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Southern Rock Energy seeks to build $5.5B crude refinery near Victoria, Texas

If development continues and the refinery is built, it would rank in the top 30 largest refineries in the U.S......»»

Category: topSource: bizjournalsAug 5th, 2022

German Oil Refiner Observes "Run" On Diesel & Heating Oil, Halts Deliveries

German Oil Refiner Observes "Run" On Diesel & Heating Oil, Halts Deliveries The latest sign Europe's energy problems are worsening is that Austrian oil and gas firm OMV AG halted crude product deliveries from storage facilities in Germany amid a "run" on supplies, Bloomberg reported.  OMV Germany said two storage facilities in the southern part of the country "are observing a current run on heating oil and ... this is possibly due to crisis-driven market shortages and thus excessive speculation and stockpiling." "In order to secure supplies in the short and medium term, loading will now be temporarily suspended until the Burghausen refinery has resumed production," OMV said in an emailed response, adding Burghausen and Feldkirchen's storage facilities will restart deliveries on Aug. 15. A combination of issues has led to diesel and heating oil in southern Germany, Austria, and Switzerland. First is the energy disruption due to Western sanctions on Russia. Second OMV's Burghausen refinery maintenance. And third, falling water levels on the Rhine River have reduced deliveries of crude product shipments from the North Sea.  The panic hoarding of diesel and heating fuel likely comes from utilities who have had to switch the type of power generation from natural gas to other crude products due to capacity constraints on the Nord Stream 1.  German power prices have soared to a new record of more than 400 euros per megawatt-hour on the European Energy Exchange on Thursday on the prospects of a worsening energy crisis. With Brent crude prices tumbling below $100 a barrel, it appears the paper oil market is out of touch with the tightness reality of physical markets.  Tyler Durden Thu, 08/04/2022 - 11:41.....»»

Category: smallbizSource: nytAug 4th, 2022

WTI Reverses OPEC+ Gains After Big Surprise Crude Build

WTI Reverses OPEC+ Gains After Big Surprise Crude Build Oil prices have roller-coastered higher and now lower this morning following OPEC+'s decision to hike output minimally, and also note they have limited capacity for further increases. WTI traded lower overnight after an unexpedctedldy large crude build was reported by API. “The announced increase from OPEC+ equates to a nonevent,” said Stacey Morris, head of energy research at VettaFi. “The amount is so modest that it is a rounding error for global oil markets,” she added, noting that the market remains “hypersensitive” to supply and demand dynamics and that “volatility around headlines is not going away.” The oil market has reversed those OPEC+ gains as investors once again focus on fears of a global economic slowdown as signaled by numerous PMI/ISM surveys in the last few days. API Crude +2.165mm (+467k exp) Cushing +653k Gasoline -204k Distillates -351k DOE Crude +4.47mm (+467k exp) Cushing +926k Gasoline +163k Distillates -2.40mm After an unexpectedly large crude draw the previous, analysts expected a modest build this week (and API signaled a much larger build). Stocks at Cushing also rose for the 5th straight week Source: Bloomberg There was a 4.7mm drain from Strategic Midterm Reserve brings total down to 470 million barrels, lowest since May 1985. Gasoline demand fell by 7.61% in weekly comparison, nearly reversing all of the gains the previous week and causing the four-week rolling average to decline by 2.5%. The drop suggests demand remains suppressed despite the sustained decline in pump prices. US crude production was unchanged on the week... Source: Bloomberg Perhaps rather notably, refinery capacity sank to 91% last week...the lowest in 3 months. Source: Bloomberg WTI was hovering around $93.75 (200MA $94.76) ahead of the official data and extended losses on the big build... Either way, its not good news for President Biden as crude and wholesale gasoline prices look set to drag retail pump prices higher once again in the not too distant future... Source: Bloomberg Which won't be a good look after The White House takes its victory laps today. Tyler Durden Wed, 08/03/2022 - 10:36.....»»

Category: blogSource: zerohedgeAug 3rd, 2022

4 Energy Stocks to Buy Before They Report Earnings This Week

All signs point to continued strength in oil and gas stocks, four of which look good for snapping up before the companies report quarterly earnings. A number of factors will have an effect on energy prices this year and the next.First, slowing economies are likely to consume less energy, which will ease some of the pressure on demand.Second, the high temperatures this summer (especially in Europe) are positive for consumption, increasing demand and keeping prices relatively strong.Third, a lot depends on how much the OPEC and U.S. produce because it will help meet demand and build inventory.Fourth, the impact of sanctions on Russian production is also an important factor.Fifth, despite increasing production in the U.S. (EIA expects record levels in both 2022 and 2023) inventories aren’t expected to increase much. With consumption increasing by 2.2 million barrels per day in 2022 and by 2 million b/d in 2023, inventory is expected to increase by only around 0.8 million b/d. Because of the reduction in refinery capacity by around 1 million b/d, their five-year high utilization rates (supported by strong wholesale prices) will not yield more than in the highest levels in the last five years.  Therefore, the U.S. Energy Information Administration’s (EIA) short-term outlook from earlier this month forecasts that Brent spot prices will average $104 per barrel (b) in 2022 and $94/b in 2023, significantly higher than the $71/b in 2021. Gasoline prices are expected to average $4.05 per gallon in 2022 and $3.57/gal in 2023. There could be some short-term relief for SPR releases.Also, despite a 3% increase in natural gas production this year from 2021 levels, inventories at the end of the October filling season will be 6% below the five-year average between 2017 and 2021, and down 5% from 2021.All these factors point to continued strength in oil & gas stocks, four of which look good for snapping up before earnings this week:PBF Energy PBFZacks #1 ranked PBF Energy belongs to the Oil and Gas - Refining and Marketing industry (top 1% of Zacks-classified industries). Other than oil and gas, PBF generates revenue from feedstocks, chemicals and lubricants.Analysts are looking for 21% sequential and 61% year-on-year growth in its refining business, which is substantially all of its business (more than 99%). Operating profits in the segment are expected to jump 418% sequentially and around 415% from last year. Logistics revenue and profit are expected to decline this quarter.Production has topped analyst expectations in each of the last five quarters although region-wise estimates haven’t always been up to the mark. The East Coast is the only region that consistently beat estimates in the preceding five quarters, with the average surprise at around +3.6%. The Mid-Continent missed by less than a percentage point in a couple of quarters, averaging +1.6%. The Gulf Cost averaged +2.1%, despite missing in a couple of quarters. The West Coast +0.6% (missed in the last two quarters). Production is expected to increase in all except the West Coast region this quarter.Analysts expect gross refining margins to soar across regions with the East Coast increasing 68% sequentially (341% year over year), Mid-Continent 72% (101%), Gulf Coast 49% (270%), West Coast 38.8% (173.6%).  Overall, refining gross margin is expected to increase 53.6% from the March quarter and 21.0%.The company has been missing total throughput estimates in recent quarters. The current estimate calls for 10.6% sequential growth and 5.4% growth year over year, mainly contributed by the East Coast, Mid-Continent and Gulf Coast regions.Valero Energy VLOZacks #1 (Strong Buy) ranked Valero Energy also belongs to the Oil and Gas - Refining and Marketing industry. It sells transportation fuels and petrochemical products.Valero’s Refining (around 95% of the business) and Renewable Diesel segments are expected to grow revenue this quarter from both pervious and year-ago quarters, while its Ethanol segment is expected to decline from both periods. Neither Refining nor Ethanol have disappointed in any of the last five quarters, although Renewal Diesel has missed at least a couple of times.Refining operating income is expected to soar both in the sequential and year-over-year comparison while both Renewable Diesel and Ethanol segment profits are expected to decline year over year. Refining estimates have proved more reliable/conservative in recent quarters.Per day throughput volume is expected to decline in the U.S. Gulf Coast and U.S. Mid-continent regions. The U.S. West Coast region is expected to grow sequentially and decline year over year while the opposite is the case with the North Atlantic region. Valero has topped analysts’ total throughput volume estimates in the each of the last five quarters.As with PBF, throughout margin per barrel is expected to soar in all regions.Exxon Mobil Corp. XOMZacks #2 ranked Exxon Mobil belongs to the Oil and Gas - Integrated – International industry (top 10%).Analysts are looking for both sequential and year over year growth in Exxon’s after-tax income from Upstream (about 75% of total income), Downstream and Chemicals businesses.As far as per day petroleum product sales are concerned, heating oil, kerosene and diesel are expected to grow slightly from both previous and year-ago quarters. While stronger growth is expected of specialty products, heavy fuels and aviation fuels, this is from lower bases, so less impactful on totals.  Sales are in the U.S., Canada, Europe, Asia and Other regions, with U.S. and Europe being the largest, followed by Asia, Other and then Canada. Growth in the to-be-reported quarter is expected to be broad-based across regions.Refinery throughput is expected to increase in the Asia Pacific and Europe, to decline in Canada while in the U.S., it is expected to decline sequentially while remaining substantially higher than in the year-ago quarter.Natural gas production is expected to decline slightly from both previous and year-ago quarters.Chevron Corp. CVX  Like Exxon, Zacks #2 ranked Chevron also belongs to the Oil and Gas - Integrated – International industry. The company produces crude, natural gas, NGL and has both upstream and downstream operations.In the to-be-reported quarter, analysts are looking for very strong growth in both upstream and downstream income. The U.S. is expected to account for an almost equal share of upstream income and more than three-quarters of downstream income. Growth is expected to be broad-based across geographies. It’s worth keeping in mind, however, that analyst estimates have been off-base in recent quarters, and Chevron has missed estimates a number of times.But production estimates have proved easier to forecast. The average four-quarter surprise in the net oil equivalent production per day was -.02% in International and +3.56% in U.S. segments. And analyst estimates represent a 6.3% sequential and 14.1% year over year decline in International production. U.S. production is expected to increase around 8% sequentially and 55% year over year.One-Month Price PerformanceImage Source: Zacks Investment Research Just Released: Zacks Top 10 Stocks for 2022 In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022? From inception in 2012 through 2021, the Zacks Top 10 Stocks portfolios gained an impressive +1,001.2% versus the S&P 500’s +348.7%. Now our Director of Research has combed through 4,000 companies covered by the Zacks Rank and has handpicked the best 10 tickers to buy and hold. Don’t miss your chance to get in…because the sooner you do, the more upside you stand to grab.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Chevron Corporation (CVX): Free Stock Analysis Report Exxon Mobil Corporation (XOM): Free Stock Analysis Report Valero Energy Corporation (VLO): Free Stock Analysis Report PBF Energy Inc. (PBF): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksJul 27th, 2022

Futures Fade Ahead Of ECB Decision During "Extremely Eventful Day" For Europe

Futures Fade Ahead Of ECB Decision During "Extremely Eventful Day" For Europe US equity futures edged slightly lower on Thursday but rebounded off session lows, as China’s worsening property crisis, political chaos in Italy where Mario Draghi rasigned as PM, and Russia’s plans to annex occupied Ukrainian territory all damped global sentiment, which however was offset by news that flows via the Nord Stream 1 pipeline had resumed and oil prices tumbled on fading US gasoline demand and a ramp up in Libyan output. Yes, as Bloomberg succinctly puts it, it has been an "eventful day" for Europe,  that includes the resignation of Italian Prime Minister Mario Draghi, an ECB rate decision and the restart of Russian gas flows via the Nord Stream pipeline. Investors were also waiting for American unemployment claims to gauge their potential impact on Federal Reserve policy tightening and for earnings from companies including AT&T, Philip Morris and Snap. A European Central Bank meeting that’s expected to result in its first rate-hike in more than a decade is also among a flurry of concerns for traders. S&P 500 contracts were down just 0.1% and those on the Nasdaq 100 little changed as of 715am in New York. The tech-heavy Nasdaq 100 index had gained for a second day on Wednesday, rising to the highest level since June. The Stoxx Europe 600 Index and the euro recouped losses following the resignation of Italy’s Prime Minister Mario Draghi. Treasury yields rose, pushing the 10-year benchmark above 3% and the dollar was flat. Bitcoin slumped after Tesla announced it had sold 75% of its holdings. In premarket trading, Tesla gained 1.7% after reporting second-quarter results that exceeded analyst expectations. The electric carmaker’s announcement that it had sold most of its bitcoin holdings triggered a selloff in the token and crypto stocks such as Coinbase. Peer Norwegian Cruise Line fell 6.4%. United Airlines slumped 11% after the carrier curbed flying for the rest of this year and lowered growth plans for 2023. Here are some other notable premarket movers: Alcoa Corp. (AA US) shares rise as much as 5.5% in US premarket trading after the aluminum producer reported 2Q adjusted Ebitda that topped the average analyst estimate and announced an additional $500 million authorization for future stock repurchases. United Airlines (UAL US) shares fall 6.4% in US premarket trading after the company reported adjusted earnings per share for the second quarter that missed the average analyst estimate. Carnival (CCL US) drops about 11% in US premarket trading after launching a $1 billion share offering in one of the year’s largest US equity raises to date, as part of a plan to help address its 2023 debt maturities. Cryptocurrency- exposed stocks are lower in premarket trading as Bitcoin extends declines after Tesla disclosed that it sold the majority of its holdings of the token during the second quarter. Marathon Digital (MARA US) -5%, MicroStrategy (MSTR US) -4%, Coinbase (COIN US) -4.5%, Riot Blockchain (RIOT US) -4.1% Las Vegas Sands (LVS US) shares rise 3.8% in premarket trading after the casino and resort company reported revenue for the second quarter that beat the average analyst estimate. Qualtrics (XM US) shares slide 4.4% in US postmarket trading after reporting second-quarter results and paring its revenue forecast for the full year. Analysts trimmed price targets on the stock to reflect a more difficult macroeconomic backdrop, while remaining positive on the longer- term prospects Keep an eye on Apple (AAPL US) as Morgan Stanley says that the company’s pivot to a subscription-like model creates a clear path to a market capitalization of more than $3 trillion. “Markets are nervously awaiting the outcome of the July ECB and Fed meetings knowing all too well that these central banks are more than willing to renege on the signals about likely policy moves that they have provided previously,” said Aviral Utkarsh, a multi-asset strategist at NN Investment Partners. In any case, risk sentiment remains fragile as investors debate whether equities have reached a trough after this year’s selloff amid the war in Ukraine, a slowdown in China and the prospect of a US recession. The resumption of gas exports to Europe through Nord Stream is set to provide some relief for the continent that’s racing to store the fuel before the winter.   Here are some ley Nord Stream 1 news: Nord Stream said gas delivery has resumed on Thursday morning, according to DPA. It was also reported that Nord Stream 1 gas pipeline nominations were at 29.3mln kWh/h from 06:00CET, according to the operator. Deliveries are reportedly around pre-maintenance levels of circa 40% Nord Stream data shows that gas flows are back to 40% capacity (pre-maintenance amount), according to Bloomberg. NEL and OPAL gas grids, connected to Nord Stream 1, show prelim. physical flows into Germany of 9.9mln KWH/H and 12.5mln KWH/H for 05:00-06:00BST. Head of German network regulator said gas nominations for Nord Stream 1 for today are still at 30% capacity and this is binding for the next 2 hours, while more changes over the day would be unusual, according to Reuters; German grid has signalled that Nord Stream gas flows have increased in the second hour. German Energy Regulator Bundesnetzagentur says real gas flows are above nominations re. Nord Stream 1, pre-maintenance level of 40% capacity could be surpassed today. Nord Stream 1 flows are at 29.3mln KWM/H at 07:00-08:00BST, according to the operator; at 29.3mln KWM/H at 08:00-09:00BST, according to the operator; at 29.3mln KWM/H at 09:00-10:00BST, according to the operator. Meanwhile, US President Joe Biden said he expects to speak to Chinese leader Xi Jinping “within the next 10 days” as Washington considers lifting some tariffs on Chinese imports. Markets are also assessing earnings to gauge how companies are managing amid the highest inflation in generations and escalating borrowing costs. Many stocks “are still in very distinct downtrends so you can see a rally off maybe an oversold level but really if you are not starting to recover and break into a better uptrend it really remains to be seen if this can continue,” said Cameron Dawson, NewEdge Wealth chief investment officer. “So it’s more a relief at this point and not necessarily a trend change.” Geopolitics are adding to investors’ skittishness. Russian President Vladimir Putin has warned that unless a spat over sanctioned parts of the Nord Stream pipeline is resolved, flows will be tightly curbed, and some European countries are telling residents to conserve gas. In Europe, losses for energy, mining and travel stocks outweighed gains in the media and tech industries, pulling the Stoxx Europe 600 Index down 0.2%. Nokia jumped 7.7%, the most in a year, as the Finnish company reported better-than-expected earnings strong demand for its 5G networks from phone carriers. Here are the other notable premarket movers: Sartorius AG preferred shares rise as much as 8.9% after the company issued its latest quarterly earnings and reaffirmed its guidance in a sign of strength, according to analysts. ASM International shares rise as much as 9.8% in Amsterdam as Jefferies says that the company’s quarterly update delivered “blowout” orders and strong guidance. Publicis shares gain as much as 5.6% after reporting strong 1H earnings that notably outperformed consensus estimates. Diploma shares jump as much as 5.8% after giving an update for 3Q that analysts described as “strong,” while reiterating annual guidance which was raised in April. Italian stocks extended their drop after Prime Minister Mario Draghi resigned, raising the prospect of snap elections. Poste Italiane slides as much as 8.9%, UniCredit -8.5%, Intesa Sanpaolo -7.4% SAP shares drop as much as 4.4% after the software company cut its full-year operating profit outlook, citing costs related to exiting Russia and a decline in license revenue. HelloFresh stock drops as much as 13% and is on track to post its biggest back-to-back decline on record after reducing full-year adjusted Ebitda guidance, which missed the midpoint of consensus estimates. Boliden shares slide as much as 5.5% to underperform the broader mining sector on Thursday, after the company posted 2Q results that analysts said highlighted the impact of higher costs. Italy’s political turmoil ramped up the pressure on the ECB just before it unveils its new crisis management tool to shield the most vulnerable eurozone members from market speculation. Thursday’s monetary policy decision will end an era of negative rates that helped the region’s economies navigate the global financial crisis, the sovereign debt meltdown and then the 2020 pandemic. If the ECB’s tool is successful in leveling the playing field for countries with higher borrowing costs, and Russia keeps up gas exports, prospects for European markets are “very, very good,” said Andrew Sheets, Morgan Stanley’s chief cross asset strategist. “The worst scenario would be gas cut off and a weak fragmentation tool from the ECB, because then I think you can see the market hit from both the growth side and the sovereign risk side,” Sheets said in an interview. Earlier in the session, Asian stocks edged lower as investors assessed lingering risks of an economic downturn while monitoring central bank decisions in Japan and Europe. The MSCI Asia Pacific Index dropped as much as 0.5%, putting it on pace for its first decline in four sessions. Financials were the biggest drag on the gauge, while technology stocks rallied. Shares in Hong Kong and China fell. China’s stock benchmark index extends losses in the last hour of trade, wiping out its gains for the week. CSI 300 Energy Index down 3.5%, the worst performer among sub- gauges; CSI 300 Utilities Index down 3.1%. Tianqi Lithium -6.8% and China Shenhua Energy -5.6% are among the biggest losers on the benchmark CSI 300. Japanese stocks edged higher after the Bank of Japan kept its monetary policy unchanged -- as expected -- despite more aggressive tightening being undertaken by its global counterparts. The European Central Bank is projected to raise interest rates for the first time since 2011 in a decision due later Thursday. Despite ongoing concerns about an economic slowdown in China and a US recession, some risk-on sentiment returned to Asian markets this week. The regional equity benchmark is still on track for a weekly gain of more than 2% on the back of optimism on US earnings and a weaker dollar. “Everybody’s waiting for earnings disappointments which haven’t necessarily appeared -- there’s a lot of cash on the sidelines,” Sean Darby, chief global equity strategist at Jefferies, said in a Bloomberg TV interview. “The market’s begun to become much more attuned to the fact that actually the Fed can engineer a soft landing.” In FX, the euro slid after Draghi announced his resignation, erasing earlier gains of as much as 0.5% after Nord Stream AG said flows through Russia’s biggest pipeline to Europe restarted, and was also buoyed by speculation the European Central Bank may consider a rate hike that’s double the planned quarter-point increase at Thursday’s meeting. The Japanese yen fluctuated on the initial rate decision by the Bank of Japan, before weakening marginally after Bank of Japan Governor Haruhiko Kuroda emphasized his commitment to policy easing. In rates, Italian bonds slumped on news that the coalition was on the brink of collapse on Thursday, with that decline extending after Draghi’s official resignation. Benchmark Italian 10-year yields rose as much as 22 basis points to 3.61%. The spread over equivalent German bonds, a common gauge of risk, rose to 233 basis points. Treasuries were re slightly cheaper across the curve, with wider losses across gilts weighing ahead of the European Central Bank policy decision at 8:15 a.m. ET. US yields cheaper by up to 1.5bp across intermediates with 10- year yields around 3.05%; gilts lag by 2bp on the sector and Italian bonds by 12bp. Focus is on the sharp underperformance of Italian bonds, which is causing spreads to widen versus bunds amid the prospect of a snap election after Mario Draghi resigned. In the US, supply continues with 10-year TIPS auction, following Wednesday’s strong 20-year bond sale.    In commodities, oil was back below $100 a barrel as growing stockpiles of crude and gasoline tempered fears of a tight market. WTI drifted 4.4% lower to trade near $95.50. Brent falls 4.2% near $102.41. Base metals are mixed; LME zinc falls 2.1% while LME aluminum gains 0%. Spot gold falls roughly $13 to trade near $1,683/oz. Spot silver loses 2% near $18. Bitcoin dropped below $23,000. To the day ahead now, and the main highlight will be the aforementioned ECB meeting and President Lagarde’s subsequent press conference. Other central bank speakers include BoE Chief economist Pill. Data releases include the US weekly initial jobless claims. Finally, earnings releases include Danaher, AT&T, Philip Morris International, Union Pacific and Blackstone. Market Snapshot S&P 500 futures down 0.2% to 3,952.75 STOXX Europe 600 down 0.3% to 421.33 MXAP down 0.1% to 158.36 MXAPJ little changed at 520.13 Nikkei up 0.4% to 27,803.00 Topix up 0.2% to 1,950.59 Hang Seng Index down 1.5% to 20,574.63 Shanghai Composite down 1.0% to 3,272.00 Sensex up 0.3% to 55,537.07 Australia S&P/ASX 200 up 0.5% to 6,794.28 Kospi up 0.9% to 2,409.16 German 10Y yield little changed at 1.31% Euro up 0.1% to $1.0194 Brent Futures down 2.7% to $104.08/bbl Gold spot down 0.5% to $1,687.94 U.S. Dollar Index little changed at 107.05 Top Overnight News from Bloomberg The Kremlin is in a dash to hold referendums in Ukrainian territories occupied by its troops to give grounds for President Vladimir Putin to absorb them into Russia as early as September, according to people familiar with the strategy. Prime Minister Mario Draghi offered his resignation to Italy’s president, in a move that will raise the prospect of snap elections as soon as early October Russia began sending natural gas to Europe through the Nord Stream pipeline system after a pause, bringing relief to a continent whose economy is starting to wobble under the strain of reduced supplies. Bank of Japan Governor Haruhiko Kuroda emphasized his determination to stick with rock-bottom interest rates even if it means a weaker yen after the bank’s latest price forecasts left the door open to continued speculation over policy change. China’s credit market is now showing stress on an almost daily basis, as a worsening property crisis shatters assumptions about safe borrowers and even Chinese investors turn against troubled debtors The European Central Bank is about to raise interest rates for the first time in 11 years, joining peers around the world in confronting a historic spike in inflation after months of standing on the sidelines. A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks traded cautiously following the mixed performance of global counterparts and amid risk events. ASX 200 lacked firm direction as outperformance in tech was offset by weakness in energy and the mining-related sectors despite an increase in quarterly production by several key oil and gold producers. Nikkei 225 eked marginal gains after the BoJ maintained its ultra-easy policy setting but with upside capped given the worsening COVID situation in Japan. Hang Seng and Shanghai Comp. were subdued amid increasing tensions related to a planned visit to Taiwan by US House Speaker Pelosi which spurred warnings from China’s mouthpiece that suggested the mainland's reaction to such a visit would be unprecedented and involve a shocking military response. Top Asian News US President Biden said the military does not think it is a good idea to travel to Taiwan now when questioned about a potential trip by House Speaker Pelosi, while he expects to speak with Chinese President Xi in the next 10 days, according to Reuters. US Commerce Secretary Raimondo warned of a deep recession if the US were to be cut off from Taiwan chip manufacturing, according to CNBC. China's ambassador to the US Qin said the China-Russia relationship is not an alliance and that the US is blurring the One China policy, while he added the US is bolstering links to Taiwan by sending officials. China Global Times' Hu Xijin tweeted earlier that it is certain the mainland's response to US House Speaker Pelosi's visit to Taiwan will be unprecedented and will involve a shocking military response. Asian Development Bank lowered Developing Asia growth forecast for 2022 to 4.6% from 5.2% and lowered 2023 growth forecast to 5.2% from 5.3%, while it cut its China 2022 growth forecast to 4.0% from 5.0%, according to Reuters. European bourses gave up initial upside as Draghi resigns, Euro Stoxx 50 +0.1% however, current performance is more mixed with Nord Stream 1 flowing and earnings factoring. Stateside, futures are directionally in-fitting but with magnitudes more contained thus far awaiting earnings developments. Qatar Airways has ordered 25 Boeing (BA) 737 Max 10 jets. Top European News Italian PM Draghi has tendered his resignation, according to a statement; President Mattarella has asked Draghi to carry on as a caretaker government.; subsequently, Italian President Mattarella will receive the upper and lower house parliamentary speakers this afternoon, according to a statement. Italy’s Worsening Political Crisis Adds to Bond, Stock Selloff Hungary Unveils Steep Household Energy Cost Hike in Orban U-turn Russia Resumes Nord Stream Gas Flow, Bringing Respite for Europe Dutch Pension Fund Switch to Steepen Dutch, German 10s30s: ABN Central Banks BoJ kept its policy settings unchanged, as expected, with rates at -0.10% and QQE with yield curve control maintained to target 10yr JGB yields at around 0%. BoJ reiterated it will offer to buy 10yr JGBs at 0.25% every business day unless it is highly likely that no bids will be submitted and repeated its guidance on policy bias that it will take additional easing steps without hesitation as needed with an eye on the pandemic's impact on the economy, as well as kept forward guidance for short- and long-term rates to remain at present or lower levels. Furthermore, it stated that it must be vigilant to financial and currency market moves and their impact on Japan's economy and prices, while it lowered Real GDP growth forecast for the current fiscal year to 2.4% from 2.9%, but raised the Real GDP view for the two years after and increased CPI projections through to FY24. BoJ Governor Kuroda says rapid JPY weakening is a negative for the economy; inflation expectations substantial increasing over near-term, gradually mid/long-term; core unlikely to reach 2.0% currently. BoJ Governor Kuroda says no intention to raise interest rates under Yield Curve Control. Won't hesitate to ease monetary policy further if necessary; risks to the economy are skewed to the downside for the time being but will be balanced thereafter FX Yen slides as BoJ and Governor Kuroda retain ultra easy policy and guidance, with latter adding no intention to tweak YCT range, USD/JPY back up near 139.00 from 138.00 low. Buck bounces broadly amidst renewed risk aversion with DXY back on 107.000 handle. Euro looking towards ECB for support after resignation of Italian PM nullifies partial return of Nord Stream gas flows, EUR/USD sub-1.0200. Kiwi reverses course in wake of NZ trade data revealing slowdown in exports and rise in imports to drag balance into deficit from surplus, NZD/USD loses 0.6200+ status. Aussie gleans some encouragement from NAB business conditions over confidence and rebound in AUD/NZD cross, AUD/USD off 0.6900+ peak, but holding above 0.6850. Loonie and Nokkie undermined by latest retreat in crude prices, USD/CAD over 1.2900 and EUR/NOK hovering around 10.1800. Fixed Income Bonds off lows and braced for a busy pm agenda headlined by the ECB and the 25bp or 50bp hike verdict. Bunds back above 151.00 between 150.59-152.02 bounds, Gilts around 114.78 within a 115.11-114.59 range and 10 year T-note at 117-23+ vs 117-31+ peak and 117-18 trough. BTPs circa 200 ticks adrift awaiting Italian political developments after second resignation tender by PM Draghi. Commodities WTI and Brent are under pronounced pressure amid multiple potential drivers as Nord Stream 1 resumes and Libya's oil output continues to climb, currently posting losses in excess of USD 4.00/bbl. Libya's oil output has recovered to above 700k BPD. Spot gold continues to drift after surrendering the USD 1700/oz mark amid renewed USD upside while base metals are mostly tempered amid a sullied risk tone. US Event Calendar 08:30: July Initial Jobless Claims, est. 240,000, prior 244,000; Continuing Claims, est. 1.34m, prior 1.33m 08:30: July Philadelphia Fed Business Outl, est. 0.8, prior -3.3 10:00: June Leading Index, est. -0.6%, prior -0.4% DB's Jim Reid concludes the overnight wrap Today is my last day at work ahead of the wedding. Tomorrow we’ll be travelling back to our home county of Essex, and Saturday is the big day. There are many things I’m looking forward to, including having all our friends and family with us and obviously marrying the love of my life. Another plus is that we should never have to spend as much money on a single day ever again. There are some who’ve implied that marriage is a rather big risk to be playing at my age. But since I couldn’t be happier, I think the only risk would be doing anything else. Whilst the wedding excitement is building up, markets are also getting excited as today is widely expected to bring the first ECB rate hike in over a decade. And unusually for a major central bank decision, there’s serious doubt about what’s going to happen. On the one hand, the ECB telegraphed explicitly at their last meeting that they would be commencing the hiking cycle with a 25bps hike today. But on the other hand, numerous press reports this week have cited ECB sources suggesting that a 50bp move is on the table as they grapple with the fastest inflation since the single currency’s formation, which was running at +8.6% in June. Market pricing is split as well, with overnight index swaps currently pricing in 35.8bps worth of hikes today, so almost equidistant between 25 and 50. And reflecting that uncertainty, EURUSD implied overnight volatility is at its highest level this morning since the height of the initial wave of the Covid pandemic in March 2020. So we’ve got a big day ahead of us. The base case from our own European economists is that we’re still set for a 25bps move, and that a deviation by the ECB from their previous guidance could still impose a cost on the credibility of future communications. But the tone is likely to be hawkish regardless of whether they end up going for 25bps or 50bps (link here). The other thing to look out for today will be the details of an anti-fragmentation tool, which our economists are also expecting today. It’s possible that the more dovish Governing Council members concede on a 50bps hike in order to get concessions from the hawks on a stronger anti-fragmentation tool. The importance of an anti-fragmentation tool came into focus yesterday amidst significant political turmoil in Italy, where the Draghi government is on the verge of collapse after three parties (the League, Forza Italia and the Five Star Movement) failed to back him in a Senate confidence vote. Bear in mind that Draghi had said that he was willing to continue, but wanted his original coalition to commit to reforms. So the latest moves raise the prospect that Draghi could resign again after his attempt last week was rejected by the President, which in turn brings the possibility of early elections into view. Even ahead of the confidence vote, Italian assets had suffered yesterday, with the FTSE MIB down -1.60%, just as the spread of Italian 10yr yields over bunds widened by +8.3bps to of 213bps. That pessimistic tone in Italy yesterday was echoed across the continent, and the broader STOXX 600 fell -0.21%. But other equity markets were less affected by the volatility in Europe, and in the US the S&P 500 eventually managed to end the day up by +0.59% to reach a fresh one-month high. Tech stocks led that rally, with the NASDAQ up +1.58% and the FANG+ index up +2.22% following the news after the previous day’s close that the decline in Netflix subscribers wasn’t as bad as some had feared. And after the close, we heard from mega-cap Tesla as well, who beat analysts’ earnings estimates and traded just over +1% higher in after-hours trading. CEO Elon Musk expressed some optimism about supply chain issues that have long beleaguered automakers, including falling commodity prices. For sovereign bonds it was also a day of swings, with Treasuries making gains before moving back into negative territory, and the 10yr yield ended the day up +0.6bps at 3.03%, though the 2s10s curved managed a modest +2.0bp steepening, taking it up to -20.5bps. This morning in Asia however, 10yr yields -1.1bps have reversed those gains and are trading at 3.02% again. Over in Europe, the greater risk-off tone led to a better performance outside of southern Europe, and yields on 10yr bunds (-2.0bps), OATs (-1.5bps) and gilts (-4.0bps) all moved lower on the day. Staying on Europe, there was some further optimism on the energy side that the Nord Stream pipeline wouldn’t be completely closed in the coming days after the maintenance period ends today. One source of optimism was that grid data showed that gas orders had been made for deliveries today, albeit it’s worth noting that isn’t in itself a guarantee of the fuel being shipped. Natural gas futures themselves remained beneath their recent peaks earlier in the month, closing at €155 per megawatt-hour yesterday after only seeing a modest +0.38% rise on the previous day. So an important one to watch out for today alongside the ECB. Overnight in Asia, equity markets are struggling this morning amidst the more downbeat newsflow, and a number of major indices including the Hang Seng (-1.37%), the Shanghai Composite (-0.42%) and the CSI (-0.46%) have all lost ground. That comes amidst concern about the growing number of Covid-19 cases in China, with yesterday saw 826 cases reported, which was down from 935 on Tuesday, but that itself was the highest number since May 21. That said, the Nikkei (+0.14%) has managed to eke out a modest gain after recovering from earlier losses, which follows the Bank of Japan’s decision to maintain its ultra-loose monetary policy. They decided to maintain their -0.1% policy rate, as well as the 0.25% yield cap on 10yr JGBs, and in their quarterly projections they raised their core CPI forecasts for fiscal year 2022 to 2.3% (vs. 1.9% previously). Nevertheless, their upgraded forecasts for FY 2023 and FY 2024 were still beneath 2%, at 1.4% and 1.3% respectively. Looking ahead, DM stock futures are seeing that negative tone continuing, with those on the S&P 500 (-0.20%), the NASDAQ 100 (-0.29%) and the DAX (-0.36%) all losing ground. Elsewhere overnight, President Biden said that he expects to speak with China’s President Xi “within the next ten days”. There’s plenty to potentially discuss, and from an inflation standpoint it’ll be interesting to see if there’s any moves towards tariff reduction by Biden. Here in the UK, the race to be the next Conservative leader and Prime Minister is now down to a run-off between former Chancellor Rishi Sunak and Foreign Secretary Liz Truss. The two will face a vote of Conservative Party grassroots members over the summer, with the winner to be announced on September 5. That follows the final ballot of MPs yesterday, in which Sunak came first with 137 votes, followed by Truss on 113, with trade minister Penny Mordaunt eliminated with 105. However, Sunak’s lead among MPs doesn’t mean he’s the favourite to win, with a YouGov poll of Conservative members finding that Truss would beat Sunak by 54%-35%. Also in the UK, data yesterday showed that CPI inflation rose to a 40-year high of +9.4% in June (vs. +9.3% expected), although core inflation fell back a tenth as expected to +5.8%. That comes amidst growing expectations that the BoE will hike by 50bps at their next meeting for the first time since they gained operational independence in 1997. Over in Canada, CPI also rose to +8.1% in June, although this was beneath the +8.4% reading expecting. To the day ahead now, and the main highlight will be the aforementioned ECB meeting and President Lagarde’s subsequent press conference. Other central bank speakers include BoE Chief economist Pill. Data releases include the US weekly initial jobless claims. Finally, earnings releases include Danaher, AT&T, Philip Morris International, Union Pacific and Blackstone. Tyler Durden Thu, 07/21/2022 - 07:42.....»»

