Will Algos Push Oil Back To $60? Morgan Stanley Begs You To "Forgive The Macros, They Know Not What They Do"Submitted by Tyler Durden on 04/26/2016 11:58 -0400
“Close your eyes and buy” seems to be the mantra for now. While fundamentals don’t justify a cyclical recovery in oil yet, the market continues to move higher. The primary driving force has been macro funds, index money and CTAs. Technicals and momentum have only added to it, and there is a sense from some of investors that they need to buy for fear of missing out. Similar to 2015, we see a confirmation bias where any bullish data point is embraced outages, weekly US production, etc) and bearish data points are dismissed or spun as a buying opportunity.
This is what Pioneer Natural Resources just said in its press release: "expecting to add five to ten horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive."
"In the post-Doha world, when we're still in what is essentially a free market for oil, the Russians will pump as much oil out as the market will absorb and the Saudis have said much the same thing."
Recall all those tankers we have profiled before on anchor next to the Iran shore? They have finally started to move.
It's not just the shale drillers who are in danger as they see their liquidity evaporate. As the WSJ writes today, and as covered here since January, it is the lenders themselves whose unfunded revolver exposure may suddenly become funded and expose them to even greater risks from the energy sector should oil not rebound far more forcefully and put US oil and gas companies back in the black. How big is the exposure? Very big: $147 billion.
The stakes are rapidly rising in Doha given another supposed ‘freeze’ announcement would actually be read as outright OPEC / Russia failure without clear signals the market will see actual cuts. Doha doesn’t make for a quick kill. It merely prolongs the agony far deeper and far longer. Perhaps for some, that’s the redemptive point from US redetermination...
The companies most at risk may actually be those with that currently have some of the most highly utilized borrowing bases, ranging anywhere from 62% for Contango to 94% for Vanguard. It is these companies that will suddenly find themselves with zero incremental sources of liquidity as the banks proceed to whack anywhere from 30 to 50% of their borrowing base, leaving them scrambling to preserve liquidity and ultimately leading to bankruptcy court
Russia will export more oil to Europe in April than it has in any month since 2013 - despite Moscow's plan to sign a global agreement on freezing production in a bid to lift the price of crude. Asked what would be covered by the agreement, Russian Energy Minister Alexander Novak told reporters: "The discussion is only about freezing production. And not exports." In other words, the global supply glut is about to get even worse thanks to the likes of Russia, which is about to unleash an additional 2.4 million tonnes of ooil exports onto a world which is already drowning in excess oil.
Why Oil Prices Are About To Plunge Again: 31 Million Barrels In Floating Storage Are Coming On ShoreSubmitted by Tyler Durden on 03/23/2016 21:53 -0400
Based on the all-in cost of operating tanker storage (dirty VLCC tanker day rates, financing, transit and transfer loss, insurance and bunkers, Figure 5), the current storage cost is too high relative to the steepness of the Brent forward curve. This means that prices do not justify inventory build, but rather gradual inventory drawdown as existing storage trades are unwound. Comparing the current level of floating storage (157.3 million barrels) versus that in early February (126.6 million barrels), there may be an additional 31 million barrels of inventory to be drawn down between now and the next inventory trough over the next several months.
Ian Taylor, CEO of oil trader Vitol said on Tuesday that "stocks of crude and products continue to build and these will weigh upon the market". Global distillate stocks in the developed world are close to a record high, in the thick of refinery maintenance season, and in the run-up to the time when gasoline use hits its summer high point, but interest in diesel typically fades. "Absent run cuts, the market faces another round of rapid stockbuilds once refineries return from maintenance>"
Silver ran up 44 cents on the Fed announcement. Then consolidated before running up over $16. It finally exhausted itself $16.15. What happened?!
Collapsing Contango Means Tankers Full Of Oil Such As This One, Will Soon Have To Unload Their CargoSubmitted by Tyler Durden on 03/18/2016 15:28 -0400
“As we’ve seen both Brent and WTI climb above $40 we have also seen the contango collapse. If we rally too high the contango will collapse further and the storage economics reduce -- that could trigger storage in tanks to be reduced,” increasing supply and putting pressure back on crude prices.
Large amounts of aluminum traded on the London Metal Exchange over the past couple of years "have at times been in the hands of a dominant position holder." Citing sources at commodity trading houses, warehouses, producers, brokers and banks "one such position holder is U.S. bank JPMorgan."