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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OPEC Says Crude Production Rose to Three-Year High in November $ 100 Never Again

  • iraq led output gains, countering pullback in Saudi Arabia
  • Non-OPEC supply seen falling by 380,000 barrels a day in 2016

OPEC raised crude output to the highest in more than three years as it pressed on with a strategy to protect market share and pressure competing producers.

Output from the Organization of Petroleum Exporting Countries rose by 230,100 barrels a day in November to 31.695 million a day, the highest since April 2012, as surging Iraqi volumes more than offset a slight pullback in Saudi Arabia. The organization is pumping about 900,000 barrels a day more than it anticipates will be needed next year.

Benchmark Brent crude dropped to a six-year low in London this week after OPEC effectively scrapped its output ceiling at a Dec. 4 meeting as de facto leader Saudi Arabia stuck to a policy of squeezing out rival producers. Members can pump as much as they please, despite a global surplus, Iran’s Oil Minister Bijan Namdar Zanganeh said after the conference. Brent futures traded near $40 a barrel in London on Thursday.

Non-OPEC supply will fall by 380,000 barrels a day next year, averaging 57.14 million a day, with an expected contraction in the U.S. accounting for roughly half the drop, the organization said Thursday in its monthly report. It increased estimates for non-OPEC supply in 2015 by 280,000 barrels a day.

The group maintained projections for the amount of crude it will need to pump next year at 30.8 million barrels a day.

Iraqi Volumes

Iraqi production increased by 247,500 barrels a day to 4.3 million a day last month, according to external sources cited by the report, which didn’t give a reason for the gain.

Iraq has pushed output to record levels this year as international companies develop fields in the south, while the semi-autonomous Kurdish region increases independent sales in the north, according to the International Energy Agency. Production had dipped in October as storms delayed southern loadings and as flows through the northern pipeline were disrupted, according to Iraq’s Oil Ministry.

Production in Saudi Arabia slipped by 25,200 barrels a day to 10.13 million a day in November, OPEC’s report showed.

The report didn’t make any reference to how OPEC’s data will re-incorporate output from Indonesia, which rejoined the organization on Dec. 4 after an absence of seven years.

$100 never again; there’s a new normal for oil

“Oil prices could fall lower in 2016,” Gheit said. “I’m talking $2 to $3 dollars per barrel. I don’t see it dropping below $30 per barrel.”

The decline in crude has had a big impact on major oil companies. Shares of ExxonMobil (XOM), ConocoPhillips (COP), and Chevron (CVX) have crashed as the pain from lower prices spreads.

“Producers have already seen a collapse in earnings, and we expect weakness to continue into next year,” Gheit said. “Most independent oil and gas producers in the U.S. are in the red. They’re losing money.”

But it’s not all bad news. A drop in crude means lower gas prices, so Americans are not digging as deep into their wallets at the pump.

“This is a big break for the taxpayer,” Gheit said. “The average American family will save between $700 to $800 per year as a result of a drop in oil prices.”

Iron Ore in $30s Seen Near Tipping Point for Largest Miners

  • Big Four’s highest-cost mines pressured: Capital Economics
  • Miners’ shares retreat, with BHP sliding to lowest in 10 years

Iron ore’s tumble into the $30s threatens the world’s biggest miners as prices approach break-even costs, according to Capital Economics Ltd. BHP Billiton Ltd. shares slumped to the lowest in 10 years and Rio Tinto Group dropped to the lowest since 2009.

The most expensive operations at the four largest suppliers are on the verge of making losses at rates below $40 a metric ton, said John Kovacs, senior commodities economist at Capital Economics in London, who estimates their break-even levels at $28 to $39, taking into account freight and other costs. While these producers will keep output strong, they’ll be constrained by low prices, he said by e-mail on Monday.

Iron ore’s plunge below $40 comes as producers including Vale SA in Brazil and Rio and BHP in Australia press on with expansions to cut costs and defend market share just as demand from the largest consumer China slows. They’re the world’s biggest suppliers along with Fortescue Metals Group Ltd. Prices of the raw material have lost 45 percent this year and have plunged 80 percent from their peak in 2011.

“The big four will find it hard to maintain output at below $40,” Kovacs said in response to questions. “If prices remain weak, output from the highest-cost mines of the big four will be under pressure.”

Price Sinks

Ore with 62 percent content delivered to Qingdao sank 1.1 percent to $38.65 a dry ton on Monday, a record low in daily prices compiled by Metal Bulletin Ltd. dating back to May 2009. The raw material peaked at $191.70 in 2011.

