Saturday, December 05, 2015

Brent & WTI fall by over 3% on OPEC call

The Oilholic is still gathering thoughts on a most unusual conclusion to the OPEC meeting here in Vienna, with the formal communiqué issued by the member nations making no mention of the official production quota but noting that its members had opted to keep production where it was. 

So the only thing that's clear - minus an actual figure - is that OPEC will keep on pumping and maintaining its line of holding on to its market share. Having since waited for the US close, and done the relevant calculations, both Brent and WTI shed over 3% based on a five-day, week-on-week basis, with short-sellers predictably all over both futures contract. 

Using 2130 GMT on Friday as cut-off point, Brent was down $1.70 or 3.79% to $43.17 per barrel compared to the charting point last week, while WTI was $1.35 or 3.23% lower at $40.12 per barrel (see chart above left, click to enlarge). Get prepared for short term bearishness!

Finally, here is how far the OPEC oil price basket has plummeted since June 2014 (see chart below, click to enlarge) More from Vienna shortly; but here is some initial reaction in one’s latest Forbes report. Keep reading, keep it ‘crude’! 















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© Gaurav Sharma 2015. Chart 1: Oil benchmark prices Jan to YTD 2015. Chart 2: OPEC Oil Price Basket June 2014 – November 2014 © Gaurav Sharma / Oilholics Synonymous Report, November 2015.

Friday, December 04, 2015

OPEC quota where it was, no figures needed

OPEC decided to roll over its 'previous quota' published at 30 million barrels per day, but declined to put a figure in its official communique issued at the conclusion of its 168th ministers' meeting in Vienna, Austria.

Despite repeated questioning on the quota ceiling, OPEC Secretary General Adalla Salem El-Badri said Indonesia's re-entry into the OPEC fold, additional Iranian barrels entering the market and concerns over economic growth meant putting forward a quota figure needed further consideration.

"OPEC will wait and see how the market develops" over the next six months and saw no need to alter the current production level during a period of market adjustment, he added, having been asked to stay on as "acting" Secretary General until July 2016. 

In wake of the OPEC announcement, at 1656 GMT, WTI was trading at $40.47 per barrel, down 61 cents or 1.48%, while Brent came in at $43.52, down 32 cents or 0.73%. Industry surveys suggest OPEC's production for November was at 32.1m bpd, well in excess of stated levels. More shortly! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo: OPEC logo © Gaurav Sharma.

Saudis, Iranians not budging - short baby short!

It’s not official yet, but highly likely that an OPEC quota cut is not on cards as the Saudis won’t budge and the Iranians, hoping to return to the international fold, aren’t keen on a cut either. 

That’s unless other non-OPEC producers, most notably the Russians come on board too. It is the latter part that’s the tricky bit. It ain’t happening at the moment, but could it happen at some point 2016? 

Not likely, says our old friend Jason Schenker, President of Prestige Economics. "They might meet and greet, talk on the sidelines. But chatter of a possible joint policy announcement [with Russia] seems pretty far fetched to me."

To The Oilholic, it seems the Saudis want to see how demand goes in the early part of 2016, before possibly backing a cut. Were that to be the case, the good folks in Riyadh reckon they would quite literally get more bang for their bucks.

For the moment, don’t expect much, as yours truly reported for Sharecast. In the interim, here’s the current mantra of OPEC’s Middle Eastern producers, as one wrote for Forbes – i.e. discount the competition to death.

Either way, there appears to quite a bit of intraday short covering going on at moment, which to me suggests the market is bracing for a no change scenario here in Vienna, before an almighty cry of “Short, baby short” once OPEC actually confirms that it will not be cutting. 

That’s all for the moment from Vienna folks, plenty more from here shortly! In the interim, keep reading, keep it ‘crude’!

Update: 1600 CET OPEC Press Conference delayed; ministers have broken up for second session according to sources 

Update: 1630 CET Conference delayed further, expected at 1700 CET now

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Wednesday, December 02, 2015

Oil oversupply has triggered risk premium fatigue

The Oilholic reckons it will take at least another six months in the New Year to ease the current oil oversupply glut. More so, as OPEC is highly likely to maintain its current production level, according to initial conjecture here in Vienna, Austria with the latest oil ministers’ summit currently underway.

That would probably take us to somewhere around June 2016, when we’ll see excess supply falling to somewhere in the region of 1 million barrels per day (bpd). Be that as it may, even such a decline might not be enough to bring the so-called risk or geopolitical premium into play. 

Last week, offered a clear case in point when the Turkish Air Force brought down a Russian fighter jet. Both countries are significant players in the oil and gas world – Turkey, is a custodian of the key shipping artery of the Bosphorus, and Russia, is the world’s leading oil and gas producer.

Yet, an oil futures "rally" in wake of the incident barely lasted two sessions and a few dollars, before oversupply sentiment returned to dictate market direction as per the current norm. Furthermore, both Brent and WTI futures are going sideways in the $40-45 per barrel range, as has been the case of late.

Flashpoints in the oil and gas world haven’t disappeared. Nigeria, Libya, West’s relations with Russia and Iraq are broadly where they were, if not worse. In fact, situation in the wider Middle East is pretty dire. Yet, the risk premium - so prevalent in the oil trade - is more or less nonexistent in a market struggling to park its barrels.

