Posts Tagged: oil prices

 

 Volatility in emerging Asian sovereign currencies and bonds shows the region remains exposed to contagion from developments elsewhere, Fitch Ratings says.

As was seen during the “taper tantrum” of 2013, there is some tolerance for market turbulence at current rating levels. Volatility per se would only become a rating driver if it started to have an impact on economic and financial stability, and/or the ability of sovereigns to finance themselves. However, episodes of market volatility since the “taper tantrum” suggest external liquidity and policy credibility have become increasingly important rating drivers for emerging Asian sovereigns as global US dollar funding conditions tighten.

Currencies fell and five-year CDS spreads widened for most emerging Asian sovereigns in the second week of December. The Indonesian rupiah and Malaysian ringgit saw notable moves, the former dropping to its lowest level against the dollar since August 1998 and the latter hitting a five-year low. Both currencies rose on 18 December as the ruble and oil prices strengthened and following perceived dovish comments from the Federal Open Market Committee, underscoring how developments beyond Asia-Pacific can drive investor sentiment. The rupiah was also supported by market intervention from Bank Indonesia. CDS spreads narrowed for most Asian sovereigns on 18-19 December. >> Read More

Opec takes a big bet by holding output

18 December 2014 - 23:57 pm
 

Robert Mabro, the veteran oil market observer, once said Opec should change its logo to a teabag “because it only works when in hot water”.

If that is the case, the oil producers’ cartel should have sprung into action long ago. Oil prices have fallen almost 50 per cent since mid-June to their lowest level in five-and-a-half years. Yet for the 12-nation group it is business as usual.

Led by Saudi Arabia, its largest producer, the cartel decided at its November meeting to hold output at 30m barrels a day despite calls from poorer members for production cuts to bolster prices.

Seasoned market observers are split on the reasons behind the decision at a time when supply is overwhelming tepid demand and prices are spiralling downwards.

Ali al-Naimi, Saudi Arabia’s oil minister, said on Thursday Opec had sought co-operation from other oil producers on output cuts, but “those efforts were not successful”. So it is pushing ahead with a passive strategy to let the market determine prices. >> Read More

 

If you’re Mario Draghi, look away now.

A widely-followed measure of long-term inflation expectations in the eurozone has slipped to below 1.6 per cent for the first time on record, as falling oil prices raises the possibility of deflation in the currency bloc.

The five-year, five-year forward inflation swap rate – in effect the expected average inflation rate over five years, starting in five years’ time – has been tumbling for some time, a fact that European Central Bank governor Mario Draghi highlighted with alarm earlier this year.

The 5y5y measure has now fallen below 1.6 per cent for the first time, underscoring the risk that long-term inflation expectations are becoming unanchored by the currently extremely subdued price pressures in the eurozone, which could worsen into outright deflation next year due to falling oil prices.

At pixeltime the gauge has slipped to just 1.5971 per cent today, down from well over 2 per cent for most of the time since 2004. See the first chart below.

As the second chart below shows, the 5y5y measure has tracked oil prices lower recently, as slumping energy prices is expected to weigh heavily on the eurozone’s inflation rate – already at a five-year low of just 0.3 per cent.

 

Three Conditions and Three Warning Signs

How to Tell if the Next Financial Crisis is Upon Us.

In the last post, it was suggested that the rapid collapse in oil prices might have set up a repeat of the 2008 financial crisis. Before we all run for the bunkers and the freeze-dried food, we should know the conditions needed for a crisis to happen, and the signposts we’ll see if the crisis gets going.

For a sector correction to become a meltdown, and for that to turn into a global crisis, several preconditions need to be in place.

The first condition is a serious market sector correction.

According to some participants in the market for energy company bonds and loans, such a correction is already underway and heading toward a meltdown (the second condition). Others are more sanguine, and expect a recovery soon.  >> Read More

Overnight US Market

29 November 2014 - 5:59 am
 

Stocks ended mostly lower — but with the Dow eking out a new record close — as Wall Street separated the winners and losers tied to nosediving oil prices and kept a close tabs on Black Friday sales. The Standard & Poor’s 500 also managed to log a six-week winning streak.

A barrel of Texas Intermediate crude settled at $66.15 Friday — a whopping 10.2% drop.

At the 1 p.m. close of the abbreviated, post-Thanksgiving session, the Dow Jones industrial average stood fractionally higher, settling at its new record of 17,828.24, passing the level set in the previous session by a half-point. It is the 31st record close for the Dow of 2014.

The S&P 500 ended down 0.3%, while the Nasdaq composite gained 0.1%. All three indexes have climbed for six weeks straight. It’s the longest climb for the three market measures since an 8-week winning streak that ended in November 2013.

