Morgan Stanley has been pretty pessimistic about oil prices in 2015,
drawing comparisons to the some of the worst oil slumps of the past three decades. The current downturn could even rival the iconic price crash of 1986, analysts had warned—but definitely no worse.
This week, a revision: It could be much worse.
Until recently, confidence in a strong recovery for oil prices—and oil companies—had been pretty high, wrote analysts including Martijn Rats and Haythem Rashed, in a report to investors yesterday. That confidence was based on four premises, they said, and only three have proven true.
1. Demand will rise: Check
In theory: The crash in prices that started a year ago should stimulate demand. Cheap oil means cheaper manufacturing, cheaper shipping, more summer road trips.
In practice: Despite a softening Chinese economy, global demand has indeed surged by about 1.6 million barrels a day over last year’s average, according to the report.
2. Spending on new oil will fall: Check
In theory: Lower oil prices should force energy companies to cut spending on new oil supplies, and the cost of drilling and pumping should decline.
In practice: Sure enough, since October the number of rigs actively drilling for new oil around the world has declined by about 42 percent. More than 70,000 oil workers have lost their jobs globally, and in 2015 alone listed oil companies have cut about $129 billion in capital expenditures.
3. Stock prices remain low: Check
In theory: While oil markets rebalance themselves, stock prices of oil companies should remain cheap, setting the stage for a strong rebound.
In practice: Yep. The oil majors are trading near 35-year lows, using two different methods of valuation.
4. Oil supply will drop: Uh-oh
In theory: With strong demand for oil and less money for drilling and exploration, the global oil glut should diminish. Let the recovery commence.
In practice: The opposite has happened. While U.S. production has leveled off since June, OPEC has taken up the role of market spoiler.
OPEC Production Surges in 2015
For now, Morgan Stanley is sticking with its original thesis that prices will improve, largely because OPEC doesn’t have much more spare capacity to fill and because oil stocks have already been hammered.
But another possibility is that the supply of new oil coming from outside the U.S. may continue to increase as sanctions against Iran dissolve and if the situation in Libya improves, the Morgan Stanley analysts said. U.S. production could also rise again. A recovery is less certain than it once was, and the slump could last for three years or more—”far worse than in 1986.”
“In that case,” they wrote, “there would be little in history that could be a guide” for what’s to come.
Iran has been under official sanction by the UN Security Council since 2006 after failing to acquiesce to Western demands that the Iranians stop all enrichment activity.
After nearly a decade of strict sanctions against Iran’s oil and finance industries, both sides came to the negotiation table over a year ago.
On one side, the U.S., France, Britain, Germany, China, and Russia worked to curb the proliferatory elements of Iran’s program, while the Iranians fought for their own autonomy in energy production.
Upon news of the deal, the market saw oil drop significantly.
Brent crude fell almost $3 per barrel, while West Texas Intermediate dropped 3.5% to $48 per barrel.
The reason for this reaction is simple…
Per the deal, sanctions against Iran’s oil industry would be lifted, which means Iran would be able to increase the export numbers you see above.
In an already flooded global market, news of the possibility of more oil sent prices down again.
While this is a completely plausible reason for oil prices to fall, the market fails to recognize that oil could actually go up because of this deal.
With Iran holding some more clout in the oil market in the Middle East, the nation will have incentive to grow production and exports.
Iran’s natural enemy by proxy — Saudi Arabia — may lose its gumption in an oil price war with the United States, Russia, and other OPEC producers.
Sure, the Saudis can withstand low oil prices until shale wells dwindle further, but with Iran, Russia, and the U.S. continuing production growth, Saudi Arabia may want to cut production, as a longer period of low prices will hurt revenues and cause budgetary problems for the Kingdom.
I realize this may sound counterintuitive, but while prices stand to fall in the short term, the long-term health of the oil market improves with a diversified set of major producers and exporters.
Ways to Benefit from an Iran Deal
By pushing short-term oil prices lower, the Iran deal gives us a great buying opportunity for oil stocks.
