Saudis 'will not destroy the US shale industry'

www.telegraph.co.uk

Hedge funds and private equity groups armed with $60bn of ready cash are ready to snap up the assets of bankrupt US shale drillers, almost guaranteeing that America’s tight oil production will rebound once prices start to recover.

Daniel Yergin, founder of IHS Cambridge Energy Research Associates, said it is impossible for OPEC to knock out the US shale industry though a war of attrition even if it wants to, and even if large numbers of frackers fall by the wayside over coming months.

Mr Yergin said groups with deep pockets such as Blackstone and Carlyle will take over the infrastructure when the distressed assets are cheap enough, and bide their time until the oil cycle turns.

“The management may change and the companies may change but the resources will still be there,” he told the Daily Telegraph. The great unknown is how quickly the industry can revive once the global glut starts to clear - perhaps in the second half of the year - but it will clearly be much faster than for the conventional oil.

“It takes $10bn and five to ten years to launch a deep-water project. It takes $10m and just 20 days to drill for shale,” he said, speaking at the World Economic Forum in Davos.

Shale has proven much more resilient than people thought Daniel Yergin

COMMENTS

We’ve defeated the shale revolution, claims Opec | The Times

www.thetimes.co.uk

Low oil prices finally damage US production

Opec was on the verge of claiming victory over its North American rivals last night after its strategy of squeezing out the shale industry by flooding the markets with oil appeared to be vindicated.

The oil producers’ cartel said that falling prices would force lower production from its rivals by the end of this year, with American and Canadian producers particularly affected.

Opec, led by Saudi Arabia, has maintained production levels even as crude prices have collapsed 70 per cent from their level in 2014. In its first monthly report of the year, Opec said that its policy was starting

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Gas wars: A gallon is just 46 cents here

www.cnbc.com

While gas prices are low nationwide, some stations are slashing the fuel's price to rock-bottom levels to the tune of less than 50 cents a gallon.

The drastic price cuts are part of a gas price war at three Houghton Lake, Mich., stations.

Athit Perawongmetha | Reuters

During the last three days, the prices dropped below a buck per gallon, falling as low as 46 cents at Sunrise Marathon. Meanwhile, the Beacon & Bridge gas station was as low as 47 cents, said employees of each station in interviews with CNBC.

A nearby Citgo says its prices slumped to 95 cents a gallon.

Read MoreThe coming bull market for oil, but not for stocks

There have been long lines at the stations for most of the weekend, according to the three stations, with police officers directing traffic in the area due to the congestion.

Local stations first reported this news.

COMMENTS

Big banks brace for oil loans to implode

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Firms on Wall Street helped bankroll America's energy boom, financing very expensive drilling projects that ended up flooding the world with oil.

Now that the oil glut has caused prices tocrash below $30 a barrel, turmoil is rippling through the energy industry and souring many of those loans. Dozens of oil companies have gone bankrupt and the ones that haven't are feeling enough financial stress to slash spending and cut tens of thousands of jobs.

Three of America's biggest banks warned last week that oil prices will continue to create headaches on Wall Street -- especially if doomsday scenarios of $20or even $10 oil play out.

For instance, Wells Fargo (WFC) is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the "continued deterioration within the energy sector."

JPMorgan Chase (JPM) is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months.

"The biggest area of stress" is the oil and gas space, Marianne Lake, JPMorgan's chief financial officer, told analysts during a call on Thursday. "As the outlook for oil has weakened, we would expect to see some additional reserve build in 2016."

Citigroup (C) built up loan loss reserves in the energy space by $300 million. The bank said the move reflects its view that "oil prices are likely to remain low for a longer period of time."

If oil stays around $30 a barrel, Citi is bracing for about $600 million of energy credit losses in the first half of 2016. Citi said that figure could double to $1.2 billion if oil dropped to $25 a barrel and stayed there.

Related: $10 oil: Crazy or the real floor beneath the oil crash?

More oil companies will die

The oil crash has already caused 42 North American oil companies to file for bankruptcy since the beginning of 2015, according to a list compiled by Houston law firm Haynes and Boone. It's only likely to get worse. Standard & Poor's estimates that 50% of energy junk bonds are "distressed," meaning they are at risk of default.