The apparent takeaway from Wall Street: lower oil prices benefit more businesses than it hurts and has a massive positive impact on consumers’ disposable income.

Rosneft chief braced for oil at $60

28 November 2014 - 5:47 am
 

As Brent crude slides towards $70 a barrel, the head of Rosneft, Russia’s state oil company, says it has further to go.

Igor Sechin predicted that oil prices could fall below $60 in the first half of next year

“We anticipate a possibility of a fall in prices to $60 and lower, but only in the first half of the year – or to be precise at the end of the first half,” he told Austrian newspaper Die Presse.

“I should say that Rosneft is flexible and has resources; $60 suits us fine. Of course, we will be forced to postpone some expensive projects.”

Separately, he predicted that US shale oil production would reach a ceiling by 2017, and would decline from 2025 onwards.

“The US only has ten years. In that regard, one can speculate about manipulation related to information about the limitations of the resource base.”

Mr Sechin added:

“If the price falls, a number of projects in Russia will not be realised. The potential reduction in Russian production under low oil price conditions is about 200,000-300,000 barrels a day.”

 

Equally misguided, according to the consultancy firm’s research arm, is the argument that recent declines in prices for a range of commodities – from copper to iron ore and oil – mark the beginning of a downward trend.

In the first edition of its 44-page report entitled Resource Revolution: Tracking global commodities markets, McKinsey makes the case that resources supply has already hit the limits of being able to react to short-term shifts in demand, especially in the case of oil. So often in the past, this has resulted in sharp short-term spikes in prices, which affect most people at the petrol pump. Other than natural gas and renewables, the company warns that new sources of energy and commodity supplies remain hard to tap.

Central to McKinsey’s argument is the close link between oil and the rising cost of producing most other raw materials and agricultural commodities. Energy accounts for up to 40pc of the cost of steel and up to 30pc of crop production. >> Read More

 

The International Monetary Fund slashed its growth forecast for Russia for 2013 and 2014 for the third time this year, urging the government to pursue structural reforms and improve the investment climate in order to boost growth.

The IMF said in a statement Tuesday that it saw the economy growing at 1.5% this year and 3% in 2014, held back by weak investment and low demand for its exports. In June, the Fund cut its outlook for 2013 to 2.5%, after an earlier cut in April to 3.4% from 3.7%. In April, the Fund saw Russia’s economy growth in 2014 at 3.8%.

The IMF outlook for this year is even more pessimistic than that of the Russian government, which sees 2013 growth at 1.8%, down from 3.6% forecast at the start of the year.

The IMF’s representative in Russia, Bikas Joshi, said the Fund revised its forecasts after receiving new data, including figures that showed the economy grew only 1.2% in the second quarter, much less than expected.

“The new forecast is somewhat lower than the official Economy Ministry forecast, which implies that the Fund probably sees less scope for a recovery in key items such as fixed investment growth,” said Yaroslav Lissovolik, Deutsche Bank’s chief economist in Moscow.

While praising the current tight fiscal and monetary policy, the IMF calls on Russia to rely “on more efficient use of resources and higher investment rather than increasing oil prices and spare capacity.” In order to boost growth, the IMF said, Russia needed “decisive implementation of structural reforms, particularly supply-side reforms.” >> Read More

 

India may have to draw about $ $ 9 billion from its foreign exchange reserves to finance current account deficit this year,PMEAC Chairman C Rangarajan said today, while pitching for promoting foreign investment and exports to deal with problem in the long run. 

The Prime Ministry’s Economic Advisory Council (PMEAC) Chairman also said fiscal deficit is a concern too and suggested raising domestic oil prices to restrict it to the budget target of 4.8 per cent of the GDP in this fiscal. 

“Controlling CAD remains the main concern at present… On the assumption that total CAD will be $ 70 billion and the net capital inflows that we have estimated (about $ 61 billion), there will be a drawdown on the reserves of about $ 9 billion,” Rangarajan said. 

He also expressed the hope that CAD will even fall below $ 70 billion if the capital inflows picks up.  >> Read More

 

IMPORT-Grappling with the stressed economy, Finance Minister P Chidambaram today said “hard decisions” would be taken in the next few days and weeks to trim wasteful expenditure and curb import of “inessential” items.

“We are going through a period of stress… we have to take some hard decisions. Many of these measures are being taken, and many measures will be announced in next few days and weeks. Some measures to curb import inessential items will also be announced.

“All these measures taken together will have beneficial impact”, he said, winding up a debate on Appropriation Bill in the Rajya Sabha. >> Read More

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Team ASR,
Baroda, India.