Crude Oil

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'Central Bankers' Say The Darndest Things - Bill Dudley Edition





Dudley’s overall message is that the US economy is doing great, but it’s not actually doing great, and therefore a rate hike would be too early. Or something. "The sharp drop in oil prices will help boost consumer spending?" We don’t understand that: Dudley is talking about money that would otherwise also have been spent, only on gas. There is no additional money, so where’s the boost?  This is just complete and bizarre nonsense. And that comes from someone with a very high post in the American financial world. At least a bit scary.

 
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Is The Long Dollar Trade Over?





It seemed almost too obvious. The European Central Bank was imposing negative interest rates and devising new quantitative easing schemes to combat the growing threat of deflation; the SNB was buying foreign currencies in "unlimited quantities" to cap the value of the Franc; the Bank of Japan was madly printing Yen in a desperate frenzy to finally stir up domestic demand; and then the Bank of China responded with its own rate cuts. All this, while the Federal Reserve was quietly ending its quantitative easing policies and even hinting at forthcoming (2015) rate hikes. The long dollar trade, and all it's various expressions, soon became one of the most crowded trades of 2014.

 
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The Oil-Drenched Black Swan, Part 1





"Every sustained action has more than one consequence. Some consequences will appear positive for a time before revealing their destructive nature. Some will be foreseeable, some will not. Some will be controllable, some will not. Those that are unforeseen and uncontrollable will trigger waves of other unforeseen and uncontrollable consequences."
 
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The Macro Mauling Continues: Germany Contracts, Japan Downgraded, Copper Tumbles, WTI Lowest Since 2009, Gold Up





Another day full of global macroeconomic disappointments is certain to send the S&P500 to all time-higherest records as 100,000 or so E-mini contracts exchange hands between central banks and Citadel's algos.

 
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The Imploding Energy Sector Is Responsible For A Third Of S&P 500 Capex





"US private investment spending is usually ~15% of US GDP or $2.8trn now. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transportation equipment, with remaining 20-25% related to other industries or intangibles. Non-residential construction is 20% oil and gas producing structures and 30% is energy related in total. We estimate global investment spending is 20% of S&P EPS or 12% from US. The Energy sector is responsible for a third of S&P 500 capex."

 
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'We Are Entering A New Oil Normal"





The precipitous decline in the price of oil is perhaps one of the most bearish macro developments this year. We believe we are entering a “new oil normal,” where oil prices stay lower for longer. While we highlighted the risk of a near-term decline in the oil price in our July newsletter, we failed to adjust our portfolio sufficiently to reflect such a scenario. This month we identify the major implications of our revised energy thesis.  The reason oil prices started sliding in June can be explained by record growth in US production, sputtering demand from Europe and China, and an unwind of the Middle East geopolitical risk premium. The world oil market, which consumes 92 million barrels a day, currently has one million barrels more than it needs.... Large energy companies are sitting on a great deal of cash which cushions the blow from a weak pricing environment in the short-term. It is still important to keep in mind, however, that most big oil projects have been planned around the notion that oil would stay above $100, which no longer seems likely.

 
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The First Oil-Exporting Casualty Of The Crude Carnage: Venezuela





What best shows that for Venezuela it is essentially game over, is that as the chart below shows, Venezuela’s international reserves declined $1.3 billion in the week after President Nicolas Maduro transfered $4 billion of Chinese loans to the central bank. In other words, the scrambling oil exporter was forced to burn one third of its Chinese bail-out loan to keep itself solvent. The country’s reserves dropped to $22.2 billion today, according to central bank data. As Bloomberg also notes, Maduro on Nov. 18 ordered the Chinese loan proceeds to be moved from an off-budget fund, so that they would show up in reserves and help boost investor confidence in an economy beset by the world’s highest inflation and widest budget deficit. The following day, Venezuelan bonds rose the most in six years in intraday trading. “If the plan was to calm the bondholders, then burning through a third of that money in five working days doesn’t do it in any way,” Henkel Garcia, director of Caracas-based consultancy Econometrica, said in a telephone interview.

 
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Guest Post: How Bloomberg’s Algo-Writers Serve The Cult Of Keynesian Central Banking





If you ever needed proof that the financial press has been completely indoctrinated in the cult of Keynesian central banking consider the following...

 
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Dow Record Close Despite Bond Yields, Bullion, & Black Gold Battering





Despite the best efforts of business media to paint a rosy picture of the Black Friday spend-fest, stocks had only one trajectory - from upper left to lower right - from the open. Small Caps were slammed but all major indices gave up significant knee-jerk "energy schmenergy" gains to close ugly. However, The Dow was pushed just into the green - and new record highs - to prove everything in the centrally planned world is awesome. Crude oil prices were monkey-hammered to 5-year closing lows. The USDollar gained on the day - after 3 down days - and combined with Swiss referendum expectations, gold faded notably (as did Silver with oil). Treasury yields tumbled 10-12bps on the week and HY credit notably underperformed.

 
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Crude Crashes Most In Over 5 Years





Because nothing says global demand is picking up like the biggest collapse in crude oil prices since April 2009...

 
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As Japanese Bankruptcies Soar, Goldman Warns "Further Yen Depreciation Could Be A Net Burden"





It is no secret that one of the primary drivers of relentless S&P 500 levitation over the past two years, ever since the start of Japan's mammoth QE, has been the use of the Yen as the carry currency of choice (once again as during the credit bubble of the early-2000s), whose shorting has directly resulted in E-mini levitation. One look at the intraday chart of any JPY pair and the S&P500 is largely sufficient to confirm this. Those days, however, may be coming to an end, at least according to Goldman which overnight released a note saying that the Yen is "Almost at breakeven: Further yen depreciation could be a net burden."

 
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Frontrunning: November 28





  • Oil Seen in New Era as OPEC Won’t Yield to U.S. Shale (BBG)
  • Alberta Producers With World’s Cheapest Oil Face Cascading Woes (BBG)
  • Bundesbank’s Weidmann Rejects Calls for German Stimulus Plan (WSJ)
  • Google Should Be Broken Up, Say Euro MPs (BBC)
  • Calm comes to troubled Ferguson; protests dwindle across U.S. (Reuters)
  • Russia’s Banks Feel Capital Squeeze in Grip of Sanctions (BBG)
  •  Italian Unemployment Rate Rises to Record, Above Forecasts (BBG)
 
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Texas Tea & Treasury Yields Tumble As Trannies Top The Day





Never in the history of US equity markets has the S&P 500 closed above its 5-day moving average for 28 days in a row... until today. While most indices tracked sideways in a very narrow range today, Trannies outperformed (helped by weaker oil, but even when oil rallied intraday Trannies rallied too). VIX tracked back below 12.5 with an inverted term structure for the 5th day in a row. The USD lost ground for the 2nd day in a row, driven by EUR strength (with notable AUD weakness extending). Silver rallied as gold flatlined and copper tumbled after US GDP beat. However, the two big themes today were the collapse in oil prices (as rumors/news ahead of OPEC sent volatility soaring) to a $73 handle - the lowest close since 2010; and the plunge in Treasury yields (with a very stroing 5Y auction and big block trade in TLT suggesting short-covering). Finally, AAPL broke above a $700 billion market cap briefly today but was unable to hold it.

 
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