By no means am I suggesting you buy Iranian oil companies or speculative plays out of the Middle East. Instead, it would behoove you to find a constructive way to play a coming rise in oil exports and, eventually, prices.
Tanker companies authorized for American imports will be valuable, as will American midstream companies that are involved in the movement of refined oil products like gasoline and plain old crude oil.
The United States, still the biggest oil importer in the world, should now look to lift the export ban to remain competitive with global prices, as Saudi Arabia and Iran will both have a presence in the export market.
And midstream companies in the U.S. can expect to see a vast increase in business as more pipelines, refineries, and storage facilities are permitted and built to boost exports.
In a recent report, I vetted a midstream services company that has improved its business enough to garner an investment from my readers and me.
Its services will be instrumental in the development of midstream and oil logistics throughout the U.S., especially in places like the Permian, where shale oil production is rising despite the bear market.
(Bloomberg) — The slump in oil prices may not be over, according to Goldman Sachs Group Inc.
The decline in the number of U.S. drilling rigs that’s helped crude futures in New York rebound 14 percent from this year’s low isn’t enough to reduce an oversupply, the U.S. bank said in a note dated Feb. 10. Lower prices are needed for American output to slow sufficiently to rebalance global markets, it said.
Goldman joins Citigroup Inc. and Vitol Group, the world’s biggest independent oil trader, in signaling prices may resume a decline amid unrelenting production growth. West Texas Intermediate crude is still down by half from last year’s peak as the U.S. pumps the most in three decades. While companies have idled rigs and cut spending, it will be some time before production is affected, according to the International Energy Agency.
“The decline in the U.S. rig count likely remains well short of the level required to slow U.S. shale oil production to levels consistent with a balanced global market,” analysts including Damien Courvalin wrote in the report. “Lower oil prices will be required over the coming quarters to see the required U.S. production growth slowdown materialize.”
U.S. drillers cut rigs targeting oil by a record 435 to 1,140 in the nine weeks to Feb. 6, according to Baker Hughes Inc. That’s the lowest total since December 2011 as explorers slow efforts in the Permian Basin in Texas and North Dakota’s Bakken formation.
U.S. production will increase by 7.8 percent to 9.3 million barrels a day this year, the fastest pace since 1972, the Energy Information Administration said in its monthly report on Tuesday. That’s down 10,000 barrels a day from its January projection.
Goldman still forecasts “strong production growth” by the fourth quarter of 2015 amid increasing productivity at wells and rigs. The closing of the least-efficient output first also means more drilling has to stop to temper the increase in supplies, it said.
The bank cited producers as saying most of the decline has been for non-contracted rigs and they plan to renegotiate rates lower, meaning there’s potential for a rebound in activity. What’s more, the recent rally in prices has given them an opportunity to hedge against further losses, potentially reducing the need to slow output.
“A slower slowdown in U.S. shale oil production would leave risk to our price forecast skewed to the downside, as it increases the risk of running out of crude oil storage capacity, requiring a decline to shutdown economics,” the analysts wrote.
Goldman last month cut its six- and 12-month forecasts for Brent to $43 and $70 a barrel respectively, from $85 and $90, amid increasing inventories. It also reduced its projections for U.S. benchmark West Texas Intermediate to $39 a barrel and $65, according to a Jan. 11 report.
Vitol Group’s Chief Executive Officer Ian Taylor said in London on Tuesday that “another move down” is possible before the market rebalances in the second half. Unrelenting U.S. crude production will lead to “dramatic” increases in inventories for several months, he said.
Prices may slump as low as $20 a barrel and remain there “for a while,” as U.S. supplies are joined by record output from Russia and Brazil, Ed Morse, Citigroup’s head of commodities research, said in a report e-mailed on Feb. 9.
WTI crude was at $49.86 a barrel on the New York Mercantile Exchange at 12:14 p.m. London time. The price dropped as low as $43.58 on Jan. 29, down from last year’s peak of $107.73. Brent futures, an international benchmark, fell 1.1 percent to $55.80 on the London-based ICE Futures Europe exchange.
