alternative of investing in less costly alternatives offering exposure to oil.
Given the total failure of the product, it is little wonder that Credit Suisse is shutting it down. The bigger question for investors is whether that shutdown will simply be followed by a new similar product that will meet an identically ignominious end in a few years. Based on the success of UWTI, there is clear a market for such a product – a fact which is an enduring testament to the poor decision making of some investors. Investors often invest in these products as a tool to capture a broad view about the direction of a commodity failing to realize the flaws of the product.
Of course, there are many alternatives to physical oil as an investment for those who see an increase in oil prices coming. Oil stocks and ETFs of oil producers and servicers like XOP are a great option. These investments are correlated with oil prices, but don’t perfectly reflect changes in oil prices. On the other hand, neither did UWTI which is why it is going out of business.
By Michael McDonald of oilprice.com
http://oilprice.com/Energy/Crude-Oil/Oils-Most-Popular-Trading-Products-May-Soon-Be-Shut-Down.html
Stranded money: Investors can face peril when ETNs delist
By Trevor Hunnicutt
NEW YORK, Dec 5 (Reuters) - Investors are rushing to get out of a top exchange-traded note before it stops trading publicly, and those who fail to find a buyer may be stuck for years in a widely misunderstood product.
Credit Suisse's $1.1 billion VelocityShares 3x Long Crude Oil ETN (UWTI) is poised on Thursday to become the largest-ever note to be delisted from U.S. exchanges.
Investors hold $22 billion of U.S. ETNs which, like debt, constitute a pledge by an issuer. Payouts are based on the performance of the underlying asset, but the notes do not "hold" those assets, unlike ETFs to which they are often compared.
UWTI is widely used by mom-and-pop investors, many of whom are unaware of these differences and may find out too late, analysts said.
Banks, under regulatory pressure to cut risk since the financial crisis, have been issuing fewer ETNs and delisting existing ones to focus on their core businesses.
It is rare for a delisting to come without a new redemption option for investors who retain the product. Credit Suisse's move may make investors wary of ETNs.
"The benefits of ETNs, in most segments of the market, are not that great," said Michael Iachini, managing director of mutual fund and exchange traded fund (ETF) research at Charles Schwab Investment Advisory Inc. "It's not a great loss."
Upon delisting, ETF holders are typically paid out in cash while ETN holders are at the mercy of the issuer.
After that, investors looking to sell would be forced to find a buyer "over-the-counter," where investors are not guaranteed anything close to what the notes are worth.
Several traders and analysts expect Credit Suisse to announce plans to effectively redeem the remaining notes for cash, but the bank has not said whether it would do so.
Over the last decade, 89 ETNs have closed out of a total of nearly 300 issued, according to fund researcher Morningstar Inc . The largest closure was last year, when Royal Bank of Scotland Plc ended its stock-tracking $478 million U.S. Large Cap Trendpilot ETN.
Investors pulled nearly $675 million from UWTI in the two weeks through last Wednesday, according to fund researcher Thomson Reuters Lipper. The march toward their delisting has occurred despite a massive run-up in oil prices which has boosted the ETN's price.
Credit Suisse said in a Nov. 16 statement it would delist the ETN to better align "its product suite with its broader strategic growth plans."
Investors hold UWTI for six days, on average, according to Deutsche Bank Securities Inc. Those who do not sell UWTI this week could be forced to hold the notes for years since they do not officially expire until February 2032.
Credit Suisse, which in 2014 said it would wind down its commodities trading, declined to comment on plans for the ETN.
VelocityShares, a Janus Capital Group Inc unit that provides services for the notes, also declined to comment.
Investors can book huge profits during oil price volatility, such as when the Organization of the Petroleum Exporting Countries (OPEC) agreed last week to curb crude production in a bid to support prices. Prices soared.
UWTI, which promises to multiply the return of an oil futures index by three, leapt 25 percent on Wednesday alone.
A smaller related ETN, the $222 million VelocityShares 3x Inverse Crude Oil ETN, is also delisting Thursday. The notes actually attracted $60.2 million in the latest week, Lipper said.
Yet "leveraged" ETNs' volatile results have led to disappointments. Brokers have been sanctioned for selling the products to retail investors for whom they were not suitable.
Credit Suisse was sued by investors who owned a leveraged ETN after new issuances of the notes were suspended. A federal appeals court in 2014 ruled in favor of Credit Suisse, saying no reasonable investor could have read its disclosures without understanding the notes' risk.
Institutions account for only 16 percent of the funds' owners, according to a Deutsche Bank analysis. TD Ameritrade Inc , a retail-focused broker, said UWTI was among the most popular securities traded by millennials last year.
Issuers are not always willing to help after a fund is delisted, said Mariana Bush, head of closed-end fund and exchange-traded product research at Wells Fargo Advisors , who has helped financial advisers at the bank liquidate positions in delisted ETNs.
"It was a nightmare," she said. "Investors should be aware of it and should try to think about an exit strategy." (Reporting by Trevor Hunnicutt; Additional reporting by Jonathan Stempel; Editing by Megan Davies and Richard Chang)
https://finance.yahoo.com/news/stranded-money-investors-face-peril-214256922.html
This filing is that it’s only for a 3x daily leveraged fund—the equivalent of UWTI.
It’s (Oddly) Only One Direction
Perhaps the most curious thing about this filing is that it’s only for a 3x daily leveraged fund—the equivalent of UWTI. On the one hand, this makes sense, since UWTI is the fund that had the most assets. But on the other hand, there’s really no difference between being a buyer and a seller of a futures contract. An inverse version of this new fund would look, essentially, exactly like this one, but for a few minus signs and a sentence or two of language.
http://www.etf.com/sections/blog/new-leveraged-oil-fund-replacement-coming?nopaging=1
WTI 51.11 +0.05 +0.10%
WTI 51.60 +2.16 +4.37%
WTI 50.62 +1.18 +2.39%
WTI 50.53 +1.09 +2.20%
Mom’s Big Oil Bet Bites the Dust
Demise of two popular ETNs shows risks of such investments
By Spencer Jakab
•
November 28, 2016
A popular exchange-traded note, with the ticker symbol UWTI, turned over half of its shares on typical trading days. In dollar terms last Monday that was as much as Exxon Mobil, the world’s largest listed oil company. An Exxon oil platform Photo: ExxonMobil
One of the stock market’s most popular investments--a favorite of “moms and millennials”--is being delisted with an offer of early redemption, showing once again why complicated structured products that promise high returns are best avoided.
