China GDP: The elephant in the market

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

How the lifting of Iran sanctions will hit oil: Experts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US oil plunges 5.7% on China, closes at $29.42 a barrel

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

World oil prices slumped to below USD 29 a barrel on Friday, as a further fall in the Chinese stock market and the prospect of an imminent rise in Iran’s crude exports deepened fears of a longer supply glut.

After closing higher for the first time in eight sessions on Thursday, US and Brent crude futures slumped to new 12-year lows, taking this year’s losses to more than 20 percent, the worst two-week decline since the 2008 financial crisis.

The slump was not over yet, some analysts warned, as the lifting of sanctions on Iran opens the door to a wave of new oil. The International Atomic Energy Agency (IAEA) is expected later on Friday in Vienna to issue its report on Iran’s compliance with an agreement to curb its nuclear program, potentially triggering the lifting of Western sanctions.

Shares in China, the world’s No. 2 oil consumer, tumbled on Friday, with the Shanghai index ending down 3.5 percent to its lowest close since December 2014 and the yuan weakening sharply offshore. Adding to fuel demand concerns, US data showed retail sales fell and industrial production weakened in December.

The “ongoing worries regarding the pace of economic growth” spurred a new round of selling in the oil market, said Tim Evans, energy futures specialist at Citi Futures.

The March Brent contract was down USD 1.77, or 6.25 percent, at USD 28.96 a barrel, having fallen as low as USD 28.82, the weakest level since February, 2004.

US crude futures closed down USD 1.78, or 5.71 percent, at USD 29.42 a barrel.

Prices remained steady after oilfield services firm Baker Hughes reported the US oil rig count fell by just 1 rig, bringing the total to 515. At this time last year, drillers were operating 1,366 rigs in US oil fields.

Even before Iran’s sanctions are lifted, Iran’s oil exports were on target to hit a nine-month high in January. Tehran is expected to target India, Asia’s fastest-growing major oil market, as well as its old partners in Europe with increased exports once sanctions are lifted.

“It is the wrong time for Iran to be returning to the oil market, both for the market and likely also for Iran,” Phillip Futures said in a note on Friday.

Despite oil prices hovering around new multi-year lows, analysts say that prices have not hit the bottom just yet, with demand likely to ease in coming weeks, especially with refiners beginning to shut for routine spring maintenance.

A further fall in prices “cannot be excluded”, Commerzbank analyst Carsten Fritsch told Reuters Global Oil Forum. He warned that USD 25 a barrel “is quite possible, but not much lower than that.”

Commerzbank cut its 2016 forecast for oil prices, changing its year-end expectation for Brent to USD 50 per barrel, down from a previous forecast of USD 63.

The oil price collapse has hammered currencies from commodity-producing nations and spooked financial markets as investors worry about the health of the global economy.

Still, influential US bank Goldman Sachs on Friday maintained its USD 40 price forecast for US crude for the first half of 2016.

“The key theme for 2016 will be real fundamental adjustments that can rebalance markets to create the birth of a new bull market, which we still see happening in late 2016,” Goldman said in a report.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Oil drops below $30 as Iran supply fears mount

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Oil prices hit fresh multi-year lows Friday amid fears of what effect Iran flooding the market with crude will have on the commodity.

Iran is on track to ship 1.10 million barrels a day in January, a 20 per-cent rise on December, according to Reuters reports.

The price of both Brent and WTI dipped below 30 dollars a barrel Friday as the market braced itself for the additional supply.

Brent is currently around 54 percent lower than its 2015 high while WTI is off around 48 percent from its peak last year.

And at least one analyst believes the falling price isn’t about to be checked by oil producers’ cartel, OPEC.

“If you’re asking me at what level will OPEC stop production, then I would say much lower than this,” said Abhishek Deshpande, analyst at Natixis, told CNBC Friday.

Deshpande added that even calls as low as $10 a barrel could have some merit.

“You see people looking at technical levels of $26 because this compares to past trades. But even those analyst calls of $20 and even $10 a barrel are based on technical levels,” he said.

Commodity analysts expect a drop in oil prices as US and European sanctions imposed on Iran when it refused to scale back its nuclear proliferation are lifted and a fresh agreement begins.