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 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..
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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.
(Bloomberg) — Iraq and Iran joined Saudi Arabia in cutting their March crude prices for Asia to the lowest level in more than a decade, signaling the battle for a share of OPEC’s largest market is intensifying.
Iraq’s Basrah Light crude will sell at $4.10 a barrel below Middle East benchmarks, the lowest since at least August 2003, the Oil Marketing Co. said Tuesday. National Iranian Oil Co. lowered its official selling price for March Light crude sales to a discount of $2.10 a barrel, the lowest since at least March 2000, according to a company official who asked not to be identified because of corporate policy.
The cuts come after Saudi Arabia, the largest crude exporter, reduced pricing to Asia last week to the lowest in at least 14 years. The Organization of Petroleum Exporting Countries left its members’ output targets unchanged at a November meeting, choosing to compete for market share against U.S. shale producers rather than support prices. Iraq is the second-biggest producer in OPEC and Iran is fourth.
“This is an effort by some producers to protect market share,” Sarah Emerson, managing principal of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts, said by phone Tuesday. “It’s really straightforward; cutting prices is how you keep your foot in the door.”
Middle Eastern producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia. Oil prices have dropped about 45 percent in the past six months as production from the U.S. and OPEC surged.
The International Energy Agency said Tuesday that the U.S. will contribute most to global growth in oil supplies through 2020 as OPEC’s attempts to defend its market share will hurt other suppliers including Russia more.
“If they go out and sell at a higher price, they won’t sell much,” John Sfakianakis, Middle East director at Ashmore Group Plc, a London-based investment manager, said in an interview in Dubai Tuesday. “For the Saudis, it’s market share at any cost. Saudi is the leader in this and the others have to follow the leader.”
Iran’s output rose to 2.78 million barrels a day in January from 2.77 million a month earlier as Iraq boosted supply to 3.9 million from 3.7 million, according to a Bloomberg survey of oil companies, producers and analysts. Production in Saudi Arabia climbed 220,000 barrels a day to 9.72 million last month.
Saudi Arabia won’t balance global crude markets by itself even as prices fall “too low for everybody,” Khalid Al-Falih, the chief executive officer of Saudi Arabian Oil Co., said at a conference in Riyadh on Jan. 27. The kingdom’s Oil Minister Ali Al-Naimi has said producers outside of the group should trim their output first.
Brent crude, the benchmark for more than half of the world’s oil, rose 20 cents a barrel, or 0.4 percent, to $56.63 on the London-based ICE Futures Europe exchange Wednesday. The European crude touched $45.19 on Jan. 13, the lowest since March 2009. West Texas Intermediate, the U.S. benchmark, gained 49 cents, or 1 percent, to $50.51 a barrel on the New York Mercantile Exchange after falling 5.4 percent on Tuesday.
“This is a global market that’s oversupplied,” Emerson said. “Late March and early April are in normal times a period of weak demand, so you have to be rather aggressive now if you want to sell your oil.”
The oil industry was listening as OPEC talked down crude prices to a more than five-year low.
Drillers, refiners and other merchantsincreased bets on lower prices to the most in three years in the week ended Jan. 6, government data show. Producers idled the most rigs since 1991, with some paying to break leases on drilling equipment.
Companies are hedging more and drilling less amid concern that the biggest slump in prices since 2008 will continue. Oil dropped for a seventh week after officials from Saudi Arabia, the United Arab Emirates andKuwait reiterated they won’t curb output to halt the decline.
“Producers are desperately hedging their production in a drastically falling market,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by phone Jan. 9. “They’re trying to lock in prices because they are convinced that the market will stay down for a while.”
WTI slid $6.19, or 11 percent, to $47.93 a barrel on the New York Mercantile Exchange on Jan. 6, settling below $50 for the first time since April 2009. Futures for February delivery declined $1.53 to $46.83 in electronic trading at 8:09 a.m. local time.