With the explosion in the number of exchange-traded products, inevitable closures have followed. Some fill no real investor need—whiskey, Mongolia or Nashville, for example. Others just didn’t trade enough.
That wasn’t the issue for two hugely popular exchange-traded notes by VelocityShares that give investors triple daily exposure to gains or losses in a crude-oil index. The larger of the two, with the ticker symbol UWTI, turned over an astounding half of its shares on typical trading days. In dollar terms last Monday that was as much as Exxon Mobil, the world’s largest listed oil company.
But sponsor Credit Suisse will delist both ETNs from the New York Stock Exchange Arca market on Dec. 9 and cease issuing new units. To understand why, consider the difference between ETNs and more numerous exchange-traded funds, or ETFs. An ETN is an unsecured loan to a bank that provides exposure to a specific asset. If you buy and hold the ETN—and no one does—the bank promises to pay you on a specified maturity date— 2032 in the case of UWTI and DWTI—unless it “accelerates” redemption.
There are multiple problems with products like this. In 2012, Credit Suisse suspended issuance of an ETN that was supposed to produce twice the return of VIX volatility futures. Prices rose to a premium over the notional value of the shares, prompting short sellers to step in on what seemed like a sure bet that the premium would be wiped out. But prices kept rising and forcing short sellers to scramble to buy shares. Prices soared to 90% above their notional value and then collapsed in a matter of days.
Even without such dislocations, a leveraged ETN can be an awful investment. While crude oil has lost around half of its value since February 2012, UWTI is down a whopping 99.6%, undergoing multiple reverse splits to avoid becoming a penny stock.
At least a slow 99.6% loss is better than a quick 100% in event of bankruptcy. Owners of Lehman Brothers ETNs had to get in line with the bank’s other unsecured creditors.
So why is Credit Suisse pulling the plug on cheap money it doesn’t have to repay for 16 years? Probably because, from a regulatory perspective, it isn’t so cheap, especially for a bank that is trying to boost its capital. The bank’s hedges, volatile oil derivatives, count toward its risk-weighted assets.
But at least Credit Suisse is repaying the money quickly, which it isn’t required to do. When it delisted some ETNs in 2009, the bank dragged its feet repaying the cash. Regardless, steer clear of this “going out of business sale.”
Corrections & Amplifications:
Exchange-Trade Notes sponsored by Credit Suisse are being delisted and shareholders are being offered early redemption on the notes. A Heard on the Street column on Monday said the ETNs are being shut down. Some of the notes may continue to trade over the counter. (Nov. 29)
—Spencer Jakab
Write to Spencer Jakab at spencer.jakab@wsj.com
http://www.wsj.com/articles/moms-big-oil-bet-bites-the-dust-1480362446
WTI 49.93 +0.49 +0.99%
A Second Look At The OPEC Deal: Here's What Can Go Wrong
Defying numerous skeptics, today's historic OPEC decision to cut production, a first since 2009, marks a clear turning point in cartel, and especially Saudi Arabian, politics: individual country quotas have been allocated to all members, a third-party production verification process has been established, and the world’s largest crude oil producer Russia has committed to freeze production.At least, that's what the deal looks like on paper.
For those who missed today's fireworks, which saw oil soar as much as 10%, here are the key details.
The OPEC deal features explicit country level production adjustments that target a reduction in OPEC crude production to 32.7 mb/d, down 1.2 mb/d from October (as measured from secondary sources). Libya, Nigeria and Indonesia (an oil importer) are exempt from any adjustment and apart from Iran, the remaining country production decline is 4.6% vs. October (September for Angola). Iran's participation, while essential to this deal, still leaves questions unanswered with the agreement allowing for a 90 kb/d increase in production when compared to October OPEC secondary sources, but requiring a 180 kb/d cut from October production when measured through direct communication. While no details were provided, non-OPEC countries are expected to join this deal with a target of reducing supply by 0.6 mb/d and Russia expected to commit to a 0.3 mb/d production cut. While Russia embraced the deal, it made it clear it would be very slow in cutting production due to "technical issues", and refused to explain from what level it would make the 0.3mb/d cut - Russia previously suggested it may cut from a projected budget output level for 2017, suggesting Russia won't actually cut production at all.
OPEC and Russia have agreed to cut production to 32.5 mb/d and 0.3 mb/d respectively
The ultimate goal of the OPEC production cut is to normalize excess inventory levels but not to target outright high prices, as that would prompt a surge of shale production. As the Nigerian oil minister Kachikwu admitted in Vienna today, OPEC sees $60/bbl as the "perfect" price for oil as at this price "it would not bring too much shale oil." As Goldman further explains, normalization of inventories is key to low-cost producers as: (1) it generates backwardation which removes hedging gains from high-cost producers and helps low-cost producers grow market share, and (2) it reduces oil price volatility which increases the valuation of the debt and equity they are issuing. In our view, the goal of normalizing inventories should however not target elevated oil prices as the flattening of the oil cost curve and the unprecedented velocity of the shale supply response would likely make such an endeavor rapidly self-defeating above $55/bbl. This is consistent with today's OPEC press conference and official statement which focused on rebalancing the oil market and explicitly mentioned excess inventories, but not higher prices.
In other words, OPEC is hoping for higher prices, but not too high: anything above $55 defeats the purpose of today's deal. This is the first risk, because should the latent short interest in the future trading community continue its panicked covering, there is a distinct possibility oil may spike above $55 merely on technicals, precipitating a much faster than expected arrival of shale oil. To be sure, US production has been rising for 6 of the past 7 weeks as is, however a spike in price will accelerate it notably.