“When completion of the deal is announced, the oil markets could see an immediate knee-jerk reaction to the downside” said Societe Generale in a note on Wednesday.

The Tehran government said Wednesday that the International Atomic Energy Agency (IAEA) was set to confirm the country has met its obligations to ensure a lifting of sanctions by Friday.

“The IAEA will issue its final report on Friday to confirm Iran has met its commitments under the JCPOA (Joint Comprehensive Plan of Action),” Deputy Foreign Minister Abbas Araqchi said Wednesday according to a number of media reports.

The plan of action, is an international agreement setting out the terms of Iran’s nuclear program.

Iran has told Reuters Thursday final steps were taking place and it’s now ready for an agreement.

“The core vessel of the Arak reactor has been removed…and IAEA inspectors will visit the site and report it to the IAEA,” the Atomic Energy Organization of Iran said.

Tehran expects sanctions could be lifted before Monday next week and that means the Islamic republic can turn the oil taps back on.

Iran has the fourth-largest oil reserves in the world and the International Energy Agency believes it could add as much as half a million barrels per day to exports as soon as sanctions are lifted.

In an already oversupplied market this could help push down an already plummeting oil price.

“There’s not been an accommodation possible in OPEC…Saudi Arabia and the Gulf countries are not going to cut back, to make room for Iran coming back into the market,” IHS vice chairman of consultancy Dan Yergin told CNBC on Wednesday.

However Jason Gammel, equities analyst at Jefferies told CNBC that a meaningful further drop is unlikely, even allowing for the added Iranian supply.

“We are starting to reach the stage where we start to cause interruptions to the physical supply of oil, so I do think the price needs to come up from where it is,” said Gammel on Thursday.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

VW lags as rivals’ Europe sales accelerate

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Volkswagen was left behind in the dust as its European rivals’ sales accelerated in 2015, latest industry figures show, in the latest sign the emissions scandal continues to hurt the embattled German carmaker.

VW, which is scrambling to regain trust around the world following news that it had cheated on emissions tests on its diesel vehicles, saw its sales increase 4.7 percent in December on the same month last year and 6.1 percent for the whole of 2015, compared to the previous year, according to car registration figures from the European Automobile Manufacturers Association published Friday.

Meanwhile, domestic rival BMW recorded a 19.9 percent increase for December and 12.4 percent hike for the whole of the year. In France Renault-Nissan enjoyed a monthly increase of 27.9 percent and a 2015 figure of 9.2 percent. The carmaker that enjoyed the best month was Mazda, with a December increase of 52 percent.

In September, the US Environmental Protection Agency found that VW had cheated on US air pollution tests by installing sophisticated software known as “defeat devices” that could sense when emissions testing was in progress. This allowed emissions controls to run full-tilt during official testing, but emitted 10 to 40 times the legal amount while on the road.

VW has had a difficult start to 2016 as it attempts to solve the problems of last year’s emissions scandal. This week, California’s environmental watchdog, the California Air Resources Board, rejected a VW plan to fix 2.0 liter diesel cars with a software patch, Reuters reported. The state said VW’s proposed fix was inadequate and that it would continue its investigation as well as talks with VW to find a fix.

Fallout from the VW scandal is still being felt across the European car industry. At one point on Thursday, Renault shares lost over a fifth of their value on speculation that a police raid on its office meant that it had also cheated on emissions tests.

However, the company said Thursday that while some of its models had failed tests, there was no evidence of the so-called defeat devices. Renault’s shares recovered some ground Friday morning, up 2.9 percent in morning trade.

ACEA figures show that overall in the 28-country European Union, car registrations were up 16.6 percent for December and 9.3 percent for the year.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China slowdown will hurt but not ‘end of it all’: HSBC

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Intel earnings: 74 cents per share, vs 63 cents expected

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Warren Buffett digs deeper into his big oil bet

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Oil credit crunch could be worse than the housing crisis

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Oil and gas companies borrowed heavily when oil prices were soaring above USD 70 a barrel. But in the past 24 months, they’ve seen their values and cash flows erode ferociously as oil prices plunge — and that’s made it hard for some to pay back that debt.