The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, has stressed a dozen times in the past six weeks that it won’t curb output to halt the rout. The U.A.E. won’t cut production no matter how low prices fall, Yousef Al Otaiba, its ambassador to the U.S., said at a Bloomberg Government lunch in Washington on Jan. 8.
The group decided to maintain its collective quota at 30 million barrels a day at a Nov. 27 meeting in Vienna. Output averaged 30.24 million barrels a day in December, according to a Bloomberg survey.
U.S. crude production was 9.13 million barrels a day in the seven days ended Jan. 2 after reaching 9.14 million three weeks earlier, the highest in weekly Energy Information Administration data since 1983. Stockpiles were 382.4 million barrels as of Jan. 2, a seasonal high.
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 Texasand the Bakken in North Dakota. Global oil prices below $40 begin to make wells in such places unprofitable to operate, Wood Mackenzie, an Edinburgh-based consultant, said in a report Jan. 9.
Rigs seeking oil decreased by 61 to 1,421, Baker Hughes Inc. said Jan. 9, extending the five-week decline to 154. It was the largest drop since February 1991, which also followed a slide in prices before the start of the Persian Gulf War.
Helmerich & Payne Inc., the biggest rig operator in the U.S., and Pioneer Energy Services Corp. said last week that they had received early termination notices for rig contracts.
Producers and merchants boosted their net short position by 21 percent, or 17,577 futures and options, to 100,997 in the week ended Jan. 6, according to the Commodity Futures Trading Commission, the most since Jan. 10, 2012.
Hedge funds and other large speculators raised bullish bets by 7 to 199,395 contracts.
“You have this tension and lack of consensus among money managers of what to do with a price under $50,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone Jan. 9. “People tend to think of money managers as a black box where they all use same strategy and march in lockstep, but this highlights that it’s not really the case.”
Bullish bets on Brent crude rose to the highest level in more than five months, according to ICE Futures Europe exchange.
Net-long positions gained by 24,598 contracts, or 21 percent, to 140,169 lots in the week to Jan. 6, the data show. That’s the highest since July 15.
In other markets, bearish wagers on U.S. ultra-low sulfur diesel decreased 12 percent to 23,789 contracts as the fuel sank 7.6 percent to $1.7262 a gallon.
Net short wagers on U.S. natural gas fell 15 percent to 10,323 contracts. 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 5 percent to $2.938 per million British thermal units.
Bullish bets on gasoline declined 0.4 percent to 44,050. Futures slumped 6.8 percent to $1.3543 a gallon on Nymex in the reporting period.
Regular gasoline slid 1.3 cents to an average of $2.139 on Jan. 10, the lowest since May 5, 2009, according to Heathrow, Florida-based AAA, the country’s largest motoring group.
The global crude oversupply is 2 million barrels a day, or 6.7 percent of OPEC output, Qatar estimates. Only 1.6 percent of supply would be unprofitable with prices at $40 a barrel, according to Wood Mackenzie.
“If you’re a producer and your cost is below the price in the market, if you hedge it even at depressed prices you can still make money,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone Jan. 9. “Somebody’s locking in profits even at these low prices.”
Goldman Sees Need for $40 Oil as OPEC Cut Forecast Abandoned
Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in the first half of this year to curb shale investments as it gave up on OPEC cutting output to balance the market.
The bank reduced its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year, according to an e-mailed report. Excess storage and tanker capacity suggests the market can run a surplus far longer than it has in the past, said Goldman analysts including Jeffrey Currie in New York.
The U.S. is pumping oil at the fastest pace in more than three decades, helped by a shale boom that’s unlocked supplies from formations including the Eagle Ford in Texas and the Bakken in North Dakota. Prices slumped almost 50 percent last year as the Organization of Petroleum Exporting Countries resisted output cuts even amid a global surplus that Qatar estimates at 2 million barrels a day.
“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer,” Goldman said in the report. “The search for a new equilibrium in oil markets continues.”