Kovacs said that while rates will stay low over the next year, he doesn’t believe they’ll remain below $40 for a significant length of time. He expects prices to recover slowly because demand won’t fall much further and the biggest miners will find it difficult to keep up output at these levels.

Mining company shares retreated. BHP declined 5.2 percent to A$17.05 in Sydney, the lowest since 2005. Rio dropped 4.3 percent to the lowest in more than six years and Fortescue closed 3 percent lower. Top producer Vale closed at an 11-year low in Sao Paulo on Monday.

UBS Group AG estimates that of the four biggest producers, Fortescue has the highest break-even cost of $40 and Vale’s is $34 in terms of ore landed in China with 62 percent content including interest. BHP’s break-even level is $29 and Rio’s $30, the bank’s data show.

“There is not much production outside of the big four that can make money at these levels — eventually, we should see the juniors be forced to cut production,” said Jeremy Sussman, a New York-based analyst at Clarksons Platou Securities Inc. “It can also take some time for uneconomic production to come offline.”

Miners’ View

The top mining companies have justified their strategy. In response to questions on Tuesday, Rio Tinto referred to comments last week in Perth by Andrew Harding, head of its iron ore business, who told reporters the unit was “set up to deal with long-term price outcomes, and deliver great margins over the long period of time.”

BHP said Chief Executive Officer Andrew Mackenzie set out the company’s view last week, saying the producer remains “relatively bearish about the long-term projections for prices,” of steel and its raw materials, including iron ore.

“Fortescue has worked hard to ensure we can respond to market conditions,” CEO Nev Power said in an e-mail. “As one of the lowest cost iron ore producers in the world, we will continue to drive productivity, efficiency and cost improvements to maintain our strong financial position.”

Luciano Siani, Vale’s chief financial officer, said last week the company will continue to lower its break-even costs so it can deliver cash flows no matter where prices may be.

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Oil Prices May Plunge : ‘Super Contango’

It looks to be a volatile final few weeks for crude oil prices. So far, the low for WTI oil prices (WTI) in 2015 of $37.75 a barrel set in August stands as the low price point — but not for long.

There is a global supply glut, not just of crude oil, but, increasingly, refined products that will likely break the back of price support in the market, sending oil prices into a holiday plunge. So much so, land based storage tanks are filling up and increasing numbers of volumes are being stored on tankers.

 

In a recent report, the International Energy Agency highlighted the fact that global inventories of all petroleum products were at 3 billion barrels, which was a record. And just over 2 billion of those barrels are resident here in the U.S.

Read More Contango explained

Each week, in the summary page of its petroleum-status report, the U.S. Energy Information Administration references the fact that U.S. crude-oil inventories are at levels not seen in over 80 years. Inventories of gasoline are well-above their average and diesel fuels are also well-supplied.

The vast crude oil glut or mega-glut is manifest in the West Texas Intermediate (WTXR) and Brent crude oil price curves, which have moved into a “super-contango.” (Yup, there are lots of superlatives needed to describe the current state of the market.)

Contango refers to when the front-month or near-term futures contract are trading less than or at a discount to longer-dated futures contracts.

The difference between Brent crude-oil contracts, one year apart, recently hit a record $8 a barrel. The January 2016 WTI futures contract is trading at a hefty discount of $1.50 per barrel to the February contract. In tightly-supplied markets, when crude oil prices are strong, that spread value is the complete opposite.

Oil prices have gotten some support this week from the heightened military action and worry over the situation in Syria and Northern Iraq , especially withthe downing of the Russian fighter jet by Turkey. How Russia responds could plunge the region into deeper turmoil, putting a great deal of oil infrastructure and supply in the cross hairs. But these fears simply do not haunt the market for very long last these days.

 

The market also got a taste of Saudi Arabia ‘s power this week, when a flip comment by the Saudi oil minister at a cabinet meeting was taken to signal a change in production policy by the Kingdom, as a way of “cooperating” with the other OPEC and non-OPEC producers. With the OPEC meeting looming next week, the comments were seized upon.

The reality is that nothing will come of the OPEC meeting. The Saudis are set to hold their ground. They see little to gain in assisting their oil market and regional rivals, Russia and Iran , by helping to “stabilize” the oil markets. In fact, the Saudis don’t see a market that needs stabilizing.

 

The lone bright spot for the oil market has been the strong demand for gasoline. The demand in October in the U.S. was the highest in eight years. But, once the holidays pass, that demand will drop off, too.

The downward pressure remains intense on the petroleum complex from the mega-glut and the hit to demand from the economic softness in China and Europe. The strengthening dollar is also a negative for prices.

U.S. motorists will be filled with glee this holiday season, as they buy sub-$2.00 per gallon gasoline, courtesy of $30 crude oil.