Category: blogSource: zerohedgeJul 21st, 2022

EIA Oil Supply Data Headlines: Crude Stocks Up, Fuel Down

With oil prices remaining strong, energy companies like Occidental Petroleum (OXY), Corterra Energy (CTRA) and Valero Energy (VLO) have seen solid gains in 2022. U.S. crude prices ended sharply higher on Thursday as investors looked past the Energy Information Administration’s ("EIA") latest report showing a big stockpile build. Instead, the market took note of the fall in gasoline and distillate supplies and their consistently high demand. On the New York Mercantile Exchange, WTI crude futures gained 4.2% to settle at $102.73 a barrel.Let's dig deep into the EIA's Weekly Petroleum Status Report for the holiday-shortened week ending Jul 1.Analyzing the Latest EIA ReportCrude Oil: The federal government’s EIA report revealed that crude inventories rose 8.2 million barrels. A sharp drop in exports and jump in imports primarily accounted for the significant stockpile build with the world’s biggest oil consumer even as refinery demand remains robust. Total domestic stocks now stand at 423.8 million barrels — 4.9% less than the year-ago figure and 10% lower than the five-year average.On a further bearsh note, the latest report showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) edged up 69,000 barrels to 21.3 million barrels.Meanwhile, the crude supply cover was up from 25.3 days in the previous week to 25.8 days. In the year-ago period, the supply cover was 27.5 days.Let’s turn to the products now.Gasoline: Gasoline supplies decreased for the twelfth time in 14 weeks. The 2.5 million-barrel drop was attributable to the continued strength in demand. At 219.1 million barrels, the current stock of the most widely used petroleum product is 7% less than the year-earlier level and 8% below the five-year average range.Distillate: Distillate fuel supplies (including diesel and heating oil) fell after rising for four weeks. The 1.3 million-barrel decline primarily reflected a pickup in demand. Following the recent supply withdrawal, current inventories — at 111.1 million barrels — are 19.9% below the year-ago level and 20% lower than the five-year average.Refinery Rates: Refinery utilization, at 94.5%, fell 0.5% from the prior week.Final WordOil prices continue to trade above $100, as lingering supply worries offset concerns about slowing economic growth (and by extension, crude demand).The Oil/Energy market continues to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity. The Biden administration’s ban on the import of Russian crude and energy products contributed to oil’s rapid price increase. Agreed, crude has pulled back from those lofty levels but with the conflict showing no signs of a quick resolution and the European Union following the United States in blocking imports of Russian energy — even at the detriment of their economies — is giving fresh impetus to the oil bulls.While there are jitters over soaring inflation and stuttering economic growth, these have been more than offset by the market’s precariously low level of spare capacity, China’s emergence from its strict COVID-19 restrictions, a stretched-out refining system, plus production disruptions in Libya and Ecuador.Even the fundamentals point to a tightening of the market. Per the latest government report, U.S. commercial stockpiles have been down some 10% from their five-year average for this time of year, prompted by a demand spike owing to the reopening of economies and a rebound in activity.As a matter of fact, the Energy Select Sector SPDR — an assortment of the largest U.S. companies thronging the space — has risen 27.9% year to date against an 18.1% loss for the broader S&P 500 benchmark.Consequently, the top three gainers of the S&P 500 this year are all energy-related names: Occidental Petroleum OXY, Coterra Energy CTRA and Valero Energy VLO.Occidental Petroleum: OXY is the top-performing S&P 500 stock in 2022, with a gain of 112%. Occidental Petroleum’s expected EPS growth rate for three to five years is currently 32.3%, which compares favorably with the industry's growth rate of 30.4%.OXY has a projected earnings growth rate of 315.3% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 13.3% upward over the past 60 days.Corterra Energy: This stock was the second-best performer in the S&P 500 Index, with shares having appreciated 43.3% in 2022. CTRA has a projected earnings growth rate of 88.4% for this year.The Zacks Consensus Estimate for Corterra Energy’s 2022 earnings has been revised 3.7% upward over the past 60 days. CTRA’s expected EPS growth rate for three to five years is currently 55%, which compares favorably with the industry's growth rate of 26.8%.Valero Energy: Valero Energy shares have appreciated 41.6% so far in 2022. VLO, carrying a Zacks Rank of #1 (Strong Buy), has a projected earnings growth rate of 511.4% for this year.You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Valero Energy’s 2022 earnings has been revised 34.7% upward over the past 60 days. VLO beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 84.3%. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time. This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock and 4 Runners Up >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Occidental Petroleum Corporation (OXY): Free Stock Analysis Report Valero Energy Corporation (VLO): Free Stock Analysis Report Coterra Energy Inc. (CTRA): Free Stock Analysis Report To read this article on Zacks.com click here......»»

Category: topSource: zacksJul 10th, 2022

WTI Drops After Huge Surprise Crude Build, Crack Spread Soars On Product Draws

WTI Drops After Huge Surprise Crude Build, Crack Spread Soars On Product Draws Oil prices are soaring this morning, with WTI rebounding dramatically back above $100 on the heels of demand stress (China reopening) and supply fears (Texas power outage rumors constricting production/refinery capacity and a possible blockage of Kazakhstan's exports). WTI is back at $104 after dipping to $96.50 last night after API reported a surprise crude build and follows comments from Goldman that the sell-off was overdone... "We view this move as driven by growing recession fears in the face of low trading liquidity, with technicals exacerbating the selloff," the bank's analysts, including Damien Courvalin, the head of energy research, wrote in a note on Wednesday. "The declines in prices and refining margins since mid-June are now equivalent to the oil market pricing in an 1.1% downward revision to 2H22-2023 global GDP (gross domestic product) growth expectations." So will the official data confirm the API build... and/or any signs of demand destruction? API Crude +3.825mm (-1.1mm exp) Cushing +459k Gasoline -1.814mm Distillates -635k DOE Crude +8.23mm (-1.1mm exp) Cushing +69k Gasoline -2.49mm Distillates -1.266mm The official DOE data confirmed and exceeded API's surprise crude build data, but also showed draws on the product side... Source: Bloomberg Notably there was another major SPR draw last week (-5.8mm) which likely offsets some of the anxiety over the huge crude build... Source: Bloomberg US Crude production remained flat at 12.1mm b/d - the highest since April 2020... Source: Bloomberg Refinery Capacity is still running near record high levels, although it did drop modestly last week after a string of problems on the West Coast weighed on runs Source: Bloomberg WTI was hovering around $104 ahead of the official data and tumbled back to $103 on the big build... The crack spread is blowing out again (driven by the crude build and product draws)... Circling back to the start, the Goldman analysts said the selloff had overshot as "demand destruction through high prices is the only solver left as still declining inventories approach critically low levels." “While the odds of a recession are indeed rising, it’s premature for the oil market to be succumbing to such concerns,” Goldman Sachs & Co. analysts including Damien Courvalin said in a note. “The global economy is still growing, with the rise in oil demand this year set to significantly outperform GDP growth.” In China, there are signs of rising demand as the world’s biggest importer emerges from virus lockdowns. Overall consumption of gasoline and diesel last month was at almost 90% of June 2019 levels, according to people with knowledge of the energy industry. The good news for Americans is that pump prices have fallen for 23 straight days (the longest losing streak since April 2020)... But the bad news for President Biden is that's not helping his ratings. Tyler Durden Thu, 07/07/2022 - 11:06.....»»

Category: blogSource: zerohedgeJul 7th, 2022

Oil Price Could Hit "Stratospheric" $380 If Russia Retaliates To G7 Oil Price Cap

