Oil Extends Drop : Worsening Glut – With Oil Companies and Investors In Denial

Oil extended losses to trade below $45 a barrel amid speculation that U.S. crude stockpiles will increase, exacerbating a global supply glut that’s driven prices to the lowest in more than 5 1/2 years.

Futures fell as much as 2.6 percent in New York, declining for a third day. Crude inventories probably gained by 1.75 million barrels last week, a Bloomberg News survey shows before government data tomorrow. The United Arab Emirates, a member of the Organization of Petroleum Exporting Countries, will stand by its plan to expand output capacity even with “unstable oil prices,” according to Energy Minister Suhail Al Mazrouei.

Oil slumped almost 50 percent last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. Goldman Sachs Group Inc. said crude needs to drop to $40 a barrel to “re-balance” the market, while Societe Generale SA also reduced its price forecasts.

“There’s adequate supply,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone today. “It’s really going to take someone from the supply side to step up and cut, and the only organization capable of doing something substantial is OPEC. I can’t see the U.S. reducing output.”

West Texas Intermediate for February delivery decreased as much as $1.19 to $44.88 a barrel in electronic trading on the New York Mercantile Exchange and was at $44.94 at 2:26 p.m. Singapore time. The contract lost $2.29 to $46.07 yesterday, the lowest close since April 2009. The volume of all futures traded was about 51 percent above the 100-day average.

U.S. Supplies

Brent for February settlement slid as much as $1.31, or 2.8 percent, to $46.12 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $1.24 to WTI. The spread was $1.36 yesterday, the narrowest based on closing prices since July 2013.

U.S. crude stockpiles probably rose to 384.1 million barrels in the week ended Jan. 9, according to the median estimate in the Bloomberg survey of six analysts before the Energy Information Administration’s report. Supplies have climbed to almost 8 percent above the five-year average level for this time of year, data from the Energy Department’s statistical arm show.

Production accelerated to 9.14 million barrels a day through Dec. 12, the most in weekly EIA records that started in January 1983. The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

OPEC Output

The U.A.E. will continue plans to boost its production capacity to 3.5 million barrels a day in 2017, Al Mazrouei said in a presentation in Abu Dhabi yesterday. The country currently has a capacity of 3 million and pumped 2.7 million a day last month, according to data compiled by Bloomberg.

OPEC, whose 12 members supply about 40 percent of the world’s oil, agreed to maintain their collective output target at 30 million barrels a day at a Nov. 27 meeting in Vienna. Qatar estimates the global surplus at 2 million a day.

In China, the world’s biggest oil consumer after the U.S., crude imports surged to a new high in December, capping a record for last year. Overseas purchases rose 19.5 percent from the previous month to 30.4 million metric tons, according to preliminary data from the General Administration of Customs in Beijing today. For 2014, imports climbed 9.5 percent to 310 million tons, or about 6.2 million barrels a day.

Oil Companies and Investors In Denial : Portfolio Profits At Risk

My rant – the  curse of Cassandra :

Cassandra, daughter of the king and queen, in the temple of Apollo, exhausted from practising, is said to have fallen asleep – when Apollo wished to embrace her, she did not afford the opportunity of her body. On account of which thing :

when she prophesied true things, she was not believed.

I have written :

Managed Accounts Year End Review and Forecast

Tankers – The Bright Sector in Oil and Shipping Sector Collapse

Oil Traders Seen Storing Millions of Barrels at Sea on Slump

Oil companies are seeking supertankers to store 20 million barrels of crude as a collapse in the price of the commodity creates a trading opportunity last seen during the 2008-09 recession, a Greek shipping company said.

Companies inquired about booking 10 very large crude carriers for storage in the past several days, Odysseus Valatsas, the chartering manager for Dynacom Tankers Management Ltd. near Athens, said by e-mail today. A “handful” have already been hired for the trade, he said, citing discussions with shipbrokers and others working in the shipping market. Dynacom’s fleet can carry about 65 million barrels of oil.

Oil collapsed 48 percent in 2014 and prices for later this year are now so far above current costs that traders can make money from buying cargoes and storing them on ships, according to JBC Energy GmbH. As many as 60 million barrels could be held offshore within the next several months, the Vienna-based consultant predicted on Jan. 6. Traders stored 100 million barrels at sea in 2009, Frontline Ltd., a tanker owner, said at the time.

“It looks more and more likely that you’ll see more floating storage and it’s going to be good” for ship owners, Eirik Haavaldsen, a shipping analyst at Pareto Securities SA in Oslo, said by phone. “The re-emergence of floating storage is what could move the crude tanker market this year from being rather good to possibly very very good.”

Frontline Surge

Shares of Frontline rose as much as 14 percent in Oslo today to the highest in almost a year. They closed up 9.5 percent at 28.70 krone ($3.74).

Shipping costs gained today, with day rates for supertanker shipments to Japan from Saudi Arabiaclimbing 1 percent to $82,216 a day, the most for the time of year since at least 2009, according to data from the Baltic Exchange in London.

Brent crude for August traded at $55.87 a barrel as of 4:20 p.m. in London, a premium of $6.75 compared with February. That gap needs to be about $6.50 to cover hiring a ship and other costs associated with storing crude, according to E.A. Gibson Shipbrokers Ltd. in London.

JBC estimates that 30 million to 60 million barrels will be stored offshore in the next several months. The higher end of that forecast is about the same as Denmark’s annual consumption.

Oil Companies and Investors In Denial : Portfolio Profits At Risk

My rant – the  curse of Cassandra :

Cassandra, daughter of the king and queen, in the temple of Apollo, exhausted from practising, is said to have fallen asleep – when Apollo wished to embrace her, she did not afford the opportunity of her body. On account of which thing :

when she prophesied true things, she was not believed.

I have written :

Managed Accounts Year End Review and Forecast

Shipping Sector / Bulk ShippersYou can review our stock market letter athttp://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ Energy I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors  ?– you  ( your portfolio) would have been better off today

and now you have to decide for 2015.

No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Two examples drawn from a recent sector review on Seeking Alpha – note that company management and you as an investor are not able to face present prices, trends and the facts of supply and demand . What are the these people thinking – why would you invest here ?

Cabot Oil and Gas (NYSE: COG)

Standing behind its production growth expectations of 20-30% in 2015, Cabot is budgeting $1.53-1.6 billion of capital expenditure for 2015, of which drilling and well completion capital will consist roughly 80%. However, the company is budgeting for $88/bbl oil, which at this point seems rather optimistic. Note that this is an increase from 2013’s $1.19 billion capital expenditure program.

Concho Resources (NYSE: CXO)

Concho is one rare company that is seeking to execute large increases in production in 2015, budgeting $3 billion for capex in 2015 as of their 3Q results release. To this end they have hedged roughly 42,000 barrels per day for 2015 at an average price of $87.22 per their derivatives information column on this page, or about a quarter of their target output.