Commentary by John Kilduff, a partner at Again Capital, an investment-management firm that specializes in commodities. Follow him on Twitter @KilduffReport.

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Oil Declines As Ships Lined Up at Houston To Offload Oil : Bloomberg

After some initial excitement, November has seen crude oil prices collapse back towards cycle lows amid demand doubts (e.g. sllumping China oil imports, overflowing Chinese oil capacity, plunging China Industrial Production) and supply concerns (e.g. inventories soaring). However, an even bigger problem looms that few are talking about. As Iraq – the fastest-growing member of OPEC – has unleashed a two-mile long, 3 million metric ton barrage of 19 million barrel excess supply directly to US ports in November.

But OPEC has another trick up its sleeve to crush US Shale oil producers. As Bloomberg reports,

Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November, ship-tracking and charters compiled by Bloomberg show.

 

Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures.

 

 

The cargoes show how competition for sales among members of the Organization of Petroleum Exporting Countries is spilling out into global markets, intensifying competition with U.S. producers whose own output has retreated since summer. For tanker owners, it means rates for their ships are headed for the best quarter in seven years, fueled partly by the surge in one of the industry’s longest trade routes.

Worst still, they are slashing prices…

Iraq, pumping the most since at least 1962 amid competition among OPEC nations to find buyers, is discounting prices to woo customers.

 

The Middle East country sells its crude at premiums or discounts to global benchmarks, competing for buyers with suppliers such as Saudi Arabia, the world’s biggest exporter. Iraq sold its Heavy grade at a discount of $5.85 a barrel to the appropriate benchmark for November, the biggest discount since it split the grade from Iraqi Light in May. Saudi Arabia sold at $1.25 below benchmark for November, cutting by a further 20 cents in December.

 

“It’s being priced much more aggressively,” said Dominic Haywood, an oil analyst at Energy Aspects Ltd. in London. “It’s being discounted so U.S. Gulf Coast refiners are more incentivized to take it.”

So when does The Obama Administration ban crude imports?

And now, we get more news from Iraq:

  • *IRAQ CUTS DECEMBER CRUDE OIL OSPS TO EUROPE: TRADERS

So taking on the Russians?

*  *  *

Finally, as we noted previously, it appears Iraq (and Russia) are more than happy to compete on price.. and have been successful – for now – at gaining significant market share…

Even as both Iran and Saudi Arabia are losing Asian market share to Russia and Iraq, Tehran is closely allied with Baghdad and Moscow while Riyadh is not. That certainly seems to suggest that in the long run, the Saudis are going to end up with the short end of the stick.

Once again, it’s the intersection of geopolitcs and energy, and you’re reminded that at the end of the day, that’s what it usually comes down to.

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Iraq Crude Floods U.S. Market

  • Exxon Mobil Corporation (XOM)

    NYSE

    81.97 Down 0.38(0.46%) 12:27PM EST – NYSE Real Time Price
    Prev Close: 82.35
    Open: 82.41
    Bid: 81.81 x 700
    Ask: 81.82 x 500
    1y Target Est: 83.35
    Beta: 1.01531
    Next Earnings Date: N/A
    Day’s Range: 81.5782.56
    52wk Range: 66.55 – 97.20
    Volume: 3,484,960
    Avg Vol (3m): 15,970,300
    Market Cap: 341.24B
    P/E (ttm): 17.31
    EPS (ttm): 4.73
    Div & Yield: 2.92 (3.90%)
    Quotes delayed, except where indicated otherwise. Currency in USD.
  • Sliding U.S. oil production reviving reliance on imports
  • Tanker owners benefit as long-distance trade route boosted
  • raq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November, ship-tracking and charters compiled by Bloomberg show. Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures.The cargoes show how competition for sales among members of the Organization of Petroleum Exporting Countries is spilling out into global markets, intensifying competition with U.S. producers whose own output has retreated since summer. For tanker owners, it means rates for their ships are headed for the best quarter in seven years, fueled partly by the surge in one of the industry’s longest trade routes.
    November crude imports from Iraq will be highest in over three years
    November crude imports from Iraq will be highest in over three years

    “In the longer term, we expect the U.S. to have to increase imports next year by some 500,000 barrels to 800,000 barrels a day year on year,” Steve Sawyer, the head of refining at FGE, a consultant in London. “Given our projections for Iraqi output, it could well come from here.”

    Hunting for Buyers

    Iraq, pumping the most since at least 1962 amid competition among OPEC nations to find buyers, is discounting prices to woo customers. The U.S. may increasingly become one of them after its own output dropped by as much as 500,000 barrels a day since June. An increase in trade between the two would boost tanker owners. Deliveries take at least 57 percent longer than for those to Asia, the most popular destination.

