Oil Prices

[specuvestor]

As discussed Russia's USD reserve and payments will be affected because USD still rule... for now

http://www.valuebuddies.com/thread-5237-...l#pid96284

Nov. 24 (Bloomberg) -- Russia stands to lose as much as
$140 billion a year as a result of lower oil prices and U.S. and European sanctions, Finance Minister Anton Siluanov said, underlining the risks of a prolonged stalemate over Ukraine.
“We’ve seen a contraction of capital inflows into the country,” Siluanov said today at conference in Moscow. “We’re losing about $40 billion a year because of geopolitical sanctions, and we’re losing about about $90 billion to $100 billion on the basis of a 30 percent decline in oil prices.”
The drop in the cost of hydrocarbons is pushing the economy of the world’s biggest energy exporter toward a recession while penalties imposed over Russia’s role in the Ukrainian crisis discourage investors and curb domestic demand. President Vladimir Putin asked his economic team for a plan to survive a decade of sanctions, according to people with knowledge of discussions held in mid-October.
The Russian economy, which is already growing at the slowest in four years, will sink into a recession next year if the price of oil drops to $60 per barrel and sanctions are stiffened, Siluanov said in a Nov. 17 interview. Crude prices began sliding in June, and Brent, the grade traders look at for pricing Russia’s main export blend Urals, dropped below $80 this month.
The Russian central bank forecasts the economy may have zero growth next year after a 1.3 percent gain in 2013. In 2007, when Brent averaged about $73 a barrel, gross domestic product grew 8.5 percent. Net capital outflow may reach $130 billion this year, the highest since the 2008 financial crisis, according to the Finance Ministry.

Oil, Ruble

“The price of oil fell 30 percent since the beginning of the year -- and with it the ruble,” Siluanov said. “The ruble will follow oil prices.”
Russia’s currency has depreciated almost 27 percent this year against the dollar, the worst performance after Ukraine’s hryvnia among global currencies tracked by Bloomberg. The ruble strengthened 1.7 percent to 44.9230 versus the greenback as of
5:33 p.m. in Moscow.
The global glut of oil, which together with gas accounts for about 50 percent of Russia’s state revenue, has contributed to a slide in crude prices to a four-year low. Russia needs Brent to average about $100 this year to balance its budget, Deutsche Bank AG estimated last month.
Brent for January settlement was down 53 cents to $79.83 a barrel on the London-based ICE Futures Europe exchange at 12:40 p.m. local time.

[greengiraffe]

OPEC members near compromise on oil cuts
BENOÎT FAUCON THE WALL STREET JOURNAL NOVEMBER 26, 2014 9:23AM

Oil personnel work at the Rumaila oil refinery, near the city of Basra, Iraq. Source: AP

OPEC members are inching toward a compromise that could lead them to cut oil supply, as the producer group prepares for one of its most closely watched meetings in years this week.

Saudi Arabia, the de facto leader of the Organisation of the Petroleum Exporting Countries, is likely to side with calls for the group to adhere more closely to its self-imposed production ceiling at tomorrow night’s (AEDT) meeting of OPEC oil ministers, according to a Gulf official familiar with the Saudi position.

Support for such a move, which would be based on tighter compliance with OPEC’s existing output limit as opposed to an outright cut to its production target, was coalescing last week at a meeting of OPEC advisers, according to several of those present.

With oil prices having recently stabilised at around $80 a barrel following a 30 per cent slide since the summer, some within OPEC have seen less urgent need for the group to take stronger action.

But as late as last week the Saudis’ likely approach at the Thursday meeting was unclear to most members.

“Saudi Arabia will likely go for a rollover” of the current ceiling, the Gulf official said. A call for strict compliance would be “an option they would go for.”

But Riyadh’s intentions haven’t been clearly telegraphed to other members, and it could decide to go a different route by the time of the OPEC meeting.

OPEC members have engaged in an unusually frantic round of shuttle diplomacy ahead of this week’s gathering, with some poorer countries calling for deep supply cuts to boost oil prices. Brent crude slid 1.2 per cent to $US78.53 a barrel yesterday after a meeting between Saudi Arabia, Venezuela and non-OPEC members Russia and Mexico resulted in no agreement to cut oil production.

OPEC agreed to limit its collective output to 30 million barrels of oil a day three years ago. But its actual production has regularly spilled over as each member has pushed to maintain their share of global oil markets. Closer compliance would imply a supply cut of around 300,000 barrels of oil a day compared with October levels, according to OPEC technocrats who met last week.

By some distance OPEC’s largest oil producer, Saudi Arabia has been unusually reticent in the run-up to this week’s meeting. Its oil minister Ali al-Naimi refused to answer questions about the country’s stance when he arrived in Vienna on Monday.

The kingdom appears reluctant to bear the brunt of any OPEC action on its own. Earlier this month Mr al-Naimi told Venezuela’s foreign minister Rafael Ramirez that the kingdom wouldn’t cut its oil output alone, according to people familiar with the matter.

But a supply cut of around 300,000 barrels a day is unlikely to satisfy some OPEC members, such as Venezuela and Iran, who need oil prices well above $US100 a barrel to balance their government budgets.

OPEC has, in the past, taken far more drastic action to boost oil prices. It slashed production by 4.2 million barrels a day in 2008 following the global financial crisis. An OPEC production cut of around 1.5 million barrels would be needed to tighten global oil markets next year, according to oil analysts at Barclays.

Current oil prices “aren’t acceptable, of course not,” Iraq’s oil minister Adel Abdul-Mehdi told reporters upon arriving in Vienna. “A means should be used to raise the prices,” he said.

But officials from Persian Gulf countries, which can generally balance their budgets with lower prices, are concerned deep output cuts would prove self-defeating as any rise in oil prices would only encourage further US shale oil production. OPEC members could then lose market share and higher prices would “make it easy” for the US to pump more, one Gulf oil official said.

US shale oil producers need oil prices in the range of $US53 to $US78 a barrel to break even, meaning most are profitable even with prices at their current level, according to estimates presented at an OPEC technical meeting last week.

Another problem for OPEC is sagging global oil demand growth, especially in key Asian markets like China. Industrialised countries also have increasing amounts of oil in reserve, with inventories on average high enough to cover 59 days of consumption in the first half of next year compared with a normal average of around 53 to 54 days, according to OPEC officials.

Wall Street Journal

[specuvestor]

"I think the only beneficiaries of an oil cut would be the shale oil producers who are now losing money as the prices are becoming lower than their marginal cost," Alturki said.

Technological innovations have unlocked shale resources in North America and raised daily US oil output by more than 40 percent since 2006, but at a production cost which can be three or four times that of extracting Middle Eastern oil.

Alturki said that as prices fall into the $70 range "we think the basic survival of the shale oil producer will be a question".

He said the kingdom doesn't need to make major production cuts because continuing lower prices will push shale producers out of the market, reduce excess supply and raise prices.


http://www.businessinsider.com/afp-saudi...z3K9Wojlqj

From FT.com

IEA warns low oil prices threaten US shale investment
Anjli Raval and Neil Hume

Investment in US shale oilfields will fall by a tenth next year – and result in a decline in production – if the oil price continues to trade around $80 a barrel, the world’s energy watchdog has warned.

Wednesday’s forecast from the International Energy Agency is the clearest sign yet of the potential impact of the sharp drop in the price of Brent crude, in the wake of booming US oil production.

Fatih Birol, chief economist of the IEA, said that if the price of crude remained near this week’s four-year low, “there could be a 10 per cent decline in US light tight oil, or shale, investment in 2015 [from full-year 2014 levels]”.

Shale oil extraction has a minimum cost that is around US$70.If oil drops to $50, all the shale oil activities will halt.
If it goes above $90, they will start to drill again.
So.. drill stop.. drill start.. drill stop.. drill start.. and then the oil price will just hover around $80-90..unless OPEC wants to subsidize the world with cheap oil.

Good also lah.. terrorists have less money to wreck havoc.
Putin also will be more humble.
And the rest of the developing countries have a chance to catchup with the atas countries.
Air is cleaner too since the power plants will be converted to use natural gas.

Thanks to this person and his gang..
http://www.forbes.com/profile/george-mitchell/

It's about delta. The low cost shale will continue to pump but new capacity will be limited. The growth of shale has plateau if oil stays below US$80 WTI. Business investments don't start and go based on what is oil price is tomorrow and next week. The uncertain outlook for oil to move back above US$100 is likely to crimp the whoole space for next 12 months at least.

GCC will be hurt by the lower oil price but their main expenditure is capex which actually can be deferred. US startegic interest will be hurt as their ambition to be energy sufficient with shale will be delayed, if ever.

Biggest beneficiary is actually China but net net I think the GCC and US had come to an agreement that this is a worthwhile tradeoff vs the global political outcome.

[Image: eqtf1j.jpg]

http://www.bloomberg.com/news/2014-10-17...om-it.html

I cant believe anyone would start a shale project based on break even price of $140. That makes no sense whatsoever.

