Thursday, January 15, 2015

Brent’s premium gets dents as oil price dips

It’s definitely a moment worth recording and the Oilholic was rather glad he was awake earlier today when it happened. For at one point in Asian trading, both Brent and WTI were in perfect sync at US$48.05 per barrel as the oil markets rout continues (see screen grab below, click to enlarge). What's more, for a precious few minutes, the WTI actually traded at a premium of a few cents to Brent marking only the third such occurrence since 2010.


Of course, Brent’s premium has been since been restored back to well over a dollar and rising. However, it is a far cry from 2012 when the premium was averaging around $20 per barrel above the WTI, and did touch $25 at one point if this blogger’s memory serves him well.

The near coming together of both global benchmarks shouldn’t come as a surprise as it was on the horizon. What transpired today was merely for the sake of a record which might not be all that unique over the coming weeks and months of volatility. That said, once the projected supply correction kicks in around midway point of this year, the Oilholic does see Brent’s single digit premium to the WTI climb up to around $5.

As of now, one's 2015 oil price forecast is for a Brent price in the range of $75 to $85 and WTI price range of $65 to $75. Weight on Brent should be to the upside, while weight on WTI should be to the downside of the aforementioned range.

Meanwhile, a Baron’s article is suggesting oil could fall to $20, while industry veteran T. Boone Pickens says he’s seen several slumps in his lifetime and reckons a return to a $100 level within the next “12 to 18 months” is inevitable.

Additionally, the Oilholic has called an end to the so-called “commodities supercycle” in his latest quip for Forbes. On a related note, Goldman Sachs has trimmed its six and 12 month 2015 estimates for Brent to $43 and $70, from $85 and $90, and to $39 and $65, from $75 and $80, for the WTI.

Finally, as talk of a Venezuelan default gains market traction, Moody’s has downgrades ratings of PDVSA and its wholly-owned US-based refining subsidiary Citgo Petroleum. PDVSA’s long term issuer rating and senior unsecured notes were downgraded by the agency to Caa3 from Caa1. Moody’s changed its outlook on the ratings to stable from negative. 

Citgo Petroleum's Corporate Family Rating was downgraded to B3 from B1; its Probability of Default rating to B3-PD from B1-PD; and its senior secured ratings on term loans, notes and industrial revenue bonds to B3 from B1.

Additionally, the rating on Citgo's senior secured revolving credit facility was downgraded to B2 from B1, reflecting a lower expected loss in case of default vis-à-vis other classes of debt in the company's capital structure. The rating outlook was also changed to stable from negative.

The rating actions follow Moody's downgrade of the Venezuelan government's bond ratings to Caa3 from Caa1 with a stable outlook, earlier this week. The principal driver of the decision to downgrade Venezuela's sovereign rating was "a marked increase in default risk owing to lower oil prices," the agency said. That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo: Bloomberg screen grab as Brent and WTI futures achieve parity on January 15, 2015 © Bloomberg

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