Oil Price Could Hit "Stratospheric" $380 If Russia Retaliates To G7 Oil Price Cap As discussed previously, one of the most notable events of the past week was the decision by G7 leaders "to work" on a price cap for Russian oil as part of efforts to cut Moscow’s revenues. However, it didn't take long for the same G7 motley crew to realize that they have a major problem on their hands: as JPM's commodity desk notes, given Russia’s strong fiscal position, the country can cut up to 5 mbd of production without excessively hurting its economic interest. Meanwhile, a 5mbd cut would spark a Europe-wide depression, confirming that once again Europe had not even done the simple math. What about prices? According to JPM, given the high levels of stress in the oil market, a cut of 3.0 mbd could cause global Brent price to jump to $190/bbl, while the most extreme scenario of a 5 mbd slash in production could drive oil price to a stratospheric $380/bbl. Let's back up: as we noted last week, the stated goal set out by G7 leaders this week is two-pronged: to limit upward pressure on global oil prices to curb Russia’s revenues from oil sales. To achieve those goals, the allies agreed to explore a new mechanism that aims to impose a ceiling on Russian oil prices. The idea behind this price cap is to permit countries that have not imposed import bans to buy Russian oil as long as it is priced at or below a predetermined price. The cap could be enforced via limits on availability of European insurance for Russian oil cargoes as well as shipping services and US finance. While G7 leaders have not indicated where the price cap would be set, it must be lower than the $80/bbl at which Russia’s Urals grade trades today (a $32/bbl discount to Brent) and higher than Russia’s marginal cost of maintaining production levels, estimated at around $40/bbl to ensure Russia’s earnings are reduced while production is maintained. A $50-60 per barrel price cap would likely serve the G7 goals of reducing oil revenues for Russia while assuring barrels continue to flow. Of course, for the price cap to work, oil importers like India China and Turkey—which have significantly increased their purchases of heavily- discounted Russian grades—would need to agree to participate to access even cheaper oil. That's the background. Here are the 3 scenarios as to what happens next. They are, as one would expect from any plan conceived by hapless politicians, bad, worse and much worse. Scenario 1: Russia does not cooperate and retaliates — a 3 mbd cut would likely deliver a $190/bbl oil price The most obvious and likely risk with a price cap is that Russia would not to participate (which, of course, it won't as why would Putin agree to produce oil at a lower price than clearing) and instead retaliates by reducing exports. In fact, as JPM head commodity strategist Natasha Kaneva notes, Russia had already showed its willingness to withhold supplies of natural gas to EU countries that refused to meet payment demands. Indeed, emboldened by a surging current account surplus, after entirely cutting off the flow of piped gas to the Netherlands, Bulgaria, Finland and Denmark, since the start of June Gazprom has reduced the flow of gas to Italy by 50% and to Germany by 60%—though claiming the latter reductions in June were due to maintenance-related issues. As a result, the EU as a whole is now receiving 53% less gas from Russia than it averaged before the start of the war. Withholding gas volumes from Europe comes at a personal cost to Russia—as a measure to manage the reduced export-related flows, Russia has had to allow for natural production declines. According to Gazprom, the company will reduce its production by 17 Bcm this year, or 3% of 2021 production. That said, history suggests that there is far more capability for production reductions in Russia. For example, in 2019 Gazprom production was ~500 Bcm, while in 2020 Gazprom production fell to ~453 Bcm. So far in 2022, Gazprom production has been down 20 Bcm yoy, suggesting further declines are likely relative to Gazprom’s current forecast. Unlike gas, which accounts for about one-fifth of Russia’s budget revenues, oil makes up over half. Russia’s policymakers will likely address the challenge of the oil price cap from the position of strength, and as JPM concedes, "Russia’s starting fiscal position is strong." Besides, the global oil market has tightened, while the strong balance of payments opens room to accommodate lower export volumes without inflicting too much financing pain. Which brings up the key question: How much oil production can Russia realistically cut without hurting its economic interest? In answering this question, JPM notes that Russia's fiscal position strong: low deficit, low debt. Russia’s sovereign balance sheet remains strong even as half of CBR’s reserves were frozen. Last year, Russia’s federal budget recorded a modest surplus of 0.4% of GDP or $7bn, while this year, as things stand, is tracking a modest deficit of less than 1% of GDP. Financing needs are equally low. The National Wellbeing Fund—effectively, a government deposit at the CBR—reached an equivalent of $198bn by May 2022, with $116bn in usable funds. Treasury cash balances exceed ~$85bn. Gross sovereign debt stood at 15.9% of GDP (~$279bn) as of end-2021. Federal budget revenues, originally budgeted at RUB25tn ($347bn), are tracking about RUB26tn this year ($394bn) as higher oil & gas revenues more than offset the shortfall in non-energy fiscal revenues. If fiscal rule was still operational, Russia would  accumulate around $80bn into the sovereign fund this year. Yet, as following the old fiscal rule has become challenging, the authorities decided to use additional oil & gas revenues to increase spending and reduce issuance instead. A new fiscal rule is being debated in the government. So let's assume the G7 plan is effectuated and a hypothetical $50/bbl price cap on Russian oil was imposed and effective, Russia could lose about $75bn per year in export revenues and about $42bn in budget revenues compared to JPM's base case of an average annual price of around $80/bbl. The impact on budget balance would be smaller, as exchange rate would offset part of the impact. JPM concludes that the Kremlin would not face big problem financing a deficit of ~$40bn given the large stock of savings and low initial level of debt. The local financial system should be able to absorb additional issuance, especially given the scarcity of available instruments for savings outside of Russia. For example, in 2020, the government raised an equivalent of 4.8% of GDP ($71bn) from the local market. However, as JPM's commodity team also notes, the Russian government will likely retaliate by cutting output as a way to inflict pain on the West, especially since the tightness of the global oil market is on Russia’s side, the continued appreciation pressure on the exchange rate would ease, and the strong public finances could absorb the revenue losses without too much difficulty. As a hypothetical scenario, a cut of 3 mbd from JPM's base case of 9.7mbd output assumed for this year could open up a deficit of $50bn at a $50/bbl price, which could be relatively easily funded by issuing local bonds without stressing the oil fund. Importantly, the imbalance in Russia’s external accounts, which generates excessive inflows of hard currency to the local market, might, ironically, even be considered as a relief. Then there is the question of too much USDs and EURs to stomach. Russia’s key macro-economic challenge following the imposition of sanctions has been the unsustainable dynamics of the balance of payments, which has resulted in significant appreciation of the exchange rate. Main sanctions-induced developments were the following: First, sanctions against the central bank made it close-to-impossible for the CBR to accumulate reserves. Last year, the CBR accumulated $64bn in reserves, while this year, if the fiscal rule was still operational and domestic crude price averaged ~ $80/bbl (at a big discount to Brent), the CBR would have had to purchase more than $75bn. Today, the CBR is only able to buy gold from local producers (small scale). Policymakers study the feasibility of buying assets of friendly EM countries, but infrastructure constraints, closed capital accounts, and lack of depth of EM markets will likely make the rollout of EM-buying slow and lacking scale in the near term. Second, sanctions and, more importantly, risks of further financial sanctions (asset freezes) have made residents reluctant to accumulate foreign assets in ‘unfriendly’ countries. In the past, accumulation of foreign assets was traditionally the main channel of private capital outflows, averaging ~$80bn in the past 10 years. This has largely dried up now. Third, trade and logistical restrictions have dramatically affected imports, which, judging by indirect data, halved. Given the strong oil revenues, Russia's 2022 current account surplus to reach ~$170bn this year ($68bn in 1Q22). The higher current account surplus and the lack of private and public sector capital outflows has meant that the RUB has been the main adjustment valve. This has made Russia’s non-energy exports expensive and uncompetitive. Policymakers have focused their efforts on reviving imports, by stimulating domestic demand and addressing logistical challenges and the CBR has cut policy rate aggressively, while fiscal authorities are contemplating a stimulus of 2-3% of GDP. Obviously, given the nature of sanctions / trade restrictions, reviving imports, especially of investment-related goods, will be hard. In addition, most of capital controls that were introduced at the height of the crisis have been removed. Also, a couple of quasi-sovereign institutions have had to accumulate foreign assets in recent months, but this is not seen as sustainable or desirable due to sanctions risk. As Russian officials often put it, USDs and EURs have become “toxic”. Although authorities’ preference would be to increase imports and recycle petrorubles in friendly EMs, this does not look an easy task, especially in the near term. Hence, if the geopolitical situation requires, it now appears more likely that export cuts could be used as leverage / policy tool. Putting it all together, JPM concludes that "given the high level of stress in the oil market, a cut of 3.0 mbd could cause global Brent price to jump to $190/bbl, while the worst-case scenario, a 5 mbd cut, could drive oil price to a stratospheric $380/bbl." * * * Russia would be able to cut 3 mbd of production, if done temporarily If Russia decides to make significant cuts to its output, JPM warns that there do not appear to be significant limitations to doing so if done temporarily. In general, halting oil production carries serious risks, depending on how long oil production reductions are needed. Prolonged cutbacks in specific Russian regions could potentially lead to some permanent shut-ins due to operational challenges across an industry with little storage capacity and natural geological constraints in a large number of maturing fields. Currently, Russia has more than 200 thousand active wells that are capital and labor intensive to operate, especially the country’s older wells, which have meager flow rates and poor economics. For some wells, the longer a reservoir remains idled, the higher the chance pressure, water content, and clogging could affect future production. For example, West Siberia—an oil producing region in central Russia that contributes more than half of Russia’s total crude output—is facing permafrost melting and rising associated water levels. A prolonged, large-scale shut-in would mean closing tens of thousands of marginal wells, many of which could never return to profit. For example, following the collapse of the Soviet Union, Russian crude oil production reached a record low of about 6.0 mbd in 1996, down from a record high of 11.4 mbd in 1987. Only after more than two decades of strong capital investment, equating to hundreds of billions of dollars, was Russia able to restore its crude oil production capacity. The nearly 2.0 mbd decline in Russia crude oil production in May 2020—or around a fifth of its total output—was the first time since early 1990s that Russia experienced a double-digit collapse in the oil ouput. But despite the unprecedented magnitude and speed of the 2020 cuts— Russia shut in 1.94 mbd of oil production in just one month between April and May 2020—fears that future Russian oil production would be compromised didn’t materialize. As OPEC+ tapered its cuts over the following year and a half, there does not seem to be any indication that Russian oil fields had issues restoring output. Because the Russia-Ukraine war and the resulting sanctions on Russian oil supplies started before Russia had fully restored output—in March 2022, fields where Russia shut in production during 2020 were still producing about 350 kbd less than they were in January 2020—one cannot be certain that those fields would have returned to full output without issue, but the recovery in those fields leading up to April 2022 appears to have been relatively stable with few exceptions. Since there do not seem to have been significant issues in this circumstance, with oil fields at least partially shut in for nearly two years, JPM does not think that, if Russia decided to once again cut output, their ability to restore production would be a significant barrier to doing so, especially if those cuts were only expected to last a few months. Rotating shut-ins between fields or among wells within fields can also help limit the risk of reservoir issues. Simply throttling wells instead of shutting them entirely can also mitigate some of those risks. Additionally, Russia has tools outside its domestic production to interfere in the global oil supply. About 80% (~1 mbd) of Kazakhstan’s crude exports are shipped from the Caspian Pipeline Consortium terminal in the Black Sea port of Novorossiysk, controlled by Russia. Most of this crude goes to the EU. In Libya, political unrest continues to escalate, and fighting is at levels not seen since 2020, when General Khalifa Haftar, supported by the Russia-linked Wagner Group led his forces to take Tripoli. Libya’s oil production is now likely below 400 kbd after Libya’s National Oil Corp. announced on Thursday that it has declared force majeure on two of its three largest oil export terminals this week, while two other major oil export ports have not shipped any oil in months. 2.  Scenario 2: China and India don’t cooperate—the end of the European insurance dominance History shows that oil sanctions are notoriously leaky, and sanctioned oil supplies almost always find a buyer at the right price, and China and India might not cooperate with the goals of Western governments. The state-run Shipping Corporation of India has in the past carried Iranian oil for state-run Indian refiners when the West first sanctioned Iran in 2012. The Indian government has previously approved coverage from state-run insurers, setting a precedent that it could do so again in the future, should the need arise. Similarly, China’s COSCO vessels have in the past transported Iranian oil in 2013 with Iran commenting that insurance was handled by the “Chinese side.” Similarly, Japan had also guaranteed up to $1 billion of insurance claims for Iranian shipments made in 2012. Russia and some buyers have already found alternatives to European insurance markets, effectively circumventing European cargo insurance bans. While Russia initially struggled to find a replacement for Western consumers of its oil products and has had to shut in refining capacity, Russian crude oil has not only found new buyers, but waterborne flows of Russian crude are actually higher than they were before the Ukraine crisis. Not only are Russian crude oil deliveries resilient, but there are signs that shipments of bottom-of-barrel oil products like fuel oil are beginning to recover as well (Exhibits 6 & 7). The reality is that with almost 1/5 of global oil production capacity today under some form of sanctions (Iran, Venezuela, Russia), there is no practical way to keep these barrels out of a market that is already exceptionally tight. The state-controlled Russian National Reinsurance Company (RNRC) is now acting as the main reinsurer of Russian ships, including Sovcomflot’s fleet. In mid-June, Sovcomflot disclosed that it has insured all its cargo ships with Russian insurers and the cover meets international rules, likely enough to keep Russian vessels sailing around the world. To guarantee RNRC has adequate resources to provide reinsurance, Russia’s central bank in March raised RNRC’s capitalization to 300 bn rubles ($5 bn) and hiked its guaranteed capital to 750 billion rubles. India is also providing safety certification for ships operated by Sovcomflot, enabling oil exports to India and elsewhere. Certification by the Indian Register of Shipping (IRClass)—one of the world’s top classification companies—is the final link after the insurance coverage for gaining access to ports. Chinese insurers are also apparently looking to take on business that was previously covered by their Western counterparts, but they would likely require a sovereign guarantee, which China would provide. Scenario 3: Russia fully re-routes exports from west to east but loses pricing power, prices stabilize in low-$100s Left to their own devices, JPMorgan strategist write that energy markets tend to work very efficiently and effectively, and the market adjustment mechanism has kicked in. Record oil product prices and rapidly tightening central banks are cooling consumption so that supply can catch up. In the US, a lackluster driving season so far pushed gasoline demand further below pre-pandemic norm, contributing to an unseasonal build in national stockpiles. As the EU gradually but unequivocally transitions away from Russian energy sources, Russia will continue to re-route its discounted oil flows toward other buyers and global ex-OPEC+ supply growth would have time to grow sufficiently to fill at least some of the Russia-sized hole in global oil supply. US production growth will likely be very strong (especially once the Democrats lose the midterm elections), adding more than 0.7 mbd through the end of 2022, though that growth is expected to halt in 1H 2023 as natural gas infrastructure constraints in the Permian Basin place a temporary cap on oil output. These conditions should be sufficient to stabilize global oil prices in low-$100s in 2H22 and high-$90s in 2023. Because JPM expects global refinery margins to normalize in 2023 and for refined products prices to fall from current levels, a sustained $100/bbl crude oil price, though still substantially higher than it has been since 2014, should be low enough allow demand to continue to grow. This process of normalization is already under way and is especially visible in other commodities like metals, where there is less policy intervention. Consequently, Russian revenues from crude oil exports have declined. Tyler Durden Sun, 07/03/2022 - 14:15.....»»

Category: blogSource: zerohedgeJul 3rd, 2022

Kyle Bass “If Our National Security Was Left Up To The Private Sector And Wall St, We’d All Be Speaking Chinese Tomorrow”

Following is the unofficial transcript of a CNBC interview with Hayman Capital Management Founder and CIO Kyle Bass which aired during CNBC’s “Financial Advisor Summit: Navigating Uncertainty” event today, Wednesday, June 15. Interview With Hayman Capital’s Kyle Bass Becky Quick: First of all Kyle, I just want to say thank you for being here. It […] Following is the unofficial transcript of a CNBC interview with Hayman Capital Management Founder and CIO Kyle Bass which aired during CNBC’s “Financial Advisor Summit: Navigating Uncertainty” event today, Wednesday, June 15. Interview With Hayman Capital’s Kyle Bass Becky Quick: First of all Kyle, I just want to say thank you for being here. It is great to see you today. Kyle Bass: Great to see you too, Becky. Quick: Let’s talk a little bit about what’s happening with globalization. Because for decades, we saw the positive side of globalization – more markets, bigger markets, more people that our companies could sell to. But in recent months, we have really seen the downside of globalization – what happens with the shutdowns in China, people not being able to get goods that are brought through the supply chain, what’s happened with the Russian invasion of Ukraine and what that has meant for energy prices. A lot of people are starting to ask is this the end of globalization? What do you think? if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Series in PDF Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q1 2022 hedge fund letters, conferences and more Bass: You know, I think that globalization appeals to all of us. You know, having the world drop its guard and deciding to outsource things to various places where you can attain better profit margins, maybe greater efficiencies, and maybe even technological advances move faster. But as we're seeing today, it's really difficult to engage with partners, like China, like Russia, like Iran, like North Korea, you know, China, mostly, as you mentioned, doesn't share the same value system that we share. And that's to say the very least. They don't share the same legal system that we share. We have a rule of law, they rule by law. And when it comes into periods of time in which there's global conflict, or let's just say, global friction, you see that globalization can lead you down a path that puts you in a very difficult position from a national security perspective, Becky, and I think that we're realizing that it was probably a real bad idea to let 95% of the active pharmaceutical ingredients for our antibiotics, let's say, to be made in China. And have the global chip shortage that we've seen really emanate from Taiwan around the world with Taiwan semi making more than 40% of the chips that we need for just about everything. So I think those globalists that were pushing globalism, let's just say unrestricted, put us in a position where now we need to regroup. And we really need to rethink how we risk assess various industries being outsourced. Quick: Yeah, it's from a national security perspective on top of just the global market risk that this has taken on. It's not an immediate situation that can be fixed immediately, I should say. This is going to take some time. What do you anticipate seeing over the next three to five years just in terms of manufacturing being brought back to the United States? Bass: Yeah, I think as you note, we as a country realized the predicament we were in, in early 2017, late 2016. And the State Department got together with Commerce and a few others, and really expedited Taiwan semis on manufacturing moving to Arizona. And as you know, they've been in the midst of aggressively building a couple of wafer fabs there. And these things, Becky, take anywhere from three to five years to build. They're $17, $18 billion a copy. Think about a building that costs $18 billion to build. And the first one is well on its way to being finished. The second one is on its way. Samsung has announced they're going to build a wafer fab and in Taylor, Texas. That one hasn't broken ground yet. When you think about where we are today, we're building as fast as we can to get us to a position where we don't have a large national security problem. The problem is there's a duration mismatch between achieving that goal as you say and being where we are today. I still think we're a good three to five years away today from being self-sufficient on the chip side. You know, antibiotic API's, those aren't rocket science, we just need to be sure of those. And we need to reshore supply chains. And you talk to the fortune 500 CEOs, they're all doing it in some form or fashion, and they'll get it done. The problem is it’s going to take years to get done. And in the meantime, we've all watched the friction increase almost daily, between the U.S. and China from a geopolitical and militaristic perspective. So when I think about it, Xi’s – the most leverage China has is now and as every day that goes by they have less and less leverage. So I'm fearful that things happen sooner rather than later. You know, the Putin invasion of Ukraine, kind of, I don't want to say it came out of the blue, but things just happen. For a long period of time, frictions boil and then all of a sudden war happens. And If you look at the daily rhetoric coming out of these state media outlets in China, they are really pushing the Taiwan narrative. So I'm afraid that that's going to happen sooner rather than later, Becky. Quick: That is incredibly concerning and what you talk about how China will have less and less leverage as time goes on. That's the same situation with Putin and Russia and the control they have over European countries that they've been supplying with oil and natural gas. Less and less leverage over time, so they have to take advantage of it right now. How do we withstand that? And how do you kind of think about these things? And let's just talk about from an economic security position first, and then we'll talk about what it means for investors. Bass: Right. So look from economic security perspective, I always say if our national security was left up to the private sector and Wall Street, we'd all be speaking Chinese tomorrow. So I think it's important that our leadership in DOD and in the Executive branch, decides to really put ourselves, put our country in a better position from a national security perspective. And that means reshoring some of those things. Just this week, we're seeing, as you know, China bought Smithfield Foods back in 2013, the largest pork and chicken producer in North America. And just this week, they've announced they're going to close down the entire western division of the largest pork and chicken producer in North America because prices are too high. Well, that doesn't sound like an economic decision. That actually sounds like a geopolitical decision. And so those kinds of things need to be taken care of at the highest levels of our government. And we need more of a grand strategy and less of a revolving door. As you know, we have new presidents every four or every eight years. And we need a team that kind of transcends administrations, and we really need a better grand strategy. And I think that is being discussed, I just think that we haven't ever implemented that as a country. Quick: Kyle, I hear your point. And I think it's a valid one. Let me just push back a little bit on Smithfield pork. I mean, I know of other business leaders who are considering shutting down because prices are too high, not because they can't get great prices for their products, but because it's not enough, given the inflation they're facing on their input costs – whether that be energy, labor, the raw materials and commodities that they're facing. But I hear your point that the idea that we could be left in a very bad position, and it may have more to do within just economic decisions, and they may be decisions that the U.S. government won't have as much control over if it's being operated by a foreign company. Bass: Right. Look, I know, one of the big topics today is whether or not there should be a repeal of the tariffs that we put on China for steel and aluminum. And if you go back and you read the back and forth, and the rationale for why we put those tariffs on China in the first place, and the reason that President Biden has left them on is really important. Because let's just say for example, aluminum, the Chinese state actors were basically giving free electricity to the aluminum smelters in China to undercut price in America. That took our capacity utilization of our aluminum smelters here from call it high 80s to 70 in one year. And when you drop below 80% capacity utilization, you end up losing money as an industry. So we put those tariffs in place, not because we were looking to put extra or levy extra duties on China, it was because they were acting in an uneconomic fashion to try to put our industry out of business so we would have a further reliance on their ability to produce aluminum. And as you know, aluminum has many strategic values for the military, and for our industrial sector. So the reason we put those tariffs on is lost in mass media today. And it's the reason they haven't come off. And, you know, then when you have people like Janet Yellen say, Hey, you could really save eight basis points of inflation if you took those tariffs off. You know, again, God bless her, but she doesn't have a national security bone in her body. We need people thinking long term here and not short term for the headlines. Quick: Okay, let's talk about the market implications for this and what investors should be thinking about with all of these concerns you just laid out. What would you tell somebody who's trying to figure out where they put their money, by the way, given this backdrop of the market collapse that we're watching, too? Bass: Yeah, so I have bad news for you there. My view is so far you have 30 trillion of global stock market wealth has evaporated since the higher inflation prints and the aggressive Fed speak, as you know, talking about aggressively raising rates concurrently with shrinking the balance sheet. Well, Becky, they're just beginning to shrink the balance sheet now. They're going to take 100 billion of risk assets out of the market each month from now on. Just think about the implications of more aggressive hikes concurrent with $100 billion worth of risk assets being removed from the market for months to come. I can tell you this, the stock market will not go up in that timeframe. Right? So I think the investors and financial advisors need to not be buying dips right now. I think that you need to let this play out. I don't know how much lower the market's going to go. But my own inkling, or belief, is that you're not going to – the Fed’s not going to be able to pull $1 trillion out of risk assets. Even though their balance sheet is north of 8 trillion, I don't think they can pull, call it – I don't think they can go 10 months at 100 billion a month or 11 months before the stock market is down another 30, 40% from here. So I think – Quick: 30 or 40% from here? that is a really big drop. I mean – wow. Bass: Imagine if they – as they hike, you know, this week, they hike next month, they hike in November, and in all at the same time, they're pulling 100 billion a month of risk out – of risk assets out, Becky, the market is going to absolutely convulse when that happens. And I think the Fed is laser focused on arresting the inflation problem and they're not necessarily concerned with what's happening to the stock market. And I think that has a lot to do with what happens as we go into November. So Becky, I think between now and November, things are going to materially worsen. And so when I think about where to put money today, I would wait. Until you see the Fed start to use the word pause more often. and say, you know, maybe the markets dropped enough, maybe 30 trillion coming out of investors’ pockets is going to have a severe chilling effect on global markets, which it will, it just takes time. So I think that a lot of their job is actually already done. I think inflation is going – I think you're going to see food and energy prices continue to head higher unless we have a massive recession. And I think we're going to have in North America or the U.S., I think we're going to have a brief recession or a shallow one. Europe is going to be a little deeper, just because they have such a problem with their energy supply chain. And so and China is having its own problem. So I think you're going to see markets go a lot lower going into November. Quick: You know, it's really interesting that you kind of go back to the Fed’s idea that they have, like stopping inflation as priority number one. You know that's the case, you know it's going to take a lot to do it. But there are plenty of market participants who I've spoken with recently who have said, the bad thing would be if they didn't take those aggressive steps. It's almost damned if they do, damned if they don't. Do you not see any way out of this without really putting further dents in the market? Bass: Yeah, I mean, I'm a monetarist at heart. When you print 40% more M2 or more money in circulation, you're going to get about 40% inflation. You know, of course, there'll be some kind of a Gaussian curve there where some things go more, some things go less. But on average, you and I both know that the price of just about everything that we engage with on a daily basis has gone up a lot more than the CPI prints have set. And so when you have a scenario where they went to the gas pedal much too hard during the Covid Scare, and now they're having to deal with trying to pull that out. And Becky that's coupled with really, really poorly thought through energy transition policy, right? If you remember, and again, not getting political, let's just say as a country, what we've done is we've made the wrong choices. I'm 100%, for as much alternative energy as we can transfer to as fast as we can get there. The problem is these energy transitions take 40 to 50 years when they happen. We have been all in on solar and wind and hydro, and it represents less than 3% of the contribution to power. So it's going to take decades to get there. And turning off hydrocarbon exploration – if you think about our refineries, we haven’t invested in a new refinery since the early 1970s. When you engage in major workovers and major cat-backs, refineries, these are 30 year cycles. If what the administration is telling you is we're turning off hydrocarbons and turning on alternative energy, you're not going to get that capex spent. You're not going to get new pipelines built. We need new pipelines built. And we need a lot more drilling right now in order to transition properly. So we've got a monetary problem on just the amount of currency in circulation and money that was printed because of Covid coupled with really poorly thought through energy policy. So it doesn't matter how much the Fed acts with its own tools, they can't change a supply problem on hydrocarbons. And that supply problem turns into much higher labor costs, much higher fuel costs, much higher food. Next year, you're going to see a giant food price spike, and you're going to have a problem with food scarcity. We're going right through these levels that we saw in the Arab Spring, and I think you're going to see real problems with food and emerging markets in the next 12 months. Quick: Kyle, let's just focus a little more on energy. You come from Texas, you know the industry well, and while it might be tricky to try and get companies to invest more capex because of what they're seeing with the writing on the wall, that, you know, clearly governments don't necessarily want this stuff around. They're promising to get rid of it and that's not where investors tend to throw money. It got a little hairier last week when President Biden kind of threw down on ExxonMobil. Said they made more money than God, and that they should start paying taxes and that they should start being a little more concerned about what's happened with that. I mean, I think Exxon would argue that they have paid taxes. But when you have something like that taking place, how difficult is it going to be to convince companies and or investors to spend more on capital expenditures to get more, another refinery to get more drilling taking place – any of those things? Bass: Yeah, I mean, if you just look at the panic that's going on in the administration today, we are begging Saudi Arabia to pump more at the same time we are trying to remove the Iranian Republican Guard as terrorists along with the Houthi rebels. You can't even make up policy like that. And what's really interesting is we are releasing tight restrictions on Venezuela, and the Maduro administration, who we know is a global terrorist, who funds terror networks, who is definitely, let’s say, part of the axis of evil and the authoritarians. We're releasing those restrictions on Venezuela, asking them to send us some more crude at the same time that we're killing the Keystone Pipeline, which would carry heavy crude from our ally, and our partner and our neighbor, Canada, in our refineries that can refine heavy crude. What we've got to do is be more thoughtful about our policy. And right now, we're making panic decisions and vilifying big oil after telling big oil that we're going to turn them off. And when oil was below zero, no one had any sympathy for the big oil companies. When they were losing money, no one cared. And now that they actually have a profit margin on what they're doing, because of bad and thoughtless policy, it's easy to make them the witch in the witch hunt. And that's what you're going to see. But guess what? If what you do is you install windfall profits, taxes on these companies, or you set artificial price levels, all you're saying is, pricing is going a lot higher. It's how high do you want it? If what you do is encourage them to drill and you get behind them and you realize that we as a country are the largest energy producer in the world, Becky, we are far and ahead of the number two producer, which happens to be Russia. And so the U.S. is in a great strategic position if we can stop fat shaming oil companies and start realizing that we need a policy that's a long term, great policy transitioning from hydrocarbons to alternatives. And we'll figure out nuclear soon. But again, that duration mismatch is too long. The first small, small modular nuclear plant in America won't open for seven years. But it'll open in in Wyoming. And we'll see – I think that's the answer. But we're still a decade away. Quick: So we are just about out of time. I've got about 45 seconds left. For the financial advisors who are listening, is that at least a screaming buy to put money into energy stocks? Bass: It depends how deep the recession gets. But I think this is the golden age for private capital investment in hydrocarbons for the next call it 10, 15 years because of everything I just talked to you about. Demand is inelastic and growing globally for hydrocarbons, and there's no amount of alternative energy that can possibly get there in time. And by the way, there aren't enough extracted minerals that are required to go into these giant wind turbines and these networks for all EVs. There aren't enough minerals around the world to extract to hit our 2030 goals, much less our 2040 goals. So I think that investing in energy is a great place to be for the next 10 plus years. Quick: Yeah, whether you're a globalist or not. This is a global market, especially when it comes to energy and other commodities. And Kyle, we want to thank you very much for your time today. Updated on Jun 16, 2022, 2:46 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkJun 16th, 2022

