Look Out Below :Oil prices hit 11-year low as global supply balloons ( Reuters plus Bloomberg charts) )

LONDON (Reuters) – Brent crude oil prices hit their lowest in more than 11 years on Monday, driven down by a relentless rise in global supply that looks set to outpace demand again next year.

Oil production is running close to record highs and, with more barrels poised to enter the market from nations such as Iran, the United States and Libya, the price of crude is set for its largest monthly percentage decline in seven years.

Brent futures (LCOc1) fell by as much as 2 percent to a low of $36.05 a barrel on Monday, their weakest since July 2004, and were down 49 cents at $36.39 by 1332 GMT.

While consumers have enjoyed lower fuel prices, the world’s richest oil exporters have been forced to revalue their currencies, sell off assets and even issue debt for the first time in years as they struggle to repair their finances.

OPEC, led by Saudi Arabia, will stick with its year-old policy of compensating for lower prices with higher production, and shows no signs of wavering, even though lower prices are painful to its poorer members.

The price of oil has halved over the past year, dealing a blow to economies of oil producers such as Nigeria, which faces its worst crisis in years, and Venezuela, which has been plunged into deep recession.

Even wealthy Gulf Arab states have been hit. Last week Saudi Arabia, Kuwait and Bahrain raised interest rates as they scrambled to protect their currencies.

NO LIGHT AT THE END OF THE TUNNEL

“With OPEC not in any mood to cut production … it does mean you are not going to get any rebalancing any time soon,” Energy Aspects chief oil analyst Amrita Sen said.

“Having said that, long term of course, the lower prices are today, the rebalancing will become even stronger and steeper, because of the capex (oil groups’ capital expenditure) cutbacks … but you’re not going to see that until end-2016.”

Reflecting the determination among the biggest producers to woo buyers at any cost, Russia now pumps oil at a post-Soviet high of more than 10 million barrels per day (bpd), while OPEC output is close to record levels above 31.5 million bpd.

Oil market liquidity usually evaporates ahead of the holiday period, meaning that intra-day price moves can become exaggerated.

On average, in the last 15 years, December is the month with least trading volume, which tends to be just 85 percent of that in May, the month which sees most volume change hands.

Brent crude prices have dropped by nearly 19 percent this month, their steepest fall since the collapse of failed U.S. bank Lehman Brothers in October 2008.

U.S. crude futures (CLc1) were down 26 cents at $34.47 a barrel, their lowest since 2009.

“Really, I wouldn’t like to be in the shoes of an oil exporter getting into 2016. It’s not exactly looking as if there is light at the end of the tunnel any time soon,” Saxo Bank senior manager Ole Hansen said.

Investment bank Goldman Sachs (GS.N) believes it could take a drop to as little as $20 a barrel for supply to adjust to demand.

Thanks to the shale revolution, the U.S. has been pumping a lot of oil on the cheap, helping to drive down prices to six-year lows and to fill up storage tanks. Indeed, we’re running out of places to put it.

LOOK OUT BELOW

The U.S. has 490 million barrels of oil in storage, enough to keep the country running smoothly for nearly a month, without any added oil production or imports. That inventory doesn’t include the government’s own Strategic Petroleum Reserve, to be used in the now highly unlikely event of an oil shortage. Nor does it include oil waiting at sea for higher prices. The lower 48 states also boast about 4 trillion cubic feet of natural gas in storage — a far bigger cushion than Americans have needed so far during a very warm winter.

For their part, OECD countries (including the U.S.) have nearly 3 billion barrels of oil in storage — or enough to keep factories lit and houses heated in those countries for two months, cumulatively, without added production or imports.

The glut is going to continue worldwide unless some major producers stop pumping. OPEC announced recently that it was abandoning output limits.

So what happens when there’s too much oil to store? Producers will try to rid themselves of it by cutting prices. In that scenario, the price would plummet so far that some producers would shutter their wells altogether — which is, perhaps, the only way that the oil glut will ease.

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Encana -OIl and Natural Gas – Prayer Is Not A Strategy : Get Out

Too little , too late

The company will outspend cash flow next year, with its cash flow of $1 billion to $1.2 billion reflecting a cash shortfall of $550 million, based on U.S. crude prices of US$50 per barrel and US$2.75 natural gas prices.

Our position: Analysts and the company executives are sleep walking past the graveyard.

Encana Corp slashes dividend and cuts capital spending

• from Tuesday Financial Post

Encana Corp. is planning to “reset” its dividend next year as it adjusts to a protracted downturn that has seen oil prices decline to a six year-low.

