Russia says better Iran-Saudi Arabia ties would help oil prices: RIA

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Russia wants to see improved relations between Iran and Saudi Arabia at a time when joint action is needed to influence global oil prices, the RIA news agency on Monday quoted Zamir Kabulov, a senior official at Russia’s Foreign Ministry, as saying.

Russia, one of the world’s top oil producers, has repeatedly refused to cooperate with the Organization of the Petroleum Exporting Countries in recent years despite the falling price of oil, the lifeblood of its economy.

Any hope of sealing a global output deal has so far foundered on Iran’s position. Tehran is boosting production to try to regain market share after sanctions were lifted, paving the way for it to re-enter the market after a long absence.

The prospect of cooperation between Iran and leading producer Saudi Arabia is further complicated by the fact that the two countries are geopolitical foes who support different sides in conflicts in both Syria and Yemen.

“We all need stability on the oil market and a return to normal (crude) prices,” RIA quoted Kabulov as saying.

“And these are the key nations, especially Saudi Arabia and Iran, which is striving to return to the oil market, anticipating the removal of sanctions.”

Some OPEC countries are trying to achieve a consensus among the group, while some non-members back an oil production freeze, sources familiar with the discussions said last week, a possible attempt to tackle the global glut without cutting supply.

Top exporter Saudi Arabia might be warming to the idea, though it was too early to say whether it would give its blessing because any deal would mainly depend on a commitment by Iran‎ to curb its plan to boost exports, the sources said.

Even as officials on both sides discussed the possibility, Russia and OPEC continued to pump oil at some of the highest levels in recent times last month, suggesting both were locked in a fierce struggle for market share.

Benchmark Brent crude LCOc1 has fallen around 70 percent since mid-2014

OIL PRICES ARABIA

Copyright: Reuters

Global shares climb as firmer Chinese yuan eases deflation fears

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World stocks rose sharply on Monday as China’s central bank fixed the yuan at a much stronger rate and oil cemented recent gains, easing fears of global deflation. 

The rally belied a string of poor economic data from Beijing and Tokyo as demand for safe-haven assets waned, yet investors remained on edge due to lingering concerns about growth and the health of the financial sector. 

European stocks rose 3 percent .FTEU3, having shed nearly 10 percent over the last fortnight, mirroring a bounce in Asia. Futures pointed to notional gains of 1.6 percent on Wall Street ESc1 but U.S. markets will be closed for a holiday.

 Meanwhile, assets that tend to perform well in times of stress lagged. The Japanese yen lost ground against the U.S. dollar, top-rated German bond yields edged away from nine-month lows and gold slipped 2 percent after its strongest week in four years.

“We had a very strong statement from the Chinese authorities signaling they are committed to a stable currency and that’s helped sentiment … safe-haven flows have unwound somewhat,” said RIA Capital Markets strategist Nick Stamenkovic.

In China, spot yuan jumped more than 1 percent to 6.4934 per dollar – its firmest this year – after the People’s Bank of China set its daily midpoint 0.3 percent stronger and the head of the bank was quoted as saying speculators should not be allowed to dominate market sentiment. [CNY/] A stronger yuan reduces the risk that China will export deflation to the world, while worries about consumer price growth have also been helped by bounce back in the oil price.

Brent LCOc1 and U.S. crude futures CLc1 edged up on Monday adding to Friday’s 10 percent surge on speculation that the Organization of the Petroleum Exporting Countries (OPEC) might finally agree to cut output to reduce a world glut.

Euro zone long-term inflation expectations also rebounded from record lows on Monday even as Germany’s Bundesbank cut its forecast for consumer price growth in the bloc’s biggest economy.

Yuan gloabl economy

DISCONNECT

China’s weak exports and imports in January, down 11.2 percent and 18.8 percent year-on-year respectively, seemed not to disturb markets. The resulting jump in the country’s trade surplus to $63 billion for the month might have helped, as that may offer support to the yuan.

The disconnect between markets and economics was perhaps starkest in Japan, where the Nikkei .N225 jumped more than 7 percent, putting its worst week since the depths of the global financial crisis in 2008 quickly behind it.

This came despite data showing the economy contracted by an annualized 1.4 percent in the last three months of 2015, more than expected.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 2.3 percent .MIAPJ0000PUS, after losing 10 percent of its value so far this year.