    The tanker industry’s biggest ships earned an average of almost $76,500 a day so far in the fourth quarter, which would be the highest since mid-2008 if maintained through year-end, according to data from Clarkson Plc, the world’s biggest shipbroker.

    Shipowners have already seen the benefit of higher rates thanks in part to the longer-distance cargoes. Shares of Oslo-listed Frontline Ltd., led by billionaire John Fredriksen, rose 61 percent to $28.60 from the 2015 low in August. Euronav NV is up 25 percent from the year’s low in February.

    Gulf of Mexico

    The ships bringing the 19 million barrels include vessels that left Iraq’s Basra Oil Terminal and are currently signaling U.S. ports as their destination. There is also one vessel that went through Egypt’s Suez Canal and identified by shipbrokers as going to the U.S. All except one are very large crude carriers, the industry’s biggest vessels, sailing to terminals in the Gulf of Mexico.

    The U.S. is pumping 450,000 barrels a day less crude than during the peak in June. If all that oil were replaced by supplies from Iraq, it would require about seven supertankers each month.

    Iraq is among the least expensive places in the world to extract crude. Capital costs are about seven times cheaper than for light, tight oil suppliers in the U.S. when measured by fields’ daily plateau capacity, according to the International Energy Agency in Paris.

    West Texas Intermediate, the U.S. benchmark, fell $1.14 to $43.07 a barrel on the New York Mercantile Exchange at 12:05 p.m. local time. Brent, the global marker, lost $1.30 to $46.14.

    The Middle East country sells its crude at premiums or discounts to global benchmarks, competing for buyers with suppliers such as Saudi Arabia, the world’s biggest exporter. Iraq sold its Heavy grade at a discount of $5.85 a barrel to the appropriate benchmark for November, the biggest discount since it split the grade from Iraqi Light in May. Saudi Arabia sold at $1.25 below benchmark for November, cutting by a further 20 cents in December.

    “It’s being priced much more aggressively,” said Dominic Haywood, an oil analyst at Energy Aspects Ltd. in London. “It’s being discounted so U.S. Gulf Coast refiners are more incentivized to take it.”

Gold Comes Back To Life

  • Weak economic data signal Fed may delay rate rise till 2016
  • Strength in gold market is going to stay for a while: Sumitomo

Gold is starting to shed its reputation as a dead asset, and bulls can thank signs the U.S. economy is starting to sputter for the boost.

The metal was little changed at $1,184.18 an ounce by 10:28 a.m. in London after climbing above its 200-day moving average on Wednesday for the first time in about five months. Prices touched the highest since June 22 yesterday and investors bought the most through gold-backed funds since August.

A gauge of U.S. inflation fell by the most since January and retail sales missed forecasts, increasing traders’ bets the Federal Reserve will delay raising rates until next year. That’s good news for gold, which loses out when borrowing costs rise because the metal doesn’t pay yields, unlike competing assets.

“The last couple of the months we’ve seen a real sort of deterioration in U.S. data and a realization by the market that the Fed probably missed its window to hike in 2015,”Jordan Eliseo, chief economist at trader Australian Bullion Co. in Sydney, said by phone. “That’s obviously scared a few investors who were short gold out of their positions.” The market’s strength and better technical picture are also encouraging some investors to go long, he said.

Investors now see about even odds of that rates will increase by April next year, with the chance of liftoff this month plunging to 4 percent from 10 percent in just 24 hours, futures trading shows. Gold surged 70 percent from December 2008 through June 2011 as the U.S. central bank fanned inflation fears by purchasing debt and holding borrowing costs near zero percent in a bid to shore up growth.

Sentiment Boost

“Crossing the 200-day moving average is very important in terms of short-term sentiment for gold,” Dan Smith, a senior adviser at Oxford Economics, said by phone from London. “Gold is looking a lot more lively now than it had been for a while.”

The weak dollar and physical demand from China and India are also supporting bullion, Bob Takai, the chief executive officer and president of Sumitomo Corp. Global Research, said from Tokyo. The greenback is near its lowest in more than three months.

Holdings in gold-backed exchange-traded products climbed for a fourth day, rising 7.5 metric tons, the most since Aug. 26, data compiled by Bloomberg show. Investors held 1,537.7 tons as of Wednesday, the most since July.

Silver was little changed at $16.13 an ounce in London. Platinum increased 0.4 percent to $1,002.50 an ounce and palladium added 0.3 percent to $702.05 an ounce.