* * *
Another key risk to emerge to the deal, as revealed in a statement issued moments ago by Mexican oil company Pemex, which according to Bloomberg said it isn’t planning further output cuts in 2017, in stark refutation of a comment by the abovementioned Nigerian oil minister that Mexico would cut production by 150k b/d after the OPEC deal. Earlier in the day, Nigerian Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu told reporters in Vienna that Mexico is expected to reduce by 150k b/d, however this is clearly not the case. This suggests that OPEC has been parading non-OPEC production cuts without any actual verification, and since the Russian production cut will likely be mostly a myth, there is risk that the follow up meeting in Doha next week could be a material disappointment in which OPEC and non-OPEC nations (which now include Indonesia) fail to reach an agreement.
There is further risk of non-OPEC compliance. While Russia is expected to cut production by 0.3 mb/d production, Russia's track record in participating in OPEC production cuts is mixed. It complied well in 1998 to the two proposed cuts but instead increased production in April 1999 and January 2002. As a result, Goldman's base case remains that Russian crude oil production will be flat.
Other non-OPEC participants likely include Oman, which has stated that it would match the OPEC cut (implying a 46 kb/d cut). Other past participants to non-OPEC cuts include Mexico, which we now know will not participate, and Norway which has also stated that it would not participate this time. Kazakhstan could be another contributor although it is currently expected to increase production by 140 kb/d. As a result Goldman says that it views details on this non-OPEC 0.6 mb/d additional cut as necessary for prices to meaningfully rally from here.
* * *
Further jeopardising the deal is actual implementation. With the deal agreed to in principle and country level quotas established, focus will now shift to implementation. As Goldman explains, the deal is effective as of January and it will take three weeks of shipping data to get a sense of how well the deal is implemented, suggesting that the full upside to oil prices will likely only materialize by late January.
Looking at the last 17 production cuts (1982-2009), observed production cuts have typically come in at 60% of the announced cuts, as measured by the change in secondary source production vs. the decline announced as calculated by the difference between pre-cut production levels and the announced quota levels. Assuming the historical 60% compliance by OPEC members means the cut declines to just over 700,000 barrels from what are already record production levels.
The key to the remaining upside in oil prices will be determined by the compliance to the announced quotas
Historically, observed production cuts have fallen short of initial targets
* * *
Another risk emerges not on the supply but demand side. As Bank of America writes, we continue to expect annual global oil demand growth to average 1.2 mn b/d, but we are concerned about higher US interest rates and a disorderly CNY depreciation. BofA also points out what we noted above, namely that it is also possible that non-OPEC ex Russian crude oil production recovers faster than we are currently expecting. Whether it is easier regulations in the US or continued production efficiency gains, it is worth keeping in mind that technology is at the heart of this oil price war. Despite the deal that OPEC just agreed to, technological advances will keep the members of this unlikely alliance on their toes. As a reminder, Goldman expects healthy US production growth at $55/bbl.
Goldman's scenarios for US oil production under various annual oil prices (5% lower reinvestment rate at $45/bbl
* * *
In sum, OPEC has so far managed to fool the market, and send the price of oil surging off all time lows hit in early 2016 even as OPEC output has reached record highs, and the just concluded deal may end up eliminating just a small fraction of this excess supply. There is also risk that demand - most notably out of China - will continue to decline, delaying the so-called market equilibrium even assuming full OPEC and non-OPEC compliance. And, courtesy of Modi's ridiculous "demonetization" attempt, India's economic outlook is suddenly in jeopardy: should Indian oil import demand decline as a result, OPEC will have to double its daily production cuts just to catch up to the drop in global demand.
In any case, it will take at least 3-4 months - some time in February - before the world has a sense of how OPEC is implementing and supervising its own production cuts, even as non-compliant non-OPEC members, especially shale, scramble to steal OPEC's market share. Perhaps the best forecast at this point is that the price of oil will remain rangebound between $45 and $55. Below that and more jawboning will emerge; above it and concerns about shale output will dominate.
Finally, it is safe to say that this is OPEC's final attempt to prove it is still relevant in a shale-driven world after the "2014 Thanksgiving massacre" when Saudi Arabia essentially unilaterally crushed the organization, and the price of oil. Should OPEC blow this, it will likely be game over for any future attempts to artificially prop up the oil price by the world's oil exporters.
http://www.zerohedge.com/news/2016-11-30/second-look-opec-deal-heres-what-can-go-wrong
$1 Trillion Money Manager Downplays The OPEC Deal
By Tsvetana Paraskova - Nov 30, 2016, 4:32 PM CST
The market should not be overly enthusiastic over today’s oil price surge on reports that OPEC has managed to reach some kind of a deal to reduce supply, David Hunt, chief executive at asset manager PGIM, said in an interview with Bloomberg Television on Wednesday.
Hunt, CEO of the asset management group that manages US$1 trillion in assets, said the oil price surge today is “probably not” sustainable.
Earlier today, OPEC managed to reach the much-hyped agreement to cut output in a bid to boost oil prices. The ministerial meeting in Vienna is said to have clinched a deal to cut output by 1.2 million barrels per day to 32.5 million barrels per day, but the deal may come with a condition that non-OPEC producers also cut production, by some 600,000 bpd.
Oil prices are soaring on the OPEC deal news, and as of 10:50 AM (EST), WTI Crude was surging 7.21 percent at US$48.49, and Brent Crude was soaring by 7.65 percent at US$50.94, staying above the US$50 mark for a couple of hours now.
“For us who are long-term investors, we tend to look at the group of people who are gathering in Vienna and say ‘they’re fighting against history... The cost of producing crude, largely due to fracking technology, has dramatically changed the marginal economics of oil,” Hunt told Bloomberg Television.
According to Hunt, long-term investors like PGIM see the longer-run market fundamentals and sentiment as “much more important than whether we get a bounce of a couple of dollars on Brent today or not. Fundamentally the economics of oil have changed and we now need to work that through how different industries are pricing, and how commodities are priced on the basis of that”.
Hunt also cautioned against investors being too optimistic in the long run about equity indexes’ continued rally since Donald Trump was elected U.S. President.
By Tsvetana Paraskova for Oilprice.com
http://oilprice.com/Energy/Energy-General/1-Trillion-Money-Manager-Downplays-The-OPEC-Deal.html
Plans for New 3X Oil ETF in the Works
Plans for the new geared ETF come as a pair of popular oil ETNs will be deslisted
By Chris Dieterich • Nov 30, 2016 1:35 pm ET
Out with the old, in with the new.