The Calgary-based company said it is cutting its dividend by 79 per cent to six cents from 28 cents. The company’s stock tumbled more than eight per cent on the Toronto Stock Exchange on Monday.

“This reset better aligns our dividend with our cash flow or balance sheet and recognizes the very high quality investment options in our portfolio,” CEO Doug Suttles told analysts during a conference call outlining the company’s 2016 capital program.

Canada’s oil and gas sector is in the middle of an austerity drive, as one of the world’s highest-cost jurisdictions comes to terms with prices that have dipped below US$35 per barrel and have lost more than 50 per cent of their value in the space of a year.

The industry has lost 35,000 jobs since OPEC members started driving down prices by raising output in a bid to squeeze out high cost-producers in November 2014.

Canadian companies have responded by reducing headcounts, shelving projects, reining in capital expenditure and cutting dividends to protect their balance sheets — and there may be little respite in the new year.

Encana plans to cut its capital spending by 27 per cent next year to between US$1.5 billion to US$1.7 billion, with half the budget allocated to its Permian basin straddling Texas and New Mexico.

Indeed, the company plans to raise investment in its Permian operations to around $800 million from $700 million a year earlier, but will throttle back in Eagle Ford, and in the Canadian shale plays of the Duvernay and Montney, as it focuses on the most cost-effective play in its portfolio.

While the capital budget was in line with expectations, both total production and liquids production fell short of expectations, which will likely see our cash flow estimates come down with leverage increasing further,” wrote Kyle Preston, an analyst with National Bank Financial Inc. The analyst sees the company’s announcement as “negative,” and cut its price target to US$8 from US$10.

The company will outspend cash flow next year, with its cash flow of $1 billion to $1.2 billion reflecting a cash shortfall of $550 million, based on U.S. crude prices of US$50 per barrel and US$2.75 natural gas prices.

“While we do not see any near-term risk of breaching any debt covenants, we believe the budget may have to be revised down again if commodity prices remain at or near current levels for an extended period,” Preston said.

NONSENSE_ look where prices are – don’t base analysis on dreams:

Crude Oil & Natural Gas

INDEX	UNITS	PRICE	CHANGE	%CHANGE	CONTRACT	TIME ET	2 DAY
CL1:COM WTI Crude Oil (Nymex)	USD/bbl.	35.71	-1.64	-4.39%	JAN 16	11:25:36
CO1:COM Brent Crude (ICE)	USD/bbl.	37.14	-1.31	-3.41%	JAN 16	11:24:40
CP1:COM Crude Oil (Tokyo)	JPY/kl	28,540.00	-870.00	-2.96%	MAY 16	11:26:00
NG1:COM Natural Gas (Nymex)	USD/MMBtu	1.79	-0.03	-1.70%	JAN 16	11:25:41

Read More on The Sector Sea Change at http://www.youroffshoremoney.com

 

UPDATE:

Data from the U.S. Energy Information Administration showed a growing glut, with crude inventories up 4.8 million barrels last week. Analysts in a Reuters poll had forecast a decrease of 1.4 million barrels.

“Only the staunchest contrarian could derive anything bullish out of that report,” said Peter Donovan, broker at Liquidity Energy in New York.

“The actual numbers were more bearish than all expectations, as well as more bearish than the API report released last night,” he said.

The US Energy Sector on the Verge of a Cataclysmic Default

 

The U.S. E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the U.S. economy, according to Paul Merolli, a senior editor and correspondent for Energy Intelligence, an energy sector news and analysis aggregator. Merolli’s report calls out the over-leveraged, under-hedged U.S. E&P sector, which has been trying to keep up appearances over the past 12 months by slashing operating costs and capex to keep production costs lower than oil prices.

But experts believe that lower costs and improving efficiency won’t be enough for the sector as it grapples with some $200 billion-plus in high-yield debt, which the U.S. E&P sector used to finance the shale oil boom. According to Standard and Poor’s, there have already been 19 U.S. energy sector defaults so far in 2015, while another 15 companies have filed for bankruptcy. The default category also includes companies that have entered into “distressed exchanges” with their creditors.

Moreover, a Nov. 24 report from S&P Capital IQ titled “A Cautionary Climate” shows that the total assets and liabilities of U.S. energy companies filing for bankruptcy protection have grown in each quarter of 2015, and the third quarter was no exception with assets totaling more than $6.2 billion and liabilities totaling more than $8.9 billion. Each quarter of 2015 was larger than the total for all U.S. energy bankruptcies in 2014.