That will remain the case until excess supply falls to around 700,000 to 800,000 bpd. Even beyond the first half of 2016, few expect a dramatic uptick in oil prices, using Brent as a global proxy benchmark. At Fitch Ratings’ recent London Energy Seminar, this blogger found himself in the company of several experts who agreed that $60-level is unlikely to be capped before the end of 2016.

Alex Griffiths, Head of Natural Resources and Commodities at Fitch Ratings, Tim Barker, Head of Credit Research at Old Mutual Global Investors, Julian Mylchreest, Global Head of Energy at Bank of America Merrill Lynch, and Mutlu Guner, Executive Director at Morgan Stanley, all agreed there is little around to instil confidence in favour of a fast uptick above $60 being on cards within 12 months time. 

Moving away from the oil price, Genscape Oil Editor David Arno’s thoughts on the impact of Keystone XL’s rejections by the Obama administration, chimed with yours truly. Rail freight companies would undoubtedly be the biggest beneficiaries. In his blog post following the decision last month, Arno also felt denial of the pipeline provides rail shippers with “at least a year and a half more of comfort that Canadian rail opportunities will be needed.”

Finally, a couple of notes from Moody’s are worth flagging. The agency recently changed Kinder Morgan's outlook to negative from stable. Senior Vice-President Terry Marshall said the negative outlook reflects Kinder Morgan's increased business risk profile and additional pressure on its already high leverage that will result from its agreement to increase ownership in Natural Gas Pipeline Company, a distressed company. 

On November 30, Kinder Morgan announced an agreement to increase its ownership in NGPL of America to 50% from 20% for approximately $136 million. Brookfield Infrastructure Partners will own the remaining 50%. Proportionate consolidation of NGPL's debt will add about $1.5 billion to KMI's consolidated debt. NGPL's trailing twelve month September 30, 2015 EBITDA was $273 million (gross).

Moving on to state-owned crude giants, Moody's also said China National Petroleum Corporation's (CNPC) proposal to sell some of its pipeline assets is credit positive, as profits and proceeds from the sale will partially offset negative impact from low crude oil and gas prices and help preserve its financial profile during the current industry downturn.

However, Moody’s said the sale has no immediate impact on its ratings and outlook as the benefits “are marginal, given CNPC's extremely large revenue and asset size.” Nonetheless, the ratings agency expects sale proceeds to help CNPC fund the gap between its capital expenditure and operating cash flow and therefore lower its reliance on additional debt to fund its growth.

Finally, the rating agency also downgraded Pemex’s global foreign currency and local currency ratings to Baa1 from A3. Simultaneously, Moody's lowered Pemex's baseline credit assessment (BCA), which reflects its standalone credit strength, to ba3 from ba1.

The actions were prompted by Moody's view that the company's current weak credit metrics will "deteriorate further in the near to medium term. The outlook on all ratings was changed to negative." That’s all for the moment folks from Vienna folks, as the Oilholic finds his bearings at yet another OPEC summit. Plenty more from here shortly! In the interim, keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo: OPEC Signage © Gaurav Sharma / Oilholics Synonymous Report.

Friday, November 20, 2015

Going sideways: Brent & WTI lurk above $40

The market’s huffed and puffed, issues and influences have come and gone but both oil benchmarks – Brent and WTI have done little to escape their current ranges by more than $2 per barrel.

What’s more, if you outstrip the week’s volatility, on a five-day week-on-week basis to Friday, November 20, Brent ended a mere ten cents lower while WTI rose 67 cents. In fact we've been going sideways for over a month now (see graph, above left, click to enlarge).

Expect more of this for some time yet, as oversupply - the overriding market sentiment that has prevailed for much of 2015 - dominates market chatter and will continue to do so for at least another two quarters. With as much as 1.3 to 1.5 million barrels per day (bpd) of surplus crude oil regularly hitting the market, there’s little around by way of market influence to dilute the impact of oversupply.

The OPEC ministers’ meeting, due early December, is the next major event on the horizon, but the Oilholic does not expect the producers’ collective to announce a production cut. Since, all players are entrenched in their positions in a bid to keep hold of market share, it would be mighty hard to get all 12 players to agree to a production cut, more so as the impact of such a cut remains highly questionable in terms of lending meaningful (and sustainable) support to prices.

Away from the direction of the oil price, yet on a related note, Fitch Ratings unsurprisingly expects the macro environment for EMEA oil and gas majors to remain challenging in 2016. “Crude prices are unlikely to recover (soon), while refining margins will moderate from the record 2015 levels. However, cost deflation should become more pronounced and help to cushion the majors' profits,” the agency noted.

While the sector outlook is viewed by Fitch as “generally negative”, the rating outlook is "stable"  as the agency does not expect sector-wide negative rating actions. “Credit metrics of most players will remain stretched in 2016, but this cyclicality is a known feature of companies in this industry, and we will only take negative action where we expect the current downturn to permanently impair companies' credit profiles,” it added. 

That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Chart: Oil benchmark prices Jan to YTD 2015 © Gaurav Sharma / Oilholics Synonymous Report, November 2015.