No matter how much oil the United States produces over the next few years, it will never become the next Saudi Arabia in the global oil market, according to Fatih Birol, the new executive director of the International Energy Agency (IEA). What's especially interesting about this forecast is that it directly contradicts what Birol said only three months ago, and he gave no explanation for his change of mind. “The United States will never be a major oil exporter. Their import needs are getting less but the US is not becoming Saudi Arabia,” Birol told the conference. “Their production growth is good to diversify the market but it will not solve the world’s oil problems.”
The day the Buffet "value-investing" fanatics have been looking forward to all year, almost as much as the annual pilgrimage to Omaha, has finally arrived - hours ago Warren Buffett released his historic, 50th annual letter to shareholders, which is extra special because as the Oracle notes in the foreword, "Fifty years ago, today’s management took charge at Berkshire. For this Golden Anniversary, Warren Buffett and Charlie Munger each wrote his views of what has happened at Berkshire during the past 50 years and what each expects during the next 50."
With the "Great Greek Tragedy" now behind the markets, for the time being, all eyes have turned towards the Nasdaq's triumphant march back to 5000. (The graphics department at CNBC have been working overtime on banners and bugs for when it happens....watch for them.) For now, it is all about the hopes of a cyclical upturn in the Eurozone economy supported by the ECB's QE program starting next month. Market participants have been bidding up stocks globally in anticipation that the ECB's program will pick up where the Fed left off, and the flood of liquidity will find its way back into asset prices
Euro-denominated emerging market sovereign issuance will soar to its highest levels in 10 years on the back of the European Central Bank's quantitative easing programme, as issuers outside the eurozone seek to take advantage of falling euro yields, according to bank analysts.
"For me the shorting opportunity looks as great as it was in 07/09, if only because people are still looking at what is hap-pening and believe that each event is an individual, isolated event. Whether it’s the oil price fall or the Swiss franc move, they’re seen as exceptions. ... we used all our monetary firepower to avoid the first downturn in 2007-09, so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World effects. This down cycle is likely to be remembered in a hundred years . Sadly this down cycle will cause a great deal of damage, precisely because it will happen despite the efforts of the central banks to thwart it."
The trouble with the money printing madness in the Eccles Building is that it generates huge deformations, misallocations and speculative excesses in the financial markets. Eventually these bubbles splatter, as they have twice this century. The resulting carnage, needless to say, is not small. Combined financial and real estate asset markdowns totaled about $7 trillion after the dotcom bust and $15 trillion during the 2008-2009 financial crisis. The Wall Street casino is now festooned with giant deadweight losses waiting to happen. But perhaps none is more egregious than Tesla - a crony capitalist con job that has long been insolvent, and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed’s Wall Street casino.
This is just the beginning of the oil crisis.
The recent rally in crude prices looks more like a head-fake than a sustainable turning point, suggests Citi's Ed Morse, noting that short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond. While the shape of the oil price recovery is unlikely to be 'L'-shaped in their view (more likely 'U', 'V', or 'W'-shaped recovery), Citi warns the oil market should bottom sometime between the end of Q1 and beginning of Q2 at a significantly lower price level in the $40 range (perhaps as low as the $20 range for a while) - after which markets should start to balance, first with an end to inventory builds and later on with a period of sustained inventory draws.
It took a while, but three months after we wrote "How The Petrodollar Quietly Died, And Nobody Noticed", someone finally noticed.
"This is further evidence that they are hellbent on protecting their market share in China," warns one strategist as just when US talking-heads thought things were 'stabilizing' Saudi Aramco slashes its official selling price for Arab Light crude by 90 cents to $2.30 a barrel less than Middle East benchmarks - the biggest discount in 14 years. As Bloomberg reports, the desert kingdom is continuing to fight for market share, and using the oil weapon by "trying to stay competitive in what is the biggest area of growth," as Middle Eastern producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia.
It has been a quiet overnight session, following yesterday's epic short-squeeze driven - the biggest since 2011 - breakout in the S&P500 back to green for the year, with European trading particularly subdued as the final session of the week awaits US nonfarm payroll data, expected at 230K, Goldman cutting its estimate from 250K to 210K three days ago, and with January NFPs having a particular tendency to disappoint Wall Street estimates on 9 of the past 10. Furthermore, none of those prior 10 occasions had a massive oil-patch CapEx crunch and mass termination event: something which even the BLS will have to notice eventually. But more than the NFP number of the meaningless unemployment rate (as some 93 million Americans languish outside of the labor force), everyone will be watching the average hourly earnings, which last month tumbled -0.2% and are expected to rebound 0.3% in January.
With S&P facing billion-dollar fines for defying the narrative, Goldman Sachs just dared to go even further against the US government by suggesting that the new oil order may be a blessing in disguise for Russia's oil industry. Simply put, the impact of the lower oil price and sanctions on the Russian economy increase the importance of oil industry tax reform, which could provide stimulus for upstream investments and commercialisation of the country’s vast oil reserves. An acceleration of upstream/downstream tax rebalancing could incentivise the development of substantial new basins in Russia, leading to a production capacity increase and a reduction in refining volumes to levels necessary to supply the domestic market. As a result, in Goldman's view, Russian crude exports would increase, improving the country’s current account, government revenues would grow, and upstream would attract material incremental investments.
A straight forward discussion of the factors driving the US dollar.
Amid the unforced errors of youth and inexperience, here is The Top 10 list of Wall Street rookie mistakes you should try hard to avoid...
With every central bank scrambling to export deflation, and with the Saudis doing everything in their power to definancialize crude as an investment asset and destroy the US shale patch, it is probably no surprise that the ECB is utterly hopeless to prevent Europe from sliding into an all out deflationary contraction, which this morning Eurostat confirmed when it reported that in January, Euro Area deflation was "worse" (assuming it is worse when consumers pay less for goods and services, which it only is if they are sinking in debt) than the -0.5% expected reading, instead sliding from -0.2% in December to -0.6% in January, which also happens to be tied for the worst deflationary print in the Euroarea history, matching the number from July 2009 when the world was reeling in the global Great Financial Crisis depression.