Also see: Oil Patch Bankruptcies Total $13.1 Billion So Far This Year

U.S. E&P Sector: Junk rating

According to Energy Intelligence, Standard & Poor’s applies ratings to around 100 E&P firms. Of these, 77% now have high-yield or “junk” ratings of BB+ or lower, 63% are rated B+ or worse, and 31% or 51 companies are rated below B-. Companies rated B- or below are effectively on life support, while those rated C+ are “maybe looking at a year, year-and-a-half before they default or file for bankruptcy,” according to Thomas Watters, managing director of S&P’s oil and gas ratings, speaking to Energy Intelligence.

High-yield E&Ps are expected to see negative free cash flow of $10 billion during 2016, even after all the recent capex cuts and efficiency measures. Unfortunately, capital markets are closing rapidly to new E&P debt issues. Last year, the U.S. E&P sector raised $29 billion from 44 issuances of public debt in 2014, but this year only $13 billion has been raised across 23 issuances, almost all of which occurred during the first half of the year.

What’s more, the U.S. E&P sector is woefully under-hedged. Energy Intelligence’s data shows that small producers have 27% of their oil production hedged at an average price of $77/bbl, mid-sized firms have 26% hedged at $69, and large producers have just 4% hedged at $63.

U.S. E&P sector: a final lifeline

It is believed that the U.S. E&P sector will really start to cave in April when banks are due to start their next review of borrowing bases. Borrowing bases are redeterminedevery six months, and banks use market oil prices to calculate the value of company oil reserves, which companies are then able to borrow against.

Haynes and Boone’s Borrowing Base Survey is predicting an average cut of 39% to borrowing bases when the next round of revaluations take place. In September, The Financial Times reported on a research note from Bank of America which pointed out that only a fifth of “higher-quality” energy companies had used up more than half of their borrowing base capacity. For junk-rated companies, however, it’s a different picture. Citi points out that only 21% of the junk-rated energy companies it covers have any borrowing base capacity left at all.

So with borrowing bases set to fall at the beginning of next year and capital market access drying up, it looks as if many oil companies are going to find their liquidity deteriorating significantly going forward. Another source of concern for E&Ps and their lenders are price-related impairments and asset write-downs which have already amounted to $70.1 billion so far this year, compared to the $94.3 billion total for the previous 10-year period of 2005-14. And there could be further write-downs on the horizon:

“Year-to-date, there has been $70.1 billion in asset write-downs in 2015, approaching the $94.3 billion total for the previous 10-year period of 2005-14, according to Stuart Glickman, head of S&P Capital’s oil equities research. And he expects even more write-downs and impairments to emerge at year-end. “Companies are putting this off for a long as they can. You don’t want to be negotiating in capital markets with a weakened hand,”

“Chesapeake Energy, one of the largest US independent producers, shocked earlier this month by indicating a $13 billion reduction in the so-called PV-10, or “present value,” of its oil and gas reserves to $7 billion. Had Chesapeake used 12-month futures strip prices — instead of Securities and Exchange Commission-mandated trailing 12-month prices for PV values — the value would’ve fallen to $4 billion.” — Source: Energy Intelligence, “Is Debt Bomb About to Blow Up US Shale?“

This conclusion is also supported by research from S&P Capital IQ:

“Using data from SNL Financial, we looked at natural gas-focused companies across the value chain to see whether there is a relationship between their level of revolver usage and their forward multiples. Within this subset of companies, exploration and production (E&P) companies have the greatest usage of their revolving credit facilities — 57% on average, excluding those with either no revolving credit or no usage on their revolving credit lines. As of late September 2015, this sub-industry also had a forward EBITDA multiple of about 6.2x.” — Source: S&P Capital IQ, “A Cautionary Climate.”

E&P sector waiting for a bailout

All in all, it looks as if the U.S. E&P sector has a rough year ahead of it, but for strong companies with investment-grade credit ratings, next year could become an “M&A playland” according to Energy Intelligence. The six-largest integrated majors together hold a war chest of some $500 billion, and there’s a further $100 billion in private equity sitting on the sidelines.

Whatever happens, it looks as if the U.S. E&P sector is about to undergo a period of significant change.

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$20 Oil If OPEC Doesn’t Act : Venezuela

• 
• Don’t Cry for Me Venezuela
• It won’t be easy, you’ll think it strange
  When I try to explain how I feel
  That I still need your love after all that I’ve doneI had to let it happen, I had to change
  Couldn’t stay all my life down at heel
  Looking out of the window, staying out of the sun
• OPEC member seeks `equilibrium price’ of $88 a barrel
• Saudis, Qatar to consider proposal, Venezuelan minister says

Oil prices may drop to as low as the mid-$20s a barrel unless OPEC takes action to stabilize the market, Venezuelan Oil Minister Eulogio Del Pino said.