Fund provider US Commodity Funds this week filed a preliminary prospectus for a triple-leveraged exchange-traded fund linked to light, sweet crude futures, less than two weeks after Credit Suisse announced it will delist two 3x oil-tracking exchange-traded notes that are heavily trafficked by traders.
Credit Suisse will delist, but not outright close, both ETNs from the New York Stock Exchange Arca market on Dec. 9, according the bank’s statement. The move is unusual and could be a concern for investors left holding the ETNs after that date. Credit Suisse said that if the ETNs trade at all after the delisting, it will be on an an over-the-counter basis. An ETN is an unsecured loan to a bank that provides exposure to a specific asset. Credit Suisse said that it could wind down the notes, though it has not expressed plans to do so.
The VelocityShares 3x Inverse Crude Oil ETN, ticker DWTI, and VelocityShares 3X Long Crude Oil ETN, ticker UWTI, have roughly $1.5 billion in assets between them. The timing of today’s filing suggests that US Commodity Funds senses opportunity to fill void being left by Credit Suisse.
US Commodity Funds is the firm behind the widely traded $3.4 billion United States Oil Fund, ticker USO.
The leveraged ETNs have been popular among millenials and are heavily traded by short-term speculators. The average holding period of the for the UWTI is less than six days, according to Sebastian Mercado, a strategist at Deutsche Bank.
The UWTI on Wednesday shot up 25% after delegates from members of the Organization of the Petroleum Exporting Countries reached a deal in Vienna to cut production.
http://blogs.wsj.com/moneybeat/2016/11/30/plans-for-new-3x-oil-etf-in-the-works/
A New Triple Leveraged Oil ETF Is Coming Soon
November 30, 2016 admin
Many traders were understandably disappointed when Credit Suisse unexpectedly announced they would shutter their two triple leveraged oil funds next month, but another issuer is wasting no time in stepping up to provide an alternative.
US Commodity Funds, which operates the most popular oil fund (USO) just filed to offer a brand new fund with triple leverage toward crude oil. Instead of using derivatives to achieve leverage — and thus opening it up to SEC scrutiny — the new fund will be a commodity pool. Commodity-based funds, as you may or may not know, are governed not by the SEC, but by the Commodity Futures Trading Commission (CFTC).
That means there’s little risk to regulatory interference, which is the likely reason why Credit Suisse pulled the plug on its popular UWTI and DWTI to begin with. From ETF.com:
[While] 3x leveraged S&P 500 funds may face a tough 2017, if you stick to futures-based exposures, like commodities and volatility, the SEC is going to stay out of it.
Is there some risk the CFTC decides to start paying attention? It’s unlikely. The CFTC is down to three commissioners, which means that they are literally unable to talk to each other in the hallways because of “sunlight” rule provisions that prevent private meetings of a majority.
So fear not, thrill-seeking traders. You should have a new instrument to give you massive exposure to oil in the near future.
The VelocityShares 3X Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return (NYSE:UWTI) closed at $22.35 on Wednesday, up $4.49 (+25.14%) amid an OPEC-fueled massive spike in oil prices.
You are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
http://oilnewsfeed.com/2016/11/30/a-new-triple-leveraged-oil-etf-is-coming-soon/
Thanks for posting this. This is indeed great news. I thought that someone would jump to the plate for a 3X oil play.
The OPEC Deal: Here Are The Details
By Nick Cunningham - Nov 30, 2016, 11:30 AM CST
Oil prices surged more than 8 percent on Wednesday as OPEC shocked the world and reached an agreement to cut production. If OPEC members succeed in implementing the deal, set to take effect in January, it could erase the global surplus in an instant.
“The sentiment generally is optimistic and positive," Saudi Arabia’s Oil Minister Khalid al-Falih said before the final meeting on Wednesday. “Any production-restraint agreement has to be distributed in an equitable way. We are getting close.” Oil prices skyrocketed on his comments and on the news that a deal was within reach.
Still, there was a lot of confusion right down to the last minute, with some news outlets reporting a deal had been reached while others said that the details had not actually been agreed to, just the broader outline. Iraq in particular was a question mark, with reports saying that Iraqi officials were still disputing the “secondary sources” data well into the afternoon on Wednesday, even as oil prices were posting huge gains. Negotiations dragged on through the day, with only snippets of details emerging from reporters in Vienna.
In the end, OPEC agreed to cut its collective output down to 32.5 million barrels per day (mb/d), a cut of about 1.2 mb/d from October levels. But they leveraged those cuts to bring some key non-OPEC producers on board, including Russia, for an addition cut of about 600,000 barrels per day. Russia alone will cut 300,000 barrels per day. Asked about the non-OPEC contribution, OPEC President Mohammed Al-Sada said that he is confident that they “can get 600,000 barrels per day out of them…maybe more.”
Related: OPEC Cut Could See LNG Prices Rise
The deal appears to be a remarkable compromise after months of an impasse between Saudi Arabia, Iraq and Iran. Saudi Arabia’s Khalid al-Falih said that his country was prepared to take on much of the burden in order to conclude the deal, but only if other countries offered something as well. "It will mean that we (Saudi) take a big cut and a big hit from our current production and from our forecast for 2017. So we will not do it unless we make sure that there is consensus and an agreement to meet all of the principles," he said a few hours before the deal was announced.
Saudi Arabia will account for almost half of the agreed cuts, reducing output by nearly 0.5 mb/d, which will take overall production down close to 10.0 mb/d. Iran’s figures are a bit confusing, given that the numbers don’t add up on the agreement text that OPEC published. Iran wanted its output to climb to a pre-sanctions level of at least 4 mb/d, while Saudi Arabia insisted on a freeze at 3.7 mb/d. Algeria’s energy minister offered a middle ground – roughly 3.8 mb/d. Despite the discrepancy in the figures published by OPEC on Wednesday, it appears that Iran will be allowed to boost production by another 90,000 barrels per day to 3.8 mb/d, with both Iran and Saudi Arabia offering some concessions.
Clouding the specifics on Wednesday was the small matter of Indonesia suspending its membership in OPEC, due to its status as a net oil importer. It appears that Indonesia will not be part of the deal but its production volume of 722,000 barrels per day will be included in OPEC’s 32.5 mb/d target, which means its withdrawal will not affect the specifics of the agreement.
Related: Is The Permian 20 Billion Barrel Oil Discovery Real?
The six-month accord will need to be renewed at OPEC’s next official meeting in June, but by then the cartel could have done a great deal to zero out the supply surplus. The IEA estimated that global supplies exceeded demand by just 300,000 barrels per day in the third quarter, so a cut of 1.8 mb/d (1.2 mb/d from OPEC plus another 0.6 mb/d cuts from non-OPEC) will quickly tip the global balance into deficit. There are still very large volumes of oil sitting in storage, but inventories have already started a slow drawdown. The OPEC deal could kick those drawdowns into high gear.
In other words, oil prices have shot up sharply on the news already – WTI and Brent were up more than 8 percent by midday Wednesday – but more gains could be coming as OPEC is set to severely tighten the market. The surprise move will add more fuel to the fire for prices, which were already set to climb in 2017 even without a deal. Goldman Sachs wrote in a research note earlier this week that the “[p]rice risk is likely skewed to the upside heading into Wednesday,” adding that “even in the absence of a cut, we expect the oil market to move into deficit by the second half of 2017.”
Very few analysts thought that OPEC would be able to pull off the deal that they just announced. Of course, the burden will be on OPEC to actually implement the deal and take physical barrels off the market, not just promise to do so. But as of now, OPEC just upset everyone’s forecast for oil prices going forward. The EIA, for example, saw oil prices averaging just $49 per barrel next year. OPEC’s surprise deal means that oil watchers are going to have to go back to the drawing board and substantially revise up their forecasts for crude prices in 2017.
By Nick Cunningham of Oilprice.com
http://oilprice.com/Energy/Energy-General/The-OPEC-Deal-Here-Are-The-Details.html
OPEC Agrees To "Contingent" Deal, Cutting Oil Production By 1.2 Million Barrels A Day: First Output Cut Since 2008
Update: as expected, the deal is contingent: As Amena Bakr of the Energy Intelligence Group reports from Vienna, the Opec agreement is contingent on non OPEC and Russia is onboard to cut says gulf delegate. As a result, OPEC Likely to Meet With Non-OPEC Producers Next Week according to a delegate.
* * *
The much anticipated headline is out and, as Bloomberg reports, OPEC has reached a deal agreeing to cut oil production by 1.2 million barrels per day to 32.5mmbpd from the current level of 33.6mmbpd, according to a delegate. This would be OPEC's first production cut since 2008.
OPEC REACHES AGREEMENT TO CUT OIL OUTPUT: DELEGATE
OPEC AGREES TO CUT OUTPUT BY 1.2M B/D TO 32.5M B/D: DELEGATE
Saudi Arabia, Iraq and Iran appear to have resolved their differences over production cuts for the time being, with the Saudis accepting that Iran can raise production to about 3.9 million barrels a day. Still it appears some last minute glitches remains:
OPEC MINISTERS STILL DEBATING DETAILS OF OIL OUTPUT CUT PROPOSAL FOR SOME COUNTRIES INCLUDING IRAQ - SOURCES. RTRS.
IRAQ PM BEING CONSULTED BY OIL MINISTER ON PROPOSED OPEC OUTPUT CUT - OPEC SOURCE. RTRS
Although as a local reporter notes, the Iraq issue appears to have been resolved:
#opec delegate says #Iraq issue has been resolved ! #OOTT
— Amena Bakr (@Amena__Bakr) 7:58 AM - 30 Nov 2016
Breaking news: #iran to freeze production at 3.975 #opec #OOTT #deal from OPEC sources
— Amena Bakr (@Amena__Bakr) 8:01 AM - 30 Nov 2016
According to other local reports, OPEC won't wait for non OPEC to cut OOTT, and the deal goes effective in January and it's for 6 months and can be extended.
In a potential twist, however, the agreement is also likely to include a reduction of about 600,000 barrels a day by non-OPEC countries according to Bloomberg. This means that there is an element of conditionality to the deal should Non-OPEC nations balk when they sit down with OPEC members next to discuss the final deal framework.
Some early skepticism to the deal has emerged from Commerzbank, whose analyst Carsten Fritsch notes that OPEC’s decision to cut production for the first time in 8 years is pushing prices higher, although the full impact on the market will depend on how the cuts are divided among member states. “Prices reacted positively but the devil is in the detail,” Fritsch said. “We have to wait for a country breakdown and whether it’s reliable or not.” Says the initial price reaction may have been muted as even higher numbers circulated in the market. Doesn’t expect to see a meaningful production cut from non- OPEC states.
We now await the details of who will cut and by how much, how will the production cuts be implemented and supervised, and whether the deal is conditional on Non-OPEC, mostly Russia, participation. Having soared over 7% in advance of the announcement, crude remained near its highs of the day. The front-month Brent contract also resumes climb, trading $3.55 higher at $49.93.
http://www.zerohedge.com/news/2016-11-30/opec-said-reach-agreement-cut-output-12mmbpd
WTI 48.83 +3.60 +7.96%
6 Oil ETF Alternatives To Ill-Fated UWTI & DWTI
A few weeks from now, two popular oil exchange-traded notes will receive a near-fatal blow when they are delisted from the NYSE. After Dec. 8, the VelocityShares 3x Long Crude Oil ETN (UWTI) and the VelocityShares 3x Inverse Crude Oil ETN (DWTI) will no longer be viable options for most traders.
But just because they won't be available to trade doesn't mean the demand for these types of products is going away anytime soon. Combined, UWTI and DWTI have $1.7 billion in assets, a substantial sum. They are also heavily traded, with hundreds of millions of dollars’ worth of UWTI and DWTI shares exchanging hands each day.
By offering the ability to leverage already-volatile moves in crude oil prices by a factor of three, UWTI and DWTI have gathered quite the following among aggressive traders of all stripes, and particularly retail traders. Soon, those traders will be forced to look for alternative products to get the leveraged oil exposure they want.
Geared Oil Fund Options
Here are some potential substitutes currently available on the market:
ProShares Ultra Bloomberg Crude Oil (UCO)
The ProShares Ultra Bloomberg Crude Oil (UCO) is the largest competitor to UWTI, with nearly $1 billion in assets. The main difference between UWTI and UCO is that the latter only provides 2x the daily return of crude oil futures compared with 3x for the former (currently, there are no U.S.-listed ETPs available that provide 3x exposure to oil other than UWTI).
The other difference between the two is that UWTI is an ETN, while UCO is an ETF. The two structures have differing tax implications for investors, which can you can read about here.
Additionally, as an exchange-traded fund, UCO isn't subject to counterparty risk like UWTI is.
ProShares UltraShort Bloomberg Crude Oil (SCO)
The ProShares UltraShort Bloomberg Crude Oil (SCO) is the sister fund of the aforementioned UCO and an alternative to DWTI. SCO provides 2x inverse exposure to the daily movements of crude oil futures. It's structured as an ETF and currently has $138 million in assets.
Direxion Daily Energy Bull 3x Shares (ERX)
Like UWTI, the Direxion Daily Energy Bull 3x Shares (ERX) provides 3x leveraged exposure. But that exposure is to a basket of energy equities (energy stocks within the S&P 500) rather than oil futures.
In general, energy equities tend to move in the same direction as oil futures?but not always. For example, when the stock market rises or falls significantly, that can push energy equities up or down, regardless of what oil futures are doing on any particular day.
ERX is obviously not a perfect substitute for UWTI, but for traders who want as much leverage as they can get, it's an option. Right now, the fund has more than $535 million in assets.
Direxion Daily Energy Bear 3x Shares (ERY)
The Direxion Daily Energy Bear 3x Shares (ERY) is the sister fund of ERX. It provides 3x inverse exposure to the energy stocks within the S&P 500. ERY has $55 million in assets.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH)
Similarly to ERX, the Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH) gives traders 3x leveraged exposure to energy equities. The only difference is that GUSH uses an equal-weighted basket of exploration and production stocks as opposed to ERX's market-cap-weighted basket of energy heavyweights.
This makes GUSH the more volatile option for leveraged, long exposure to energy stocks. For traders in UWTI who are used to extreme volatility, GUSH?which has $63 million in assets—may be a great alternative.
Direxion Daily S&P Oil & Gas Exploration & Production Bear 3x Shares (DRIP)
The Direxion Daily S&P Oil & Gas Exploration & Production Bear 3x Shares (DRIP) is the inverse counterpart to GUSH. DRIP is the smallest fund on this list, with only $20 million in assets.
Contact Sumit Roy at sroy@etf.com
http://www.etf.com/sections/features-and-news/6-oil-etf-alternatives-ill-fated-uwti-dwti?nopaging=1
DWTI FactSet Analytics Insight
“This ETN will delist. Its last day of trading will be 12/8/16.”
Like most geared inverse products, DWTI is designed as a trading tool, not a buy-and-hold investment. The note promises to provide -3x exposure to its referenced index—the S&P GSCI Crude Oil Excess Return Index—for a one-day holding period. The daily reset function means investors holding DWTI for periods of longer than one trading day will be exposed to the effects of compounding, and could see returns vary greatly from -3x exposure. Since DWTI tracks an excess return version of the S&P GSCI Crude Oil Index, returns will reflect both the changes in the price of WTI crude oil and any returns from rolling futures contracts. The ETN also has notional exposure to 3-month Treasurys. The note trades well each day with modest spreads, which is crucial since most investors will only be interested in it for a single trading day. DWTI charges a high fee, but its trading costs are of greater importance, since the fund is designed for intraday round-trip trades. Investor interest in DWTI as measured by assets and liquidity has taken an unpredictable ride. Check the latest AUM, spreads and volume data. Traders seeking an inverse oil ETP may consider SCO or DTO among others.
http://www.etf.com/DWTI
UWTI FactSet Analytics Insight
“This ETN will delist. Its last day of trading will be 12/8/16.”
As a levered product, UWTI is not a buy-and-hold ETF; it’s a short-term tactical instrument. Like many levered funds, it delivers 3x exposure only for 1 day. Over longer periods, returns can vary significantly from 3x the return of its underlying index. As an ETN, UWTI is subject to counterparty risk; in this case, original investor capital plus any return earned on UWTI is subject to Credit Suisse’s ability to pay that obligation. UWTI’s expense ratio is high but, as a short-term product, annual fees are relatively less important than trading costs. Beginning in early 2015, UWTI experienced a massive uptake in assets and liquidity, but leveraged ETPs can experience rapid swings in investor interest, so check the latest trading spreads and volume on this page. Investors and traders can also consider competing fund UCO—which offers 2x rather than 3x exposure.
http://www.etf.com/UWTI
Oil Majors Set To Lose $490 Billion If OPEC Talks Fail
By Irina Slav - Nov 29, 2016, 4:49 PM CST
OPEC is just a day away from a historical meeting that could see the cartel act in concert for the first time since 2008 to prop up prices, battered by a buildup of crude around the world over the last two years—and if it fails to agree, it will deal a huge financial blow to the industry.
If the deal gets the go-ahead from all OPEC members, the energy industry will rejoice after months of cutting costs, laying off people and striving for greater operational efficiency, among other belt-tightening measures such as quitting large-scale projects.
If the deal fails, for whatever reason, Big Oil alone stands to lose as much as US$490 billion. This is how much the international supermajors gained in terms of market value since the January trough of US$27 per barrel of Brent. According to Bloomberg, this has been the biggest gain for these companies since 2010 and compares to a loss of US$850 billion last year and US$720 billion in 2014.
At the moment, it seems the chances of either outcome are relatively even, a reality that Big Oil is not too excited about. In fact, the latest reports from the OPEC camp seem to speak of a greater possibility for a failure of the deal than for a success. Big Oil may have to brace itself for some more losses.
First, the Saudis—the drivers of the negotiations that started in late September in Algeria--now hint quite openly that they may themselves pull out of a production cut. “We expect the level of demand to be encouraging in 2017, and the market will reach balance in 2017 even if there is no intervention by OPEC,” said Oil Minister Khalid al-Falih this Sunday, conceding, however, that “OPEC intervention aims to expedite this balance and the market recovery at a faster pace.”
These words raised many hackles, and a day later, yet another urgent OPEC meeting followed. At that meeting, according to reports, Iran and Iraq had agreed to freeze production at current levels, though the weight of this agreement is questionable, as Fox News noted, the Iraqi officials were quite jittery, constantly calling their superiors.
Related: Ahead Of OPEC’s Meeting, API Inventory Report Shows Major Crude Build At Cushing
Unnamed sources present at the Monday meeting, however, told Reuters that OPEC’s number-two and number-three are still resisting Saudi Arabia’s calls to cut their output, determined to build their market share.
Meanwhile, Russian President Vladimir Putin announced after a meeting with his Iranian counterpart Hassan Rouhani that the two countries had agreed to “coordinate their production.” What this coordination would entail remained shrouded in mystery, reinforcing a feeling of suspicion among some observers.
On Tuesday, this suspicion grew as Russia said it would not be attending the Wednesday meeting of OPEC. Now, there isn’t really a reason for it to do so, as it seems this is the season of meetings for the world’s biggest oil producers and another one can always be arranged.
Related: Shell Considering Dumping Its Iraqi Oil Fields
Perhaps even worse, from the producers’ perspective, is the fact that even if a last-minute miracle happens and everyone in OPEC gets on the production cap bandwagon, the effects of the production cut may well be short-lived. Nigeria and Libya are exempt and expanding their output. Non-OPEC producers such as Brazil and Azerbaijan are doing the same, and Russia is promising nothing more than a freeze at current levels, which are record-high. U.S. output is also growing.
Taking 1.1 million barrels of OPEC oil off international markets will just free up more space for other producers who are, for the moment, comfortable enough—or so it seems—with benchmark prices, as suggested by a Reuters report about the Asian oil market. According to it, Asian buyers are pretty happy with non-OPEC oil and may well continue to buy from Azerbaijan, the U.S. and Europe if OPEC’s prices rise. Ultimately, a product cut agreement could defeat its own purpose.
By Irina Slav for Oilprice.com
http://oilprice.com/Energy/Crude-Oil/Oil-Majors-Set-To-Lose-490-Billion-If-OPEC-Talks-Fail.html
Oil Prices To Sink Or Skyrocket – What Can We Expect
By Nick Cunningham - Nov 29, 2016, 3:03 PM CST
We are hours away from the highly anticipated OPEC meeting and oil analysts are coalescing around two possible scenarios that leave very little middle ground: if OPEC reaches a deal, oil prices could be heading well over $50 per barrel. But if the negotiations fall apart, oil prices could be heading south of $40 per barrel.
Those projections are creating a lot of volatility in the market. As of last week, oil prices were on the rise as officials from Iraq, Iran, Saudi Arabia, Russia and seemingly every other OPEC member voiced optimism and openness about reaching a deal. The mood darkened by last Friday and over the weekend as OPEC could not hammer out the stickiest of details and the key members retreated to familiar negotiating positions. Saudi Arabia cancelled the Monday meeting with non-OPEC producers and took a harder line in an effort to twist some arms. Oil prices jumped on Monday but fell by more than 3 percent by midday Tuesday as talks dragged on.
That leaves us with a much more pessimistic view regarding the odds of a deal. By Monday, a more than 10-hour meeting between OPEC members adjourned without any concrete progress. One of the thorniest issues is what to do with Iran. Iran insists that it should not be subjected to limits until it gets up to its pre-sanctions production levels of at least 4 million barrels per day. "The revival of Iran’s lost share in the oil market is the national will and demand of Iranian people," Iran’s oil minister Bijan Zanganeh said, according to the state-run news agency Shana.
Related: Is There Any Hope Left For OPEC?
Even the Indonesian delegation did not sound optimistic, which is telling considering the fact that Indonesia is a net importer of oil. "The feeling today is mixed," Indonesian Energy Minister Ignasius Jonan told reporters. "I don't know. Let's see."
However, the FT reported that the top three producers struck a more flexible tone after Monday’s meeting. Sources told the FT that Iran might be willing to freeze under the 4 mb/d target that it previously set out. Saudi Arabia demanded Iran freeze at current levels – 3.7 mb/d – but the FT said that it could be open to Iran freezing at 3.8 mb/d. The gap between Iran’s and Saudi Arabia’s negotiating positions does not appear to be that large, which suggests there is hope for a compromise.
And another sign of small progress came from the other holdout, Iraq, which said that it would accept the “secondary sources” data that OPEC had been using but Iraqi officials had objected to. It’s a small bit of positive news, but suggests that Iraq is still willing to participate in a freeze or a cut that could boost prices.
Still, a much broader deal that would include cuts from non-OPEC producers seems to be off the table. Russia said that it would not attend the meeting on Wednesday, a sign that OPEC diplomats failed to bring the world’s largest oil producer on board with a much more comprehensive market intervention.
The stakes are high as oil watchers see very little chance that the markets will react with a shrug of their shoulders. Having primed the markets over the past two months, hyping the Nov. 30 meeting in Vienna, OPEC has set oil prices up for a volatile move this week.
"It's binary. If you get a deal done you affirm the case for 50 (dollars per barrel). Failure to launch, you're below 40," said Helima Croft, Global Head of Commodity Strategy at Canada's RBC Capital Markets, according to CNBC.
The price forecasts vary depending on who you ask, but they all have some variation of a sharp movement in either direction. Goldman Sachs said in a research note on Monday that oil prices will quickly rise to the low-$50s per barrel if OPEC succeeds, and the investment bank assigned a 30 percent probability to such an outcome. However, if OPEC members cannot overcome their differences, oil prices could average just $45 per barrel through the summer of 2017. Others are much gloomier.
“If OPEC does not come up with a credible agreement to cut production on Wednesday oil prices will end the year below $40 a barrel and be chasing down $30 a barrel early next year," David Hufton, CEO of PVM Group Ltd., told Bloomberg.
