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18 April 2015

Press review 18-04-2015 - Inversion?

It is not uncommon in commodities markets for an unanimous view to signal a turning point. With the resource optimist media reviewing their outlooks for infinite growth, something was clearly about to change. It just took a few days from the moment the Forbes group declared the "shale boom" dead to a new run up in petroleum prices. Wednesday alone the Brent index climbed nearly 7%, closing the week well above 60 $/b, the highest price since early December.

It will certainly not be this price yet to invert the contraction of the petroleum industry and halt the wave of job losses. But this week trading shows that in first place the price bottom of early January is likely done and secondly that volatility has not gone away.

Soon the media will start guessing where will the petroleum price settle. It will be a pointless discussion, the drivers behind the volatility that brought the price here have not changed.

Shale oil boom goes bust as expected production dips for first time in years
Tom Huddleston, 13-04-2015

The U.S. shale oil boom that powered the country’s highest crude oil production levels in decades appears to be slowing down due, in part, to a glut of supplies.

Oil output from the most productive U.S. shale fields is expected to drop off next month by 57,000 barrels of crude daily from April to May, the U.S. Energy Information Administration said Monday. That would represent the first monthly decline in more than four years, according to Reuters.

The EIA forecasted that the seven shale formations — Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica — will produce a total of 5.56 million barrels of crude oil daily next month, down from 5.62 million barrels per day in April. While the most productive formation, Permian, will see slightly higher output — by 11,000 barrels per day, to 1.99 million — output at the next-highest producer, Eagle Ford, will drop 33,000 barrels daily while Bakken’s output will decline by 23,000 barrels next month.
The best indicators of the unsustainability of present petroleum prices are the budged imbalances most exporting countries are dealing with. Naturally this sort of imbalances can only run for so long.
Oil-Rich Nations Selling Petrodollar Assets at Record Pace
Javier Blas, 14-04-2015

Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets.

If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets.

“This is the first time in 20 years that OPEC nations will be sucking liquidity out of the market rather than adding to it through investments,” said David Spegel, head of emerging markets sovereign credit research at BNP Paribas SA in London.

Saudi Arabia, the world’s largest oil producer, is the prime example of the swiftness and magnitude of the selloff: its foreign exchange reserves fell by $20.2 billion in February, the biggest monthly drop in at least 15 years, according to data from the Saudi Arabian Monetary Agency. That’s almost double the drop after the financial crisis in early 2009, when oil prices plunged and Riyadh consumed $11.6 billion of its reserves in a single month.
Regarding the so called "shale boom" there is a recent interview by Art Berman with a few interesting points to take home. The general message: at this stage "shale oil" is a money losing business.
The artificial shale boom, slumping iron ore prices, and the political importance of chicken
Andrew Bell,

The relentless rise in U.S. oil and gas production since 2008 has swamped global markets - that’s not news.

But why hasn’t there been a normal supply response to the crash in prices… in other words, why isn’t America pumping less?

“U.S. crude oil production is projected to increase from an average of 8.7 million barrels per day in 2014 to 9.2 million bbl/d in 2015 and to 9.3 million bbl/d in 2016,” according to the U.S. Energy Information Administration.

On Friday’s Commodities (11:30am ET), petroleum geologist Arthur Berman told us that much of the nation’s oil production is unprofitable at the current price of less US$52 a barrel. But investors, he says, are desperate for a return amid low interest rates so they keep propping up the sector by buying its bonds and shares.
The press has been announcing an imminent contract between Greece and Russia for an entry point to the Turkish Stream into the EU. The southern gas route seems to take shape rapidly and at this moment Brussels is totally in the drivers seat.
Eurasia Review
Repercussions Of Turkish Stream For Southern Gas Corridor: Russia’s New Gas Strategy
Ilgar Gurbanov, 14-04-2015

On December 1 2014, during his official visit to Turkey, Russian President Vladimir Putin announced the suspension of South Stream, blaming the EU for its “unconstructive” position. In fact, the realization of pipeline had become untenable as a result of various legal, political and financial issues, such as the EU’s Third Energy Package, the Ukraine crisis and the ensuing sanctions over companies involved in South Stream (Stroytransgaz and Gazprombank). That day, Turkish BOTAŞ and Russian Gazprom signed a Memorandum of Understanding for construction of a new offshore gas pipeline with 63 bcm/a capacity, to run under the Black Sea to the Turkey-Greece border. Some 16 bcm of this amount will be supplied to Turkey in the first phase in December 2016. In the second phase, the remaining 47 bcm will be delivered to the planned gas hub near the Turkish-Greek border – on the Turkish side – to transport Russian gas to Europe.