Bullish EIA Data Lends Additional Buoyancy to Gasoline Prices

With geopolitical tensions and a solid demand picture providing a tailwind to oil prices, energy companies like Occidental Petroleum (OXY), Valero Energy (VLO) and Marathon Oil (MRO) have seen solid gains this year. U.S. gasoline prices appear on track for further records as investors remain concerned about signs of tight supplies, with the summer driving season officially underway. The Energy Information Administration’s ("EIA") latest report showed another drawdown in stockpiles — the tenth in as many weeks — pointing to the strained market fundamentals.Gasoline prices in the United States have repeatedly soared to new record highs. Motorists in more than 10 states are currently paying in excess of $5 for a gallon of regular gas at the petrol pump.Before going into the other factors, let's dig deep into the EIA's Weekly Petroleum Status Report for the week ending Jun 3.Analyzing the Latest EIA ReportCrude Oil: The federal government’s EIA report revealed that crude inventories rose 2 million barrels compared to analyst expectations of a 1.9 million-barrel decrease. A sharp drop in exports primarily accounted for the surprise stockpile build with the world’s biggest oil consumer even as refinery demand remains robust. Total domestic stocks now stand at 416.8 million barrels — 12.1% less than the year-ago figure and 15% lower than the five-year average.However, on a slightly bullish note, the latest report showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) decreased 1.6 million barrels to 23.4 million barrels.Meanwhile, the crude supply cover was down from 25.9 days in the previous week to 25.8 days. In the year-ago period, the supply cover was 30.6 days.Let’s turn to the products now.Gasoline: Gasoline supplies decreased for the tenth week in succession. The 812,000-barrel drop was attributable to continued strength in demand, as the summer driving season begins. Analysts had forecast that gasoline inventories would rise by 300,000 barrels. At 218.2 million barrels, the current stock of the most widely used petroleum product is 9.5% less than the year-earlier level and 10% below the five-year average range.Distillate: Distillate fuel supplies (including diesel and heating oil) rose for the third time in four weeks. The 2.6 million-barrel climb primarily reflected a pullback in demand and higher production. Meanwhile, the market looked for a supply build of 800,000 barrels. Despite the recent supply additions, current inventories — at 109 million barrels — are 20.6% below the year-ago level and 23% lower than the five-year average.Refinery Rates: Refinery utilization, at 94.2%, rose 1.6% from the prior week.Final WordsOil prices continue to trade above $120, on expectations of growing fuel demand during the summer driving season in the United States. In the meantime, the national average for gasoline has gone up by 60 cents in just a month and is nearly $2 above the year-ago price. With millions of Americans on the move, the ‘pain at the pump’, or the trend of high gasoline prices, is expected to continue in the near-to-medium term.There are also concerns about supplies from Russia, which is one of the world's largest producers of the commodity. Raising the prospect of a dramatic fall in crude flows, the European Union recently followed the U.S. in blocking imports of Russian energy to protest Moscow’s invasion of Ukraine.Even the fundamentals point to a tightening of the market. Per the latest government report, U.S. commercial stockpiles have been down more than 12% in a year, prompted by a demand spike owing to the reopening of economies and a rebound in activity.As a matter of fact, the Energy Select Sector SPDR — an assortment of the largest U.S. companies thronging the space — has risen 62.6% year to date against a 15.7% loss for the broader S&P 500 benchmark.Consequently, the top three gainers of the S&P 500 this year are all energy-related names: Occidental Petroleum OXY, Valero Energy VLO and Marathon Oil MRO.Occidental Petroleum: OXY is the top-performing S&P 500 stock in 2022, with a gain of 124.8%. Occidental Petroleum’s expected EPS growth rate for three to five years is currently 32.3%, which compares favorably with the industry's growth rate of 30.4%.OXY has a projected earnings growth rate of 306.3% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 30.2% upward over the past 60 days.Valero Energy: This stock was the second-best performer in the S&P 500 Index, with shares having appreciated 90.9% so far in 2022. VLO, carrying a Zacks Rank of #1 (Strong Buy), has a projected earnings growth rate of 493.6% for this year.You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Valero Energy’s 2022 earnings has been revised 87.2% upward over the past 60 days. VLO beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 84.3%.Marathon Oil: Marathon stock has jumped 90.3% year to date. MRO beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 23%.Marathon is valued at around $22.6 billion. MRO has a projected earnings growth rate of 228.7% for this year.  Just Released: Zacks Top 10 Stocks for 2022 In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022? From inception in 2012 through 2021, the Zacks Top 10 Stocks portfolios gained an impressive +1,001.2% versus the S&P 500’s +348.7%. Now our Director of Research has combed through 4,000 companies covered by the Zacks Rank and has handpicked the best 10 tickers to buy and hold. Don’t miss your chance to get in…because the sooner you do, the more upside you stand to grab.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Marathon Oil Corporation (MRO): Free Stock Analysis Report Occidental Petroleum Corporation (OXY): Free Stock Analysis Report Valero Energy Corporation (VLO): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksJun 10th, 2022

Futures Rise Ahead Of Hawkish ECB Meeting

Futures Rise Ahead Of Hawkish ECB Meeting US index futures turned positive on Thursday, even as European stock slipped ahead of the ECB decision at 745am ET, with Nasdaq 100 contracts outperforming as oil prices and bond yields stabilized and strategists at Goldman and JPMorgan gave more bullish comments on equities. Sentiment was boosted after Bloomberg reported that China’s crackdown on internet companies may be easing with a revival of the Ant Group IPO, which boosted the country’s US-traded stocks (the news was since refuted by China, but moments later Reuters re-reported what Bloomberg said). S&P 500 futures traded 22 points or 0.5% higher, and Nasdaq 100 futs were 0.4% higher. The dollar slid, and 10Y rates were flat at 3.02%. Markets remain fixated on the risk that central banks intent on cooling inflation snuff out economic recoveries in the process. Money markets have priced in 36.5 basis points of tightening to the ECB’s rate by next month’s meeting, just short of a 50% chance of a half-a-percentage point increase, which would be the first since 2000. “To rein in surging prices the Fed has to increase rates, which can result in a recession,” Geir Lode, head of global equities at Federated Hermes, wrote in a note. “However, the pandemic-induced supply-chain shock and the Ukraine conflict are beyond the central bank’s control. In this environment we need to be lucky to avoid stagflation that could last for a long time.” While the ECB isn’t expected to raise official borrowing costs, President Christine Lagarde signaled in a blog post last month that the central bank will end bond purchases this month, and hike once in July and again in September, lifting the deposit rate from minus 0.5% to zero. Some investors see a new tone reaching beyond the official line as central bankers succumb to huge pressure to rein in record inflation at more than four times their target of 2%. Peers at the Federal Reserve, Bank of Canada and Reserve Bank of Australia have hiked in 50-basis point increments this year. “Chances are that the ECB will have a hawkish pivot today,” Carol Kong, a strategist at Commonwealth Bank of Australia, said on Bloomberg Television. In US premarket trading, Alibaba Group was among the best performers - at least initially - as it pumped, dumped and then rose again after several conflicting reports that Chinese regulators are considering a potential revival of the initial public offering by Jack Ma’s Ant Group. Tesla gained 3% after an upgrade to Buy from UBS and after the company said its deliveries of cars made in China doubled in May compared with April and as UBS recommended buying the stock. Bank stocks also traded higher in premarket trading as the US 10-year Treasury yield hovered just above 3%. In corporate news, Credit Suisse shares dropped after its CEO Thomas Gottstein said he wouldn’t comment on State Street’s reported interest in the Swiss bank. Here are all the notable premarket movers: Five Below (FIVE US) shares decline 7.3% in premarket trading after the company cut its full-year guidance, while analysts trimmed their targets for the stock, but were broadly positive on the firm’s longterm prospects. Spotify (SPOT US) shares could be in focus today as analysts were positive on the streaming giant’s forecast that its podcasting business will turn profitable as the company focuses on more non-music segments like audiobooks. Travel stocks could be active on Thursday following Expedia CEO Peter Kern’s bullish comments on summer travel. Keep an eye on Delta (DAL US), United (UAL US), Marriott (MAR US), Expedia (EXPE US), Airbnb (ABNB US) and Booking Holdings (BKNG US) among others Watch Oxford Industries (OXM US) shares after the company reported results, as Citi says that there is no sign of consumer weakness in any part of the branded apparel retailer’s business. Ollie’s Bargain (OLLI US) stock may be in focus as RBC Capital Markets upgraded the discount retailer to outperform, saying that despite another tough quarter, its fundamentals should improve in the back-half and beyond. In Europe, equities slipped ahead of a European Central Bank decision that will put the region’s monetary policy on a path of tightening and help close the gap with global peers. Real-estate companies and retailers led the Stoxx Europe 600 Index 0.5% lower. EDF jumped the most in three months, after a newspaper report that the new French government is studying two options for the electricity giant’s nationalization, including a buyout offer. Here are the most notable European movers: EDF shares rise as much as 8.3% after Les Echos newspaper reported that nationalization is among priorities for new government after this month’s legislative elections alongside combating inflation and pension reform. Prosus gains as much as 7.4% in Amsterdam and Naspers gains as much as 6.8% in Johannesburg following a report that Chinese financial regulators are considering reviving the IPO of Jack Ma’s Ant Group. Tate & Lyle advances as much as 4.4% after the company reported FY22 results that beat estimates. The FY23 outlook suggests upgrades to consensus estimates, according to Jefferies. Beiersdorf rises as much as 7.8% after the company said in a Capital Markets Day presentation on its website that it targets above-market organic sales growth at its consumer unit in the medium term. Credit Suisse drops as much as 4.9% after State Street declined to comment on a report that it was looking to acquire the Swiss bank. Separately, Bloomberg reported that Credit Suisse is tapping the brakes on its China expansion. CMC Markets falls as much as 19% after cutting its dividend and saying it was boosting spending on new hires, product development and marketing as the firm seeks to diversify amid a fading retail trading boom. Wizz Air drops as much as 8.3%, extending Wednesday’s 9.5% decline after the company gave guidance for an operating loss for the first quarter, while analysts also noted their concern about pricing trends. Asian stocks slipped as technology and financial firms declined and higher oil prices stoked concerns about inflation.  The MSCI Asia Pacific Index fell 0.3%, trimming its gain this week. Chip stocks declined after a warning on demand from Intel Corp., with the Hang Seng Tech Index sliding more than 1%, a breather after its recent rally. Australian banks were among the biggest contributors to the regional benchmark’s loss.  “We are seeing profit-taking moves after Chinese stocks rose a lot in recent sessions,” said Xue Hua Cui, a China equity analyst at Meritz Securities in Seoul. “There are also renewed concerns about the second-quarter corporate earnings.” Australia’s broad benchmark was among the biggest decliners in Asia Pacific as bank stocks slumped on concerns about valuations and macroeconomic risks. Shares in Singapore and Malaysia also fell. South Korean equities erased early-day losses to close nearly flat on options expiry, while Japanese peers also finished little changed amid the yen’s extended weakness.  Read: Australian Bank Stocks Take $32 Billion Hit on Rate Concerns Stocks in much of the region held losses after data showed Chinese exports jumped more than expected in May, while a mini-lockdown weighed on market sentiment. Even with Thursday’s dip, the MSCI Asia Pacific Index remained on track for its fourth straight weekly gain, which would be its longest winning streak since early 2021 Japanese stocks traded in a narrow range as investors continued to worry about inflation and growth while the yen extended losses to a fresh 20-year low.  The Topix Index was virtually unchanged at 1,969.05 as of the market close in Tokyo, while the Nikkei 225 was stable at 28,246.53. Out of 2,170 shares in the index, 937 rose and 1,105 fell, while 128 were unchanged. In Australia, the S&P/ASX 200 index fell 1.4% to close at 7,019.70, its lowest level since May 12. Banks contributed the most to the benchmark’s slump on growing concerns that faster monetary policy tightening might increase housing-market risks and pressure valuations.  Magellan was the top performer after saying co-founder Hamish Douglass will resume working with the business in a new consultancy role. In New Zealand, the S&P/NZX 50 index fell 0.5% to 11,211.31. In India, stock gauges advanced for the first session in five, helped by a surge in Reliance Industries and energy companies on the improving outlook for refining margin and software exporters extending recovery.  The S&P BSE Sensex rose 0.8% to 55,320.28 in Mumbai, while the NSE Nifty 50 Index gained 0.7%. Both indexes are still headed for weekly drops of about 0.8% and 0.6%, respectively, their first decline in four weeks. “With policy rate announcements now behind us, investors lapped up stocks that were in a downward spiral for quite some time,” Kotak Securities analyst Shrikant Chouhan said in a note. The market may witness select bouts, but volatility is expected to remain over the near-to-medium term, he added.  Reliance Industries provided the biggest boost to the key gauges, increasing 2.7%. Out of 30 shares in the Sensex index, 21 rose and 9 fell In FX, the Bloomberg Dollar Spot Index was little changed as the greenback traded mixed against its Group-of-10 peers. The euro fluctuated around $1.07. Bunds and Italian bonds swung between modest gains and losses. Options pricing in the euro and spot swings suggest not everyone is convinced that the euro will rally after the ECB meeting, which leaves ample room for an advance on a hawkish decision. The yen rebounded after touching a fresh two-decade low against the dollar and seven-year lows against the Australian dollar and the euro, as traders adjusted positions before the ECB. Speculators are gathering around the beleaguered yen and positioning is by no means extended, suggesting there’s still room for bears to pile in. The New Zealand dollar inched up and the nation’s 10-year yield hit a seven-year high after the RBNZ announced plans to offload QE bond holdings. One beneficiary of a hawkish pivot by the ECB would be the euro. The common currency has been bogged down by concerns over euro-area growth while a resurgent dollar and hawkish Fed pushed it to a five-year low against the US currency last month. The euro traded little changed against the dollar at $1.07. “If we do see Christine Lagarde leaning toward a 50 basis-points hike in July, that’s going to be very supportive of the euro-dollar,” Kong said. In rates, Treasuries are narrowly mixed with the yield flatter ahead of ECB rate decision at 7:45am ET and 30-year bond reopening, the last of this week’s coupon auctions. 2-year TSY yields rose to 2.80%, highest level since May 4 YTD high. 10-year little changed at 3.02%, underperforming bunds while gilts trail. US front-end cheapening flattens 2s10s by ~1bp on the day toward lowest level since May 25; as previewed before, the ECB is expected to announce imminent end to large-scale asset purchases, opening the door for interest-rate hikes at the July meeting; swaps price in around 30bp of rate- hike premium. Looking at today's auction we have a $19BN 30-year bond reopening which follows Wednesday’s mediocre 10-year, which tailed by 1.2bp. WI 30-year yield at ~3.16% is above auction stops since 2018 and ~16bp cheaper than May’s, which stopped 0.9bp through. German bonds and the euro are steady ahead of the ECB’s meeting later Thursday, where traders will look for clues on whether the bank will raise rates by 25bps or 50bps in July. Money markets don’t expect a hike today, and currently bet on 36bps next month, and about 132bps by the end of the year. Peripheral spreads tighten to Germany.  Both gilt and Treasury curves flatten.  In commodities, WTI trades within Wednesday’s range around the $122 level. Most base metals trade in the red; LME nickel falls 2.9%, underperforming peers. Spot gold falls roughly $3 to trade near $1,850/oz To the day ahead now, and the main highlight will be the aforementioned ECB decision and President Lagarde’s subsequent press conference. We’ll also hear from Bank of Canada Governor Macklem, and data releases today include the US weekly initial jobless claims. Market Snapshot S&P 500 futures up 0.4% to 4,130.75 STOXX Europe 600 down 0.7% to 437.16 MXAP down 0.4% to 168.75 MXAPJ down 0.6% to 557.70 Nikkei little changed at 28,246.53 Topix little changed at 1,969.05 Hang Seng Index down 0.7% to 21,869.05 Shanghai Composite down 0.8% to 3,238.95 Sensex up 0.2% to 54,988.33 Australia S&P/ASX 200 down 1.4% to 7,019.75 Kospi little changed at 2,625.44 Brent Futures down 0.4% to $123.07/bbl Gold spot down 0.3% to $1,848.12 U.S. Dollar Index little changed at 102.62 German 10Y yield little changed at 1.35% Euro down 0.1% to $1.0701 Top overnight News from Bloomberg The ECB is set to announce an imminent end to large-scale asset purchases, paving the way for the first increase in interest rates in more than a decade next month Traders are betting the BOE will deliver a historic half-point interest-rate hike by September to wrest control of inflation running at the fastest pace in four decades Judging by the latest comments, the yen’s exchange rate still has some way to go before Japan’s finance ministry would consider intervention to prop up the currency via actual purchase operations, something it has avoided for more than two decades. With the US more likely to be against any moves to weaken the dollar, Japan faces the problem that actual intervention may not be effective Japan’s Prime Minister Fumio Kishida appears to be counting on the Bank of Japan to keep borrowing costs near rock-bottom levels as his government paves the way for continued spending even after a record-breaking pandemic splurge and with the yen languishing at two-decade lows Riksbank Deputy Governor Anna Breman said all options are on the table for the June policy meeting as speculation grows over whether the Swedish central bank needs to speed up its interest rate increases China’s exports rebounded in May as Covid-related bottlenecks on production and logistics clear up, but a slowdown looms this year as global consumer demand for goods cools, weakening trade’s ability to act as a driver for economic growth A more detailed look at global markets courtesy of newsquawk Asia-Pac stocks were subdued following a weak handover from the US and with sentiment cautious. ASX 200 was pressured by underperformance in the top-weighted financials sector and weakness in property-related stocks also suffering amid expectations of aggressive RBA rate hikes which increases banks’ funding costs and could threaten the quality of their loan portfolios. Nikkei 225 kept afloat as participants contemplated the ramifications of further currency depreciation. Hang Seng and Shanghai Comp. were lacklustre despite the mostly better than expected Chinese trade data as some COVID concerns resurfaced in Shanghai with the city locking down the Minhang district on Saturday morning for mass COVID testing. Asia headlines Shanghai will lockdown the Minhang district on Saturday morning for mass COVID-19 testing, according to Bloomberg; additionally, Beijing's Chaoyang district is to close all entertainment venues from 14:00 local time (07:00BST) for COVID containment. US Treasury Secretary Yellen said China is guilty of unfair trade practices but some tariffs on Chinese goods do not serve US strategic interests and the Biden administration is looking to reconfigure tariffs in a way that would be more strategic, according to Bloomberg. Japan is planning to expand its prefectural travel subsidies across the entire country, according to Yomiuri. RBNZ outlined plans to sell New Zealand government bonds from July 2022 in which it intends to offload NZD 5bln per fiscal year in order of maturity date until its LSAP holdings are reduced to zero, according to Reuters. Equities are, overall, struggling for clear direction in relatively cautious trade going into ECB; Euro Stoxx 50 -0.5%. Bourses, and US futures, were lifted amid further constructive China tech developments, this time for Ant Group; albeit, we have drifted modestly off best since, ES +0.3%. China is said to be mulling reviving Jack Ma's Ant IPO, with reports framing it as an easing in crackdowns from China, according to Bloomberg sources. *Click here for analysis/reaction. China PCA Retail Passenger Vehicle Sales (May): -17.3% YY; Tesla (TSLA) 32.2k (prev. 33.5k YY). Walgreens Boots Alliance's (WBA) Boots has received a non-binding bid from Apollo Global Management and Reliance Industries, according to FT sources. European headlines Hawkish Lagarde Is Not Fully Priced In the Euro: ECB Cheat Sheet Traders Bet BOE Will Join Peers in Historic Half-Point Rate Hike European Gas Soars as Fire in US Compounds Russia Supply Concern Italy’s Eni to List Renewable Unit Plenitude in Milan FirstGroup Rejects £1.2 Billion Takeover Bid From I Squared FX Yen finally finds some friends amidst less hostile yield environment and supportive risk backdrop; USD/JPY retreats just over 100 pips around 134.00 and EUR/JPY almost 150 pips from 144.00+ peak. DXY remains anchored around 102.500 ahead of Friday’s US CPI data and as Euro pivots 1.0700 pre-ECB; EUR/USD flanked by decent option expiries as well from 1.0750-55 to 1.0605-00 on the downside. Kiwi underpinned after RBNZ outlines schedule for balance sheet rundown; NZD/USD hovers near 0.6450, AUD/NZD sub-1.1150 with AUD/USD capped into 0.7200. Rand continues bull run with extra incentive from wider than forecast SA current account surplus, USD/ZAR straddling 15.2500. Lira rout resumes following fleeting respite on prospect of capital controls raised by S&P, USD/TRY above 17.2200. Yuan retains bulk of Chinese trade data related gains even though parts of Beijing and Shanghai reimpose restrictive Covid measures; USD/CNH closer to 6.6700 than 6.7100, USD/CNY settles sub-6.7000 vs circa 6.7000 high. Fixed Income Bunds choppy and lagging Eurozone periphery within 149.17-148.52 range pre-ECB, as focus falls on fragmentation along with rate and QE guidance Gilts underperforming between 114.86-42 parameters as BoE tightening expectations rise and drag Sonia strip down US Treasuries flat-lining ahead of jobless claims and long bond supply, with 10 year T-note just above par inside tight 118-07/117-26+ band Commodities WTI and Brent are steady after giving up overnight gains with participants cautious and cognizant of China's fluid COVID situation. Currently, the benchmarks are sub-USD 122/bbl and USD 123.50/bbl respectively, vs highs of 122.72 and 124.34. Magnitude 5.6 earthquake hits the Antofagasta region in Chile, according to EMSC. Spot gold is sub-USD1850/oz, having slipped below its falling 10-DMA but holding above the overlapping 200- & 21-DMAs at USD 1842/oz. Central Banks Riksbank's Breman says she will support doing what is required to attain the inflation target, including more hikes than are currently in the path; adding, to control inflation back to target, need to act now. Does not exclude a 50bps hike at the next meeting.   Hungarian Finance Minister says the Hungary has issued FX bonds totalling USD 3bln and EUR 750mln; follows the NBH maintaining its one-week deposit rate at 6.75%. US Event Calendar 08:30: May Continuing Claims, est. 1.3m, prior 1.31m 08:30: June Initial Jobless Claims, est. 206,000, prior 200,000 12:00: 1Q US Household Change in Net Wor, prior $5.3t DB's Jim Reid concludes the overnight wrap I kicked off Day 1 of our annual European LevFin conference in London yesterday and we had a record attendance of over 1100 issuers and investors. It was the first in-person version since 2019 and if this conference is anything to go by, people still like the personal contacts that such an event brings. I also had a dinner at the event last night so I’m a bit shattered this morning so bear with me. This conference has been going now for 26 years at DB and the headline acts at the post conference entertainment have in the past included, The Killers, Duran Duran, Cheryl Crow, Dire Straits, The Corrs, The Sugababes, Stevie Wonder and Bon Jovi. Last night’s entertainment was a pub quiz. How times have changed. If you think the above means Zoom is dead then think again, as I’ll be doing a Zoom webinar next Wednesday (June 15th) at 2pm on my annual Default Study (“The End of the ultra-low default world?”), published earlier this week, that I presented at the conference. Please click here to register, and here to see the report itself. The day before this (June 14th), also at 2pm London time, a selection of our heads of trading and research desks will do a call on the near-term macro outlook across rates, FX, EM, equities and credit. Please click here to register. As I recover from the heckling of telling High Yield investors that defaults are coming, we arrive at the business end of the week with a big 36 hours ahead with the ECB meeting today, and US CPI tomorrow, looming large! And then don’t forget the FOMC, BoE and BoJ meetings next week. Markets approach this busy period on the nervous side with rates and equities selling off over the last 24 hours, and that’s still the case in much of Asia in this morning’s trading. Starting with Europe, sovereign bond yields hit fresh highs yesterday as investors have come to view a potential 50bp hike at some point this year as an increasingly likely possibility. In fact by the close of trade yesterday, overnight index swaps were pricing in 132bps worth of ECB hikes by the December meeting, which is the highest to date and more than double the 63bps of hikes expected after their last meeting in mid-April. So if they don’t hike until July as is widely expected, that implies at least one 50bp move is being fully priced in by year-end. In their preview last week (link here), our European economists agreed with this assessment that a 50bp hike is likely soon, and their view is that one of the two hikes in Q3 will be a 50bp hike, with September being more likely than July. After that, they then see the ECB reverting to continuous back-to-back 25bp hikes until they reach a terminal deposit rate of 2% in mid-summer 2023, although there’s a risk of a second 50bp hike before policy rates reach neutral. In terms of today’s decision however, they expect the ECB to confirm that APP net purchases will cease at the end of June, and that their new staff forecasts will show inflation at 2.0% in 2024, thus satisfying the liftoff criteria. When it comes to new guidance, their view is that the three conditions for policy rate liftoff are likely to be replaced by new guidance on the speed and extent of the hiking cycle. And finally on TLTRO, they expect the end of the TLTRO discount to be confirmed and the ECB to pledge a smooth transmission of monetary tightening through the banking system. With all that in mind, European yields moved higher through the day, with those on 10yr bunds (+6.2bps) and OATs (+7.0bps) both rising to their highest levels since 2014. The selloff was more pronounced among peripheral debt, with yields on 10yr Italian (+8.8bps) and Spanish (+8.2bps) debt seeing even larger rises, although the spread of both over bunds was still tighter than their recent peak last week. There are signs of growing nervousness elsewhere too, with EURUSD overnight implied volatility at its highest level right now since the US presidential election in November 2020. Meanwhile, those at the more hawkish end of the Governing Council received further support yesterday from data revisions, with Euro Area growth in Q1 revised up to show a +0.6% expansion (vs. +0.3% previously). This investor concern about rate hikes and persistent inflation was bad news for equities, first in Europe where the STOXX 600 (-0.57%) fell for a second day running and then extending to a late sell-off across the Atlantic, where the S&P 500 fell -1.08%, with only energy (+0.15%) managing to end the day in the green. This brings the index to +0.18% for the week, as it enters yet another late week showdown to see if it can manage to stay in positive territory. The decline came as 10yr Treasuries eclipsed the 3% mark again, closing up +4.8bps at 3.02%, and we’re up another +1.5 bps higher this morning at 3.036%. The impact of tighter monetary policy extended beyond risk assets and showed some signs of being felt in the real economy, too, with the number of mortgage applications in the US falling to a 22-year low in the week ending June 3. These inflationary worries for investors and central banks were aggravated further by a fresh rise in commodity prices. Oil prices saw further gains, and Brent Crude (+2.50%) moved back above $123/bbl again, inching ever closer to their post-invasion peak levels despite news of OPEC supply expansion and US reserve releases. That trend has continued this morning, with Brent crude up a further +0.33% at $123.98/bbl. WTI (+2.26%) moved above $122/bbl as well, so not far from its peak closing level following the invasion of $123.70/bbl. US natural gas prices displayed a lot of volatility, hitting a post-2008 high intraday before crashing into the close to finish down -6.39% following reports of a fire at a terminal used for exporting, keeping supplies stateside. European natural gas futures fell for a 6th consecutive session to hit another post-Ukraine invasion low of €78.41/MWh. Those losses on Wall Street have carried over into Asia overnight as that rally in oil prices has ramped up worries about inflation and the outlook for interest rates. The Hang Seng (-0.24%), the Shanghai Composite (-0.49%) and the CSI 300 (-0.64%) are all in negative territory, as is the Kospi (-0.31%), although the Nikkei (+0.26%) is up as the weaker Yen has raised hopes for an earnings improvement. Indeed yesterday, the Yen fell a further -1.22% against the US Dollar to close at a 20-year low of 134.25 Yen per dollar, having at one point traded at an intraday low of 134.47. Bear in mind that its intraday low so far in the 21st century was at 135.15 back in January 2002, so we’re not far off reaching levels unseen since the 1990s, although this morning it’s strengthened a touch to 134.06. Outside of Asia, stock futures in the US and Europe are pointing to additional losses today with contracts on the S&P 500 (-0.10%), NASDAQ 100 (-0.11%) and DAX (-0.44%) edging lower. Finally on the data front, China’s May exports advanced +16.9% y/y, beating analyst estimates for a +8.0% rise and faster than the +3.9% increase in April. At the same time, the nation’s trade surplus grew to $78.76 bn in May, (vs. $57.7 bn expected) and compared to a $51.12 bn surplus in April. Separately, German industrial production grew by a weaker-than-expected +0.7% in April (vs. +1.2% expected), which comes on the back of an unexpected contraction in factory orders the previous day. To the day ahead now, and the main highlight will be the aforementioned ECB decision and President Lagarde’s subsequent press conference. We’ll also hear from Bank of Canada Governor Macklem, and data releases today include the US weekly initial jobless claims. Tyler Durden Thu, 06/09/2022 - 07:45.....»»