Encana Energy (NYSE: ECA)

Encana is banking on higher realized oil prices in 2015 as their projected budget has actually increased this year to $2.7-2.9 billion, up from a previously announced $2.5-2.6 billion. Aftersuccessfully acquiring Athlon Energy (the transaction closing in November), Encana is making a bullish push to grow business in spite of ominous sector-wide headwinds.

The impending writedowns represent the latest blow to an industry rocked by a combination of faltering demand growth and booming supplies from North American shale fields. The downturn threatens to wipe out more than $1.6 trillion in earnings for producing companies and nations this year. Oil explorers already are canceling drilling plans and laying off crews to conserve cash needed to cover dividend checks to investors and pay back debts.

The mid-cap and small-cap operators are going to be hardest hit because this is all driven by their cost to produce,” said Gianna Bern, founder of Brookshire Advisory and Research Inc., who also teaches international finance at the University of Notre Dame.

An index of 43 U.S. oil and gas companies lost about one-fourth of its value since crude began its descent from last year’s intraday high of $107.73 a barrel on June 20.

Have you avoided these sectors  ?– you would have been better off  and now you have to decide for 2015.

No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Jack A. Bass Managed Accounts

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds at the rate of 1 % monthly if you require an income stream.

OR

Looking for Income ?  – Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management , tax reduction,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Telephone  Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax Free Portfolio  Growth website  Http://www.youroffshoremoney.com

Gas Price Drop Pressures Aging Coal and Nuclear Power

A 37 percent drop in natural gas prices since June has lowered what U.S. nuclear and coal plants can charge for electricity, potentially speeding the demise of generators teetering on the brink of closing.

While power plants that burn gas get a break on the cost side, allowing them to charge less for their product, coal and nuclear operators are seeing thinning profits. The gas squeeze comes as companies are upgrading plants to meet new environmental rules and demand weakens as a result of competition from solar and wind energy.

FirstEnergy Corp. (FE), NRG Energy Inc. (NRG), and the generation unit that will be spun off fromPPL Corp. (PPL), are among companies most at risk from depressed energy prices, according to a Dec. 31 note published by UBS AG energy analysts. Exelon Corp. (EXC), the biggest U.S. owner of nuclear reactors, said it needs to almost double power prices to keep a New York plant running.

“Natural gas prices have been falling and that’s generally not a good thing for coal and nuclear power producers who sell in competitive wholesale markets,” said Paul Patterson, a New York-based analyst for Glenrock Associates LLC.

Public Service Enterprise Group Inc. (PEG) could also face reduced revenues, UBS said. Plant closings threaten the reliability of power supplies in some regions. Mild weather has disappointed hopes for a surge in summer cooling and winter heating demand for gas.

Changing Fuels

“The latest slide in natural gas prices raises the specter of big coal-to-gas switching in 2015,” said Julien Dumoulin-Smith, a New York-based analyst for UBS.

Expectations for a repeat of last year’s polar vortex, when frigid temperatures spurred record demand and soaring prices for gas and electricity, are dwindling due to milder-than-expected winter weather.

“As you get further along in the winter, the risk of extreme weather begins to go down,” Patterson said.

Gas settled yesterday in New York at $2.938 per million British thermal units after hitting a two-year low this week. Gas last month hit historic lows in some parts of the Mid-Atlantic.

Power prices for delivery during the peak hours of the day for winter has fallen 21 percent to $54 a megawatt-hour since mid-December in PJM Interconnection LLC, the nation’s largest U.S. electricity grid. PJM serves more than 61 million people from Washington, D.C. to Chicago.

Stocks Suffer

Shares of some of the nation’s largest power generators have also suffered. NRG, the largest U.S. independent generation owner, has fallen 22 percent since hitting a recent high on Nov. 7. Dynegy Inc., another large independent operator, is down 15 percent over the same period.

Owners of utilities, which are allowed to charge rates that provide a profit, are exiting the competitive power business that leaves them vulnerable to market swings. American Electric Power Co. (AEP), the biggest U.S. coal burner, said yesterday it had hired Goldman Sachs Group Inc. to advise on a potential sale of seven power plants as the utility owner struggles to compete amid falling prices.

Utilities including FirstEnergy, which owns about 10,000 megawatts of coal capacity, and Exelon are lobbying regulators and grid operators to boost what they can charge customers at their financially pinched units. They say closing the plants will risk blackouts and raise customer bills even higher.

After recording losses that exceeded $100 million from 2011 to 2013, Exelon said it needs to charge about 83 percent more than wholesale prices to earn a profit at its Rochester-area Ginna plant. Last month, Entergy Corp. shut Vermont’s only operating reactor citing low power prices.

EPA Rule

The U.S. Environmental Protection Agency said today it will delay the release of carbon-emission rules for all power plants until the middle of the summer. Industry groups and Republican lawmakers said the proposed rules would effectively ban new coal facilities.

The companies say gas shortages last winter showed the value of coal and nuclear plants that were needed to keep the lights on. PJM, the grid operator, is asking federal regulators to allow for increasing payments to plant owners to ensure at least 2,000 megawatts of aging generation is kept in operation through next winter, according to a filing with the Federal Energy Regulatory Commission.

That won’t provide any relief in the short term as milder weather and lower gas prices could reduce FirstEnergy’s earnings per share by 20 cents in 2015, according to UBS. The company is among “the most exposed” to declining use of coal-fired power units, UBS said.

Hedging Help

NRG could see a $30 million reduction in earnings before interest, taxes, depreciation and amortization in 2015, UBS said.

To protect themselves from volatile price swings, power companies are using hedging contracts to lock in future prices for power and gas.

FirstEnergy is taking “aggressive actions” to reduce its exposure to the market and has increased its hedged contracts since November, said Tricia Ingraham a spokeswoman for FirstEnergy. Exelon reduces its exposure to power price movements with a three-year forward hedging strategy, spokesman Paul Adams said. NRG, PPL and Public Service declined to comment on the UBS report. Dynegy didn’t immediately respond to a request for comment.

This year, coal-fired power production in PJM could be close to the lowest level since 2008, according to UBS.

How $50 Oil Changes Almost Everything

 Investors are in denial but bankers see the problem:

  • Lenders are already doling out tough love to companies,  with some lenders wanting to see producer plans for handling further price drops while others are urging asset sales.
  • The 10 highest ratios of net debt/EBITDA from the last 12 months, according to S&P Capital IQ, belong to KWK, AR, WRES, GDP, REN, HK,XCO, REXX, MPO, EPE.

Photographer: Andrew Burton/Getty Images

U.S. shale oil production.

The plummeting price of oil means no more trout ice cream.