[...] One of the main factors in Moscow’s shift from South Stream to Turkish Stream was the EU’s Third Energy Package (TEP). Under these rules, a single company cannot own the pipeline through which it also supplies gas. Neither Russia nor Turkey is an EU member, and so neither are bound by the TEP, which makes the construction of Turkish Stream much easier. However, the construction of Turkish Stream is not the only issue at stake. The pipeline will have to stop at the Turkey- Greece border because of the TEP rules, given that Greece is an EU member state.
While the Turkish Stream in great measure put on hold the Nabucco project, a link from the Caucasus to Europe is not out of the question. With a lifting to economic sanctions on the horizon, Iran is another potential supplier with great interest in such pipeline. This could mean another important pipeline running through Turkey, lending the country great power over European markets.
Iran says it's ready to send gas to Europe
Daniel J. Graeber, 13-04-2015

Iran can serve as a reliable and steady partner for the European community in terms of natural gas needs, Iran's foreign minister said Monday.

Iranian Foreign Minister Javad Zarif said during a visit to Kazakhstan his country was already a trustworthy gas partner for Asian economies and a westerly pivot may soon follow.

"Iran, on par with Russia, enjoys all the (needed) resources to provide gas to Europe," he said from Astana.

Iran is anticipating major sanctions relief if a framework nuclear agreement with international powers enters into force during the summer. Sanctions limit Iran's energy export potential and the lifting of sanctions could help Tehran capitalize on its European market ambitions.
Still relative to Iran, Russia disclosed this week the resumption of a deal to sell one of its most advanced air defence systems to the Islamic Republic. With this system, Iran's airspace would become largely impenetrable to the Israeli and Saudi air forces at their present state of technology. Their violent reaction to this announcement was all but surprising.
Russia opens way to missile deliveries to Iran, starts oil-for-goods swap
Gabriela Baczynska, 13-04-2015

Russia paved the way on Monday for missile system deliveries to Iran and started an oil-for-goods swap, signalling that Moscow may have a head-start in the race to benefit from an eventual lifting of sanctions on Tehran.

The moves come after world powers, including Russia, reached an interim deal with Iran this month on curbing its nuclear programme.

The Kremlin said President Vladimir Putin signed a decree ending a self-imposed ban on delivering the S-300 anti-missile rocket system to Iran, removing a major irritant between the two countries after Moscow cancelled a corresponding contract in 2010 under pressure from the West.
Bellow is the best article on the brewing Sunni-Shiite conflict I read in many months. It goes back in time to previous confrontations and fully exposes the anachronicity of the US/EU policy towards the region.
Saudis Pour Oil on the Mideast Fire
Anthony F. Shaker, 14-04-2015

While denouncing Iran and its supposed Yemeni “Shi’a” allies in a recent speech, the governor of Saudi Arabia’s eastern province, Saud ibn Nayyef bin Abdel Aziz, put his country’s Shi’a community — fellow citizens — squarely in his sights.

“While our country is going through what it is going through and standing together as one bloc,” he ranted, “we find the descendants of the Safavid Abdullah ibn Saba who try to divide that bloc.”

“Abdullah ibn Saba” refers to a Seventh-Century Jewish convert to Islam whose existence is uncertain but who has become a useful myth. True to every other brand of Salafist takfiris, Wahhabi clerics and Saudi government officials alike insist that a Jew “founded” Shi’ism and that his purpose was to destroy Islam from within.

Happily for them this unsavory and, to historians, comically false claim connects “Iran” and “Shi’ism” to the “Jews.”

Yet, there is nothing out of the ordinary in the governor’s diatribe. The United States’ second most important ally in the Middle East fully intends to play its sectarian card to the hilt. The signs are everywhere.
The following news went almost unnoticed but might signal important things ahead. The European Parliament is pushing seriously the energy efficiency agenda and if it has its way might trigger a new step in the energy transition, and in the right direction. The declining energy consumption trend that set in the past 5 or 6 years in consequence of recessive policies could be just the beginning of a longer process.
MEPs want Juncker fund to focus on energy saving projects
Peter Teffer, 15-04-2015

The European Parliament wants almost a quarter of the new EU investment fund to go to energy saving projects.

MEPs in the assembly's industry and energy committee voted on Tuesday (14 April) to call for at least €5 billion of the €16 billion guarantee provided by the EU budget to go into energy efficiency projects.

The EU (€16 billion) and the EU's investment bank (€5 billion) will guarantee €21 billion for the so-called Juncker fund – the commission’s flagship growth project – which is then expected to be leverage to €315bn via private investors.

If parliament has its way, €75 billion will be spent on energy savings projects, “notably to support projects promoted by cities and local governments”, the adopted text said.
That's all for this week, have a pleasant weekend.

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