West Texas Intermediate, the U.S. marker crude, will trade at $41 a barrel and global benchmark Brent at $42 in three months, the bank said. It had previously forecast WTI at $70 and Brent at $80 for the first quarter.
Goldman reduced its six and 12-month WTI predictions to $39 a barrel and $65, from $75 and $80, respectively, while its estimate for Brent for the period were cut to $43 and $70, from $85 and $90, according to the report.
“We forecast that the one-year-ahead WTI swap needs to remain below this $65 a barrel marginal cost, near $55 a barrel for the next year to sideline capital and keep investment low enough to create a physical re-balancing of the market,” the bank said.
Goldman estimates there’s sufficient capacity to store a surplus of 1 million barrels a day of crude for almost a year. It expects the spread between WTI and Brent to widen in the next quarter as discounted U.S. crude prices and “strong margins lead U.S. refineries to export the glut to the other side of the Atlantic.”
The Brent-WTI spread will average $5 a barrel in 2016, according to the bank. The gap was at $1.50 today.
Please see our first Get Out of The Oil Patch dated Nov.30 for our 2015 forecast – here is a portion of that article:
– quote 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 – unquote
Kostin, for his part, is recommending that it’s time to load up on energy companies if you’re a patient (there’s that word again) investor with a 12-month time horizon. He and the elves at Goldman have identified 27 energy stocks in the Russell 1000 Index whose prices have declined more than their 2015 earnings estimates and trade at below-average forward-looking valuations.
Even some of Wall Street’s big boys are taking a beating in the oil sector: Carl Icahn’s holdings of Talisman Energy (NYSE:TLM) have tumbled $230M since late August, and John Paulson’s firm had one of its largest losses of the year on a bet that big oil companies would buy smaller ones.
Before TLM agreed to be bought by Repsol, which boosted TLM shares, Icahn’s losses stood at more than $540M as recently as Dec. 11, and he still will have lost ~$290M at the deal price; Icahn also holds stakes in hard-hit Chesapeake Energy (NYSE:CHK) and Transocean (NYSE:RIG).
Paulson was the biggest shareholder in Whiting Petroleum (NYSE:WLL) and Oasis Petroleum (NYSE:OAS) at the end of Q3, but his strategy could yet pay off, as many analysts expect consolidation in the energy sector as lower oil prices pressure smaller firms.
Also caught flat-footed by the oil price pullback was Prosperity Capital’s Mattias Westman, a longtime investor in Russia whose firm has lost more than $1B this year, in part on stakes in Russian energy companies Gazprom (OTCPK:OGZPY) and Lukoil (OTCPK:LUKOY, OTC:LUKOF)
There are zombies in the oil fields.
After crude prices dropped 49 percent in six months, oil projects planned for next year are the undead — still standing upright, but with little hope of a productive future. These zombie projects proliferate in expensive Arctic oil, deepwater-drilling regions and tar sands from Canada to Venezuela.
In a stunning analysis this week, Goldman Sachs found almost $1 trillion in investments in future oil projects at risk. They looked at 400 of the world’s largest new oil and gas fields — excluding U.S. shale — and found projects representing $930 billion of future investment that are no longer profitable with Brent crude at $70. In the U.S., the shale-oil party isn’t over yet, but zombies are beginning to crash it.
The chart below shows the break-even points for the top 400 new fields and how much future oil production they represent. Less than a third of projects are still profitable with oil at $70. If the unprofitable projects were scuttled, it would mean a loss of 7.5 million barrels per day of production in 2025, equivalent to 8 percent of current global demand.
How Profitable Is $70 Oil?
Source: Goldman Sachs Global Investment Research. Annotated by Tom Randall/Bloomberg
Making matters worse, Brent prices this week dipped further, below $60 a barrel for the first time in more than five years. Why? The U.S. shale-oil boom has flooded the market with new supply, global demand led by China has softened, and the Saudis have so far refused to curb production to prop up prices.