My rough feel is that shale projects break even is roughly $80-90 oil price which is why I posted earlier shale should be losing money at $85 WTI

OPEC is important because they are major exporter. US is important because they are major importer. There is a difference. And China is major player increasingly

A bit ironic that I was championing shale more than a year ago in this forum when people were still skeptical but when people are fearful now i am saying shale production likely plateau if oil price remains $80 WTI or below

[greengiraffe]

http://www.cnbc.com/id/102223823

Could oil collapse cause next credit crisis?
John Melloy | @johnmelloy
6 Hours Ago
CNBC.com


It's not just the Saudis who could get much poorer from the oil price free fall.

Everyone could suffer if the collapse triggers a wave of defaults through the high-yield debt market, and in turn, hits stocks. The first to fall: the banks that were last hit by the housing crisis.

Why could that happen?

Well, energy companies make up anywhere from 15 to 20 percent of all U.S. junk debt, according to various sources.

In fact, they've been the most prolific issuers of high-yield debt over the years, as their share of that market was just 5 percent in 2005. The oil bull market we once knew filled their coffers and made executives feel confident they could borrow more and more money.

Much of that high-yield debt is now on the books of banks, asset managers and pension funds.
What's more, banks are even more dependent on a happy junk market as they make a market in the bonds. Any collapse in prices could cause bidders to run and liquidity to dry up.

They also issue high-yield debt exchange-traded funds, which have been wildly popular with investors over the last decade. If that popularity turns into heavy selling, the banks may not be able to sell the bonds fast enough to meet the pricing demands of the ETF, traders said.

"I've no doubt the (high-yield) sector will get bad, but the worry is that because of the general lack of liquidity in high yield overall that it could be an environment that makes contagion very much a possibility," said James Farro of Coghlan Capital.

There are cracks, but certainly no contagion yet.

From its high above $100 this June, WTI crude is down more than 36 percent and counting.

The Credit Suisse High Yield Bond Fund, one of the many proxies for junk debt, is off 6 percent over that period.

Yet stocks in the bank sector are up more than 8 percent since June. And the Dow Jones industrial average is more than 6 percent higher.

"This is the one thing I've seen over and over again," said Larry McDonald, head of U.S strategy at Newedge USA's macro group. "When high yield underperforms equity, a major credit event occurs. It's the canary in the coal mine."


Since the turn of the last century, there have been 12 times when the value of high-yield debt dropped at least 10 percent in 60 days, according to Kensho, a quantitative analytics tool used by hedge funds. (The Credit Suisse High Yield Bond Fund was the benchmark.)

Sixty days after those credit events, shares of Citigroup had a median return of negative 8 percent. Bank of America's stock had a median return of negative 6 percent. JP Morgan took a 5 percent hit.

This may not seem that bad, but those are just "median" returns, and including times when high yield falls just 10 percent. The decline in these stocks and prices of high-yield bonds can get much worse.

Read MoreBiggest losers on lower oil
During the last high-yield collapse, which centered around debt tied to the housing sector, Citigroup lost 63 percent of its value in the following 60 days, Kensho shows. Bank of America was cut in half.

Still, some market analysts don't subscribe to a doomsday scenario like last seen during the housing crisis. They reason that this contagion can be contained as defaults in the energy sector won't reach epidemic levels.

But people like Farro are convinced it won't be that contained.

"If the high-yield market—in its fragile state—is given a push, we could see a real rout in the markets," wrote Farro from his blog on Signalinea.com.
Disclosure: CNBC's parent NBCUniversal is a minority investor in Kensho.
John Melloy
John Melloy
Investing Editor of CNBC.com

[greengiraffe]

Oil's slide signals changing of guard

Baker Philip Baker
730 words
29 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Global oil prices have extended their falls this week, but consumers have not seen any change in petrol prices at the pump. Instead, national petrol prices headed higher, according to the numbers produced by the Australian Institute of Petroleum.

The Australian dollar plays a role, of course, but there will be pressure on petrol marketing groups to cut prices to below $1.30 a litre in the next few weeks.

Despite the spike in the petrol price last week, the average household bill for petrol has fallen by $20 during the past three-and-a-half months.

Normally, a drop in the oil price would be greeted with open arms by economists as many would expect that saving to lead to more spending, but these are not normal times.

The latest decision by the Organisation of the Petroleum Exporting Countries, to keep its production quota at 30 million barrels per day, has pushed the price of West Texas Intermediate crude oil to below $US70 a barrel for the first time since June 2010.

Perhaps the most important point to emerge from this week's meeting of OPEC countries is that it signals a changing of the guard.OPEC's influence diluted

The ability of OPEC to influence real oil prices has taken a tumble, while technology – such as shale energy – and concerns about the environment all mean the oil industry faces some serious problems.

Analysts such as Société Générale's Mike Wittner were quick to tell clients after the meeting that "we are now entering a new era for oil prices, where the market itself will manage supply, no longer Saudi Arabia and OPEC".

It would seem that OPEC's domination of the world oil market is under threat for the first time in more than 30 years by the sudden resurgence of the United States as a big producer that has flooded the market in recent times.

But by keeping production levels unchanged, the Saudis are betting that it will lead to a crash in the US shale industry as drilling is close to becoming unprofitable for some explorers. It is a big bet and shows they are more interested in keeping their market share than propping up the price. It also adds to the budget woes of already-troubled oil-producing economies, such as Venezuela, Nigeria, Iraq and Iran, leading some to speculate that it might lead to a sovereign default.

Venezuela, Nigeria and Angola account for a combined 6.6 million bpd of OPEC supply and – along with Iran and Iraq – are thought to be keen to push for deep cuts to OPEC's quota to restore oil prices back to $US100 a barrel, a level required to maintain their economies.

The drop in oil prices also makes life tough for central banks.

One of the big concerns for Europe right now is the threat of deflation.

A falling oil price just adds to that problem and the euro has not fallen enough, despite a stronger US dollar, to offset the impact of falling energy prices.Impact on interest rates

This might take some time to play as prices keep falling, but keeping more than just a passing eye on all of this will be the US Federal Reserve and the Bank of England.

Those two central banks want to get their ultra-low level of interest rates back to more normal levels, but if inflation keeps falling due to the oil price, they may not be able to.

It could be problematic for them when they start to convey to the markets what is going on with their plans.

Financial markets do not seem to cope well when central banks start to change their message.

In the meantime, the European Central Bank needs to find a way to get going with its own quantitative easing program to get the euro lower and stave off the threat of deflation.

One way to get rid of deflation is a much lower currency and a country can export it away to some other country. But at the end of the day, it has to go somewhere – and if it filters into US growth and the labour market, then any joy about lower petrol prices and more money for households to spend will not last very long.


Fairfax Media Management Pty Limited

Document AFNR000020141128eabt0001k

[piggo]

Is it just me? Or it's contradicting to say that Saudis/Gulf are losing "ability of OPEC to influence real oil prices" while their breakeven prices (discounting their income from huge sovereign funds) are much lower than anyone else's?

[Temperament]

Embargo - ‎Organization of Arab - ‎1973–74 stock market crash. Due to Petro prices went sky-high?
Now ‎"Organization of Arab" did not cut back output, petro prices go quite low than normal. Stock Market going to crash too if price of Petro going below certain level?
Very strange, isn't it?
Petro price too high market crashed in 1973/74. Petrol price too low in 2014/15, Stock Market going to crash too (as predicted by some quarters)? Price too high too low also crash then how?
Me think anything is possible.

[greengiraffe]

Noise by many confused consultants...

GG

Embargo - ‎Organization of Arab - ‎1973–74 stock market crash. Due to Petro prices went sky-high?
Now ‎"Organization of Arab" did not cut back output, petro prices go quite low than normal. Stock Market going to crash too if price of Petro going below certain level?
Very strange, isn't it?
Petro price too high market crashed in 1973/74. Petrol price too low in 2014/15, Stock Market going to crash too (as predicted by some quarters)? Price too high too low also crash then how?
Me think anything is possible.

[Temperament]

For me what the heck? Anybody can say anything. After all they don't have to account for it. Experts or no experts, i only know tail risks or outliers always existed in the stock market. The normal distribution curve doesn't always applies.
I always remember the picturesque illustration of a flapping butterfly causes the phenomenon chain reactions to the world's events on the other sides of the continents. I like this illustration of chain reactions from the beginnings and snowball to an avalanche that nobody can stop or predict when or how.
My 2 cents.

Noise by many confused consultants...

GG

Embargo - ‎Organization of Arab - ‎1973–74 stock market crash. Due to Petro prices went sky-high?
‎"Organization of Arab" did not cut back output, petro prices go quite low than normal. Stock Market going to crash too if price of Petro going below certain level?
Very strange, isn't it?
Petro price too high market crashed in 1973/74. Petrol price too low in 2014/15, Stock Market going to crash too (as predicted by some quarters)? Price too high too low also crash then how?
Me think anything is possible.

[greengiraffe]

http://www.valuebuddies.com/thread-5475-...#pid101870