Coromoto, a parlor in Merida, Venezuela, famous for its 900 flavors,closed during its busiest season in November because of a milk shortage caused by the country’s 64 percent inflation rate, the world’s fastest.

That’s the plight of an oil-producing nation. At the same time, consuming countries like the U.S. are taking advantage. Trucks, which burn more gasoline, outsold cars in December by the most since 2005, according to data from Ward’s Automotive Group.

The biggest collapse in energy prices since the 2008 global recession is shifting wealth and power from autocratic petro-states to industrialized consumers, which could make the world safer, according to a Berenberg Bank AG report. Surging U.S. shale supply, weakening Asian and European demand and a stronger dollar are pushing oil past threshold after threshold to a five-and-half-year low, with a dip below $40 a barrel “not out of the question,” said Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank Wealth Management, which oversees about $120 billion.

Oil prices are the big story for 2015,” said Kenneth Rogoff, a Harvard University economics professor. “They are a once-in-a-generation shock and will have huge reverberations.”

Photographer: Daniel Acker/Bloomberg

Travis Simmons, a driver for Yo-Mac Transport, stores a filling hose after delivering..

Weak Prices

Brent crude, the international benchmark, fell as low as $49.66 a barrel today, dropping below $50 for first time since 2009. Prices dropped 48 percent in 2014 after three years of the highest average prices in history. West Texas Intermediate, the U.S. benchmark, plunged to as low as $46.83 today, about a 56 percent decline from its June high.

“We see prices remaining weak for the whole of the first half” of 2015, said Gareth Lewis-Davies, an analyst at BNP Paribas in London.

If the price falls past $39 a barrel, we could see it go as low as $30 a barrel, said Walter Zimmerman, chief technical strategist for United-ICAP in Jersey City, New Jersey, who projected the 2014 drop.

“Where prices bottom will be based on an emotional decision,” Zimmerman said. “It won’t be based on the supply-demand fundamentals, so it’s guaranteed to be overdone to the downside.”

The biggest winner would be the Philippines, whose economic growth would accelerate to 7.6 percent on average over the next two years if oil fell to $40, while Russia would contract 2.5 percent over the same period, according to an Oxford Economics Ltd.’s December analysis of 45 national economies.

Inflation Outlook

Among advanced economies, Hong Kong is the biggest winner, while Saudi Arabia, Russia and the United Arab Emirates fare the worst, according to Oxford Economics.

One concern of central bankers is the effect of falling oil prices on inflation. If crude remains below $60 per barrel this quarter, global inflation will reach levels not seen since the worldwide recession ended in 2009, according to JP Morgan Securities LLC economists led by Bruce Kasman in New York.

Kasman and his team are already predicting global inflation to reach 1.5 percent in the first half of this year, while sustained weakness in oil suggest a decline to 1 percent, they said.

Negative Inflation

The euro area would probably witness negative inflation, while rates in the U.S., U.K. and Japan also would weaken to about 0.5 percent. For what it calls price stability, the Federal Reserve’s inflationtarget is 2 percent. Emerging-market inflation would also fade although lower currencies and policies aimed at slowing the effects on retail prices may limit the fall.

As for growth, a long-lasting price of $60 would add 0.5 percentage point to global gross domestic product, they estimate.

Even as cheaper fuel stimulates the global economy, it could aggravate political tension by squeezing government revenue and social benefits, Citigroup Inc. analysts said in a Jan. 5 report.

Either way, previously unthinkable events now look more likely. Byron Wien, a Blackstone Group LP vice chairman, predicting that Russian President Vladimir Putin will resign in 2015 and Iran will agree to stop its nuclear program.

Iran Losses

Iran is already missing tens of billions of dollars in oil revenue due to Western sanctions and years of economic mismanagement under former President Mahmoud Ahmadinejad.

President Hassan Rouhani, elected on a pledge of prosperity to be achieved by ending Iran’s global isolation, is facing a falling stock market and weakening currency. Iranian officials are warning of spending and investment cuts in next year’s budget, which will be based on $72-a-barrel crude. Even that forecast is proving too optimistic.

“Iran will stumble along with less growth and development,” said Djavad Salehi-Isfahani, a professor of economics at Virginia Tech in Blacksburg, Virginia, who specializes in Iran’s economy. “The oil price fall is not reason enough for Iran to compromise.”

The Russian economy may shrink 4.7 percent this year if oil averages $60 a barrel under a “stress scenario,” the central bank said in December. The plunge in crude prices prompted a selloff in the ruble with the Russian currency falling to a record low against the dollar last month and tumbling 46 percent last year, its worst performance since 1998, when Russia defaulted on local debt.

Russian Production

“The risk is that, as a badly-wounded and cornered bear, Russia may turn more aggressive in its increasing desperation, threatening global peace and the European economic outlook,” said Holger Schmieding, Berenberg Bank’s London-based chief economist. However, “the massive blow to Russia’s economic capabilities should –- over time –- make it less likely that Russia will wage another war.”

Russian oil production rose to a post-Soviet record last month, showing how pumping of the nation’s biggest source of revenue has so far been unaffected by U.S. and European sanctions or a price collapse. The nation increased output to 10.667 million barrels a day, according to preliminary data from the Energy Ministry on Jan. 2. That compares with global consumption of 93.3 million barrels a day, based on the International Energy Agency’s estimate for 2015.

Venezuela, which relies on oil for 95 percent of its export revenue, risks insolvency, Jefferies LLC said in a Jan. 6 note. The cost of insuring the country’s five-year debt has tripled since July, Citigroup said. President Nicolas Maduro is visiting China to discuss financing and expects to travel to other OPEC nations to work out a pricing strategy.

Confounding Investors

The U.S., still a net oil importer, would accelerate economic growth to 3.8 percent in the next two years with oil at $40 a barrel, compared with 3 percent at $84, the Oxford Economics study found. The boost to consumers could be offset by oil companies’ scaling back investments, according to Kate Moore, chief investment strategist at JPMorgan Private Bank. Producers are cutting spending by 20 percent to 40 percent, according to Fadel Gheit, an analyst at Oppenheimer & Co.

The mixed picture is confounding investors. The Standard & Poor’s 500 Index of U.S. equities fell 1.9 percent on Jan. 5, the biggest decline since October, as oil brought down energy shares and stoked concerns that global growth is slowing.

While cheaper oil helps consumers, business spending has a bigger effect on equities, and oil companies are set to cut investments. Oil at $50 a barrel could trim $6 a share off earnings in theS&P 500 Index this year, according to Savita Subramanian and Dan Suzuki, New York-based strategists at Bank of America Corp.

Bets on high energy prices have mashed share prices of companies such as Ford Motor Co., Tesla Motors Inc. and Boeing Co.

Redistributes Income

Fifth Third Bancorp (FITB), one of the regional lenders that tried to chase the fracking boom, is down 12 percent since June 20.

