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)


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


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