Venezuela is urging the Organization of Petroleum Exporting Countries to adopt an “equilibrium price” that covers the cost of new investment in production capacity, Del Pino told reporters Sunday in Tehran. Saudi Arabia and Qatar are considering his country’s proposal for an equilibrium price at $88 a barrel, he said.

OPEC ministers plan to meet on Dec. 4 to assess the producer group’s output policy amid a global supply glut that has pushed down crude prices by 44 percent in the last 12 months. OPEC supplies about 40 percent of the world’s production and has exceeded its official output ceiling of 30 million barrels a day for 17 months as it defends its share of the market. Benchmark Brent crude settled 48 cents higher at $44.66 a barrel in London on Friday.

“We cannot allow that the market continue controlling the price,” Del Pino said. “The principles of OPEC were to act on the price of the crude oil, and we need to go back to the principles of OPEC.”

OPEC ministers will meet informally on Dec. 3 in Vienna, a day before the group’s formal session, he said.

Credit Suisse: Oil Has Stabilized Because Saudis Got What They Wanted

 

Forget wealth effect. The global equity market can’t have a smooth bull run if oil prices are tanking.

This is because commodity-related capital expenditure accounts for around 30% of total capex globally, so even though consumers may benefit from cheaper oil, companies are hit first.Credit Suisse estimates that the fall in commodities capex has taken at least 0.8% off the U.S. economic growth in the first half this year and 1% off global growth over the last year.

But the worst is over, according to analyst Andrew Garthwaite and team. They listed three reasons: 1. demand for oil has stabilized; 2. non-OPEC production has peaked; 3. Saudi Arabia has achieved its goal of deterring new entrants.

Since Saudi Arabia is the wild card, Credit Suisse analysts took pains to explain their position:

We believe that the key variable is Saudi Arabia. If it were not for Saudi Arabia, then we fear that oil would have to behave like other commodities and if there is excess supply fall to levels where a third of production is below the cash cost and, given the likely fall in commodity currencies, this in turn would lead to a much lower oil price (maybe down to $30/barrel).

This leads to the question ‘Can Saudi Arabia support the oil market?’. We think the answer is yes. They control the vast majority of spare capacityaccording to our oil team and 13% of output.

Their clear aim was to restore market share against non-OPEC and avoid being a swing producer (and thus not repeat the 1980 to 1985 experience, when their oil production fell by 70% as they sought to defend the oil price) and also limit the growth in alternative energies. The key is clearly at what point they have achieved their objective. The issue is nearly always the same – costs fall much more quickly than expected, partly because commodity currencies fall and partly because of cost deflation.

Moody’s highlight that the breakeven for median shale is around $51pb. Thus it may be the case that around the current oil price, Saudi Arabia believe they have achieved their objective of pricing out new shale projects.

Additionally the reduction in the oil price has come at a cost, with the budget deficit estimated to be 20% of GDP in 2015 (IMF Article IV – Saudi Arabia). While government debt to GDP is very low at c1%, we view the recent selling of Sama reserves and the first sovereign bond issue since 2007 as signs that there is some degree of stress.

Brent crude jumped another 2.2% to trade at $49.58 recently after a 5% rally overnight.

Oil stocks rallied. CNOOC (883.Hong Kong/CEO) advanced 12.1%, China Oilfield Services(2883.Hong Kong) gained 9.5%, PetroChina (857.Hong Kong/PTR) was up 7.8%. Sinopec(386.Hong Kong/SHI) jumped 6.8%. The Hang Seng China Enterprises Index advanced 4%. Overnight, the United States Oil Fund (USO) rose 4.9%.

Natural Gas Drillers Can’t Catch a Break : Bloomberg News

Natural gas drillers who flocked to liquids-rich basins in search of better profits just can’t seem to catch a break.

Seven years ago, as shale output surged and gas futures tumbled more than 60 percent, producers abandoned reservoirs that only yielded gas and moved rigs to wells that also contained ethane, propane and other so-called natural gas liquids, or NGLs. These NGL prices were tied to oil futures, which climbed in 2009 as the economy recovered. It was a strategy that worked well — for a while.

Drillers fled natural gas for oil and liquids as commodities collapsed.