Caterpillar Inc., Joy Global Inc., Allegheny Technologies Inc., Dover Corp., Jacobs Engineering Group and Quanta Services Inc. are all down more than 20 percent since oil peaked at almost $108.

Despite those losses, Morgan Stanley last month concluded cheaper fuel is a net benefit for the U.S. economy.

“Any massive redistribution of income can raise political tensions,” Schmieding of Berenberg Bank said in the Jan. 6 report. “But, net/net, strengthening the U.S., Europe, Japan, China and India, while weakening Russia, Iran, Saudi Arabia and Venezuela, is likely to make the world a safer place in the end.”

Houston, We Have An Oil Investor Problem : Survival

Photographer: Dmitry Beliakov/Bloomberg

Hedge Funds Cut Oil Bets After Worst Drop Since 2008

 

 

 

(And it will get worse -

Oil Companies and Investors In Denial : Portfolio Profits At Risk - Jack A. Bass)

Oil’s dramatic fall in price will have serious effects on revenues and spending in the sector, according to some industry analysts, with one investment firm predicting a sector-wide “recession” that will last for several years.

Both U.S. crude and Brent futures fell to fresh 5½-year lows on Tuesday, with the former slipping below $48 at one stage. Weak global demand and booming U.S. oil production are seen as the key reasonsbehind the price plunge, as well as OPEC’s (Organization of the Petroleum Exporting Countries) reluctance to cut its output.

This sector slump will lead to a fight to the death for oil firms, according to analysts at Bernstein Research. The research firm likened the current environment to the Hollywood movie “The Hunger Games”, which portrays a dystopian post-apocalyptic future where the main protagonists battle each other to survive.

“Our research convinces us an oil services recession is largely unavoidable at even $80 a barrel…The Hunger Games have begun,” Nicholas Green, a senior analyst at the company, said in a note on Tuesday morning.

Bernstein’s Green believes that offshore activity will also face a “structural recession.” He predicts that there will be only half of the new work available in 2015, compared to last year, and forecasts no material recovery before 2017.Hedge funds reduced bets on rising oil prices for a second week as futures extended their worst plunge since 2008.

Speculators pared their net-long positionin West Texas Intermediate crude by 3.6 percent in the week ended Dec. 30, U.S. Commodity Futures Trading Commission data show. Short wagers jumped 12 percent, the first gain in six weeks.

The U.S. benchmark price sank 46 percent last year as domestic oil output reached a three-decade high and OPEC produced more than its target for a seventh month. The International Energy Agency has cut its estimate for global demand as economies outside the U.S. are expected to grow more slowly, adding to a supply glut.

Oil Prices

“You had the combination of weak fundamentals and a shift in market psychology,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said yesterday. “People realized that there’s no imminent market tightness, and this caused big selloffs.”

WTI fell $3, or 5.3 percent, to $54.12 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures declined $1.16, or 2.3 percent, to $48.88 a barrel at 8:46 a.m. after sliding to $48.47, the lowest since April 2009.

U.S. crude production was 9.12 million barrels a day in the seven days ended Dec. 26 after reaching 9.14 million two weeks earlier, the highest in weekly government data since 1983.

Global Production

Crude stockpiles in the U.S. were 385.5 million barrels as of Dec. 26, while gasoline suppliesincreased to 229 million, the highest seasonal levels in weekly Energy Information Administration data.

Russian oil production rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data e-mailed by CDU-TEK, part of the Energy Ministry. Iraq exported 2.94 million barrels a day in December, the most since the 1980s, Oil Ministry spokesman Asim Jihad said.

“The consistent production around the world is overwhelming demand,” Michael Hiley, head of energy OTC at LPS Partners Inc. in New York, said yesterday. “It looks like prices will keep making new lows.”

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which have unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

Saudi Prices

“Everybody is producing as much oil as they can,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “With the shale revolution flooding the market with oil and OPEC not cutting at all, the market is fundamentally weak.”

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, produced 30.24 million barrels a day in December, according to a Bloomberg survey. The group decided to maintain its output quota at 30 million barrels a day at a Nov. 27 meeting in Vienna.

Saudi Arabia, the world’s biggest oil exporter, raised its price yesterday for February deliveries of Arab Light to Asia from the biggest discount in at least 14 years. The price cut last month was followed by Iraq, Kuwait and Iran, prompting speculation that Middle East producers were protecting market share.

“The Saudis refuse to cut and lose market share, to prop up prices for the rest of the world,” Hiley said. “As the price goes down, it doesn’t mean production goes away.”

Natural Gas

Net-long positions for WTI dropped by 7,551 to 199,388 contracts of futures and options in the week ended Dec. 30, according to the CFTC. Long positions fell 0.4 percent to 259,613 and short bets climbed to 60,225.

In other markets, bearish wagers on U.S. ultra low sulfur diesel increased 11 percent to 27,087 contracts as the fuel sank 6.1 percent to $1.8688 a gallon.

Wagers on U.S. natural gas swung to net short position of 12,130 contracts in the week ended Dec. 30 from net long of 3,648 in the previous week. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas dropped 2.4 percent to $3.094 per million British thermal units.

Bullish bets on gasoline tumbled 10 percent to 44,226. Futures slumped 7.4 percent to $1.4537 a gallon on Nymex in the reporting period.

Regular retail gasoline dropped 0.5 cent to an average of $2.194 yesterday, the cheapest since May 2009, according to Heathrow, Florida-based AAA, the country’s largest motoring group. U.S. drivers may save as much as $75 billion at gasoline pumps in 2015, AAA said on Dec. 31.

“People realized how bearish the fundamentals are,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s probably the worst of times for hedge funds. For drivers, it’s probably the best of times.”

 

The impending writedowns represent the latest blow to an industry rocked by a combination of faltering demand growth and booming supplies from North American shale fields. The downturn threatens to wipe out more than $1.6 trillion in earnings for producing companies and nations this year. Oil explorers already are canceling drilling plans and laying off crews to conserve cash needed to cover dividend checks to investors and pay back debts.

The mid-cap and small-cap operators are going to be hardest hit because this is all driven by their cost to produce,” said Gianna Bern, founder of Brookshire Advisory and Research Inc., who also teaches international finance at the University of Notre Dame.

An index of 43 U.S. oil and gas companies lost about one-fourth of its value since crude began its descent from last year’s intraday high of $107.73 a barrel on June 20.

Have you avoided these sectors  ?– you would have been better off  and now you have to decide for 2015.

No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Jack A. Bass Managed Accounts

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds at the rate of 1 % monthly if you require an income stream.

Contact information:

To learn more about portfolio management , tax reduction,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Telephone  Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

 

Miners Sector 2015 Forecast :Dumping Assets At Fire-sale Prices

Senior mining companies are still holding many unnecessary and troubled assets on their books. So it would not be a surprise to see a few more dirt-cheap deals in 2015.

Scott Douglas/Riversdale Mining Ltd.Senior mining companies are still holding many unnecessary and troubled assets .

The junior mining sector is in such brutal shape right now that most companies are unwilling to even pay for booths at conferences that are geared to them.

 

Mr. Dethlefsen’s firm, Corsa Coal Corp., was approached this year about buying coal assets in Pennsylvania from Russian steel giant OAO Severstal, which was bailing out of the United States.

Severstal had bought these operations for $900 million in 2008, when steelmaking coal prices were hitting all-time highs. Mr. Dethlefsen would not pay anything close to that in today’s awful coal market, but he didn’t have to. Corsa bought the operations for a grand total of US$60 million, or less than 8% of what Severstal paid.

“It’s a tough market. We have our work cut out for us with this business and it’s not going to be easy,” said Mr. Dethlefsen, Corsa’s chief executive.

“But we’d rather start by paying US$60 million than US$500 million.”

Indeed. It used to be that when mining companies put assets up for auction, they wouldn’t actually sell them unless they got a very full price. That could be because their commodity price assumptions were too optimistic, or they were just too attached to them and convinced they could extract more value. Dozens of interesting projects were put up for auction in recent years and never changed hands because sellers demanded too much money.

We have our work cut out for us with this business and it’s not going to be easy

That changed in 2014, especially at the low end. This will go down as the year when miners were happy to dump their troubled assets. They just wanted to get them off the books and make them someone else’s problem.

The Corsa-Severstal deal was one such example. Rio Tinto Ltd., another, sold coal assets in Mozambique for US$50 million, just three years after paying US$3.7 billion for them. Kinross Gold Corp. dumped Fruta del Norte, possibly the world’s richest undeveloped gold project, for US$240 million, or less than a quarter of what it paid six years ago.

A Billion Dollar Loss – and more of these stories to be written in 2015

And then there was the unfortunate tale of Alberta coal miner Grande Cache Coal Corp. A pair of Asian commodity traders (Marubeni Corp. and Winsway Enterprises Holdings) paid $1 billion for the company in 2011. But coal prices turned dramatically against them. So in October, they agreed to sell their Grand Cache stakes for a buck. Each.

These fire-sale prices generated some laughs across the industry. Yet the deals have an undeniable logic in the current volatile market conditions.

Handout/Grande Cache Coal

Handout/Grande Cache CoalA pair of Asian commodity traders (Marubeni Corp. and Winsway Enterprises Holdings) paid $1 billion for Grande Cache Coal in 2011. But coal prices turned dramatically against them. So in October, they agreed to sell their Grand Cache stakes for a buck. Each.

During the mining bull market (roughly 2002 to 2011), the industry was undergoing massive consolidation as miners rode the wave of rising metal prices. Senior mining companies like Rio Tinto and Vale SA snapped up almost everything in sight, piling up a lot of debt and unnecessary assets in the process. As long as commodity prices were high, who cared? They were just happy to get bigger.

It took a steep drop in prices — and an embarrassing wave of writedowns — to force them to reconsider their strategy. They realized too much management time was being wasted on non-core assets that deliver minimal or no return. They also recognized that low commodity prices may last for a while and that they needed to shed these assets to get as lean as possible.

It has helped that almost every major mining company replaced its CEO over the last couple of years. These guys have no emotional attachment to the assets their predecessors overpaid for, and are happy to do whatever it takes to get value out of them.

“Everyone is looking at rationalizing their portfolios to their best core assets,” said Melanie Shishler, a partner and mining specialist at Davies Ward Phillips & Vineberg LLP. “In furtherance of that, I think people are being quite unrelenting in what they’re prepared to do to reach that goal.”

And there was nothing CEOs wanted to divest more than their problem assets. These assets were unloaded for bargain-basement prices after they backfired in spectacular ways.

For Severstal, it was a combination of a deteriorating coal market and Vladimir Putin. When Severstal bought the U.S. assets in 2008, coking coal prices were soaring above US$300 a tonne. Supply was so tight that steelmakers were terrified they would not be able to source product, so they started snapping up coal mining operations.

Today, that strategy seems absurd. Benchmark prices have plunged to US$117 a tonne, due to soaring supply and uncertain Chinese demand. Steelmakers no longer see any need to be vertically integrated.

Advertisement

Kinross – Poster Child For Mining Sector Errors

For Toronto-based Kinross, the central issue was also politics. The problem with the Fruta del Norte (FDN) project is that it is in Ecuador, a country with no history of large-scale gold mining. Kinross paid $1.2 billion for FDN in 2008 even though Ecuador did not have a firm mining law at the time. It was a reckless gamble, and it backfired after the government demanded outrageous windfall profits taxes. (Kinross owns equity in FDN’s new owner, so it could still benefit if the mine is built.)

Rio Tinto fell victim to a lack of good due diligence. It paid billions for the Mozambique coal assets without having a firm transportation plan in place. The transportation constraints were far bigger than anticipated, making the coal assets almost worthless in Rio’s eyes.

Handout/Kinross

Handout/KinrossKinross paid $1.2 billion for the Fruta del Norte mine in 2008 even though Ecuador did not have a firm mining law at the time. It was a reckless gamble, and it backfired after the government demanded outrageous windfall profits taxes.

 

In the two-dollar Grande Cache deal, the Asian sellers decided the assets definitely worthless to them at these prices. Experts said the sellers were facing potential cash outflows in the short term, something they clearly wanted to avoid.

Senior mining companies are still holding many unnecessary and troubled assets on their books. So it would not be a surprise to see a few more dirt-cheap deals in 2015.

One notable thing about these transactions is they usually involved a large company selling to a very small one. Sometimes it takes a small company to give a problem asset the attention it needs to create value. If they can’t get the assets turned around, then these deals are not such a great bargain.

“I’ve always said one company’s non-core asset is the cornerstone asset of another one,” said Jack A. Bass, managing partner at Jack A. Bass and Associates.

That is certainly the case with Corsa, which transformed into a serious player overnight with the Severstal deal. But now that the excitement has worn off, the company has to prove it can generate actual value out of these operations in a miserable coal market. If Corsa pulls that off and prices rebound, it could turn out to be one of the best mining deals in decades.

“We took the opportunity to come in and buy at what we think is the trough,” Mr. Dethlefsen said.

“To do that, you’ve got to have a pretty strong stomach. Over the next 12 months, it’s going to be a knife fight.”

You Have Options:

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter athttp://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ Energy I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

Energy Forecast 2015 : Oil Prices Won’t Be Bouncing Back

The surge in production comes as growth in global demand hit a five-year low in 2014, due to "a sharp slowdown in Chinese oil demand growth and steep contractions in Europe and Japan," the IEA said in its December report.

The surge in production comes as growth in global demand hit a five-year low in 2014, due to “a sharp slowdown in Chinese oil demand growth and steep contractions in Europe and Japan,” the IEA said in its December report.
  • ANALYSIS

The world’s major producers continue to pump oil at record levels, dimming hopes of a price rebound in the near future.


Jack A. Bass tax planning and investing guru says the prolonged stretch of low oil prices to come will bring on economic and geopolitical changes that not so long ago were unthinkable

U.S. crude has lost half its value since the summer, as eight of the world’s Top 10 producers cranked up production at or near record levels, with no one willing to rein in output.

On Tuesday, the global benchmark Brent settled up 2¢ at US$57.90. U.S. crude settled up 51¢ at US$54.12 a barrel. Both measures hit 5-1/2-year lows Monday before rebounding slightly.

International Energy Agency data shows U.S. oil production has risen by 4.7 million barrels per day during the past five years, while Canada’s production is up one million bpd and Saudi Arabia has climbed by 1.7 million bpd.

The surge in production comes as growth in global demand hit a five-year low in 2014, due to “a sharp slowdown in Chinese oil demand growth and steep contractions in Europe and Japan,” the IEA said in its December report.

The global oil market appears heavily oversupplied during the first-half of 2015

At the same time, Saudi, Canadian, American, Iraqi, Kuwaiti, Russian and UAE production were at or near their highest-ever levels.

“The global oil market appears heavily oversupplied during the first-half of 2015, with global stock builds becoming more manageable during the second-half of next year,” said RBC Capital Markets in a Dec. 18 report. “On an annual basis, we estimate the global oil market is approximately 1 million bpd oversupplied in 2015, but should tighten in 2016 as non-OPEC supply growth decelerate.”

There are few upside risks for oil at the moment. Markets barely registered news of a rocket attack last week on an oil terminal in Libya that saw up to 1.8 million bpd of oil wiped out from the market.

Related

CLICK TO ENLARGE

CLICK TO ENLARGE

Indeed, a deal between Iraq’s central government and the autonomous region of Kurdistan could see up to 300,000-bpd of oil entering the market by the first quarter. On Tuesday, the U.S. administration released more details on what kind of petroleum is allowed to be shipped under the 40-year ban on crude exports, that could further encourage production.

“I think we are in an era of low oil prices for some time to come,” said Phil Flynn, a Chicago-based analyst at The Price Futures Group Inc. “We ended the year in the U.S. with record inventories, we have OPEC basically on track to produce two million barrels per day more than the demand for their oil; and then we have other non-OPEC countries not showing any signs of cutting back in production — the glut is going to go on.”

Oil companies have started to take some action with rig counts at an eighth-month low in the U.S., but it will take a while for the process to filter through the supply chain.

In a sign of the lag, RBC expects non-OPEC supply growth to rise by 1.8 million bpd (compared to its previous estimate of 1.7 million bpd) in 2014, 1.1 million bpd (versus 1.3 million bpd) in 2015, and finally taper to 300,000  to 400,000  bpd in 2016 (compared to its previous estimate of 900,000 bpd).

While smaller, leveraged companies are expected to bear the brunt of the oil price plunge, the bigger, well-capitalized players will likely benefit from the purge of marginal barrels.

“The well-integrated oil companies are loving this,” Mr. Flynn says. “They are going to be able to ride it out and pounce on opportunities when others are going to be tight for cash.”

Few analysts expect an oil price recovery within the next few months, but some  believe markets are underestimating supply threats hovering over the horizon.

“We believe oil prices will rebound for three reasons,” said Leslie Palti-Guzman
, senior analyst, global energy and natural resources at Eurasia Group.

“Markets are underestimating the Libyan crisis, the U.S. Congress will impose more sanctions on Iran, curtailing its production, and Saudi Arabia and its Gulf allies will take some action.

 

You Have Options:

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position

Oil/ Energy I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffs

2014 Commodity Review – Record Losing Run

Oil Set for Biggest Slump Since 2008 as OPEC Battles U.S. Shale

Photographer: Ty Wright/Bloomberg

Rig hands work at a Knox Energy Inc. oil drilling site in Knox County, Ohio, U.S. OPEC… Read More

Oil headed for the biggest annual decline since the 2008 global financial crisis as U.S. producers and the Organization of Petroleum Exporting Countries cede no ground in their battle for market share amid a supply glut.

Futures slid as much as 1.1 percent in New York, bringing losses for 2014 to 46 percent. U.S. guidelines allowing overseas sales of ultralight oil without government approval may boost the country’s export capacity and “throw a monkey wrench” intoSaudi Arabia’s plan to curb American output, according to Citigroup Inc. U.S.crude inventories are forecast to rise to the highest level for this time of the year in three decades.

Oil’s slump has roiled markets from the Russian ruble to the Nigerian naira and squeezed government budgets in producing nations including Venezuela and Ecuador. It’s also boosted China’s emergency crude reserves and helped shrink fuel subsidies in India and Indonesia. OPEC has signaled it won’t cut supply to influence prices, instead preferring to defend market share amid an unprecedented U.S. shale boom.

“For this year, the biggest factor driving down oil prices was U.S. shale production followed by a price war,” Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul, said by phone today. “The possibility of U.S. curbing output will be the only booster but nothing has been done, so we’re seeing a continuation of the price decline.”

West Texas Intermediate for February delivery dropped as much as 57 cents to $53.55 a barrel in electronic trading on the New York Mercantile Exchange and was at $53.75 at 12:04 p.m. Singapore time. The contract climbed 51 cents to $54.12 yesterday, gaining for the first time in four days. Total volume was about 68 percent below the 100-day average.

U.S. Condensate

Brent for February settlement fell as much as 72 cents, or 1.2 percent, to $57.18 a barrel on the London-based ICE Futures Europe exchange. Prices have decreased 48 percent this year. The European benchmark crude traded at a premium of $3.62 to WTI, compared with $12.38 at the end of last year.

President Barack Obama’s administration opened the door for expanded oil exports by clarifying that a lightly processed form of crude known as condensate can be sold outside the U.S.

The publication of guidelines by the Commerce Department’s Bureau of Industry and Security is the first public explanation of steps companies can take to avoid violating export laws. It doesn’t end the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo.

“While government officials have gone out of their way to indicate there is no change in policy, in practice this long-awaited move can open up the floodgates to substantial increases in exports by end-2015,” Citigroup analysts led by Ed Morse in New York said in an e-mailed report.

Shale Oil

The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota. Production accelerated to 9.14 million barrels a day through Dec. 12, the fastest rate in weekly data that started in January 1983, according to the Energy Information Administration.

Crude stockpiles probably expanded by 900,000 barrels to 387.9 million in the week ended Dec. 26, based on the median estimate of nine analysts surveyed by Bloomberg News before today’s report from the Energy Department’s statistical arm.

“What we’re seeing is that supplies from North America have really outpaced worldwide demand growth and as a result, we have a supply glut,” Andy Lipow, the president of Lipow Oil Associates LLC in Houston, said by phone. “And that of course has put pressure on prices over the last several months.”

OPEC Policy

Global markets are oversupplied by 2 million barrels a day, according to Qatar’s Energy Minister Mohammed Al Sada. Saudi Arabia, which is leading OPEC to resist production cuts, has said it’s confident that prices will rebound as global economic growth boosts demand.

OPEC, which pumps about 40 percent of the world’s oil, decided to maintain its output quota at 30 million barrels a day at a Nov. 27 meeting in Vienna, ignoring calls for supply reductions to support the market. The 12-member group produced 30.56 million a day in November, exceeding its collective target for a sixth straight month, a separate Bloomberg survey of companies, producers and analysts shows.

Saudi Arabia this month offered the widest discounts in more than 10 years to sell crude to Asia, a move followed by Iraq, Kuwait and Iran. That prompted speculation that Middle East producers are protecting market share amid increased shipments from Latin America, North Africa and Russia.

Economic Fallout

Venezuela’s President Nicolas Maduro vowed an economic “counter-offensive” to steer the OPEC member out of recession as it struggled with the world’s fastest inflation. Ecuador, which relies on crude for about a third of its revenue, may cut next year’s budget by as much as $1.5 billion and seek additional financing if prices don’t stabilize, the Finance Ministry has said.

Oil’s collapse has also threatened to push Russia, the world’s second-largest crude exporter, into recession as its currency headed for its steepest annual slide since 1998. The economy, which relies on crude sales for almost half its budget, may shrink as much as 4.7 percent next year if oil averages $60 a barrel, according to the central bank. Russia must adapt to the reality of prices that could drop to as low as $40, President Vladimir Putin said on Dec. 18.

In China, a factory gauge for December fell to a seven-month low today, adding to signs of slowing growth in the world’s second-biggest oil consumer. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.6, down from 50 in November, indicating a contraction.

The Asian nation will account for about 11 percent of global demand in 2015, compared with 21 percent for the U.S., projections from the International Energy Agency in Paris show.

Commodities Head for Record Losing Run on Oil’s Rout, Dollar

The Bloomberg Commodity Index (BCOM), which tracks 22 products from crude to copper, traded at 106.0552 points at 11:45 a.m. in Singapore from 106.1031 yesterday. It’s lost 16 percent this year, with crude, gasoline and heating oil as the biggest decliners. The gauge fell to 105.7551 yesterday, the lowest level since March 2009, and a fourth year of losses would be the longest since at least 1991. A breach of 101.9986 in 2015 would bring the measure to its lowest since 2002.

Energy prices collapsed in 2014 as a jump in U.S. drilling sparked a surge in output and price war with OPEC, which chose to maintain supplies to try to retain market share. The dollar climbed to the highest level in more than five years as a U.S. recovery spurred speculation that the Federal Reserve will start to raise borrowing costs next year. Commodities are set for a volatile year in 2015, with crude oil poised to extend its slump, according to Australia and New Zealand Banking Group Ltd.

“What we’re seeing is that supplies from North America have really outpaced worldwide demand growth and as a result, we have a supply glut,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone. “And that of course has put pressure on prices over the last several months. And as a result, it’s dragging down commodities indexes as well.”

Brent Slumps

Brent for February settlement traded at $57.48 a barrel on the London-based ICE Futures Europe exchange, with front-month prices 48 percent lower this year. West Texas Intermediate dropped 0.6 percent to $53.81 a barrel on the New York Mercantile Exchange. Gasoline sank 44 percent this year.

A slowdown in China also hurt demand for raw materials as policy makers grappled with a property slowdown, and data today showed a factory gauge at a seven-month low in December. The world’s biggest user of metals is headed for its slowest full-year economic expansion since 1990. China’s central bank cut interest rates last month for the first time since 2012.

Coffee was the biggest gainer this year as the worst drought in decades eroded supplies in Brazil, the largest producer and exporter. Nickel rose the most among metals, gaining 9 percent to $15,149 a metric ton on the London Metal Exchange after Indonesia halted ore exports. Both commodities rose in the early months of 2014, before dropping this quarter.

Oil Outlook

While most commodities looked oversold as the New Year neared, weak near-term fundamentals were unlikely to bring much confidence, ANZ analysts including Mark Pervan said in a report dated Dec. 22. An oversupplied market was likely to keep crude oil prices under pressure, they wrote.

Deutsche Bank AG this month cut its 2015 forecast for Brent to $72.50, down from an October prediction for an average of $88.75. Goldman Sachs Group Inc. expects Brent to average $80 to $85 a barrel in 2015, while WTI may trade at $70 to $75.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against major peers, advanced 10.6 percent in 2014 amid speculation the Fed may raise interest rates in the third quarter as the world’s biggest economy improves. The greenback strengthened against all of its 31 major peers this year.

You Have Options:

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter athttp://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ Energy I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

Oil Falls : Sector Update Dec. 29 – and worse to come ( as we forecast)

Oil Falls to 5-Year Low as Supply Glut Seen Lingering

Photographer: Akos Stiller/Bloomberg

An oil refinery in Szazhalombatta, Hungary.

Oil fell to the lowest level in more than five years amid speculation that a global supply glut that’s driven crude into a bear market will continue through the first half of 2015.

West Texas Intermediate dropped as much as 2.2 percent, erasing an earlier gain. Fires have been extinguished at three of six tanks at Es Sider, Libya’s largest oil port, which were set ablaze after an attack by militants, said National Oil Corp. spokesman Mohamed Elharari. Algerian Energy Minister Youcef Yousfi called on OPEC to cut output to boost prices, the Associated Press reported.

Futures plunged 46 percent this year, set for the biggest annual drop since 2008, as the Organization of Petroleum Exporting Countries resisted supply cuts to defend market share in response to the highest U.S. output in three decades. Libya pumped 580,000 barrels a day in November, down from about 1.59 million at the end of 2010, data compiled by Bloomberg show. Trading was below average amid Christmas and New Year holidays.

“We’re looking at a significant supply-demand surplus through the first half of 2015,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “The problems in Libya and any reduction in the growth of U.S. production will only help limit the surplus, but it’s not going away anytime soon.”

WTI Futures

WTI for February delivery fell 96 cents, or 1.8 percent, to $53.77 a barrel at 12:25 p.m. on the New York Mercantile Exchange. Futures touched $53.52, the lowest level since May 2009. The volume of all futures traded was 43 percent below the 100-day average for the time of day.