It’s not clear yet how far OPEC is willing to let prices slide. The U.A.E.’s energy minister said on Dec. 14 that OPEC wouldn’t trim production even if prices fall to $40 a barrel. An all-out price war could take up to 18 months to play out, said Kevin Book, managing director at ClearView Energy Partners LLC, a financial research group in Washington.
If cheap oil continues, it could be a major setback for the U.S. oil boom. In the chart below, ClearView shows projected oil production at four major U.S. shale formations: Bakken, Eagle Ford, Permian and Niobrara. The dark blue line shows where oil production levels were headed before the price drop. The light blue line shows a new reality, with production growth dropping 40 percent.
Even $75 Oil Crashes the Shale-Oil Party
Source: ClearView Energy Partners LLC
The Goldman tally takes the long view of project finance as it plays out over the next decade or more. But the initial impact of low prices may be swift. Next year alone, oil and gas companies will make final investment decisions on 800 projects worth $500 billion, said Lars Eirik Nicolaisen, a partner at Oslo-based Rystad Energy. If the price of oil averages $70 in 2015, he wrote in an email, $150 billion will be pulled from oil and gas exploration around the world.
An oil price of $65 dollars a barrel next year would trigger the biggest drop in project finance in decades, according to a Sanford C. Bernstein analysis last week.
A pause in exploration and development may sound like good news for investors concerned about climate change. A vocal minority have been warning for years that potentially trillions of dollars of untapped assets may become stranded due to climate policies and improved energy efficiency. The challenges faced by oil developers today may provide a small sense of what’s to come.
However, these glut-driven prices can’t stay low forever. Oil production hasn’t slowed yet, but as zombie projects go unfunded, it will. This is how the boom-bust-boom of the oil market goes: prices fall, then production follows, pushing prices higher again. The longer this standoff goes, the more zombies will languish and the sharper the rebounding price spike may be.
Gluskin-Sheff’s bearish economist David Rosenberg took a page from the Book of Revelation today, when identifying the major risks to U.S. growth over the next year.
Here are what he calls the “Four Horsemen:”
The situation in Europe remains highly unstable, writes Rosenberg. And the violent market gyration to every “passing comment” by ECB boss Mario Draghi (Like this one last month: “The ECB is ready to do whatever it takes to preserve the euro”) ” says something about the manic mindset of today’s algorithm-dominated fast-money backdrop,” he said.
Speculation that the European Stability Mechanism (which isn’t even up and running yet) will be granted a banking licence and save the eurozone experiment is actually beyond the central bank’s purview, he wrote. In the final analysis it would be a political decision — which ain’t going to happen.
”Every German knows what happened in the 1930s and anyone with a keen sense of history knows that Germany is never going to vote for outright debt monetization. What one can reasonably expect at some point is a partial fragmentation of the nonsensical monetary union.”
2) Soaring food prices
More than half the counties (1,584) across 32 U.S. states have been deemed an agricultural disaster as American suffers through its worst drought in 50 years. As a massive global food producer, the U.S. plays a key role in influencing food prices. Corn is expected to top $10 a bushel, but the big question is whether rain will come in time to salvage the soybean crop — which has more far-reaching implications.
A failed soy harvest in the States could spur Asian countries to impose rice export bans like they did in the financial crisis. And as Rosenberg points out, one of the main reasons for the tensions that fuelled the Arab Spring was rampant food inflation.
3) Negative export shock
The eurozone’s recession is deepening and spreading, having an increasingly unfavorable impact on its neighboring economies and trading partners.
That’s why one of the most significant pieces of data last week was the drop in the ISM export orders index from 47.5 to 46.5 to the weakest level since the depths of the downturn in April 2009, Rosenberg says.
4) The proverbial fiscal cliff
More than 40% of companies in a recent Morgan Stanley poll said they were restraining spending now just in anticipation of America’s pending “fiscal cliff” — That’s the expiration of US$600-billion worth of tax cuts and spending programs in late 2012 to early 2013, which threatens to lop off around 3-5 percentage points of GDP if Washington doesn’t act.
“Recessionary pressures are building, and at a time when the pace of U.S. economic activity has precious little cushion.”