European shares followed in their wake, led by a 4 percent rebound in banking stocks .SX7P on news that the European Central Bank (ECB) is in talks to buy bundles of Italian bad bank loans as part of its asset-purchase program.

Yet some strategists cautioned that Monday’s rebound may prove short-lived, with concern that central banks have little ammunition left to fight off the heady mix of an oil-induced deflationary forces, capital outflows and economic weakness in China, and pressure on the world’s financial sector.

“It’s possible we could see calmer markets this week but we are not out of the woods yet,” Thomas Harr. global head of fixed income and currency research at Danske Bank in Copenhagen.

“For the last couple of weeks we have seen a bit of central bank fatigue – they have cut rates into negative but it isn’t having much of an impact.

Against a basket of currencies .DXY, the dollar was up slightly at 96.433 having been at its lowest in almost four months. Likewise, it edged up to 113.99 yen JPY=, having touched a 15-month trough just under 111.00 last week.

The euro was last down 0.6 percent at $1.1184 EUR=, having slipped from a 3-1/2 month peak of $1.1377.

 

Copyright: Reuters

Saudi Arabia, Venezuela talk of co-operation to stabilize oil market

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Saudi Arabia’s oil minister Ali al-Naimi discussed cooperation between OPEC members and other oil producers to stabilize the global oil market with his Venezuelan counterpart on Sunday, state news agency SPA reported.

Venezuela’s Oil Minister Eulogio Del Pino, who is on a tour of oil producers to lobby for action to prop up prices, said his meeting with Naimi was “productive”, his ministry reported.

Cash-strapped OPEC member Venezuela has been calling for an emergency meeting of producers to discuss steps to prop up prices, which are close to their lowest since 2003.

The prospect of supply restraint by the Organization of the Petroleum Exporting Countries and rivals helped oil prices LCOc1 rise above $34 a barrel on Friday from a 12-year low close to $27 last month, despite widespread scepticism that a deal will happen.

“It was a successful meeting and (conducted) in a positive atmosphere,” SPA cited Naimi as saying.

Both ministers discussed Del Pino’s visits to other oil producers and the outcome of his “meetings that aim towards the cooperation of those countries to stabilize the international oil market”, Naimi said.

“During the meeting, there were discussions about the cooperation of the producing countries within OPEC and outside (OPEC)… and the importance of the continuation of such consultations,” SPA added.

However, the comments by Saudi Arabia, the world’s largest oil exporter, show no indication of a shift in the country’s policy of refusing to cut supplies to prop up crude prices, some OPEC delegates said.

“They seem like just general talk about cooperation, but nothing about cutting production,” said one OPEC source.

“It’s always good to say discussions were positive and productive. Never say they were negative. The issue is not with Venezuela, it is with Iran,” said another OPEC source.

Sources familiar with the matter say Iran is reluctant to restrain crude supply as it wants to recover the market share it lost during sanctions that were imposed in 2012 because of its nuclear program. International sanctions were lifted in January.

OPEC oil production jumped to its highest in recent history in January as Iran increased sales and its rivals Saudi Arabia and Iraq also boosted supply, a Reuters survey showed.

Last Wednesday, the Iranian news agency Shana quoted Del Pino as saying six producing countries, including OPEC members Iran and Iraq and non-members Russia and Oman, supported a producer meeting.

But so far, none of OPEC’s Gulf members, including OPEC heavyweight Saudi Arabia, has publicly backed a meeting.

Saudi Arabia stabilize oil market

Copyright: Reuters

Five Reasons Oil Is Driving The Stock Market

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At its basic level the price of oil is a product of supply and demand. Other factors such as political turmoil can influence it but the main factor is supply and demand. At times and especially now oil is viewed as a proxy for the global economy, which has a ripple effect on the stock market. Over the past month the changes in the price of oil have had a very large influence on the US and international stock markets. There are at least five reasons for this which I’ve outlined below.

1. Lower oil prices may signal the global economy is slowing

Commodities such as copper and oil can be signals that worldwide economic growth is accelerating or decelerating. Oil was $100 a barrel in August 2014 and went into free fall to $45 in January 2015. It bounced back to $60 between May and June and then went into a slide and has been trading between $30 and $35 for the past month.

While lower oil prices are positive for US consumers and other countries that are large oil importers such as China, Japan and most of Western Europe concerns about lower growth rates in China are negating the benefits. China had been the driver for increased oil demand over the past five years and with oil prices collapsing it appears that its economy may be slowing more than anticipated. This is also exacerbated by concerns that the economic data released by China is rosier than it actually is.

2. Oil export nations are tapping into their stock holdings

Every large oil exporting country budgeted their tax revenues from oil at much higher levels. Saudi Arabia had $635 billion in foreign exchange reserves as of November 2015 and withdrew almost $100 billion from global asset managers over the past year. Russia’s monetary reserves dropped by $40 billion and could be exhausted in 2016.

For the 11 OPEC countries it is estimated that their budget deficits increased from $17 to $278 billion in 2015. At the current oil price their deficits will be larger in 2016. Norway has one of the largest sovereign wealth funds at $805 billion and is tapping into it to fill its budget gap. While not all the assets that these companies are selling are equities a large percentage must be due to their liquidity. This creates pressure on stock prices.

3. Oil companies cutting spending

As oil prices went over $100 the oil sector boomed in the US and one state that very high correlation of 0.9 for the 50 day rolling average between the S&P 500 and the price of oil. Back in 2013 people with no experience were being paid $100,000 and unemployment was 1% compared to the national rate of 7.5%.

Certain parts of Texas have also been hit hard. I saw a news story about a small oil supply firm that has seen its business drop 90% with only safety related equipment being sold. Another has  laid off over 150 of its 200 employees. Exxon also announced that it was cutting its capital expenditures in 2016 by 25% which is billions of dollars.

4. Bank loans to the oil sector

Investors are concerned that a large number of loans that allowed US oil companies to rapidly expand fracking operations over the past few years will default. These companies took on a lot of debt based on higher oil prices and are now hanging on by a thread. While the oil companies continue to pump as much as they can, as long as it covers the marginal cost of extracting it, they are trying to generate enough cash to service the debt and stay in business. This of course keeps prices lower.

The ripple effect for the banks is if they have too much of their loan portfolio lent out to these companies the banks will have to write off a large portion of the loans. Investors are taking more of a shoot first (sell bank stocks they believe are exposed) and ask questions later. Having the price of oil stay low only makes this item worse.

5. Algorithms are driving stock movements based on oil price changes

There is a lot of fast money that gravitates to whatever trading system works. For at least the past month there has been a very high correlation of 0.9 for the 50 day rolling average between the S&P 500 and the price of oil (1.0 being that two assets trade in lock step, 0 being there is no relationship and -1.0 being they move in opposite directions).

Oil Is Driving The Stock Market

 

Copyright: Forbes

Why Cheap Oil Prices Could Be Bad for the Global Economy

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Drivers are rejoicing over historically low prices at the pump.Yet while cheap gas prices are great for household budgets, they could indicate big trouble for the global economy, some economists say.

Markets around the world rely heavily on emerging economies—which, with the exception of China and India, are rich in oil and commodities, Bloomberg explained. These countries make up about 40 percent of global gross domestic product, double that in 1990.

Some of these markets, including oil-rich Russia and Saudi Arabia, are experiencing slow, and even shrinking, economic growth due to plunging oil prices. (Low oil prices are what’s responsible for low consumer gas prices.) Other markets, such as Nigeria, Suriname and Azerbaijan, have a high risk of default. Venezuela, one of the top 10 oil exporters, is considered one of the most likely default candidates. Its bonds maturing in 2022 are supposed to yield more than 40%, while in 2013, the yield was less than 10%, Bloomberg reported.

The slowdown has also extended to other industries, with Apple blaming weaker sales in the fourth quarter of 2015 on lagging economic growth in some emerging oil-rich nations. At the same time, however, consumers around the globe should have more disposable income because of what they’re saving thanks to cheaper fuel, heating, and energy costs. Some analysts maintain that this increase in disposable income should boost spending in other areas and keep the economy humming along.

Still, the changing demographics of oil production could hurt the global economy. While in the past the loss to exporters was bolstered by importers’ gains, the U.S. now competes with Saudi Arabia and Russia for the title of the world’s largest oil producer.

“Many oil exporters face very difficult circumstances,” Gian Maria Milesi-Ferretti, the IMF’s deputy director of research, told Bloomberg. “So now they have to cut spending significantly, and this will have an impact on economic growth.”

OIL PRICE ECONOMY

Copyright: Time

No Decision Yet on OPEC, Non-OPEC Meeting, Some in OPEC Skeptical: Delegates

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OPEC has not yet scheduled any talks with Russia and other non-OPEC countries aimed at supporting oil prices, two OPEC delegates said on Tuesday after Russian officials talked up potential cooperation with the exporter group.

Russian Foreign Minister Sergei Lavrov said Moscow was open to further cooperation in the oil market with OPEC and non-OPEC countries.

The prospect of supply restraint by the Organization of the Petroleum Exporting Countries and rivals has helped oil prices rise above $32 a barrel from a 12-year low close to $27 last month, despite widespread scepticism that a deal will happen.

OPEC delegates have previously suggested OPEC and non-OPEC could hold talks in February or March. But no date has been scheduled, and one delegate said OPEC did not have a common view on the aim of such a meeting.

“There is nothing from OPEC yet. It is not fixed,” an OPEC delegate said, who added that expert-level OPEC meetings with non-members held in 2015 did not result in supply cuts.

“We had two meetings before. The two sides discussed the market, but there were no concrete steps.”

A second OPEC delegate said there was little point in OPEC holding a meeting with non-OPEC until OPEC itself had agreed a common position. For example, Iran, after the lifting of Western sanctions, wants to recover market share, a source familiar with the matter said last week, not cut output.

“Some of them, OPEC member-countries, are not sure what we are going to do in this meeting with non-OPEC,” the delegate said. “If the meeting takes place without results, we’ll have a big problem with the market, the price will go down.”

Venezuela has called for a standalone meeting of OPEC to discuss steps to prop up prices. But a number of OPEC members have reacted coolly to the idea, suggesting no meeting will take place.

opec

Copyright: New York Times

Oil Price Will Increase in Next ‘Few Months’

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Oil prices will only stay at current levels for the next few months, according to Stuart Amor, the ex-head of oil and gas research at financial advisory firm RFC Ambrian. Amor, who made the statement in a presentation at the Finding African Oil event in London Monday, which was attended by Rigzone, said that around 10 percent of non-OPEC supply is cash-flow negative at the operating level in the low oil price environment affecting the industry today. “At $30 per barrel, which is where we are today, about ten percent of non-OPEC supply is cash flow negative at the operating level, so I don’t think the oil prices can stay down here for more than a few months. If they do, then some of that supply is going to get shut-in,” Amor said, addressing oil and gas delegates at Finding Petroleum’s conference. In spite of the decreasing oil price, Amor suggested in his presentation that the oil and gas industry wouldn’t see an increase in M&A (merger and acquisition) transactions until the volatility of crude prices subsided: “The biggest determinant in the number of M&A transactions is the commodity’s volatility. Highly volatile prices, particularly at the long end of the curve, and we’ve seen a lot of that over the last couple of weeks, make it much harder for buyers and sellers to agree prices. So we live in an uncertain world and it’s got a whole more uncertain in the last two weeks. Indeed the recent spike in crude volatility hasn’t been seen since the height of the global financial crisis in 2008. That will need to change for a lot of M&A transactions now to occur.” Amor held the position of head of oil and gas research at RFC Ambrian for almost four years, covering several Africa-focused mid-cap and junior oil companies including Tullow Oil, Ophir Energy, Seplat and African Oil Corp. He was previously the head of global equity research at ING.

oil price 2016

Copyright: RIGZONE

British wage growth slows as worries grow over oil and Europe

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UNEMPLOYMENT in Britain is just 5.1%, the lowest since 2006. Economists expect that when joblessness falls, wages will rise, because employers have to compete more fiercely for staff. After a long slump brought on by the recession, by mid-2015 wages were growing nicely. But as unemployment continued to decline, the economists have been left scratching their heads. In November three-month average growth in pay was just 1.9% year on year (see chart), far below levels in the years leading up to the 2008-09 global crisis.

The shaky world economy is partly to blame. The oil-price slump is biting: wages in the oil-and-gas industry, which are about 50% above the average, have fallen by 12% in the past year. Cheaper oil also prompted a flirtation with price deflation in the middle of 2015, making workers less inclined to push for pay rises. In the year to December 2015 sterling appreciated on a trade-weighted basis by 7% as nervous investors hoarded British assets (it has since been falling back). As exporters’ competitiveness suffered, they tried to cut costs, including pay. The manufacturing sector, which is heavily export-oriented, has seen especially low earnings growth in recent months.

