Crude Oil

While we patiently dig to find who the on and offshore "commodity trading" middleman are, who cart away ISIS oil to European and other international markets in exchange for hundreds of millions of dollars, one name keeps popping up as the primary culprit of regional demand for the Islamic State's "terrorist oil" - that of Turkish president Recep Erdogan's son: Bilal Erdogan.

According to Graves & Co., an industry consultant, oil and gas companies have laid off more than 250,000 workers around the world, a tally that will rise if oil prices remain in the dumps. “I was surprised it’s gotten this far,” Graves & Co.’s John Graves told Bloomberg in an interview. In an eye-catching statistic that highlights who exactly is bearing the brunt of the downturn, Graves says that oilfield service companies account for 79 percent of the job losses.

Following yesterday's dramatic geopolitical shock, U.S. equity index futures rise as Russia has not escalated the confrontation with Turkey as some had feared, while Asian shares fall, reversing earlier gains. European stocks are rallying and the euro is falling on the back of a Reuters report that the ECB is mulling new measures to prop up lending, although it’s not clear at this point what the real impact from these measures would be.

When it comes to 2016, Goldman says that it is "deja vu all over again", and that the S&P 500 index will tread water for a second consecutive year. Specifically Goldman says that its "year-end 2016 target of 2100 represents a 1% price gain from the current index level (2089), which itself is just 1% above the year-end 2014 level of 2059." Here are the reasons why Goldman expects all the main themes from 2015 to be repeated in the coming year, and why the one can just sell on December 31, 2015 and go away for the next year:

On Friday Nov. 20th we sold a half unit each of nearby January WTI trading at or near to $41.85 and nearby Brent trading at or very near to $44.23, giving us an average of $43.04. Our stated risk, was 2% on the position, so the stops were set at $42.10 and $45.11 respectively, and we used our “hour or so” methodology; that is, we’d want to see crude trade through those levels “for an hour or so” before activating the stops in question. Those stops have been activated. The Saudis caught us off. We are gone… now!

It had been a relatively quiet session overnight when as reported previously, the geopolitical situation in the middle east changed dramatically in a moment, when NATO-member country Turkey downed a Russian fighter jet allegedly over Turkish territory even though the plane crashed in Syria, and whose pilots may have been captured by local rebel forces. The news promptly slammed Turkish assets and FX, sending the Lira tumbling, pushing lower European stocks and US equity futures while sending 2 Year German Bunds to record negative yields.

As we noted recently, BofAML fears "a depeg of the Saudi riyal is the number one black-swan event for the global oil market in 2016," adding that it is "a highly unlikely but highly impactful risk." Given the recent action in Saudi Riyal forwards - the market's best guess at where the oil-ruch nation's currency will trade in the future - the chance of the black swan 'de-peg' is its highest since 2002. Besides this morning's "whatever it takes" moment, which oil markets quickly shrugged off, amid heavy subsidies to keep the people calm and the costs of wars in Yemen (and more in Syria), weak oil revenues leave The Sauds with few options (outside of the load the nation with ever more debt program): It's either stop it with the whole flooding an oversupplied market strategy, or let the peg fall before reserves runs dry.

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As a result of the global commodity weakness, global stocks have fallen for the first time in six days as the sell-off in commodities continued, dragging both US equity futures and European stocks lower. However, putting this in context, last week the MSCI All Country World Index posted its biggest weekly gain in six weeks: alas, without a coincident rebound in commodity prices, it will be merely the latest dead cat bounce.

A big catalyst for the ongoing collapse in the Bloomberg commodity index which just hit a fresh 16 year low, is the relentless surge in the dollar, with the DXY rising as high as 99.98 the highest since April, as a result of rising prospects for a December U.S. rake hike (odds are now at 70%, up from 36% a month ago) boosting currency differentials and flows into the USD, making commodities more expensive for buyers in other currencies.

"Can the government maintain this strategy of flooding the oil market? In our view, it is unlikely that Saudi leaders would want to exacerbate its ongoing reserve drain by pushing prices below $40/bbl. After all, pressure will quickly build on the riyal’s 30 year peg to the USD if Brent crude oil prices keep falling."

It appears European and US oil & gas stock investors (and Dow Transports lovers) believe they know better than commodity traders when it comes to some kind of future reality in which miracles of growth can happen. The disconnect between European oil & gas stocks, US energy stocks, and Trannies relative to crude oil has never been bigger...

"It is time to sell crude oil once again, and the risks are small while the potention seems large. Let’s sell a bit of both WTI and Brent crude, sufficient to be one unit in aggregate with nearby January WTI trading at or near to $41.85 and nearby Brent trading at or very near to $44.23."

European Union countries are preparing to crackdown on virtual currencies such as bitcoin, and anonymous payments made online and via pre-paid cards "in a bid to tackle terrorism financing after the Paris attacks, acording to a draft document."

Futures are modestly higher in early trading having tracked the USDJPY once again almost tick for tick, with the carry trade of choice rising to 123 shortly after Mario Draghi's latest speech pushed the dollar strong initially only to see most gains promptly evaporate against both the Yen and the Euro. European shares are likewise little changed, after gaining earlier, while Asian stocks rise; oil also advanced in early trading only to drop to its lowest overnight level moments ago, a few dimes over $40, with aluminum and copper both posting modest increases.