Category: smallbizSource: nytJun 9th, 2022

Gas prices are vulnerable to a disastrous spike this summer as a busy hurricane season could intensify a US energy crunch

"If we have a hurricane hit the gulf coast this year...there is a high chance we will experience shortages and this will cause continued rise in prices." MediaNews Group/Reading Eagle via Getty Images The pandemic stifled global refining capacity and sent fuel stockpiles lower. A busy hurricane season in the US Gulf Coast could push fuel prices soaring even higher, analysts told Insider.  Now, upwards of 90% of fuel-making refineries are being utilized, nearly the highest levels in five years.  Reduced fuel-making capacities around the world are putting more pressure on global supplies, and refineries are still recovering from the repercussions of the pandemic just as this year's hurricane season gets under way. According to the EIA, 47% of total US petroleum refining capacity is located along the Gulf Coast, and if the area is struck by extreme weather, disaster could follow. The Atlantic hurricane season is expected to be busier than usual, and JPMorgan analysts said if severe weather forces a significant chunk of refining capacity to go offline in Texas and Louisiana, like previous years, the US could run out of certain fuels. "If we have a hurricane hit the gulf coast this year and impact refining capacity, there is a high chance we will experience shortages and this will cause continued rise in prices," Debnil Chowdhury, vice president, head of Americas refining at S&P Global, told Insider.  War in Ukraine and sanctions on Moscow have exacerbated the energy crunch, and crude oil prices hit a two-month high of $123 this week following the European Union's partial ban of Russian supplies. Consumer demand for gas and diesel is returning to pre-pandemic levels ahead of the summer travel season, and fuel-making refineries are facing dwindling stockpiles even as they run near maximum capacity. Currently, upwards of 90% of refineries are being utilized, the EIA reported, which is near the highest levels in the last five years. Western sanctions on Russia have meant 800,000 barrels a day are gone from the global market, and that could increase to 1.4 million this summer, JPMorgan said. These factors have pushed gas prices to fresh highs — the US average hit a record $4.761 per gallon on Friday — and have also resulted in steep prices for diesel, jet fuel, and natural gas. In May, US diesel stockpiles hit their lowest levels in 17 years, JPMorgan said, and US inventories of gasoline are roughly 8% lower than normal for this time of year. If a hurricane shuts down a refinery in the Gulf Coast, it would likely take two to four years to bring it back online and could cost billions of dollars, Chowdhury said."The trader in me sees a pretty grim outlook on supply, which means prices are going higher," Jim Mitchell, head of Americas oil analysts at Refinitiv, told Insider. "Going into hurricane season, nobody is going to be short [on fuels]."During the pandemic, around three million barrels a day of global refining capacity closed, and a third of that happened in the US, according to JPMorgan. Moving forward, another 1.69 million barrels of US refining capacity is expected to disappear, analysts told the Wall Street Journal."When inventories are high, products can get anywhere for a relatively small cost," Mitchell said. "Inventories are that buffer of security of supply. When this buffer drops, that's when the probability of price rationing goes up."According to the two analysts, the impact a busy hurricane season could have on fuel prices could be dramatic. If hurricanes were to shut down refining capacity for an extended period of time, it would draw down the total inventory in the Gulf Coast and reduce the region's ability to send products to the Northeast and Latin America. This could cause localized spikes for prices at the pump.Additionally, extreme weather could exacerbate shortages if it impacts pipeline capacity or shuts down Gulf Coast ports. "This would actually cause inventory to build [in the Gulf Coast], but would cause global panic and pricing to rise globally," Chowdhury said. Should all these factors happen, he said, crude and product prices could jump 10%-20%, and prices could be especially expensive in the Northeast."If a hurricane hits a significant refining area, we'll see another wave of supply shortages."Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJun 4th, 2022

Russia Uses Chinese Ships And Indian Refiners To Stay Ahead of Oil Sanctions

Russia Uses Chinese Ships And Indian Refiners To Stay Ahead of Oil Sanctions Authored by Mike Shedlock via MishTalk.com, As the US and EU pile on sanctions, Russia finds more ways to avoid them... Toughest Sanctions Yet  The week, the EU Sets Harshest Russian Sanctions, Targeting Oil and Insurance, with exemptions to Hungary. The European Union is set to impose its toughest sanctions yet on Russia, banning imports of its oil and blocking insurers from covering its cargoes of crude, officials and diplomats say, as the West seeks to deprive Moscow of cash it needs to fund the war on Ukraine and keep its economy functioning. The sanctions, which are expected to be completed in the coming days, are harsher than expected. The ban on insurers will cover tankers carrying Russian oil anywhere in the world. These sanctions could undercut Russia’s efforts to sell its oil in Asia. European companies insure most of the world’s oil trade. Russian Stays One Step Ahead of Sanctions But why will these sanctions work any better than any other set of sanctions. Shippers and refiners have been very skilled at hiding origin of Russian oil. The Wall Street Journal explains Russian Oil Producers Stay One Step Ahead of Sanctions In the wake of the invasion of Ukraine and sanctions from the U.S. and the European Union, traders are working to obscure the origins of Russian oil to keep it flowing. The oil is being concealed in blended refined products such as gasoline, diesel and chemicals. Oil is also being transferred between ships at sea, a page out of the playbook used to buy and sell sanctioned Iranian and Venezuelan oil. The transfers are happening in the Mediterranean, off the coast of West Africa and the Black Sea, with oil then heading toward China, India and Western Europe, according to shipping companies. Overall, Russian oil exports rebounded in April, after dropping in March as the first Western sanctions took effect, the International Energy Agency said. Russia’s oil exports rose by 620,000 barrels to 8.1 million barrels a day, close to its prewar levels, with the biggest increase going to India. India has emerged as a key hub for Russian oil flows. The country’s imports have skyrocketed to 800,000 barrels a day since the war began, compared with 30,000 barrels a day previously, according to commodity-markets data company Kpler. A refinery owned by Indian energy giant Reliance Industries Ltd. bought seven times more Russian crude in May, compared with prewar levels, making up a fifth of its total intake, according to Kpler.  Reliance chartered an oil tanker to carry a cargo of alkylate, a gasoline component, departing from the nearby Sikka port on April 21 without a planned destination. Three days later, it updated its records with a U.S. port and sailed over, discharging its cargo on May 22 in New York. “What likely happened was Reliance took on a discounted cargo of Russian crude, refined it and then sold the product on the short-term market where it found a U.S. buyer,” said Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air. The organization is tracking Russian fossil fuel exports and their role in funding the Ukraine war. “It does look like there’s a trade where Russian crude is refined in India and then some of it is sold to the U.S.” Going Dark To avoid large insurance costs, the ships turn off their GPS systems to go dark, then transfer oil to large megatankers such as the Lauren II, a giant Chinese crude carrier that can hold about 2 million barrels of oil. As long as India and China are willing to bypass sanctions, the oil will get through. However, these added costs impact prices globally.  More ships are use hauling oil from Russia to India and China instead of Russia to the EU. In turn the EU gets oil from Saudi Arabia instead of Russia.  Sanctions drive up the price soo much that Russia is getting more money even though Russia has to discount its price significantly to find takers. Something Only Politicians Could Concoct The asininity of this setup is staggering.  The desire to "do something" is so politically powerful that politicians would rather inadvertently aid Russia than do nothing at all.  Price of Crude Jumps as EU Foolishly Doubles Down On Sanctions Yesterday, I commented Price of Crude Jumps as EU Foolishly Doubles Down On Sanctions That jump was short lived as Saudi Arabia allegedly considers not counting Russian oil as part of OPEC production goals. This would allow. the Arab states to pump more. However, that rumor has bitten the dust already.  Russia, Saudi Arabia Signal OPEC+ Is Going Strong OilPrice reports Russia, Saudi Arabia Signal OPEC+ Is Going Strong The OPEC+ alliance is solid, with the level of cooperation within it strong, according to a statement issued by the Russian Foreign Ministry following a meeting between Foreign Minister Sergey Lavrov and his Saudi counterpart Prince Faisal bin Farhan Al Saud. "They noted the stabilising effect that the tight cooperation between Russia and Saudi Arabia has on world markets for hydrocarbons in this strategically important sector," the statement said. The news comes on the heels of a Wall Street Journal report that said some OPEC members are considering excluding Russia from the extended cartel as Western sanctions weigh on its production. According to the report, excluding Russia from the oil production increase deal would allow other producers such as Saudi Arabia and the United Arab Emirates to boost their output more significantly, in line with requests made by the U.S. and Europe, as well as the International Energy Agency most recently. It's worth noting that Saudi Arabia and the UAE themselves have repeatedly signaled that they had no plans to boost crude oil production beyond their production quotas under the OPEC+ agreement. How a change in Russia's participation in the deal could change that sentiment remains to be seen. Saudi Arabia and the UAE are the OPEC+ members with the most substantial spare production capacity. Politicians vs Central Banks We had a nice, timely, unsubstantiated rumor just as the EU announcement kicked up more oil sticker shock. Fancy that.  Meanwhile, the oil gets through, just at higher prices for everyone involved. This Mickey Mouse inflationary game will continue until Central Bank rate hikes are sufficient to counteract political stupidity. *  *  * Please Subscribe to MishTalk Email Alerts. Tyler Durden Thu, 06/02/2022 - 08:31.....»»

Category: worldSource: nytJun 2nd, 2022

WTI Holds At Day"s Low After Crude Inventory Draw

WTI Holds At Day's Low After Crude Inventory Draw Oil prices pumped (after OPEC+ rejected WSJ's comments on Russia yesterday and cut its estimate for global year-end over-supply) and dumped to end the day near their lows after the Biden administration said it still hopes to engage with Saudi Arabia. Markets took the headline as a concrete step by the administration to actively fight energy costs, traders said. “Meaningful progress probably takes time to come to fruition but headlines around progress will keep some sort of a governor on crude rallies,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management Traders were predicting a drop in crude oil inventories, but an increase in gasoline and distillate stockpiles. API Crude -1.181mm (-67k exp) Cushing +177k Gasoline -256k Distillates +858k US crude stocks fell for the 3rd straight week, with a bigger than expected draw last week. Interestingly,. Distillates saw their 3rd straight weekly build... Source: Bloomberg WTI was hovering around $114.75 ahead of the API print, unchanged on the day and didn't move after the data hit. “Oil markets are a dead cert to tighten further following EU’s ban on Russian oil,” PVM Oil Associates analyst Stephen Brennock said in a note. “This, in turn, should ensure further upside in oil prices in the second half of this year. The Russian oil embargo is finally over the line, but more price pain is on the horizon for the EU and its Western partners” The 3-2-1 crack, which approximates turning crude into gasoline and diesel, soared to a new record high of $55.26 today... As Bloomberg's Javier Blas noted earlier this suggests the refined products markets continue to lead (where's the demand destruction?), encouraging higher refinery runs. Additionally, Dennis Kissler, senior vice president of trading at BOK Financial said that “the fuel fundamentals of diesel and gasoline is whats going to keep crude supported at least into the driving season of July and that’s the major catalyst for crude." Tyler Durden Wed, 06/01/2022 - 16:39.....»»

Category: blogSource: zerohedgeJun 1st, 2022

Inflation is Going to Get Worse. Blame a Lack of Diesel

The fuel that powers the trucks and ships and cars that bring you stuff is in short supply. It cost Carl Smith $999 to refill the 275-gallons fuel tank of his semi-trailer on Sunday for a run from Ohio to Wisconsin—and that’s just because his fuel credit card cuts off at $1,000. In the nearly 40 years he’s been driving, the price of diesel fuel has never been that high. “That’s the most it ever cost me to fill up, and I didn’t even get all the way filled,” he says. He adds a fuel surcharge to his rates, which will help him withstand the current high price of diesel. But he knows all that means is he’s passing on those diesel costs to the average American, for whom the price of goods hauled by truckers like him to the local grocery store keep growing. [time-brightcove not-tgx=”true”] Though most consumers shake their heads at the cost of gasoline and complain about the cost of filling up their car tanks, what they really should be worried about is the price of diesel. The U.S. economy runs on diesel. It’s what powers the container ships that bring goods from Asia and the trucks that collect goods from the ports and bring them to warehouses and then to your home. The farmers who grow the food you eat put diesel in their tractors to plow the fields, and the workers that bring construction equipment to build your home put diesel in their trucks. Diesel prices are the highest they’ve been in the U.S. since the government began tracking them, and will likely go even higher this summer as demand remains high and as forecasters predict this year will see an above-average number of hurricanes, which can idle refineries for days. The price of diesel went above $5.50 a gallon in the beginning of May, and has stayed there ever since, a 70% increase from just a year ago. Diesel supplies have tightened just about every week since January and could continue to do so as more people fly, drive, and shop during the summer months, consuming more petroleum products. “Unfortunately, I think there’s potential for another round of increases,” says Tom Kloza, global head of energy analysis for OPIS. “We’ve already seen the highest prices in our lifetimes, and it could go even higher.” This means higher prices for just about everything. Mattel said in April that it is contemplating price increases, on top of ones it already posted last year, as the cost of ocean freight and raw materials climbs from 2021. Carter’s, the maker of baby clothes, said recently that its freight costs would be 10% higher than last year, and that it has raised pricing to cover “higher-than-expected transportation costs.” The Vita Coco Company, which makes coconut water, said in May that the total costs of its goods increased 19%, mostly because of a “sharp increase of our transportation cost;” the company said it was embarking on its first price increase in years. Even Target and Walmart, which have the scale to lock in better rates with ocean carriers and trucking companies, said they were hurt by the high cost of diesel. Both reported hits to their profits for the most recent quarter because of higher-than-expected freight and transportation costs. Target said it anticipates $1 billion in incremental freight costs this year, as costs in the first three months of the year came in hundreds of millions of dollars higher than planned for. The high prices to move goods come at a time when many companies say they’re already having trouble finding truck drivers. They might deter owner-operators from driving as many loads, because some freight brokers push back against continuing to raise fuel surcharges. That could lead to an even lower supply of truck drivers. “It’s just a matter of math—if you’re not getting paid as much to haul a load, there’s no reason to run that load,” says Rebecca Oyler, the president and CEO of the Pennsylvania Motor Truck Assn. In addition to driving food costs even higher, a shortage of diesel could also suppress food production. Ben Simons, who farms dairy, soybeans, and corn near Utica, N.Y., says that the rising cost of diesel and fertilizer has meant that it now costs him $1,000 an acre to grow corn, up from $450 an acre in the past few years. At the same time, tires have doubled in price—an increase related to high demand for petroleum products—as have the chemicals to grow his crops. Simons and his wife Robin have decided not to plant their marginal land this year—extra acres where they sometimes grow crops—because of the added expense. If more farmers follow, he says, “you’re going to be seeing that in your grocery bill. People are complaining now? Just sit back and wait.” Diesel isn’t the only petroleum-based product seeing surging demand at a time when global supplies are limited. Demand and prices are also up for gasoline and jet fuel, as well as things like tires that are made of petroleum. The dynamic then becomes cyclical: to meet increasing demand trucks have to run more miles, which means they are burning more fuel and using more tires, which then creates the need for even more petroleum. Read more:I’m a CEO at One of the World’s Biggest Shipping and Logistics Companies. Here’s How My Industry Can Go Green There are also fewer refineries, which process crude oil into diesel and other products, in the U.S. than were just a few years ago. There are just 124 now operating, down from twice as many in 1980, and down from 139 in 2016, according to the U.S. Energy Information Association. The northeast region is particularly spare, with just seven refineries today, down from 27 in 1982. With fewer refineries, suppliers in the Northeast and other regions of the country are competing with Europe and South America for diesel supplies, says Patrick De Haan, the head of petroleum analysis at GasBuddy. Refineries in the U.S. send diesel to South America, in part because they don’t have to meet renewable fuel standard requirements, he says, rather than to the Northeast. Now, the Northeast is also competing for diesel with Europe, which lost some of its supply because of the war in Ukraine. The story of why there are fewer refineries has become politicized, like just about everything else in the economy. One explanation is that a lack of antitrust regulation in the U.S. allowed refinery mergers and acquisitions that might have been good for their bottom line but not for diesel supplies in the U.S. “We have been following petroleum refining for years—the amount of consolidation is just staggering,” says Diana L. Moss, the president of the American Antitrust Institute, a progressive nonprofit that advocates for more antitrust enforcement. The federal government was lax on stopping refinery mergers, she argues. And, she adds, when industries consolidate, companies can raise prices because customers have fewer options. Read more: This Is How We Quit Big Oil But Patrick De Haan, of GasBuddy, says that the closure of refineries has more to do with simple economics. The largest refinery on the East Coast, the Philadelphia Energy Solutions refinery, caught fire in 2019, one year after emerging from bankruptcy, and ultimately decided to close. Then, when COVID-19 hit and demand for oil plummeted, other refineries, including one owned by Royal Dutch Shell, in Convent, La., closed down. Others have closed over the years because when demand goes down, refineries are very expensive to run. There’s little likelihood that refineries in the U.S. will be able to make more diesel, especially if demand for jet fuel and gasoline rise over the summer. The refineries in the Northeast are already running at 95% capacity. For prices to go down, the economy will likely have to go through what economists call demand destruction. Demand destruction happens when the price of something gets so high that people stop buying it. That ultimately leads to less demand and more supply, and lower prices. Some businesses who have added fuel surcharges because of the cost of diesel say that they think that demand destruction is going to happen very soon. There are already signs it’s beginning. Poole Anderson Construction, a Pennsylvania firm that builds higher education and health care facilities, has had to raise costs of some big projects by as much as 30% because of the high cost of diesel and supply chain issues, says president Stephanie Schmidt. Now, some clients are electing to hold off on starting their projects, hoping that costs will ease soon. If enough businesses like them give up, they may get their wish......»»

Category: topSource: timeMay 31st, 2022

Futures Slide As Snap Forecast Steamrolls Rebound Optimism

Futures Slide As Snap Forecast Steamrolls Rebound Optimism It's not every day that a relatively small social media company (whose market cap is now less than Twitter) slashing guidance can send shockwaves across global markets and wipe out over a trillion in market cap, yet SNAP's shocking crash after it cut its own guidance released one month ago which hammered risk assets around the globe, and here we are. Add to this the delayed realization that Biden was just spouting his usual senile nonsense yesterday when he said Chinese trade tariffs would be discussed and, well, wave goodbye to the latest dead cat bounce as futures unwind much of Monday's rally. SNAP just crushed any hope of a sustained dead cat bounce — zerohedge (@zerohedge) May 23, 2022 US futures declined as technology shares were set to come under pressure after Snap warned it would miss second-quarter profit and revenue forecasts amid deteriorating macroeconomic trends. Nasdaq 100 futures slid 1.5% at 7:30 a.m. ET and S&P 500 futures retreated 1.0% just as the benchmark was starting to pull back from the brink of a bear market amid fears the Federal Reserve’s tightening could hurt growth. Meanwhile in other markets, Chinese tech stocks fell by more than 4%, while Europe’s Stoxx 600 Index dropped 1%, led by losses in shares of utilities and retail companies. The dollar was little changed, while Treasuries advanced. Snapchat plunged more 31% in premarket trading, while Facebook Meta and other companies that rely on digital advertising also tumbled amid fears that the sudden collapse in ad spending is systemic. Technology shares have been hammered this year amid rising interest rates and soaring inflation, with the Nasdaq 100 trading near November 2020 lows and at the cheapest valuations since the early days of the pandemic. Social media stocks are on course to erase more than $100 billion in market value Tuesday after Snap’s warning: Meta Platforms (FB US) declined 6.3%, Twitter (TWTR US) -4.1%, Alphabet (GOOGL US) -3.8% and Pinterest (PINS US) -12%. “It highlights how fleeting swings in sentiment are now and also that investors are running at the first sign of trouble,” Jeffrey Haley, a senior market analyst at Oanda Asia Pacific, wrote in a note. “The market continues to turn itself inside out and back to front as it tries to decide if it has priced all of the impending rate hikes, soft landing or recession, inflation or stagflation, China, Ukraine, US summer driving season, supply chains, the list goes on.” Among other notable moves in US premarket trading, Zoom Video’s shares rallied as much as 6.3% after better-than-expected guidance. Deutsche Bank said the video-software maker’s continued post-pandemic growth in its Enterprise business is encouraging, though analysts remain cautious on the company’s comments around free cash flow. Tesla shares fell 2.6% in premarket trading on Tuesday, amid news that it may take the electric-vehicle maker at least until later this week to resume full production at its China factory. Also, Daiwa analyst Jairam Nathan lowered his price target on TSLA to $800 from $1150, the latest in a string of target cuts by Wall Street analysts. Nathan cited the lockdowns in Shanghai and supply chain concerns impacting ramp-up of Austin and Berlin plants, and lowered the EPS estimates for 2022 and 2023. Elsewhere, Frontline shares rallied 3.1% after the crude oil shipping company reported net income for the first quarter that beat the average analyst estimate. Here are some other notable premarket movers: Social media and other digital advertisers fell in US premarket trading after Snap cut its forecasts. Albemarle (ALB US) shares may be in focus as analysts raise their price targets on the specialty chemicals maker amid a boost from higher lithium prices. BitNile (NILE US) swings between gains and losses in US premarket trading, after the crypto miner reported 1Q results amid a broader slump across high-growth stocks. Nautilus (NLS US) got a new Street-low price target after exercise equipment maker’s “lackluster” guidance, with the company’s shares slumping as much as 24% in US extended trading on Monday. INmune Bio (INMB US) shares dropped 23% in postmarket trading on Monday after the FDA placed the company’s investigational new drug application to start a Phase 2 trial of XPro in patients with Alzheimer’s disease on clinical hold. Abercrombie & Fitch (ANF IS)  falls as much as 21% premarket after the clothing retailer reported an unexpected loss for its first quarter Equities have been volatile as investors assess the outlook for monetary policy, inflation and the impact of China’s strict Covid policies on the global economy. Minutes on Wednesday of the most recent Federal Reserve rate-setting meeting will give markets insight into the US central bank’s tightening path. “With the era of cheap money hurtling to an end the focus will be on a speech from Jerome Powell, the chair of the Federal Reserve later, with investors keen to glean any new titbit of information about just how far and fast the US central bank will go in raising rates and offloading its mass bond holdings,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, wrote in a note. In Europe, the Stoxx 50 slumped 1.4%. FTSE 100 outperformed, dropping 0.6%, while CAC 40 lags. Utilities, retailers and consumer products are the worst performing sectors. Utilities were the biggest decliners in Europe, as Drax Group Plc, Centrica Plc and SSE Plc all sank on Tuesday following a report about UK plans for a possible windfall tax. Air France-KLM fell after plans to sell about 2.26 billion euros ($2.4 billion) of new shares to shore up its balance sheet. Oil and gas stocks underperformed the European equity benchmark in morning trading as crude declines amid investors’ concerns about Chinese demand, while mining shares also fall alongside metal prices.  Here are some of the biggest European movers: Big Yellow shares gain as much as 4% after what Citi described as a “strong set” of results, supported by structural tailwinds. SSP rises as much as 13% after the U.K. catering and concession-services company reported 1H results that Citi says were above expectations. Adevinta climbs as much as 7.8% after reporting 1Q results that were broadly as expected, with revenue slightly below expectations and Ebitda ahead, according to Citi. Frontline gains as much as 6.4% in Oslo after the crude oil shipping company reported 1Q net income that beat the average analyst estimate. Moonpig gains as much as 8.2%, extending a rise of 11% on Monday when the company announced the acquisition of Smartbox Group UK U.K. utility firms sink after the Financial Times reported that Chancellor of the Exchequer Rishi Sunak has ordered officials to prepare plans for a possible windfall tax on power generators as well as oil and gas firms. SSE declines as much as 11%, Drax Group -19% and Centrica -12% European technology and advertising stocks slump with Nasdaq futures after Snap cut its revenue and profit forecasts below the low end of its previous guidance. Just Eat falls as much as 4.8%, Deliveroo -4.9%, Delivery Hero -4.4%, STMicro -3%, Infineon -2.8%, AMS -3% Prosus drops as much as 6.7% in Amsterdam and Naspers declines as much as 6.1% in Johannesburg as Barclays cuts ratings on both stocks after downgrading Tencent in the prior session. The latest flash PMI data showed that Europe’s two largest economies kept growing in May as they benefited from a sustained rebound in services that offset fallout from Russia’s invasion of Ukraine. Meanwhile, the pound fell after a report showed the UK economy faces an increasing risk of falling into a recession as firms and households buckle under the fastest inflation rate in four decades. At the same time, the euro climbed above $1.07 for the first time in four weeks as ECB President Christine Lagarde said the currency bloc has reached a “turning point” in monetary policy and rejected the idea that the region is heading for a recession, but said the ECB won’t be rushed into withdrawing monetary stimulus. Earlier in the session, Asian stocks dipped as traders remained cautious on global growth concerns while assessing the impact of China’s fresh fiscal stimulus.  The MSCI Asia Pacific Index fell as much as 1.2%, with tech names the biggest drags. Lower revenue and profit forecasts from Snap Inc. weighed on the broader sector. Chinese stocks led declines in the region as the government’s new support package including more than 140 billion yuan ($21 billion) in additional tax relief failed to impress investors. Covid-19 lockdowns remain a key overhang, while market participants are looking to major China tech earnings this week, including Alibaba and Baidu, for direction. Hong Kong equities also dropped after the city’s outgoing leader said border controls will remain in place for now.  Hong Kong’s Hang Seng Tech Index tumbles as much as 4.2% in afternoon trading on Tuesday, on track for a second day of declines.  “Markets have caught a glimpse of the impact of regulatory risks and Covid-19 lockdowns from Tencent’s recent lackluster earnings,” and a potential mirroring of the weakness by big tech earnings ahead “may be driving some caution,” Jun Rong Yeap, a market strategist at IG Asia Pte., wrote in a note Japanese equities dropped as investors mulled China’s new stimulus measures and amid growing concerns over global economic health.  The Topix Index fell 0.9% to close at 1,878.26 on Tuesday, while the Nikkei declined 0.9% to 26,748.14. Recruit Holdings Co. contributed the most to the Topix’s decline, as the staffing-services firm tumbled 6.6%. Among the 2,171 shares in the index, 1,846 fell, 249 rose and 76 were unchanged. “The markets will continue to be in an unstable situation for a while as the US is still in the process of raising its interest rates and we are entering a phase where the effects of interest rate tightening on the economy will start to be felt in the real economy,” said Hiroshi Matsumoto, senior client portfolio manager at Pictet Asset Management. Indian stocks also declined, dragged by a selloff in information technology firms, as investors remained cautious over global economic growth.  The S&P BSE Sensex fell 0.4% to 54,052.61 in Mumbai while the NSE Nifty 50 Index eased 0.6%. The gauges have now dropped for four of five sessions and eased 5.3% and 5.7% this month, respectively. All but two of the 19 sector sub-indexes compiled by BSE Ltd. declined on Tuesday, led by information technology stocks. Foreign funds have been net sellers of Indian stocks since end of September and have taken out $21.3 billion this year through May 20. The benchmark Sensex is now 12.5% off its peak in Oct. Corporate earnings for the March quarter have been mixed as 26 out of 41 Nifty companies have reported profit above or in line with consensus expectations. “There is a lot of skepticism among investors over interest rate hikes in the near term and its impact on growth going ahead,” according to Kotak Securities analyst Shrikant Chouhan. In FX, the dollar dipped while the euro jumped to a one-month high versus the US dollar after the European Central Bank reiterated its plans to end negative rates quickly, bolstering market expectations that rates will rise as early as July. It pared some gains after ECB Governing Council’s Francois Villeroy de Galhau argued against a 50 bps increase. “The single currency is dancing to the tune of ECB policymakers this week as the Governing Council attempts to talk up the euro to insure against imported inflation,” said Simon Harvey, forex analyst at Monex Europe. “The euro’s rally highlights how dip buyers are happy to buy into the ECB’s messaging in the near-term.” Elsewhere, the pound slid and gilts rallied after a weak UK PMI reading ramped up speculation that the country is heading toward recession. The Australian and New Zealand dollars led declines among commodity currencies after Snapchat owner Snap Inc. slashed its revenue forecast, spurring doubts about the strength of the US economy. Japan’s yen snapped a two-day drop as Treasury yields resumed their decline. Japanese government bond yields eased across maturities, following their US peers. In rates, Treasuries were richer by up to 4bp across belly of the curve as S&P futures gapped lower from the reopen and extended losses over Asia, early European session. Treasury 10-year yields around 2.815%, richer by 3.5bp vs. Monday close US session focus to include Fed Chair Powell remarks and 2-year note auction. Gilts outperformed following soft UK data. Gilts outperform by additional 1.5bp in the sector after May’s preliminary PMI prints missed expectations. Belly-led gains steepened the US 5s30s by 1.8bp on the day while wider bull steepening move in gilts steepens UK 5s30s by 5bp on the day.  The US auction cycle begins at 1pm ET with $47b 2- year note sale, followed by $48b 5- and $42b 7-year notes Wednesday and Thursday. In commodities, oil and gas stocks underperformed as crude declined amid concerns about Chinese demand, while mining shares also fall alongside metal prices. WTI is in the red but recovers off worst levels to trade back on a $109-handle. Most base metals trade poorly; LME nickel falls 4.5%, underperforming peers. Spot gold rises roughly $5 to trade above $1,858/oz. Looking at the day ahead, we’ll get the rest of the May flash PMIs from Europe and the US, along with US new home sales for April and the Richmond Fed’s manufacturing index for May. Otherwise, central bank speakers include Fed Chair Powell, the ECB’s Villeroy and the BoE’s Tenreyro. Market Snapshot S&P 500 futures down 1.3% to 3,920.75 STOXX Europe 600 down 0.9% to 432.44 MXAP down 1.1% to 163.24 MXAPJ down 1.3% to 531.58 Nikkei down 0.9% to 26,748.14 Topix down 0.9% to 1,878.26 Hang Seng Index down 1.7% to 20,112.10 Shanghai Composite down 2.4% to 3,070.93 Sensex down 0.3% to 54,148.93 Australia S&P/ASX 200 down 0.3% to 7,128.83 Kospi down 1.6% to 2,605.87 Gold spot up 0.3% to $1,859.38 US Dollar Index down 0.11% to 101.96 Brent Futures down 0.2% to $113.15/bbl German 10Y yield little changed at 0.99% Euro up 0.2% to $1.0713 Top Overnight News from Bloomberg Social media stocks are on course to shed more than $100 billion in market value after Snap Inc.’s profit warning, adding to woes for the sector which is already reeling amid stalling user growth and rate-hike fears. The US must be “strategic” when it comes to a decision on whether to remove China tariffs, Trade Representative Katherine Tai said a day after President Joe Biden mentioned he would review Trump-era levies as consumer prices surge. China rolled out a broad package of measures to support businesses and stimulate demand as it seeks to offset the damage from Covid lockdowns on the world’s second-largest economy. China’s central bank and banking regulator urged lenders to boost loans as the economy is battered by Covid outbreaks that have threatened growth this year. President Joe Biden is seeking to show US resolve against China, yet an ill-timed gaffe on Taiwan risks undermining his bid to curb Beijing’s growing influence over the region. Europe’s two largest economies kept growing in May as they benefited from a sustained rebound in services that offset fallout from Russia’s invasion of Ukraine. Russia’s currency extended a rally that’s taken it to the strongest level versus the dollar in four years, prompting a warning from one of President Vladimir Putin’s staunchest allies that the gains may be overdone. A more detailed look at global markets courtesy of Newqsuawk Asia-Pac stocks mostly declined after Snap's profit warning soured risk sentiment and weighed on US tech names. ASX 200 was rangebound but kept afloat for most of the session by resilience in tech and mining stocks, while PMIs remained in expansion territory. Nikkei 225 fell below 27,000 although losses are stemmed by anticipation of incoming relief with Finance Minister Suzuki set to present an additional budget to parliament tomorrow. Hang Seng and Shanghai Comp were pressured after further bank downgrades to Chinese economic growth forecasts, while the recent announcement of targeted support measures by China and reports of the US mulling reducing China tariffs, did little to spur risk appetite. Top Asian News Shanghai will allow supermarkets, convenience stores and drugstores to resume operations with a maximum occupancy of 50% before May 31st and 75% after June 1st, according to Global Times. Hong Kong Chief Executive Carrie Lam said they are unlikely to lift the quarantine in her term, according to Bloomberg. US President Biden said there is no change to the policy of strategic ambiguity regarding Taiwan, while Defense Secretary Austin earlier commented that he thinks US President Biden was clear that US policy has not changed on Taiwan, according to Reuters. USTR Tai said the US is engaging with China on Phase 1 commitments of trade, while she added they must be strategic on tariffs and that President Biden's team believes trade needs new ideas, according to Reuters. China's push to loosen USD dominance is said to take on new urgency amid Western sanctions on Russia and some Chinese advisers are urging the government to overhaul the exchange rate regime to turn the Yuan into an anchor currency, according to SCMP. European bourses are subdued following the Snap-headwind, further hawkish ECB rhetoric and disappointing Flash PMIs; particularly for the UK, Euro Stoxx 50 -0.7%. US futures are similarly subdued and the Nasdaq, -1.7%, is taking the brunt of the pressure as tech names are hit across the board, ES -1.1%. Snap (SNAP) said the macroeconomic environment has deteriorated further and faster than anticipated since its last guidance issuance and it now believes it will report revenue and adjusted EBITDA below the low end of its Q2 guidance range, according to the filing cited by Reuters. Samsung (005935 KS) is to reportedly invest USD 360bln on chips and biotech over a period of five years, according to Bloomberg. Tesla (TSLA) could take until later this week to restore full production in China after quarantining thousands of workers. Uber (UBER) has initiated a broad hiring freeze across the Co. as it faces increased pressure to become profitable, according to Business Insider sources Top European News UK Chancellor Sunak ordered officials to draw up a plan for a windfall tax on electricity generators' profits, according to FT. ECB's Nagel said it seems clear that the wage moderation seen for 10 years in Germany is over and they think they will see high numbers from German wage negotiations. Germany's Chambers of Commerce DIHK cuts 2022 GDP growth forecast to 1.5% (vs prev. view of 3% made in Feb). FX Yen outperforms on risk off and softer yield dynamics, USD/JPY at low end of wide range stretching from just above 128.00 to just over 127.00 and multiple chart supports under the latter. Franc and Euro underpinned as SNB and ECB pivot towards removal of rate accommodation, USD/CHF sub-0.9650, EUR/USD 1.0700-plus. Dollar suffers as a result of the above, but DXY contains losses under 102.000 as Pound plunges following disappointing UK preliminary PMIs; Cable recoils from the cusp of 1.2600 to touch 1.2475. Aussie, Loonie and Kiwi all suffer from aversion and latter also cautious ahead of RBNZ on Wednesday; AUD/USD loses grip of 0.7100 handle, NZD/USD under 0.6450 having got close to 0.6500 yesterday and USD/CAD probing 1.2800 vs virtual double bottom around 1.2765. Lira loses flight to stay above 16.0000 vs Buck as Turkish President Erdogan refuses to acknowledge Greek leader and sets out plans to strengthen nation’s southern border defences. Fixed Income Gilts fly after UK PMIs miss consensus and only trim some gains in response to much better than expected CBI distributive trades 10 year bond holds near the top of a 118.86-117.92 range Bunds bounce from sub-153.00 lows after more hawkish guidance from ECB President Lagarde, but Italian BTPs lag under 128.00 as books build for 15 year issuance US Treasuries bull-flatten ahead of 2 year note supply and Fed's Powell, T-note just shy of 120-00 within 120-02+/119-18 band Italy has commenced marketing a new syndicated 15yr BTP, guidance +11bp vs outstanding March 2037 bond, according to the lead manager via Reuters; subsequently, set at +8bp. Commodities WTI and Brent are subdued amid the broader risk environment with familiar factors still in play; however, the benchmarks are off lows amid USD downside. Meandering around USD 110/bbl (vs low 108.61/bbl) and USD 113/bbl (vs low USD 111.70/bbl) respectively. White House is considering environmental waivers for all blends of US gasoline to lower pump prices, according to Reuters sources. Spot gold is modestly firmer though it has failed to extend after briefly surpassing the 21-DMA at USD 1856/oz. Central Banks ECB's Lagarde believes the blog post on Monday was at a good time, adding we are clearly at a turning point, via Bloomberg TV; adds, we are not in a panic mode. Rates are likely to be positive at end-Q3; when out of negative rates, you can be at or slightly above zero. Does not comment on FX levels, when questioned about EUR/USD parity. Click here for more detail, analysis & reaction. ECB's Villeroy says he believes the ECB will be at a neutral rate at some point next year, via Bloomberg TV; 50bps hike does not belong to the Governing Council's consensus, does not yet know the terminal rate. NBH Virag says continuing to increase rates in 50bp increments is an options, increasing into double-digits is not justified. US Event Calendar 09:45: May S&P Global US Manufacturing PM, est. 57.6, prior 59.2 May S&P Global US Services PMI, est. 55.2, prior 55.6 May S&P Global US Composite PMI, est. 55.6, prior 56.0 10:00: May Richmond Fed Index, est. 10, prior 14 10:00: April New Home Sales MoM, est. -1.7%, prior -8.6%; New Home Sales, est. 750,000, prior 763,000 Central Banks 12:20pm: Powell Makes Welcoming Remarks at an Economic Summit DB's Jim Reid concludes the overnight wrap These are pretty binary markets at the moment. If the US doesn’t fall into recession over the next 3-6 months then it’s easy to see markets rallying over this period. However if it does, the correction will likely have further to run and go beyond the average recession sell-off (that we were close to at the lows last week) given the rich starting valuations. For choice I don’t think the US will go into recession over this period but as you know I do think it will next year. As such a rally should be followed by bigger falls next year. Two problems with this view. Timing the recession call and timing the market’s second guessing of it. Apart from that it's all very easy!! This week started on a completely different basis to most over the past few months. So much so that there's hope that the successive weekly losing S&P streak of seven might be ended. 4 days to go is a long time in these markets but after day one we're at +1.86% and the strongest start to a week since January. And that comes on top of its intraday recovery of more than +2% late on Friday’s session, after the index had briefly entered bear market territory, which brings the index’s gains to more than 4% since its Friday lows at around the European close. However just when you thought it was safe to emerge from behind the sofa, S&P 500 futures are -0.84% this morning with Nasdaq futures -1.42% due to Snapchat slashing profit and revenue forecasts overnight. Their shares were as much as -31% lower in after hours, taking other social media stocks with it. Asia is also weaker this morning as we'll see below. Before we get there, yesterday's rally was built on a few bits of positive news that are worth highlighting. Investors were buoyed from the get-go by remarks from President Biden that he’d be considering whether to review Trump-era tariffs on China. It had been reported previously that such a move was under consideration, but there are also geopolitical as well as economic factors to contend with, and a Reuters report last week cited sources who said that US Trade Representative Katherine Tai favoured keeping the tariffs in place. Biden said that he’d be discussing the issue with Treasury Secretary Yellen following his return to the United States, so one to watch in the coming days with the administration under pressure to deal with inflation. This comes as the Biden administration unveiled the Indo-Pacific Economic Framework yesterday, which covers 13 countries and approximately 40% of the world’s GDP. Conspicuously, China was not one of the included parties, but US officials said there was a path for them to join. The framework reportedly does not contain any new tariff reductions, but instead seems focused on new labour, environmental, and anti-money laundering standards while seeking to build resilience. The 13 involved countries said in a joint statement, “This framework is intended to advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for our economies.” It is not clear what is binding, or what Congress will think about the framework, but regardless, this is battle to halt or slow the anti-globalisation sentiment so prominent in recent years. It was not just Biden who helped encourage the rally. We then had a further dose of optimism in the European morning after the Ifo Institute’s indicators from Germany surprised on the upside. Their business climate indicator unexpectedly rose to 93.0 in May (vs. 91.4 expected), thus marking a second successive increase from the March low after Russia’s invasion of Ukraine. This morning we’ll get the May flash PMIs for Germany and elsewhere in Europe, so let’s see if they paint a similar picture. Ahead of that, equity indices moved higher across the world, with the S&P 500 up +1.86% as mentioned, joining other indices higher including the NASDAQ (+1.59%), the Dow Jones (+1.98%), and the small-cap Russell 2000 (+1.10%). It was a very broad-based advance, with every big sector group moving higher on the day, and banks (+5.12%) saw the largest advance in the S&P 500. Meanwhile, consumer discretionary (+0.64%) continues to lag the broader index. Over in Europe there were also some major advances, with the STOXX 600 (+1.26%), the DAX (+1.38%) and the CAC 40 (+1.17%) all rising. They have lagged the US move since Friday's Euro close mostly because they have out-performed on the downside. Staying on Europe, we had some significant developments on the policy outlook as ECB President Lagarde published a blog post that basically endorsed near-term market pricing for future hikes. In turn, that helped the euro to strengthen against other major currencies and led to a rise in sovereign bond yields. In the post, Lagarde said that she expected net purchases under the APP “to end very early in the third quarter”, which would enable rates to begin liftoff at the July meeting in just over 8 weeks from now. Furthermore, the post said that “on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter”, so implying that we’ll see more than one hike in Q3, assuming they move by 25bp increments. Interestingly, Bloomberg subsequently reported that others at the ECB wanted to keep open the possibility of moving even faster. Indeed, it said that Lagarde’s plan had “irked colleagues” seeking to keep that option open, and was “a position that leaves some more hawkish officials uncomfortable.” So according to this, some officials want to keep the option of moving in 50bp increments like the Fed did earlier this month, although so far only Dutch central bank Governor Knot has openly referred to this as a possibility. That move from Lagarde to endorse an exit from negative rates in Q3 sent sovereign bonds noticeably higher after the blog post was released, with 10yr bund yields giving up their initial decline to rise +7.5bps by the close, aided by the broader risk-on move. Those on 10yr OATs (+7.1bps) and BTPs (+3.3bps) also moved higher, with a rise in real yields driving the moves in all cases. Nevertheless, when it came to what the market was pricing for future rate hikes, Lagarde’s comments seemed to just solidify where they’d already reached, with the amount priced in for the ECB by year-end rising just +5.5bps to remain above 100bps. Given the ECB’s more hawkish rhetoric of late as well as the upside Ifo reading, the Euro gained further ground against the US dollar over the last 24 hours, strengthening by +1.20% in yesterday’s session. In fact, the dollar was the second-worst performer amongst all the G10 currencies yesterday, narrowly edging out the yen, and the dollar index has now shed -2.64% since its peak less than two weeks ago. That’s in line with what our FX colleagues argued in their Blueprint at the end of last week (link here), where they see the reversal of the dollar risk premium alongside ECB tightening sending EURUSD back above 1.10 over the summer. But even though the dollar was losing ground, US Treasury yields still moved higher alongside their European counterparts, with 10yr yields up +7.0bps to 2.85%. They given back around a basis point this morning. Over to Asia and as discussed earlier markets are weaker. The Hang Seng (-1.50%) is extending its previous session losses with stocks in mainland China also lagging. The Shanghai Composite (-1.09%) and CSI (-0.80%) are both trading lower even as the government is offering more than 140 billion yuan ($21 billion) in extra tax relief to companies and consumers as it seeks to offset the impact of Covid-induced lockdowns on the world’s second biggest economy. Among the agreed new steps, China will also reduce some passenger car purchase taxes by 60 billion yuan. Meanwhile, the Nikkei (-0.51%) and Kospi (-0.90%) are also trading in the red. Early morning data showed that Japan’s manufacturing activity expanded at the slowest pace in three months in May after the au Jibun Bank flash manufacturing PMI slipped to +53.2 from a final reading of +53.5 in April amid supply bottlenecks with new orders growth slowing. Meanwhile, the nation’s services PMI improved to +51.7 in May from +50.7. Elsewhere, manufacturing sector activity in Australia expanded at the slowest pace in four months as the S&P Global flash manufacturing PMI fell to +55.3 in May from April’s +58.8 level while the services PMI dropped to +53.0 in May. While markets try to judge whether or not a near-term recession is imminent and how severe it may be, another external shock to contend with is the growing Covid case count in mainland China and how stiff the lockdown measures authorities will impose to contain outbreaks. As we reported yesterday, Beijing registered record case growth over the weekend. The Chinese mainland on Monday reported 141 locally-transmitted confirmed COVID-19 cases, of which 58 were in Shanghai and 41 in Beijing. So these numbers will be closely watched over the next few days. To the day ahead now, and we’ll get the rest of the May flash PMIs from Europe and the US, along with US new home sales for April and the Richmond Fed’s manufacturing index for May. Otherwise, central bank speakers include Fed Chair Powell, the ECB’s Villeroy and the BoE’s Tenreyro. Tyler Durden Tue, 05/24/2022 - 08:08.....»»

Category: blogSource: zerohedgeMay 24th, 2022

Now We Are Being Told To Expect Food And Diesel Shortages For The Foreseeable Future

Now We Are Being Told To Expect Food And Diesel Shortages For The Foreseeable Future Authored by Michael Snyder via The Economic Collapse blog, If you think that the food and diesel shortages are bad now, then you will be absolutely horrified by what the globe is experiencing by the end of the year.  All over the planet, food production is being crippled by an unprecedented confluence of factors.  The war in Ukraine, extremely bizarre weather patterns, nightmarish plagues and a historic fertilizer crisis have combined to create a “perfect storm” that isn’t going away any time soon.  As a result, the food that won’t be grown in 2022 will become an extremely severe global problem by the end of this calendar year.  Global wheat prices have already risen by more than 40 percent since the start of 2022, but this is just the beginning.  Meanwhile, we are facing unthinkable diesel fuel shortages in the United States this summer, and as you will see below there are “no plans” to increase refining capacity in this country for the foreseeable future. If you had told me six months ago that we would be dealing with the worst baby formula shortage in U.S. history in the middle of 2022, I am not sure that I would have believed you. But that is precisely what we are now facing.  One young couple in Florida searched stores in their area for four hours and couldn’t find anything… When Erik and Kelly Schmidt, both 35, went into a Central Florida Target store this week to buy their usual baby formula, Up & Up Gentle, for their five-month-old twins, they found an empty shelf. The pair then embarked on a half-day journey in search of formula, any formula, and their quest didn’t end there. “We spent over four hours going to every Target, different Walmarts, different grocery stores, just finding absolutely nothing,” Erik Schmidt said. Of course the Biden administration has made sure that there is enough baby formula for migrants that are illegally crossing the border, but for millions of ordinary American families this crisis has become a complete and utter nightmare. One father actually broke down in tears right in the middle of the baby formula aisle in Walmart because things have become so desperate for his family… Sara Owens, of Florence County, said she was hunting for baby formula for his six-month-old daughter, Namoi, amid a nationwide shortage when she encountered a dad break into tears after driving from store to store looking for his daughter’s brand of formula. ‘As tears continued to stream down his face he said ‘I never thought I would be crying because I can’t find what my child has to have,” Owens wote in the Facebook post that’s been shared more than 180,000 times. ‘My heart broke to 100 pieces on the formula aisle in Walmart.’ Sadly, we shouldn’t expect any improvement any time soon. As I discussed last week, the Biden administration shut down one of the most important baby formula manufacturing facilities in this country a while ago, and the CEO of Abbott Nutrition says that it will take a few months to get products back on the shelves once the FDA finally allows them to reopen the plant… Meanwhile, the plant remains closed as the company works to make upgrades to the facility to meet the FDA’s recommendations. Abbott says it can have products from the facility back on store shelves after a few months once the FDA signs off on them doing so. Needless to say, baby formula is not the only thing in short supply right now.  As shortages grow and prices spiral out of control, grocery stores are increasingly becoming prime targets for thieves. In fact, things have already gotten so bad in the Midwest that one major supermarket chain has decided to post armed guards in their stores… The shoulder patches say, “A Helpful Smile in Every Aisle,” but the police-style uniforms, complete with belts with holstered taser and possibly handguns, may send a very different message as Hy-Vee deploys a new retail security team in its stores. The West Des Moines-based supermarket chain will begin introducing its own security force “as part of its ongoing efforts to ensure the health and safety of both its customers and employees,” the company announced in a news release on Dec. 29. The program will roll out throughout 2022, but security teams are already present in some stores. As I have warned for many years, eventually we will see armed guards in supermarkets and on food delivery trucks all over the nation. In the months ahead, food production is going to be way below expectations all over the globe.  The following summary of what farmers are currently facing comes from Zero Hedge… Across the world, top wheat-producing regions are experiencing adverse weather conditions that could threaten production. In places like Ukraine, a military invasion by Russia has slashed production significantly. All of this suggests the world is on the cusp of a food crisis. Droughts, floods, and heatwaves have plagued farmland in the U.S., Europe, India, and China. As for Ukraine, the world’s largest wheat producer, the war could slash production by upwards of a third. As I have previously detailed, some countries have already decided to ban certain types of agricultural exports as they brace for the coming global food crisis. And we just learned that India has now decided to ban the export of all wheat… India, the second-largest producer of wheat, has banned exports of the commodity, due to a risk to its food security. A Friday notice in the government gazette signed by Santosh Kumar Sarangi, the Director General of Foreign Trade, said that a “sudden spike” in the global prices of wheat was putting India, neighboring and other vulnerable countries at risk. This is huge. Supplies of food are getting tighter with each passing week, and this is already starting to spark food riots all over the world. For example, we witnessed some very emotional protests in Iran last week… Protests broke out in Iran Thursday after the government cut subsidies for food, sending prices through the roof as authorities brace for more unrest in the following weeks. In videos shared on social media, protesters can be seen marching through Dezful and Mahshahr in the southwestern province of Khezestan, chanting “Death to Khamenei! Death to Raisi!” referring to Iranian President Ebrahim Raisi has promised to create jobs, lift sanctions, and rescue the economy. And in Sri Lanka the citizens are so angry that they are actually burning down the homes of politicians… Protesters in Sri Lanka have burned down homes belonging to 38 politicians as the crisis-hit country plunged further into chaos, with the government ordering troops to “shoot on sight.” Police in the island nation said Tuesday that in addition to the destroyed homes, 75 others have been damaged as angry Sri Lankans continue to defy a nationwide curfew to protest against what they say is the government’s mishandling of the country’s worst economic crisis since 1948. This is just the tip of the iceberg. Things will get really crazy in the months ahead as global food supples get a whole lot tighter. Meanwhile, we are being warned that there is likely to be a “diesel fuel shortage on the East Coast” during the months ahead… The possibility of a diesel fuel shortage is being monitored as diesel fuel prices across the country and in Maryland continue to surpass all-time highs. According to fuel industry experts, all signs are pointing to a potential diesel fuel shortage on the East Coast that could cripple an already fragile supply chain. Last week, the price of diesel fuel in the U.S. rose to an all-time record high of $5.62 a gallon, and it is only going to go higher. The biggest reason why we are facing such a supply crunch right now is because there are “simply too few refineries turning oil into usable fuels”… From record gasoline prices to higher airfares to fears of diesel rationing ahead, America’s runaway energy market is disquieting both US travelers and the wider economy. But the chief driver isn’t high crude prices or even the rebound in demand: It’s simply too few refineries turning oil into usable fuels. Surely more refineries are being built to meet the growing demand, right? Wrong. Mountains of regulations that have been instituted by our politicians make it extremely difficult to build and operate a new refinery in this country. As a result, we are being told that “the supply squeeze is only going to get worse” for the foreseeable future… More than 1 million barrels a day of the country’s oil refining capacity — or about 5% overall — has shut since the beginning of the pandemic. Elsewhere in the world, capacity has shrunk by 2.13 million additional barrels a day, energy consultancy Turner, Mason & Co. estimates. And with no plans to bring new US plants online, even though refiners are reaping record profits, the supply squeeze is only going to get worse. To a very large degree, we have done this to ourselves. And as I keep telling my readers, decades of very foolish decisions are starting to catch up with us in a major way. Our trucks and our trains run on diesel, and so a shortage of diesel will only make our ongoing supply chain crisis even worse. This nightmare never seems to end, and there will be plenty of pain in the months ahead. *  *  * It is finally here! Michael’s new book entitled “7 Year Apocalypse” is now available in paperback and for the Kindle on Amazon. Tyler Durden Mon, 05/16/2022 - 14:05.....»»

Category: blogSource: zerohedgeMay 16th, 2022

Biden Oil And Gas Lease Sale Cancellations Draw Strong Reaction

Biden Oil And Gas Lease Sale Cancellations Draw Strong Reaction Authored by Nathan Worcester via The Epoch Times (emphasis ours), As gas prices continue to break records, the Biden administration’s cancellation of two lease sales in the Gulf of Mexico and one lease sale in Alaska’s Cook Inlet has drawn clashing responses, including an accusation that the administration is “blatantly lying.” Fishing boats entering Cook Inlet via the Kenai River, Kenai, Alaska, on July 1, 2020. (Beeblebrox via Wikimedia Commons/CC BY-SA 4.0) One political figure who weighed in was Donald Trump Jr., who recently campaigned with successful Republican Senate primary candidate J.D. Vance in Ohio. “Looks like Joe is doing a great job of making inflation his top priority,” he wrote in a tweet. The Cook Inlet oil and gas lease would have covered 1.09 million acres in the Cook Inlet, a body of water connecting Anchorage with the Gulf of Alaska. A spokesperson for the Department of the Interior told The Epoch Times the Cook Inlet sale was canceled due to a “lack of industry interest in the area.” “I’m not sure that’s completely accurate,” Kara Moriarty, president and CEO of the Alaska Oil and Gas Association (AOGA), told The Epoch Times. “A lot of times, companies don’t want to tip their hand about participating in lease sales. The only time you really know if there’s interest or not is when you have the lease sale.” “As the former Natural Resources Commissioner for Alaska, I know there is no way they could have confirmed ‘no interest’ until they held the lease sale,” said Sen. Dan Sullivan (R-Alaska), who said the Biden administration was “blatantly lying to the American people.” Both he and Moriarty referenced correspondence on the Cook Inlet sale from AOGA, which represents more than a dozen oil and gas producers in Alaska, as evidence of industry interest. “The nature by which this announcement came to news—from the White House’s ultra-left climate czar Gina McCarthy, just down the hall from the president, [and] not the Department of Interior—raises further questions over who is crafting these disastrous energy policies,” Sullivan said, referencing the accidental email to a CBS reporter from a Biden administration official that first revealed the Cook Inlet lease’s cancellation. Moriarty told The Epoch Times that “baffling is the nicest word I can come up with” for the cancellation. Some local environmentalists, by contrast, expressed strong support for the decision. “I’m very excited that we aren’t going to see an oil and gas lease sale that would really hurt our local economy,” Liz Mering told The Epoch Times. Mering is advocacy director and inletkeeper of Cook InletKeeper, an Alaskan group opposed to oil and gas leasing in the region. Its website states that it seeks to “accelerate the transition from fossil fuels to an equitable, renewable energy future.” The Interior spokesperson told The Epoch Times that the two Gulf of Mexico leases were canceled because of “delays due to factors including conflicting court rulings that impacted work on these proposed lease sales.” In June 2021, Louisiana federal Judge James Cain, a Trump appointee, struck down the Biden administration’s pause on oil and gas leases. That pause had commenced with Executive Order 14008. Yet in January, District of Columbia federal Judge Rudolph Contreras, an Obama appointee, ruled that the November 2021 federal offshore oil and gas sale, the largest in history, was invalid. He argued it violated the National Environmental Policy Act because it didn’t take greenhouse gas emissions into account. The Biden administration didn’t appeal the ruling. The administration announced its plans to resume lease sales in March after an appeals court ruled it could incorporate a raised “social cost of carbon” factor when assessing permits. When he was a presidential candidate, Biden’s promises included “banning new oil and gas permitting on public lands and waters.” The latest lease cancellations come as inflation and high gas prices wrack the nation. AAA reported that regular gas on May 12 averaged $4.418 a gallon, the highest average price it has ever recorded. Diesel is also at the highest price point ever recorded by AAA, averaging $5.557 a gallon. “Prices for gasoline, diesel, and other products are high and climbing. Further, those high prices are raising the cost of other goods and services, and here we are with extraordinarily high rates of inflation at both the consumer and producer levels. The actions of this administration suggest little relief anytime soon,” energy economist Karr Ingham told The Epoch Times. He said Biden hasn’t yet provided the next legally mandated five-year offshore leasing plan. The current plan ends in June. “At this late hour, were they to set this new plan in motion today, it would be a year or so before it is in place. That means a significant gap in the time period during which companies may be able to reasonably make plans and allocate capital to drill new projects in these areas. So, in many respects, these canceled leases were the ‘last hurrah’ before that plan expires.” Lawmakers in Impacted States React Senators and representatives from Louisiana and Alaska, two states affected by the cancellations, have voiced anger and disgust. “Pres. Biden has killed more energy lease sales in the Gulf of Mexico. He’s killing jobs, has killed America’s energy independence, and is fueling inflation that is killing Louisiana families. And he’s doing it on purpose,” Sen. John Kennedy (R-La.) wrote in a May 12 tweet. Kennedy’s senior colleague, Sen. Bill Cassidy (R-La.), voiced his concerns in similar language. “President Biden’s administration is actively making high gas prices worse,” Cassidy said. “When we need to unleash American energy production, the Biden administration kills opportunities at every turn.” “Rather than using American energy sources to help solve the problem and lower prices, the Biden administration continues to carry out policies that only benefit Russia, China, Iran, Saudi Arabia, Venezuela, and other apparent allies of this White House. It is past time for the administration to put Americans first,” said Rep. Garret Graves (R-La.), who serves on the House Natural Resources committee. Sullivan said: “The timing and nature of this decision display a disturbing disregard for the pain American families continue to feel at the pump, for the hard-working Americans whose livelihoods and communities depend on the American energy industry, and for the grave consequences, these policies have on America’s energy and national security. As Gina McCarthy celebrates this decision from the White House, rest assured Vladimir Putin is popping corks in the Kremlin.” Sen. Lisa Murkowski (R-Alaska) hasn’t yet commented on the decision. The Epoch Times has also reached out to the only Democrat representing Louisiana, Rep. Troy Carter (D-La.). Different Views From Environmental Activists and Industry Some environmentalists in and around the Cook Inlet celebrated the cancellation. “There’s a lot of tourism industry that would be really harmed by this lease sale,” Mering said. She said locals have fought oil and gas activity in the area since the 1970s when Cook Inlet’s Kachemak Bay was protected from drilling enabled by state leases. Commercial fishermen helped lead that pushback. “There has to be more and more pushback as climate change hits Alaska.” Moriarty noted that the Cook Inlet has been producing oil and gas for six decades. It generated 293,000 barrels of oil in March. All the oil produced in Cook Inlet is refined at the nearby Nikiski refinery. “There’s no evidence that production from Cook Inlet has hampered our ability to coexist with commercial and sport fishing interests,” Moriarty said, arguing that oil and gas had helped diversify the Kenai Peninsula’s economy beyond the norm in Alaska. Referencing the fight over oil in the 1970s, she said that “trying to pick out one incident negates the longstanding tradition we have of coexisting in Cook Inlet.” Yet environmental activists present a contrasting narrative. “This news means that the waters of lower Cook Inlet, which nourish the Gulf of Alaska as well as a watershed the size of Virginia, will continue the essential ecological function they’ve served since the last ice age. The people of this region who fought this lease sale will also continue their role in the ecology of placemaking, honoring our collective dependence on clean water,” said environmental activist Marissa Wilson of the Alaska Marine Conservation Council. Josh Wisniewski, a fisherman in the Lower Cook Inlet, also praised the decision. “Our fisheries, our quality of life, and regional economy depend on the health of this wild landscape we are privileged to live in. We now have the chance to build on this moment and seek a permanent withdrawal of this region from all future oil and gas lease sales to protect our home waters for future generations.” In an interview with The Epoch Times, Wisniewski conceded that oil and gas are currently valuable to the larger state but argued that it “doesn’t make sense in this particular context.” “We’ve got existing oil and gas infrastructure in different places.” Yet AOGA’s Moriarty argued that Cook Inlet’s production is particularly critical for use within Alaska, including for jet fuel at Ted Stevens International Airport. “We should be thinking about, ‘How do we get our next barrels of oil from the United States?’” Moriarty said, arguing that greater energy independence was vital to national security. “The U.S. supplies the cleanest barrels of any major producer on the globe. U.S. greenhouse gas emissions have been declining steadily for more than two decades now and continue to do so,” said energy economist Ingham. “Constricting U.S. production in no way means those barrels will not be consumed—it just means those barrels will come from somewhere else, and that somewhere else will not produce that oil nearly as cleanly as the United States.” He speculated about the motives of Earthjustice, which praised the cancellations as “good for the climate” in CBS coverage. “Is Earthjustice in favor of acquiring America’s energy needs from countries and regions who produce dirtier barrels than the United States? Or are they simply anti-U.S. oil and gas, and ultimately, anti U.S.-consumer?” The Epoch Times has also reached out to the Environmental Defense Fund, often seen as a left-wing environmental group, and to the Property and Environmental Research Center, a free-market environmental group. Tyler Durden Sat, 05/14/2022 - 14:30.....»»

Category: smallbizSource: nytMay 14th, 2022

Oil Prices Continue to Climb: What"s Moving the Needle?

With geopolitical tensions and a solid demand picture providing a tailwind for oil prices, energy companies like Occidental Petroleum (OXY), Valero Energy (VLO) and Corterra Energy (CTRA) have seen solid gains this year. U.S. crude prices appear on track for the third consecutive weekly rise as investors looked past the Energy Information Administration’s ("EIA") report showing a surprise build in stockpiles and turned their attention to the strained market fundamentals.On the New York Mercantile Exchange, WTI crude futures increased 1.8% to settle at $110.24 a barrel yesterday after climbing $6.47 on Wednesday.Before going into the other factors, let's dig deep into the EIA's Weekly Petroleum Status Report for the week ending May 6.Analyzing the Latest EIA ReportCrude Oil: The federal government’s EIA report revealed that crude inventories rose 8.5 million barrels compared to analyst expectations of a 300,000-barrel decrease. A sharp drop in exports primarily accounted for the unexpected stockpile build with the world’s biggest oil consumer even as refinery crude runs rose and production declined. Total domestic stocks now stand at 424.2 million barrels — 12.5% less than the year-ago figure and 13% lower than the five-year average.On a somewhat bullish note, the latest report showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) decreased 587,000 barrels to 25.9 million barrels.Meanwhile, the crude supply cover was up from 26.7 days in the previous week to 27.1 days. In the year-ago period, the supply cover was 32.3 days.Let’s turn to the products now.Gasoline: Gasoline supplies decreased for the sixth week in succession. The 3.6-million-barrel drop was attributable to strong demand and exports, as well as lower imports. Analysts had forecast that gasoline inventories would fall by 1.7 million barrels. At 225 million barrels, the current stock of the most widely used petroleum product is 4.7% less than the year-earlier level and 5% below the five-year average range.Distillate: Distillate fuel supplies (including diesel and heating oil) logged its fifth weekly fall in a row. The 913,000-barrel decline primarily reflected higher exports. Current inventories — at 104 million barrels — are 22.6% below the year-ago level and 23% lower than the five-year average.Refinery Rates: Refinery utilization, at 90%, rose 1.6% from the prior week.Final WordsOil prices ended above $110 yesterday, primarily reflecting concerns about supplies from Russia, which is one of the world's largest producers of the commodity. Raising the prospect of a dramatic fall in crude flows, speculation has it that the European Union could shortly follow the United States in blocking imports of Russian energy to protest Moscow’s invasion of Ukraine.While there are jitters over soaring inflation, a strong greenback, stuttering economic growth and the coronavirus lockdowns in China (the world’s second-biggest oil consumer), these have been more than offset by the pending European embargo that could lead to an acute supply squeeze.As it is, the Oil/Energy market continues to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130-a-barrel.Even the fundamentals point to a tightening of the market. Per the latest government report discussed above, U.S. commercial stockpiles have been down more than 12% in a year, prompted by the demand spike owing to the reopening of economies and a rebound in activity.As a matter of fact, the Energy Select Sector SPDR — an assortment of the largest U.S. companies thronging the space — has risen 40.7% year to date against a 17.5% loss for the broader S&P 500 benchmark.Consequently, the top three gainers of the S&P 500 this year are all energy-related names: Occidental Petroleum OXY, Valero Energy VLO and Coterra Energy CTRA.Occidental Petroleum: OXY, carrying a Zacks Rank of #2 (Buy), is the top-performing S&P 500 stock in 2022 with a gain of 104.3%. Occidental Petroleum’s expected EPS growth rate for three to five years is currently 32.8%, which compares favorably with the industry's growth rate of 22.1%.OXY has a projected earnings growth rate of 264.3% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 88.4% upward over the past 60 days.Valero Energy: This Zacks Rank #2 (Buy) stock has jumped 60.3% year to date. VLO beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 84.3%.Valero Energy is valued at around $49.1 billion. VLO has a projected earnings growth rate of 353.7% for this year.Corterra Energy: This Zacks Rank #1 (Strong Buy) stock was the third-best performer in the S&P 500 Index, with shares appreciating 57.9% so far in 2022. CTRA has a projected earnings growth rate of 81.8% for this year.You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Corterra Energy’s 2022 earnings has been revised 37.2% upward over the past 60 days. CTRA’s expected EPS growth rate for three to five years is currently 55%, which compares favorably with the industry's growth rate of 27%. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time. This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock and 4 Runners Up >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Occidental Petroleum Corporation (OXY): Free Stock Analysis Report Valero Energy Corporation (VLO): Free Stock Analysis Report Coterra Energy Inc. (CTRA): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksMay 13th, 2022

The Implications Of A Potential European Ban On Russian Oil Imports

The Implications Of A Potential European Ban On Russian Oil Imports Via GoldMoney Insights, Russia is the world’s second largest petroleum exporter. About 5mb/d of crude oil and petroleum products are exported to Europe. A European ban on Russian petroleum imports would have an immediate effect on >1mb/d of pipeline imports. Moreover, 4mb/d of crude and products that currently go to Europe via tankers would have to find a new home, which would create massive problems for the global refinery system. Depending on the speed of the phase-out, we could see the loss of >3mb/d of Russian production near term. Over the long run, Russian production will likely decline due to the lack of western technology transfer. On April 8, 2022, the European Union announced that it would ban all coal imports from Russia starting in August this year. While the total value of these imports is relatively small (about $4bn per annum), this will have large implications for both European and global coal balances. Coal is transported in bulk. So in theory, the Russian coal that used to be exported to Europe could be moved by rail and by sea to buyers in China and overseas. Europe then in turn could import the coal that used to be imported by these buyers. In practice, it’s a bit more complicated. Russian coal is generally of high quality (high calorific value or “high CV” coal) and the coal that would be freed up and shipped to Europe is of low quality (low CV), which is a problem for European power plants. What makes matters more complicated is that Japan is working on replacing their Russian coal imports too. The likely effect is a tightening of high-quality coal balances worldwide. And indeed, since the announcement has been made, low CV coal prices were falling but high CV coal prices are soaring. However, the economic impact of a ban on Russian coal imports is trivial compared to a potential ban on Russian oil and gas. A ban on imports of Russian gas is currently viewed as the most difficult to deal with for European economies. Over the past 5 years, Russian gas imports accounted for about 38% of European gas consumption. Even in 2021, the year when Russia had massively cut its exports to Europe, it was still 32%. This can simply not be replaced by LNG imports over the short run. Thus European leaders have so far been quite resilient to calls for a gas import ban. In fact, the European Union passed legislation that forces gas storage owners to fill their storage to certain levels during the summer injections season, something that is likely only achievable if imports from Russia persist. So far European policymakers were equally reluctant to ban Russian oil imports. However, more recently, it seems that European officials are drafting plans to phase out Russian oil and petroleum product imports. The most likely scenario is that oil imports would be phased out in stages, allowing existing contracts to expire and for European refiners to arrange for alternative supplies. It is also likely that waterborne crude and petroleum product imports would be banned first, as it is easier to replace Russian crude that arrives on tankers with other seaborne imports. Pipeline imports would probably be the last step, as many refiners depend on Russian crude from pipelines and are unable to replace those flows in the near and medium term, potentially ever. These refineries would simply become inoperable. Europe consumes about 14mb/d of oil, most of which is imported. About 30-40% (5mb/d) of Europe’s petroleum consumption is met by imports from Russia (see Exhibit 1). 3.7mb/d of these imports come in the form of crude oil and refinery feedstocks while 1.5mb/d are finished products (see Exhibit 2). Russia is producing around 11mb/d of crude oil, which is 11% of the global supply. The country is processing close to 6mb/d for this crude in its domestic refiners and exports the rest. It then exports an additional 2mb/d of those products while the rest is consumed domestically. On net, Russia exports about 7.2mb/d of petroleum in the form of crude and products. All petroleum products are exported via tankers.  About half of the crude exports are seaborne exports, the other half is shipped via pipelines. Only a small part of Russia’s oil production comes from the eastern part of the country. The eastern Siberian fields are connected through the East Siberian Pacific Ocean (ESPO) pipeline to the export port of Kozmino, delivering crude to South Korea, Japan, and China. The trunk line has a capacity of around 1.8mb/d. There is a bifurcation of the ESPO line into the Mainland China Branch pipeline that allows sending crude directly to China’s Daqing refineries. The line came online in 2011 and a second pipeline has been added later. Today the two lines have a capacity of about 700kb/d. The remaining crude that goes through ESPO is partially processed in the 100kb/d Khabarovskiy refinery and the rest is exported by sea via Kozmino. The Kozmino port has exported around 900kb/d in 2021. That would suggest there is about 100kb/d of ESPO capacity left to export through Kozmino, but it is unclear whether production from Eastern Siberia can be increased in the near to medium term. What would really be needed is that production from the western fields could be diverted to ESPO, which seems not feasible at the moment. On top of that, there is crude production at the Sakhalin Island which is partially domestically refined and the remaining 200kb/d is exported by sea. On net, about 1.8mb/d-1.9mb/d of eastern production can continue to be exported to Asia, even with a European import ban in place. A big chunk of Russian production comes from the Western Siberian fields. That crude is either exported via the Druzhba pipeline to Europe or via tanker out of a seaport. There are five main ports that export Russian crude that is produced in the West. Two of them are at the Barents Sea, two are at the Baltic Sea and one is at the Back Sea. Russia exported 2mb/d in 2021 through these ports. A further 100kb/d came through various minor ports.  Current shipping data indicates that Russia hasn’t meaningfully increased shipments through these ports (see table 1). The remaining crude oil is exported via pipelines. The Druzhba pipeline is the main line to bring Russian crude to Europe. It has a capacity of around 1.4mb/d. On top of that, crude oil from western Russia can also be exported via the Kazakh Atasu-Alashankou pipeline to China. This pipeline has a capacity of around 400kb/d, of which 100kb/d is used for Kazakh crude and about 200kb/d for Russian crude, leaving 100kb/d of unused capacity for Russian crude. On net, in the event of a European import ban of Russian crude and petroleum product, Russia could technically still export all of its products, around 3mb/d of crude oil on tankers and 0.9-1mb/d via pipeline to China. For about 1.2mb/d of current pipeline exports, there is no alternative export route. In reality, things would likely be a lot more difficult. First, Russia would have to find new buyers for all the seaborne crude it sends to Europe, the US, and potentially Asian buyers such as Korea and Japan. China is currently resisting taking more crude, but that could well be because the country’s appetite for oil is currently low given that one quarter of the population is in strict lockdown. Russian crude, especially the ESPO grade, is very popular among Chinese refiners. So if Russia loses traditional Asian buyers such as Korea and Japan, that crude might be picked up by China in the medium term. It’s probably much more difficult to find buyers for the crude that leaves the western ports. India has probably the refining capacity to take some, but it will be much more difficult for less sophisticated refineries in other emerging markets to switch grades. We therefore believe that especially in the first months of a European embargo, many Russian barrels would remain stranded. But that also depends on how quickly Europe would phase out Russian crude. With enough time, non-European refiners will find ways to run Russian grades. We think it’s likely easier to sell the finished product cargoes that currently go to Europe to somebody else, but it will cost more to ship it further and it might create a real shortage of tankers in the medium term, which could also impact Russia’s effective export capacity of products. We estimate that the initial loss of Russian petroleum would be in the order of >3mb/d in case of an immediate European import ban. This would subsequently decrease and we think the permanent loss is more in the order of 2mb/d. However, should Europe decide on a very gradual phase-out over several years, there may not even be any immediate hit and by the time the full ban comes into effect, Russia would have had the time to build out the seaborne export capacity and arranged for new buyers, who had the time to retool their refineries. Thus the price impact is extremely dependent on how fast the European Union is phasing out Russian crude. However, we think that the long-term fundamental effects of any type of further sanctions are still very bullish. The sanctions that are already in place and target the energy sector will increasingly affect Russia’s ability to produce and refine crude. Russian refiners particularly are dependent on Western technology. So far the sanctions do not ban western companies to be active in the Russian energy sector. But sanctions on banks, and reputational risks will likely lead to a slowdown in technology transfer even if the sanctions are not tightened. A ban on Russian crude imports would likely also come with much tougher restriction on how western firms are allowed to operate in the sector. We thus have to assume that Russian production has now peaked and will inevitably decline long term, likely at an accelerated pace. New tougher sanctions on the oi industry will further accelerate this trend. This comes at a time when global oil balances already look extremely tight over the medium term. As we have highlighted before (see Long term oil prices beginning to reflect the coming oil shortage – Part II, 8 April 2022), global demand will likely still continue to grow over the next 5-10 years, but supply will struggle. Non-OPEC production outside the US was already expected to decline in perpetuity, even before the events in Ukraine unfolded. At the time, the market expected Russian production to grow for some time. A decline in Russian production would thus greatly accelerate the declining trend in non-OPEC (ex US) output, which has the potential to create real oil shortages medium term. Tyler Durden Fri, 04/22/2022 - 03:30.....»»

Category: blogSource: zerohedgeApr 22nd, 2022

As Putin Threatens Nuclear Disaster, Europe Learns to Embrace Nuclear Energy Again

In early March, the world looked on in horror as a fire broke out at Europe’s largest nuclear power plant in southeast Ukraine. The blaze at the Zaporizhzhia facility following shelling by invading Russian forces was eventually brought under control, and no leaked radiation was reported, though the potential for catastrophe prompted Ukraine President Volodymyr… In early March, the world looked on in horror as a fire broke out at Europe’s largest nuclear power plant in southeast Ukraine. The blaze at the Zaporizhzhia facility following shelling by invading Russian forces was eventually brought under control, and no leaked radiation was reported, though the potential for catastrophe prompted Ukraine President Volodymyr Zelenskyy to accuse his Russian counterpart Vladimir Putin of “nuclear terrorism.” “There are six nuclear reactors there,” Zelensky said of Zaporizhzhia. “In Chernobyl, it was one reactor that exploded, only one.” By referencing Chernobyl—the nuclear power plant in northern Ukraine that became the site of the world’s worst nuclear disaster in 1986—Zelensky was making the stakes very plain. But strange as it may sound, those scenes at Zaporizhzhia may inadvertently contribute to a new dawn for nuclear power. [time-brightcove not-tgx=”true”] The instability resulting from the Russian invasion—as well as mounting evidence of war crimes—has made finding alternatives to Russian oil and liquid natural gas (LNG) a policy priority for European nations who want to stop funding Putin’s war machine. With few options that offer true energy sovereignty, there is now renewed enthusiasm for nuclear energy among politicians in Europe. On April 8, British Prime Minister Boris Johnson announced the U.K. would build up to eight new nuclear plants by 2030 to ensure “we are never again subject to the vagaries of global oil and gas prices” and “can’t be blackmailed by people like Vladimir Putin.” Across Europe, there has been a growing acceptance that nuclear energy is a vital plinth of efforts to fight climate change, and Russia’s invasion of Ukraine has catalyzed that trend by injecting a national security argument. And as a leader in revolutionary new nuclear technology, the U.S. stands to be the chief geostrategic beneficiary of any revival. The question is whether engrained, ideological aversion to nuclear power in key stakeholder states, particularly Germany, will quell that momentum. Why Nuclear Power is Back on the Discussion Table Collectively, the E.U. imported more than 60% of its energy in 2019. Of that, 47% of the bloc’s imported coal came from Russia, along with 41% of its imported LNG, and 27% of its imported crude oil. The ideal solution is to replace coal and oil with renewables like wind, solar and tidal power. However, despite some great advances in battery technology amid heaps of investment, there is still not a viable storage solution to provide power when the sun isn’t shining, or wind stops blowing. This means each nation’s energy portfolio requires a “firm” element. The cheapest option is simply to swap out dirty coal for comparatively clean LNG, but Putin’s aggression has underscored the hidden costs of that approach. Not only is nuclear energy immune to the vicissitudes of oil and gas prices, it’s also a zero-carbon technology. Beyond the practically uncountable damage greenhouse gas emissions inflict on the lives and livelihoods of people globally, the air pollution that results from burning fossil fuels directly led to 8.7 million deaths in 2018 alone, according to research published last year. Meanwhile, despite the raft of high-profile disasters, historic fatalities from the civil nuclear industry are measured in the low thousands. In February, the E.U. classified nuclear energy as “green,” drawing a backlash from environmentalists who point to risks associated with accidents and nuclear waste. But many energy experts counter that it’s a necessary element of a viable net-zero economy. “Nuclear power is an important source of low-carbon electricity and heat that can contribute to attaining carbon neutrality and hence help to mitigate climate change,” wrote Olga Algayerova, Executive Secretary of the United Nations Economic Commission for Europe, in a report published in the lead up to November’s COP26 climate talks. And boosting the capacity of Europe’s existing nuclear reactors—which don’t normally run at full tilt, due to the growing inclusion of renewables—was one of the solutions the International Energy Agency (IEA) recently proposed to reduce European reliance on Russian LNG. “The majority of countries in Europe will be even more pro-nuclear now,” says Kai Vetter, a professor of nuclear engineering at the University of California, Berkeley. Even before the war in Ukraine, the IEA was saying that the nuclear industry must nearly double in size over the next two decades to meet global net-zero emissions targets. In 2018, the Intergovernmental Panel on Climate Change (IPCC) published a 400-page special report, “Global Warming of 1.5°C,” which offered four pathways to mitigate global temperature rises. All four pathways increased the use of nuclear power in relation to 2010, by an amount ranging from 59% to 106% by 2030, and from 98% to 501% by 2050. Since the invasion of Ukraine, E.U., policymakers grappling with how to wean their nations off Russian energy are seeing nuclear as an increasingly viable alternative. Why Some E.U. Countries Remain Skeptical of Nuclear On the other hand, nuclear power remains deeply political in Europe, not least after the 2011 Fukushima meltdown in Japan reenergized anti-nuclear advocates in the region. Perhaps the most important country opposing nuclear is Germany—which also happens to be the E.U.’s largest user of Russian energy. Germany’s ruling coalition partner Green Party has its roots as an advocacy group specifically in opposition to nuclear energy, and the country was about to take its nuclear power offline when the war began. As Russian tanks rolled into Ukraine in February, Robert Habeck, German Vice-Chancellor and a Green Party leader, said he wouldn’t rule out extending the life of Germany’s three remaining nuclear plants on “ideological” grounds. But he soon backtracked and insisted decommissioning would take place as planned. Instead, Germany has gone cap in hand to Qatar and the UAE to seek alternative sources of liquid natural gas despite climate and human-rights concerns. “It’s so incomprehensible,” says Vetter. “There’s amazing naiveté in Germany in my opinion.” Nuclear power is an issue that splits Europe. Although most E.U. nations are pro-nuclear, at COP26 a group of five—Austria, Denmark, Germany, Luxembourg and Portugal—banded together to urge the European Commission to keep nuclear out of the E.U.’s green finance taxonomy. “We have plenty of evidence of how dangerous nuclear power can be,” Austrian Energy Minister Leonore Gewessler told a COP26 side-event on Nov. 11. The reasons for each member’s opposition are varied and complex. In Germany and Austria, a sense of powerlessness amid fallout from the Chernobyl disaster melded anti-Soviet sentiment with anti-nuclear. In Portugal, opposition is rooted in historic tensions with neighboring Spain, which has four of its ten nuclear plants using the Tagus River for cooling, which runs into Portugal. Still, other Western European nations such as Finland, Sweden, France, Spain and Belgium have all historically supported the technology, even while adding renewables like wind and solar. In Eastern Europe, Romania, Czech Republic, Slovakia and Hungary are all beginning or expanding their nuclear capabilities. Indeed, appreciation of the myriad benefits is swelling alongside the price of oil and gas. “The question of how nuclear power may come back onto the scene was already being discussed because of climate goals,” says a senior Western diplomat in Central Europe, asking to remain anonymous due to official protocol. “Now we have the whole Russian gas question. And again, it’s an answer.” Jean-Marie Hosatte—Gamma-Rapho/Getty ImagesThe Cruas Nuclear Power Plant, in southern France, on Feb. 13, 2022. France is the E.U. country currently most reliant on nuclear energy. What Comes Next Many obstacles remain, of course: Aside from political hesitancy, nuclear plants are expensive, with steep regulatory hurdles. And there is no quick fix: traditional large-scale plants take 10 years to bring online; even the most cutting-edge, next-generation reactors require at least four. Nevertheless, those next-gen reactors, called Small Modular Reactors (SMRs), can make a difference, say industry watchers. They’re groundbreaking because, as they are modular, with different numbers of “off the shelf” reactors, they can be combined to tailor for specific needs. Rather than being built bespoke to fit on a specific site, SMR modules get shipped to the location by truck, rail, or barge. This makes them more affordable when economies of scale kick in. They are also theoretically much safer, requiring neither manpower nor electricity to go offline in case of a crisis, while also producing less hazardous waste since they are able to “burn” up more fuel. While traditional reactors are ideal for splitting uranium-235 atoms, the neutrons of “fast” SMRs can also split uranium-238, which makes up over 99% of the enriched uranium that’s fed to reactors. This means less frequent refuelings and less waste. “SMRs could potentially change the game and bring nuclear back,” says the Western diplomat. “There’s a lot of countries looking at this type of technology with different designs for small reactors.” Oregon-based NuScale is a leader in the SMR field, and co-founder and Chief Technological Officer Jose Reyes has seen an uptick in inquiries since the war in Ukraine, as nations grapple with an increasingly thorny energy conundrum. “We’ve gotten a lot of interest globally,” he tells TIME. On the sidelines of COP26 last fall, U.S. and Romanian officials inked an agreement for NuScale to build Europe’s first SMR in partnership with local nuclear firm Nuclearelectrica. The collaboration “will contribute to Romania’s energy independence in line with the European vision of protecting the environment and reducing carbon dioxide emissions,” Romanian Prime Minister Nicolae Ciucă told TIME in an interview in March. Indeed, if the E.U. wants a nuclear energy ascendency, the U.S. is a likely partner. In the U.S., nuclear power is largely uncontroversial—even Democrats and Republicans are united on the benefits—and America’s 93 operating nuclear reactors supply 20% of U.S. power, or about half of its carbon-free electricity. The U.S. has also been pushing the power source as a solution for developing countries, unveiling in November $25 million of funding to help build reactors in Brazil, Kenya, and Indonesia. In the E.U., the invasion of Ukraine has galvanized an appreciation of nuclear energy. The new mood has been helped by the fact that France—Europe’s most pro-nuclear country, generating over 70% of its electricity via the technology—is the current rotating president of the E.U. Council and controversially added promotion of nuclear power to its presidential program in what one German Green Party member described to TIME as a “f–k you into the face of Germans.” Many other European nations are making a similar calculation. Of the 10 foreign nations that have signed memoranda of understanding (MoUs)—which establishes the groundwork for exploring building an SMR—with NuScale, half are European. In addition, in December NuScale signed an agreement with Ukraine to offer analysis of necessary licensing revisions for SMR deployment funded by a U.S. Trade and Development Agency grant. Courtesy of NuScale Power, LLCNuScale co-founder and chief technology officer José Reyes on a platform at the firm’s Integral System Test facility at Oregon State University in Corvallis, Oregon Oregon. NuScale may be the first SMR firm to gain U.S. Nuclear Regulatory Commission design approval but it won’t have the field to itself for long. “There are four or five other [SMR] companies in the United States which I really believe will be on the grid within the next 10 years or so,” says Vetter. “And they will be strongly supported by the U.S. government.” The potential strategic benefits for the U.S. pushing this technology overseas are clear. Building a nuclear plant is not like coal or gas—the client is locked into dependency for training, fueling, and maintenance. Russia currently leads the world in exporting civilian nuclear technology, but Putin’s invasion of Ukraine has underscored it as an unreliable partner, and the E.U. is currently mulling whether to ban all collaboration with Russian nuclear providers, especially Rosatom and its subsidiaries. If so, Washington stands to boost its geostrategic clout at the expense of the Kremlin. China could be another potential partner for the E.U. Building more new nuclear reactors than any other country—it plans for as many as 150 by 2030, costing in the region of $500 billion—China will soon overtake the U.S. as the operator of the world’s largest nuclear-energy system. It is also experimenting with SMRs, and given its existing engineering prowess and record of slashing costs, is already offering cost-effective alternatives. But question marks hang over China’s strategic ambitions amid accusations of coercive practices and debt-trap diplomacy. In November 2015, Romania’s Nuclearelectrica signed a MoU with China General Nuclear Power Corporation (CGN) for the redevelopment of its sole existing nuclear power facility, Cernavoda. However, in August 2019, the U.S. blacklisted CGN over the alleged theft of U.S. nuclear technology for military purposes, and Romania canceled the deal less than a year later. Instead, it has agreed to a deal thought to be worth $8 billion to have the U.S. refurbish and expand Cernavoda. It helps that the U.S. is a trusted ally. “Our plants are designed for a 60 year life,” says Reyes. “So that’s a long-term relationship that involves supply chain and operations and training. So it’s a natural bond that’s created between nations when you do that.” German opposition remains the most problematic for the pro-nuclear lobby given the nation’s leadership role within the E.U. One leading Green Party figure, who asked to remain anonymous since energy policy was not his specific brief, tells TIME that any internal dissent regarding doubling down on LNG instead of reevaluating nuclear remains very much a fringe viewpoint. “There are political identity, cultural, and political risk components [to our continued opposition to nuclear],” he says. “And in a situation of crisis like now there are just so many compromises you can sell.” Certainly, the longer the Ukraine war goes on, extricating nations from Russian oil and gas will stay firmly at the top of Western policy agendas. And the nuclear-over-oil drum is one that Washington, Paris, and others, will keep on banging......»»

Category: topSource: timeApr 21st, 2022