Those days are over. Oil has plunged 56 percent from a year ago, and propane at the Mont Belvieu hub in Texas has tumbled 64 percent. The spread between NGL prices and natural gas shrank 9.2 percent last week to $7.02 a barrel, the lowest in at least two years, squeezing producers’ profits.

The spread between natural gas liquids and natural gas prices has narrowed, squeezing producers’ profits.

The culprit is a repeat offender: shale production. This time, the boom in oil output from reservoirs like the Bakken in North Dakota has created a glut of NGLs, and the market is poised to remain well supplied. To survive, gas producers will have to focus on the lowest-cost wells.

Production of natural gas liquids has surged, creating a glut as drillers flee dry gas.

“Drillers are going to have to retreat to where the sweet spots are,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “At these price levels, the rig count isn’t going to move higher.”

 

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Natural Gas Futures Plunge 4% after bearish storage data

Investing.com – Natural gas futures plunged sharply to hit a three-week low on Thursday, after data showed that U.S. natural gas supplies rose more than expected last week.

On the New York Mercantile Exchange, natural gas for delivery in July tumbled 11.8 cents, or 4.16%, to trade at $2.729 per million British thermal units during U.S. morning hours. Prices were at around $2.790 prior to the release of the supply data.

A day earlier, natural gas prices shed 0.2 cents, or 0.07%, to close at $2.847. Futures were likely to find support at $2.710 per million British thermal units, the low from May 7, and resistance at $2.915, the high from May 27.

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended May 22 rose by 112 billion cubic feet, compared to expectations for an increase of 99 billion and following a build of 92 billion cubic feet in the preceding week.

Supplies rose by 113 billion cubic feet in the same week last year, while the five-year average change is an increase of 95 billion cubic feet.

Total U.S. natural gas storage stood at 2.101 trillion cubic feet as of last week. Stocks were 737 billion cubic feet higher than last year at this time and 18 billion cubic feet below the five-year average of 2.119 trillion cubic feet for this time of year.

Meanwhile, weather forecasting models called for slightly warmer than average temperatures across the U.S. over the next ten days, although not yet enough to significantly boost cooling demand.

Spring usually sees the weakest demand for natural gas in the U.S, as the absence of extreme temperatures curbs demand for heating and air conditioning.

Elsewhere on the Nymex, crude oil for delivery in July fell 79 cents, or 1.37%, to trade at $56.72 a barrel, while heating oil for July delivery dropped 0.41% to trade at $1.852 per gallon.

Half of U.S. Fracking Companies Will Be Sold OR Dead This Year

Half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies, an executive with Weatherford International Plc said.
There could be about 20 companies left that provide hydraulic fracturing services, Rob Fulks, pressure pumping marketing director at Weatherford, said in an interview Wednesday at the IHS CERAWeek conference in Houston. Demand for fracking, a production method that along with horizontal drilling spurred a boom in U.S. oil and natural gas output, has declined as customers leave wells uncompleted because of low prices.
There were 61 fracking service providers in the U.S., the world’s largest market, at the start of last year. Consolidation among bigger players began with Halliburton Co. announcing plans to buy Baker Hughes Inc. in November for $34.6 billion and C&J Energy Services Ltd. buying the pressure-pumping business of Nabors Industries Ltd.
Weatherford, which operates the fifth-largest fracking operation in the U.S., has been forced to cut costs “dramatically” in response to customer demand, Fulks said. The company has been able to negotiate price cuts from the mines that supply sand, which is used to prop open cracks in the rocks that allow hydrocarbons to flow.
Oil companies are cutting more than $100 billion in spending globally after prices fell. Frack pricing is expected to fall as much as 35 percent this year, according to PacWest, a unit of IHS Inc.
While many large private-equity firms are looking at fracking companies to buy, the spread between buyer and seller pricing is still too wide for now, Alex Robart, a principal at PacWest, said in an interview at CERAWeek.
Fulks declined to say whether Weatherford is seeking to acquire other fracking companies or their unused equipment.
“We go by and we see yards are locked up and the doors are closed he  said. “It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”

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

Posted on November 30, 2014by jackbassteam

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.

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

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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.

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Oil Producers Betting on Price Drop : Goldman Calls $ 40

Photographer: Gabriela Maj/Bloomberg

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.

Oil Prices

“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.

OPEC Production

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.

Idling Rigs

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.”

Other Markets

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

Jan. 12 (Bloomberg) 

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.

Oil Prices

“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.

Photographer: Eddie Seal/Bloomberg

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Forecasts Cut

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.