This could lead to a massive credit crunch like the one we saw in 2008. With our economy just getting back on its feet from the global 2008 financial crisis, timing could not be worse, especially in an election year. It makes you wonder: How could this happen again? Quite easily, as it turns out.

Industry fundamentals are being misunderstood.

A USD 30 Nymex West Texas Intermediate crude price on a screen is the price paid when that barrel is delivered to Cushing, Okla. However, the producer of that same barrel in the Permian Basin will receive only $27 per barrel. Lesser quality crudes such as West Texas Sour might only fetch $15 a barrel. When prices were above $100 or even $60, those margins mattered less. With oil around $30, it’s a much bigger deal.

A similar problem exists with lender’s reserve values used for credit judgments. Notwithstanding the persistent decline in oil prices, commercial banks still use escalated price decks. These often mirror or exceed slightly, the forward price curve on the Nymex. Today, a USD 30 WTI barrel is forecast by the futures market to be sold at $39 per barrel a year from now. Those escalations become very significant, again, because of the margin squeeze.

With global oil demand flat, or even declining somewhat, OPEC price “hawks” producing all they can, OPEC price “doves,” Saudi Arabia and its near neighbors producing to regain market share, and inventories at record highs — is a price escalation likely? The banks believe it is.

No matter how you cut that cake, there will be a flood of hard defaults with bank lenders and bondholders over the coming few months.

Significant year-end losses and write-offs are also coming, and very likely more write-offs in the ensuing quarters. Auditors will likely start to qualify their assessment of whether firms are a viable “going concern.” Those also constitute an event of hard default with most lenders. These specific events of hard defaults with a senior lender generally will create a cross-default on other debt styled securities.

Even more importantly, most oil-price hedges, price swaps/derivatives, also have cross-default provisions. Thus, counterparty credit risk begins to escalate as those parties are forced to disgorge cash payments on those instruments.

Given the ferocity and rapidity surrounding this meltdown, can lenders effectively process this burgeoning inventory of defaulted credit? Time will tell, and there is a relative paucity of experienced workout/restructuring professionals to be spread around. Let’s now add to that the banks to which the loan originators syndicated these credits. Highly doubtful they possess the army of specialists required to work through this problem.

Here are a few more gauges of the crisis to come: Since 2006, an additional USD 1 trillion of capital expenditures by just 59 companies has been spent on shale drilling and operations, according to oil-and-gas industry site OilPro.com. And another $1 trillion of energy-bond debt has gone on the books, according to the Bank for International Settlements. Energy-company bonds will sell off and create a pall of risk avoidance across all industries.

A staggering USD 2 trillion of debt was meant to generate a 3-to-1 increase in value. That value today is definitively less than half of what was spent. Overinflated year-end 2015 reserve values and hard-defaulted credit facilities will combine with an absence of private and public equity markets. The contagion through the expanding and loosely regulated derivative market is surely destined for surprises. Leases will be forfeited and meaningful plugging and abandonment liabilities will build. If the company cannot pay, the banks will be forced to do so.

Now, let’s take a look at the 2008 credit contraction. There were overinflated values, aggressive and lax lending, deteriorating credit worthiness, an expanding and unregulated derivatives market, and a gross underestimation of lender exposure, coupled with expectations that price increases would cover credit errors.

Sound familiar?

Oh, and home prices dropped 61 percent over three years during that crisis, according to the Case-Shiller Index. Oil prices have declined 69 percent in just two years.

But, there’s a very important difference: Houses had a value, albeit only for the dirt in the worst-case scenarios. Uneconomic oil and gas reserves – those that have been deemed to be not economically viable to extract – have zero value and then create further liabilities to plug them up.

Near term, we are going to see devastatingly bad news in energy company 10ks and conference calls. And then comes the recognition that it’s even worse than that.

The selloff in energy bonds now underway creates general risk avoidance across the board. Ballooning loan write-offs hit the major banks and those smaller banks to whom the loans were syndicated. The manifestation of counterparty credit defaults and its cross defaults hit the banks again and many other firms that began originating swaps.

Even with the selloff to date, one cannot gauge the magnitude of the problem and how it might play out. But we know one thing for sure: It will be ugly.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow