Baltic Dry Index. 1019 -60 Brent Crude 69.15
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
"We shouldn't pour cold water on everything. We, the eight or nine players in global investment banking, have a very good future."
Deutsche Bank, CEO Josef Ackermann. Davos, January 2007.
In oil news, one week on from the OPEC oil price rout, the Saudis seem
to want to extend the price war. While the drop, if passed on, represents a
pre-Christmas “tax cut” for some consumers, who may or may not use it to boost
other spending patterns, in Asia some airlines are now trapped into ruinous
derivatives hedges. In the land of the deeply indebted, the frackers continue
whistling past the graveyard. A whole lot of energy junk bonds are now primed
to blow up under the Saudis price war.
One week on, and I suspect that we haven’t seen anything yet. If the
northern hemisphere gets a break with a mild winter, my guess is that come
spring, Brent crude will be trading under $40.
Brent Drops From 4-Year Low as Saudi Discounts Deepen Price War
Dec 5, 2014 5:01 AM GMT
Brent extended losses from a four-year low as Saudi Arabia offered customers
in Asia record discounts on its crude, bolstering speculation it’s defending
market share. West Texas Intermediate dropped in New York. Futures fell as much as 0.7 percent in London and are headed for a second weekly decline. State-run Saudi Arabian Oil Co. cut its differential for Arab Light sales to Asia next month to $2 a barrel below a regional benchmark, according to a company statement. That’s the lowest in at least 14 years. The kingdom doesn’t want to subsidize Iran, Iraq and Venezuela and is willing to let the market decide prices, said Daniel Yergin, an energy analyst and Pulitzer Prize-winning author.
Crude slumped 18 percent last month as the Organization of Petroleum Exporting Countries maintained its output quota, letting prices decrease to a level that may slow U.S. production. Saudi Arabia has no price target and will let the market decide at what level oil should trade for now, said a person familiar with its policy.
----Saudi Aramco’s Arab Light discount, down from 10 cents for December, is the steepest in data compiled by Bloomberg since June 2000. Its Arab Medium grade, which Iran, Iraq and Kuwait have followed in the past, was cut to the lowest since January 2009. The state-run oil company also reduced all January price differentials for U.S. customers, the statement showed.
“It’s basically a new game in
world oil,” Yergin, the vice chairman of IHS Inc., an Englewood, Colorado-based
consultant, said on Bloomberg TV yesterday. “The Saudis have almost $800
billion in foreign exchange reserves, so they can wait this out.”
Morehttp://www.bloomberg.com/news/2014-12-05/wti-trades-near-5-year-low-as-saudi-discount-deepens-price-war.html
Shale Producers Say Bring It, in Oil Price Showdown
Dec 4, 2014 3:11 PM GMT
OPEC’s price war against the American shale industry will erode drilling
budgets, shrink profits and even bankrupt some companies. It won’t do the one
thing cartel leader Saudi Arabia wants: reduce U.S. production. In the three geologic formations that account for 88 percent of U.S. shale oil output -- North Dakota’s Bakken and the Eagle Ford and Permian in Texas -- explorers can drill new wells profitably in some areas even if crude falls to $25 a barrel, according to a team of analysts led by Manuj Nikhanj at ITG Investment Research Inc. That’s less than half yesterday’s $67.38 closing price for U.S. crude.
The basins most vulnerable to the ravages of a price war are those with lower-producing wells such as the Eaglebine in east Texas and Denver-Julesburg in Colorado. Their higher costs and middling output mean explorers operating there require average prices of $75 to $84 a barrel to make new drilling worthwhile.
While a map of winning and losing shale regions can be drawn from Canada to Louisiana, the bottom line is that the most prolific fields will keep production churning where it counts the most. Oil companies can be counted on to more aggressively concentrate on these “lower risk fields that are a lot cheaper to drill and faster to cash,” said Troy Eckard, chief executive officer at Eckard Global LLC, a Dallas-based investor in more than 260 Bakken shale wells.
----“We are entering a period of extreme volatility in oil because the Central Bank of Oil just resigned its position,” Paul Sankey, an analyst at Wolfe Research LLC and former International Energy Agency researcher, said in a note to clients. OPEC’s inaction in the face of tumbling prices means “the notoriously boom-bust” U.S. energy industry becomes “the price setter for global oil prices.”
----It would take a 50 percent reduction in capital budgets across the industry to halt enough drilling activity for shale output to begin declining, Mark Hanson, an analyst at Morningstar in Chicago, said in an interview. That probably won’t happen unless crude prices continue dropping and stay deflated for an extended period, he said.
----Shale explorers have seen their market value fall by more than $150 billion since June as investors worried about disappearing cash flow and whether companies that borrowed heavily to amass drilling acreage, hire crews and lease rigs can survive lower oil prices.
Some drillers have relied on debt to buy drilling rights and rent rigs, doubling energy bonds’ share of the high-yield market to 17 percent since 2008, according to an Oct. 14 report by Citigroup Inc. The $90 billion of debt issued by junk-rated energy producers in the past three years has fallen 13 percent since the crude rout began in June.
Because the amount that drillers can borrow from bank lenders is tied to the value of their reserves, falling prices increase the risk they’ll face a cash squeeze, according to an Oct. 9 report by Spencer Cutter, an analyst at Bloomberg Intelligence in Skillman, New Jersey.
More
http://www.bloomberg.com/news/2014-12-04/opec-shale-showdown-misses-target-as-u-s-drillers-cap-costs.html
Casino-Like Fuel Hedges Seen Hurting Airlines as Crude Plummets
Dec 5, 2014 12:00 AM GMT
Investors from Sydney to Mumbai cheered the plunge in
crude-oil prices, sending Asian airline shares to their highest level in three
years. The bad news is several carriers could end up losing money from the
sudden drop. Some Asian carriers, like Singapore Airlines Ltd. (SIA), have hedged fuel at an average $116 a barrel of jet fuel, when spot market rates are about $85. That can result in losses on paper as carriers will have to account for their wrong-way fuel hedges or pay charges to unwind contracts prematurely.
Oil’s dramatic decline in the past month is a replay of events in 2008 and 2009 when Hong Kong-based Cathay Pacific Airways Ltd. (293), Chinese carriers and Singapore Air all reported millions in losses because of wrong-way bets on fuel. An inability to take advantage of a drop in their biggest expense also means airlines may be reluctant to cut fuel surcharges and lower ticket prices for consumers.
“It’s like going to the casino,” said Mark Clarkson, a Singapore-based business development director at OAG Aviation, a flight data firm, about hedging. Potential losses sometimes could be much bigger than at a casino, he said. “There are a lot of zeros at the end.”
----Jet-fuel swaps in Singapore, Asia’s biggest oil-trading hub, slumped 13 percent last month, according to data from PVM Oil Associated Ltd., a London-based broker. The price fell 4.6 percent to $83.50 a barrel on Dec. 1, the lowest since August 2010. Jet fuel is the biggest expense for most Asian airlines, accounting in some cases for as much as 50 percent of total costs.
Airlines that buy more fuel at spot prices, such as Qantas Airways Ltd. (QAN) and Asiana Airlines Inc., stand to gain more from the drop in oil prices. Oil-price drop is “massive” for AirAsia group, Chief Executive Officer Tony Fernandes said last month.
Singapore Air hedged 65.3 percent of its fuel needs in the six months to March at an average price of $116 a barrel of jet fuel, according to the airline.
More
http://www.bloomberg.com/news/2014-12-05/casino-like-fuel-hedges-seen-hurting-airlines-as-crude-plummets.html
In other news, China continues to slow. Today yet another red flag from auto sales. Germany’s exports are likely the biggest loser in Euroland. The oil bust looks like it’s here to stay.
China Auto Sales Slow in November as Dealer Stockpiles Increase
Dec 5, 2014 4:17 AM GMT
Passenger-vehicle sales in China rose at a slower pace
last month as inventory levels climbed in the world’s largest auto market. Retail deliveries of cars, multipurpose and sport utility vehicles climbed 5 percent to 1.71 million units in November, the Passenger Car Association said today on its website. That compares with the 9.3 percent growth rate in October.
Dealers are cutting prices to reach targets set by automakers to qualify for year-end bonuses that account for more than half of their annual profits from selling cars, according to the China Auto Dealers Chamber of Commerce. A measure of vehicle inventory rose to the highest level this year last month, according to a separate dealer group.
“There are more and more auto dealers selling vehicles at losses as they struggle to keep afloat,” said Wang Ji, a Beijing-based director at the dealer chamber of commerce. “Overcapacity is the fundamental reason behind the production surplus and unless they fix it, there will be a reshuffle of auto dealers and automakers sooner or later.”
Foreign automakers have announced plans to increase production to win more sales in the world’s largest auto market.
----Volkswagen AG said last month it will raise its Chinese plant capacity to more than the previously targeted 4 million autos a year by 2018. That compares with capacity there of more than 3.1 million vehicles in 2013.
Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, said yesterday that it is paying “high attention” to requests from dealers in China to lower sales targets. The automaker said in July that it will increase annual production capacity in the country to 400,000 vehicles from its current 300,000 units.
More
The whole history of civilization is strewn with creeds and institutions which were invaluable at first, and deadly afterwards.
Walter Bagehot.
At the Comex silver
depositories Thursday final figures were: Registered 64.51 Moz, Eligible 112.81
Moz, Total 177.32 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
In EUSSR news, at the ECB it was “Oh Lord make me
chaste but not yet.” “Whatever it takes,”
gets delayed. When it gets serious, you have to lie, is the new ethic in
Frankfurt. I suspect that 2015 is when it all collapses.
Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it.
Mark Twain.
ECB paralyzed by split as irreversible deflation trap draws closer
'It is now patently clear that Draghi lacks the crucial German support for launching full-blown QE'
By Ambrose Evans Pritchard,
International Business Editor 9:20PM GMT 04 Dec 2014
The European Central Bank has
dashed hopes for quantitative easing this year and acknowledged for the first
time that the institution’s elite board is split on plans for a €1 trillion
liquidity blitz.
Equity markets fell across
southern Europe,with Italy’s MIB off 2.77pc, led by sharp falls in bank stocks.
Spain’s IBEX dropped 2.35pc.
The euro surged by more than 1pc
to $1.2455 against the dollar in early trading as speculators rushed to cover
short positions. Expectations for immediate stimulus had been riding high after
the ECB’s president, Mario Draghi, pledged action “as fast as possible” last
month.
The bank slashed its forecasts
for economic growth to 1pc next year, and admitted that inflation will remain
stuck at just 0.7pc, a combination that traps large parts of southern Europe in
deflationary slump and corrodes debt dynamics. BNP Paribas said eurozone inflation
is likely to average 0pc in 2015, after turning negative this month.
“The ECB’s measures are woefully
behind the curve,” said Ashoka Mody, a former EU-IMF bailout chief now at the
Bruegel think-tank in Brussels.
----Mr Mody said the ECB repeatedly asserts that it will act “if needed” but declines to spell out what that means and why it continues to delay when the inflation level – now 0.3pc - is already so far below target. “Cheap talk is a legitimate policy tool. But talk can also create a cognitive bubble,” he said.
Mr Draghi denied that the ECB is
complacent about the deflation risk or that is succumbing to paralysis. “Let me
be absolutely clear. We won’t tolerate prolonged deviation from price
stability,” he said.
Yet he pleaded for more time to
study the effects of the oil price crash and gave a strong hint that there
would be no further decisions on monetary stimulus until after the next meeting
in January. The governing council discussed possible purchases of every major
asset “other than gold” but has not yet agreed to go beyond the current mix of
covered bonds and asset-backed securities.
“The credibility of the ECB lies
in tatters. It’s now patently clear that Draghi lacks the crucial German
support for launching full-blown QE,” said sovereign bond strategist Nicolas
Spiro.
More
Another consumer weekend before Christmas. Will consumers spend or save
their OPEC energy price relief? Have a great weekend everyone. More OPEC
bloodletting nest week I suspect.
Christmas is coming and the geese are getting fat, Please put a billion in the bankster’s hat, If you haven’t got a billion, a million will do, If you haven’t got a million, then God damn you!
Ebenezer Squid.
The monthly Coppock Indicators finished November.
DJIA: +136 Down. NASDAQ: +262 Down. SP500: +204 Down.
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