For the 2nd day in a row, WTI crude prices are falling (back below $55) after Saudi Arabian Oil Minister Ali al-Naimi said production in the world's biggest crude exporter would stay near record peaks around 10 million barrels per day in April. The investment community remains divided over the future (perhaps more a reflection of time horizons): BofA notes Large Speculators bought crude contracts for the 3rd consecutive week - the longest streak since June 2014; but Blackstone (among other private equity firms) have stayed on the sidelines (despite plenty of cash to put to work) as public markets have exuberantly filled the void so far this year: Oil producers have been able to “raise a lot of debt and, in some cases, equity publicly at values that we wouldn’t touch."
Oil prices have risen over the last few week prompting excitement that the 'slump' is over - but the last 2 days have seen notable selling pressure...
After Saudi Oil Minister Ali Al-Naimi noted: [4]
“We will always be happy to supply to our customers with what they want. Now they want 10 million,”
But that hasn't stopped speculators piling in en masse... (as BofA notes)
Large specs bought Crude contracts for a third week increasing net long positioning. This is the longest crude buying stretch since the selloff began in June 2014.
[5]
Positioning remains stretched to the downside and our indicators suggest buying should continue.
But Private Equity shops are staying away for now. As despite massively expensive valuations...
[6]
Energy firms have managed to raise a record amount of money in the last quarter...
[7]
But, as Wolf Richter noted, [8] Private Equity shops are staying away at these levels...
“We thought there would be a lot to do... That really hasn’t developed. We haven’t put as much new money out as we hoped or expected.”
Oil producers have been able to “raise a lot of debt and, in some cases, equity publicly at values that we wouldn’t touch,” he said. These companies ended up not having to dump their assets at fire-sale prices, and didn’t need the costly rescue money PE firms were eager to offer. “Public markets took away a lot of opportunity,” he said.
“There’s still a lot of optimism oil prices are going to bounce back, and sellers are sort of biding their time in the hopes that they don’t have to face the music,” said James. So, Blackstone has invested more in conventional and renewable power projects, he said, instead of chasing after once again overpriced and oil and gas investments.
And that’s a chilling warning for the bottom pickers in the energy sector: if PE money, which has driven the sector ever higher during the boom, fails to jump in with both feet, the rally in asset prices may not be sustainable and may have run its course.
Charts: Bloomberg and BofA