A more pessimistic view is that, even without market turmoil, wages were bound to come down to earth. In the latest figures a strong rise in August fell out of the rolling three-month average. Mark Carney, the governor of the Bank of England, pointed out on January 19th that long-term unemployment is still 50% higher than in 2007 (though it is falling). In addition, Mr Carney noted that Britons have in recent months reduced the number of hours they work, which is also suggestive of weak demand for labour.

Yet talk of labour-market “slack” is hard to reconcile with businesses’ complaints (which are growing, according to surveys by the Bank of England) about finding labour—especially the skilled sort. Firms may be sating their desire for skills without paying full whack, argues Doug Monro of Adzuna, a job-search website. Mr Monro reckons that, instead of hiring people with experience, more businesses are choosing to hire youngsters, whose wages crashed in the crisis, and train them up. Penguin Random House, a publisher, may be an example: it has announced that it will no longer require job applicants to have a degree.

In recent months the workforce has thus become younger, pushing down average wages. However, with youth unemployment now lower than in mid-2008, firms may struggle to continue this practice for much longer. On top of this, flows of people moving from one job to another, which fell sharply during the recession as workers clung on to whatever position they could find, have picked up and are now back at pre-recession levels, says Samuel Tombs of Pantheon Macroeconomics, a consultancy. A year ago there were slightly more vacancies than jobseekers, according to data from Adzuna; now there are twice as many openings. Those workers happy to flit between jobs ought to be able to drive a harder bargain on pay.

Add in the new “national living wage”, which is coming into force in April and is worth £7.20 an hour for workers who are 25 or older, and wage growth may pick up again in the coming months. The biggest threat to workers realising these gains, though, is home-grown. Thanks to worries over the forthcoming referendum on membership of the European Union, business investment is slowing, say economists at Barclays bank. If investment shrinks, productivity will suffer. Britons could then once again face measly pay growth, just as the economy was picking up speed. 

BRITISH ECONOMY

Copyright: The Economist

Mexico’s Pemex signs MOUs with Arab oil companies

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Mexican state-owned energy company Petroleos Mexicanos signed two memorandums of understanding Tuesday with oil companies from the United Arab Emirates.The two MOUs, signed within the context of Mexican President Enrique Peña Nieto’s visit to several Persian Gulf nations, are in addition to a separate agreement inked in Saudi Arabia, Pemex said in a statement.

Under the terms of one MOU with Mubadala Petroleum, the companies will explore potential upstream (exploration and production) and primary midstream (liquefaction and transport) projects in Mexico’s energy sector.

They also will study the potential for cooperating on infrastructure projects, including one in the Salina Cruz area of the southern Mexican state of Oaxaca that would involve an investment outlay totaling more than $4 billion, Pemex said.

Under the terms of the agreement, the two companies also will explore potential cooperation in cogeneration projects.

A second MOU was signed with the company ADNOC and calls for the exchange of best operating practices, including training in areas such as the processing and handling of liquefied natural gas.

Lastly, the MOU with Saudi Arabian company Saudi Aramco lays the groundwork for a dialogue aimed at “exploring different areas of cooperation,” such as upstream and downstream (refining and marketing) operations and support services.

Pemex CEO Emilio Lozoya, who is accompanying Peña Nieto on the visit, signed the three MOUs. EFE

PEMEX ARABIA

Copyright: Fox News

4th Call: Round 1 Bidding Guidelines and Model Contract

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We are pleased to report that today Deceber 17th of 2015, The Energy Ministry (SENER) published the bidding guidelines and model contract for the 4th phase of Round 1, which provides the awarding for the exploration and extraction of hydrocarbons in Deep Waters, which will be held in the 3rd quarter of 2016.

In this 4th edition the National Hydrocarbons Commission, shall tender 10 areas located in the Gulf of Mexico; 6 in the region of the “Cuenca Salina”, and 4 in the call “Cinturón Perdido de Plegado”, where depths range from 500 meters to 3,000 meters of water depth.

The operating companies will combine assets 10,000 million (MDD), or equity account of 2,000 million dollars, in addition to experience in drilling at least 1,000 meters deep between 2011-2015 and investments in deepwater projects for 2,000 million dollars.

Meanwhile SENER already preparing the fifth stage of the Round One that will include areas with unconventional resources such as Chicontepec and Tampico Misantla.

For more information consult www.ronda1.gob.mx

 

aguas profundas Ronda 1