By Nick Cunningham of Oilprice.com
http://oilprice.com/Energy/Oil-Prices/Oil-Prices-To-Sink-Or-Skyrocket-What-Can-We-Expect.html
Oil Prices May Plunge To $20 If OPEC Fails To Clinch Deal
By Tsvetana Paraskova - Nov 29, 2016, 4:49 PM CST
Two months ago, OPEC took the market by surprise by saying that it ‘agreed to agree’ on a deal to cut production to between 32.5 and 33.0 million bpd in a bid to reduce oversupply and lift oil prices. Two months later, exactly to the date, the cartel has not yet reached any agreement on the specifics of a possible deal. A marathon meeting of OPEC experts on Monday failed to reach an agreement for OPEC ministers to discuss on Wednesday.
For two months OPEC officials and non-OPEC producers such as Russia have been vague on details and grand on hollow comments, hints, suggestions, and optimism that a deal will be reached.
Analysts are a bit more optimistic now than they were in late September. However, it seems that the rift between OPEC’s biggest three - Saudi Arabia on the one hand, and Iran and Iraq on the other hand - is just as wide as it was two months ago.
The chances of OPEC ministers reaching a deal on Wednesday are still pretty much 50/50, Amrita Sen, chief oil analyst at Energy Aspects, said in an interview with Bloomberg on Monday. Should a deal fail, however, the oil market will see a “sharp correction” and oil prices may plunge to US$20, Sen noted. A no-deal would be met with a very negative perception by the market, and the impression OPEC would be leaving is that this is the end of the cartel, the analyst said.
Essentially, all want to cut but there are no details, the analyst went on to comment on OPEC’s bumpy road to the Vienna meeting.
Essentially, the showdown (again) comes down to the Saudi vs. Iran-Iraq positions.
Related: Iran Won’t Cut, Boldly Ask Saudis To Cut 1 Million Bpd
The Saudis would like to see oil at US$60, but this time around, they seem firm in their stance that they won’t do all the cutting, as they have traditionally done, and as Iran and Iraq are probably expecting them to do again. Saudi Arabia needs higher oil prices to shore up the budget gap that has opened with the oil price crash. Iran and Iraq are digging in their heels and are pleading exemptions, hoping to put the Saudis in a corner and expecting them to do the cuts, again.
The Saudis, on the other hand, are not having their bitter regional rival Iran staying exempt from OPEC actions and reaching pre-sanction levels.
According to a ZeroHedge tweet from Monday, the Saudis have reportedly offered Iran to freeze at 3.7 million bpd, below Tehran’s ask of 3.97 million bpd.
Iraq, for its part, is seeking a freeze at 4.546 million bpd, according to Dow Jones. Other OPEC members, especially the Saudis, are not too benevolent to let such Iraqi proposal for just a freeze pass.
Related: Shell Considering Dumping Its Iraqi Oil Fields
The internal OPEC discord is not that there isn’t lack of will, or lack of logic, it’s about the “political baggage of those countries”, according to Energy Aspects’ analyst Sen.
Saudi Arabia, which has been trying to get all OPEC members on board on a collective action, changed the rhetoric two days ago, with its oil minister Khalid al-Falih saying that OPEC does not actually need to cut production to rebalance the markets.
The Saudis, however, need higher oil prices, with their budget revenues shrinking due to lower prices. The question is: will they be able to overcome regional and political differences in the name of the higher oil price? Will an OPEC-only cut (if member countries agree to and stick to it, that is) help rebalance the oil market? Will the cartel need a little helping hand from Russia, for example, to tip the supply-demand fundamentals? Will Russia go beyond just ‘joining efforts’ to reduce supply only after it sees a real OPEC deal?
The bad news is that there are too many conundrums left to solve less than 24 hours before Wednesday’s meeting. The good news is that we’ll only have to wait for one day - not two months - to see if OPEC can get things done this time around.
By Tsvetana Paraskova for Oilprice.com
http://oilprice.com/Energy/Energy-General/Oil-Prices-May-Plunge-To-20-If-OPEC-Fails-To-Clinch-Deal.html
Here’s how ugly it could get for stocks if OPEC can’t reach a deal
BarbaraKollmeyer
Reuters
The OPEC waiting game
Signals out of what is shaping up as the most important OPEC summit in two years aren't encouraging.
Talk of discord between members, a Russia no-show and failed premeeting meetings have been dogging crude, which is crumbling on Tuesday. Goldman Sachs, for one, points out Brent futures LCOF7, +0.37% are pricing in a just 30% chance of a production-cut deal getting done. Others are putting the odds of success on Wednesday at less than that.
Our call of the day says the next 24 hours will be crucial for all markets.
If no deal is agreed, that will hit not just oil, but also forex and equity markets from Middle Eastern stocks to Wall Street, says Naeem Aslam, chief market analyst at Think Markets.
Read: 4 most likely outcomes, and market reactions, from OPEC’s pivotal meeting
Aslam thinks OPEC will toss markets a small bone. Even so, he warns that Wall Street is vulnerable, because upward momentum for stocks has been in part underpinned by the recovery in oil prices this year. The other driver—the U.S. election—can’t juice this market until investors see what the new Trump administration will do.
Aslam says the S&P 500 could drop well below 2,100 if OPEC fails. “If there is no deal, the Saudis are going to make sure they dump the market with as much oil as possible because now the real trade war will begin and they won't care about anything.” That means squeezing out the small players and oil in the mid $20s. Ugly for stocks.
If doomsday happens, the bright spots will be airlines and ocean shipment companies, both which benefit from weak oil.
http://www.marketwatch.com/story/heres-how-ugly-it-could-get-for-stocks-if-opec-cant-reach-a-deal-2016-11-29?link=MW_popular
CNBC said earlier this afternoon that the chance of an OPEC deal is now below 30%.
I hope this board and the people on it remains intact.
MSNBC just said that investors no longer believe what OPEC says. MSNBC sees the next stop for oil at 43.25.
Moves in crude oil prices also influence ETFs and ETNs such as the ProShares UltraShort Bloomberg Crude Oil (SCO), the iShares US Oil Equipment & Services (IEZ), the VelocityShares 3X Inverse Crude Oil ETN (DWTI), the Direxion Daily Energy Bear 3X ETF (ERY), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and the SPDR S&P Oil & Gas Equipment & Services ETF (XES).
http://marketrealist.com/2016/11/non-opec-crude-oil-production-impact-crude-oil-prices/?utm_source=yahoo&utm_medium=feed
WTI 45.30 -1.78 -3.78%
These 28% returns are awesome!