OPEC PREVIEW : NO CUT IS GLUT
VIENNA, Nov 26 (Reuters) – OPEC Gulf oil producers will not propose an output cut on Thursday, reducing the likelihood of joint action by OPEC to prop up prices that have sunk by a third since June.
“The GCC reached a consensus,” Saudi Arabian Oil Minister Ali al-Naimi told reporters, referring to the Gulf Cooperation Council which includes Saudi Arabia, Kuwait, Qatar and the United Arab Emirates. “We are very confident that OPEC will have a unified position.”
http://af.reuters.com/article/commoditiesNews/idAFL6N0TG1E320141126
I am not permissioned to reproduce what the expert had to say suffice that the gist of it is that there is a large chance for prices to continue to decrease !
We are sitting on 4 year lows now for both the Brent and WTI and the problem is not even in a cut in production because we are already sitting on considerable stockpiles and excess of production that is estimated at 1.3 million barrels per day.
If there is not cut in production, the stockpiles will just keep growing, putting a dampener on investments and all those new rigs and ships will be delivered to heavy hearts next year.
Meanwhile, this puts the bull in the hands of those oil dependent nations with swelling populations like India and Indonesia, buying them a longer period of time to turn their economies into the much needed new growth engines of the world.
I would remain bullish the major producers and bearish the O&G support services companies, especially the little ones.
Incidentally, the LNG and Natural Gas markets are holding up well which is surprising, considering the competition for example, propane and butane would face from oil derived naptha.
I am not sure if I should be cheering for higher or lower prices anyway.
When there’s blood in the streets then its time to begin scaling into longs! USO anyone ?
Keppel Corp and Sembcorp Marine seem to be holding up pretty well over the past few days despite falling oil prices, wonder if they will make new lows tomorrow….still worried about defaults from their customers for upcoming deliveries.
Big names will have higher quality customers.
*SEMBCORP MARINE FALLS TO LOWEST SINCE OCT. 2011
Singapore Wealthy Stung as Crude Rout Sinks Bonds
http://www.bloomberg.com/news/2014-11-27/singapore-wealthy-stung-as-crude-rout-sinks-bonds-asean-credit.html
True, but the current crop of orders are largely speculative especially jack-ups, if I recall correctly, around 2/3 have no contracts. For the semi-subs, think around 25% have no contracts.
If secondary market prices for rigs collapse, customers will likely default.
Keppel Corp used to have better quality customers than SembMarine (experienced a few defaults during the last downcycle, had to complete the rigs and sell them in better economic times).
Keppel Corp and SembMarine have broke recent lows so looks like the worst is far from over….
Yeah. How many rigs does one need ? Especially when offshore is second most expensive for extraction ?
Its easy if SGX cooperates and lets companies spin off and sell to each other the rigs – you buy mine and i buy yours, maybe they can tide through this downturn ? Bit like real estate.
Haha, good idea, since SGX is known for REITs and Business Trusts, maybe they can set up a business trust to house those rigs!
Nice weekend!
US shale oil’s cost of extraction is 100-250% higher than various OPEC countries. By pledging not to reduce oil output, OPEC is determined to defend their market share AND pressure oil price below US$70 (going forward) to wipe out shale oil competitors.
Back to bonds, the continued slide in oil price is expected to ease global inflation (including deflation risk in advanced economies eg, EU, Japan or even Singapore) ; Fed might slightly delay or reduce the magnitude for rate hike in 1H15.