Brent for February settlement slipped $1.09, or 1.8 percent, to $58.36 a barrel on the London-based ICE Futures Europe exchange. It touched $57.88, the lowest level since May 2009. Volume was 51 percent below the 100-day average. The European benchmark traded at $4.59 premium to WTI, down from $4.72 on Dec. 26.

Libya’s oil production slumped after a civil war that began in 2011 when dictator Muammar Qaddafi was overthrown after a 42-year rule. The tank fires started on Dec. 25 after the Petroleum Facilities Guard gave Islamist militias an ultimatum before air strikes and the rebels fought back with rockets.

Falling Output

Libya’s Breakdown

The Es Sider facilities have a total storage capacity of 6.2 million barrels, according to National Oil Corp. Libya’s third-largest port of Ras Lanuf was also halted this month by fighting. The country pumped 352,000 a day on Dec. 25, Elharari said.

“There was a pop off of the Libya headlines earlier today,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone. “A year ago this kind of headline would have spurred a $3-to-$4 rally. The market is so oversupplied right now that it can’t muster a rally on what are bullish headlines.”

Prices tumbled on Dec. 24 after an Energy Information Administration report showed that U.S. crude and fuel inventories surged the prior week. The EIA, the Energy Department’s statistical arm is scheduled to report on supplies last week on Dec. 31.

“Concerns that this week’s numbers will be similar to those last week are going to keep prices from climbing far,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone.

Fuel Prices

Gasoline futures decreased 4.59 cents, or 3 percent, to $1.4628 a gallon in New York, after touching $1.4609, the lowest intraday price since May 2009. Diesel slipped 3.75 cents, or 2 percent, to $1.8704. It reached $1.8658, the lowest level since May 2009.

Regular gasoline at U.S. pumps fell to the lowest level since May 2009. The average retail priceslipped 1 cent to $2.287 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

OPEC needs to “intervene to correct the imbalance and cut production to bring up prices and defend the income of its member states,” Algeria’s Yousfi said, according to the AP.

The 12-member group decided at a Nov. 27 meeting to maintain its collective output quota at 30 million barrels a day. It pumped 30.56 million a day in November, exceeding that target for a sixth straight month, a Bloomberg survey of companies, producers and analysts shows.

“There’s still an awful large amount of surplus oil even with the loss of Libyan barrels,” Yawger said. “We’re still within striking distance of multiyear lows and it wouldn’t take much to get us to test them again.”

Hedge funds and other financial traders pared overall bullish bets on Brent crude for the first time since before OPEC’s decision to maintain production levels.

Money managers curtailed net-long positions by 15 percent to 112,886 contracts in the week ended Dec. 23, according to ICE Futures Europe exchange. They had added to net-longs in the previous four weeks, increasing them in the week to Dec. 16 to the highest level since July, even as Brent fell below $60 a barrel for the first time since 2009.

You Have Options:

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter athttp://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ Energy I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

Can Canadian Oil Sands Survive Falling Prices?


A machine works at the Suncor Energy Inc. mine in this aerial photograph taken above the Athabasca Oil Sands near Fort McMurray, Alberta, Canada.

Photographer: Ben Nelms/Bloomberg

A machine works at the Suncor Energy Inc. mine in this aerial photograph taken above the Athabasca Oil Sands near Fort McMurray, Alberta, Canada.

As oil prices have crashed over the past six months, a lot of attention has focused on what this means for frackers in the U.S., as well as the national budgets of a lot of large oil producing countries, such as Russia and Venezuela. In short, it’s not good. But what about Canada? The country is the world’s fifth-largest oil producer, and only Saudia Arabia and Venezuela have more proven reserves of crude.

Almost all of Canada’s reserves (and production) are in the form of oil sands, which are among the most expensive types of crude to produce. There are pretty much two ways to do it. One is to inject steam into wells deep underground to heat up a thick, gooey type of oil called bitumen. The other is basically to strip mine large tracts of land and extract a synthetic blend of oil out of the earth and sand.

Taken together, both methods require about 17 percent more energy and water than conventional oil wells and also result in similarly higher levels of carbon emissions. That’s made oil sands a particular target of environmentalists. Now the Canadian oil sands producers have to contend with an even greater opposing force: economics. If Canadian oil sands are more expensive to produce than most other oil, how can they survive in the face of prices that are nearly 50 percent cheaper since June?

A few things play to their favor. The first is that their costs are more akin to a mining operation than conventional oil drilling. Oil sands projects require massive upfront investments, but once those are made, they can go on producing for years with relatively low costs. That’s made oil sands, and the companies that produce them, quite profitable over the past few years.

Suncor Energy (SU) and Cenovous Energy (CVE) are two of the biggest oil sands producers in Canada. Both have profit margins that would be the envy of a lot of major oil companies. At Suncor, earnings before interest, taxes, depreciation, and amortization (Ebitda), a basic measure of a company’s financial performance, has risen from 11.7 percent in 2009 to 31 percent through the first nine months of 2014.Exxon Mobil’s (XOM) Ebitda so far this year is about half that at 14.3 percent.

That cost structure may give oil sands producers an advantage over frackers in the U.S., who operate on a much shorter time horizon. Fracked wells in the U.S. tend to produce most of their oil within about 18 months or so. That means that to maintain production and rates of return, frackers need to keep reinvesting in projects with fairly short lifespans, whereas an oil sands project, once up and running, can continue to chug along, even in the face of lower prices, since its costs are spread out over a decade or more rather than over a couple years. That should keep overall oil sands production from falling and help insulate oil sands producers from lower prices, at least for now.

Canadian oil sands are expected to continue growing despite lower pricesGenscapeCanadian oil sands are expected to continue growing despite lower prices

“They’re safer than the frackers,” says Carl Evans, an oil analyst at Genscape. “The sentiment up in Calgary has very much been that growth will push through this price dip, while U.S. production will start to come off highs.” Evans says the breakeven costs for bitumen oil sands projects that are already up and running can be as low as $10 to $20 a barrel. Right now, the price of Canadian oil in Alberta is about $40 a barrel.

This isn’t to say that future investments won’t get cut if prices stay where they are. But those cuts won’t show up in future production growth for years. A total of 14 new oil sands projects in Canada are scheduled to start next year with a combined capacity of 266,000 barrels a day, according to data published by Oilsands Review. That’s 36 percent more than were started in 2014. Since most of those investments have already been made, those projects are probably safe. Even for projects that are only partially paid for, investors will still probably be loath to stop halfway.

“You don’t stop a project mid-cap-ex,” says Greg Sharenow, a portfolio manager at Pacific Investment Management Company (Pimco) and former senior energy economist at Goldman Sachs (GS). “We’ll see a pause in new investments, but you probably won’t see shut-ins without real distress,” he says.

Follow

Get every new post delivered to your Inbox.

Join 2,162 other followers