OPEC

With prices below $50, what is a stripper to do?

Andy Hall's Astenbeck hedge-fund lost 9.7% in November, bringing 2015 losses to more than 26%. As a result of capital losses and mounting redemptions, Astenbeck’s assets under management fell to $2.4 billion, down from $3 billion at the start of the year and nearly $5 billion less than three years ago.

Oil tanker rates soared to the highest in seven years amid an acceleration in the number of bookings and signs that the ships are being delayed when unloading due to a lack of space in on-land storage tanks. This means that day rates for 2 million-barrel carrying ships sailing to Japan from Saudi Arabia, the industry’s benchmark route, surged to $111,359, the highest since July 2008,

After 10 weeks of inventory builds, API reports a 1.9mm barrel draw (hugely missing DOE expectations of a 1.3mm build). The initial reaction was a knee-jerk higher by 25c, but we note that Cushing saw a 614k barrel build (5th week in a row) and is perhaps the more crucial storage level to montori. As one trader noted, "OPEC wants to produce as much as they want," and as global land (and sea) storage fills, so "$35 is clearly a level of interest."

The day of reckoning has arrived for the oil price. After a year of "Oil Price Crash" in October the world managed record production of 97.09 Mbpd. Production momentum built in the period of high price, 2007 to 2014, is proving very difficult to switch off. It must be switched off and it seems to me the most likely scenario is sharply lower oil price in the near term.

How many times were we told that an OPEC decision was "priced in" - well it wasn't. WTI is now down 15% from pre-OPEC and has crashed through the $37 level for the first time since Feb 2009... time to catch a falling knife (again), or fold on all those 'recovery' bets?

If you're in the commodities business, this is “not the time for courage” (to borrow a classic Gartman-ism). In the latest example of just how bad things have gotten, Anglo American - the world’s fifth largest miner - just kitchen sink-ed it, announcing a sweeping restructuring, a massive round of layoffs, and a dividend cut. The company will reduce its assets by some 60% while headcount will be cut by a whopping 85,000 or, nearly two thirds.

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Over the weekend, in its latest quarterly presentation, the Bank of International Settlements made what may have been a very premature assessment that China is now contained. Judging by events in the past 24 hours, the reality is anything but.

Confidence in central bankers is now hanging by a thread. Mario Draghi (and his fellow Goldman Sachs alum Mark Carney at the Bank of England, for that matter) might want to adopt a little humility before that thread snaps completely. It is always tragic when we filthy peasants stop banging rocks together momentarily to listen to the awe-inspiring intellects at the central banks, only to misunderstand them. Perhaps the real problem is one of overconfidence. Not our overconfidence. Theirs.

· Central bank rate decisions take focus this week, with the Bank of England, Swiss National Bank, Reserve Bank of New Zealand Central Bank of Russia all set to announce their latest decision on interest rates

While countless overzealous obituaries have been written about OPEC’s vanishing influence, OPEC is indeed acknowledging that it cannot influence prices to the degree that it once could. However, the result at least shows that OPEC is going to see its current strategy through to its logical conclusion, to the chagrin of most of its members.

Following Friday's plunge after OPEC "held" steady, confirming the strategy of crushing US Shale is here to stay, WTI Crude has continued its carnage and is back to a $38 handle for the first time since the August-month-end meltup... very close once again to cycle lows.

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