"There is a lot of distress in the industry. There will be a lot of pain but they'll get through it," said Buddy Clark, a 33-year veteran of the energy finance space and a partner at Haynes and Boone.

The financial pain has gotten so great that now there's murmurs of a bail out for the U.S. oil industry, though it's clear any assistance would run into political opposition.

Related: Is it time to bail out the U.S. oil industry?

Are banks ready?

All of this raises the question: Is Wall Street doing enough to prepare for the oil storm?

"One year from now, are you going to look back and say, 'Whoops, we didn't get ahead of this enough,'" outspoken banking analyst Mike Mayo asked JPMorgan boss Jamie Dimon during Thursday's conference call.

Dimon said if it were up to him, he'd reserve against the potential for even greater losses. However, he said those decisions are limited by accounting rules.

Still, Dimon said the energy portfolio makes up just a small portion of JPMorgan's balance sheet and many of the loans are backed by physical assets. That means banks can sell off assets to recover money if a company defaults on its loans.

"We're not worried about the big oil companies. These are mostly the smaller ones that you're talking," Dimon said.

Paul Miller, a banking analyst at FBR, said oil loans don't represent nearly the same threat to banks that mortgages did last decade. He also pointed out that banks have been forced to stockpile capital to help them absorb losses.

"The big banks might have 1% to 6% of exposure. That's not going to kill them. This is not like 2006 or 2007," Miller said.

Despite the turmoil, JPMorgan isn't planning to run away from the oil patch.

"To the extent we can responsibly support clients, we're going to. And if we lose a little bit more money because of it, so be it," Dimon said.

CNNMoney (New York) First published January 18, 2016: 4:13 AM ET

COMMENTS

Michigan Becomes First State to Welcome Back Sub-$1 Gas... 0.80

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www.fox5ny.com

Gasbuddy.com says several stations in Houghton Lake, Michigan have lowered their prices under $1 per gallon, in what appears to be a price war.

According to GasBuddy it appears these stations are currently the first stations in the country to see prices under $1 per gallon in years. As the situation unfolds, it's possible these stations re-raise prices back over $1/gallon. 

78 cents per gallon was recorded at Beacon & Bridge Market while 95 cents per gallon was recorded at the Marathon in Houghton Lake. Prices were verified by GasBuddy after a review of photographs uploaded to GasBuddy's app. 

COMMENTS

Iran sanctions: Middle East stock crash wipes £27bn off markets as Tehran enters oil war

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Stock markets across the Middle East saw more than £27bn wiped off their value as the lifting of economic sanctions against Iran threatened to unleash a fresh wave of oil onto global markets that are already drowning in excess supply.

All seven stock markets in the Gulf states tumbled as panic gripped traders. London shares are now braced for a second wave of crisis to hit when they open on Monday morning after contagion from China sent the FTSE 100 to its worst start in history last week.

Dubai's DFM General Index closed down 4.65pc to 2,684.9, while Saudi Arabia's Tadawul All Share Index, the largest Arab market, collapsed by 7pc intraday, before recovering to end down 5.44pc at 5,520.41, its lowest level in almost five years.

The Qatar stock exchange, fell 7.2pc to close at 8,527.75, and the Abu Dhabi Securities Exchange shed 4.24pc to finish at 3,787.4. The Kuwait market returned to levels not seen since May 2004 as it slid 3.2pc lower, while smaller markets in Oman and Bahrain dropped 3.2pc and 0.4pc respectively.

The Iranian stock index gained 1pc, making it one of the best performing markets in the world with gains of 6pc since the start of the year.

The dramatic moves came following the historic report from the UN nuclear watchdog, which showed that Iran has met its obligations under the nuclear deal, clearing the way for the lifting of sanctions.

Implementing #JCPOA not a detriment to any country. Our friends are happy & our rivals need not worry. We're no threat to any nation/state.

— Hassan Rouhani (@HassanRouhani)January 17, 2016

The Vienna-based International Atomic Energy Agency issued the landmark document late on Saturday evening, sparking mayhem as markets opened on Sunday, the first day of trading in the Middle East.

The stock markets in Dubai and Saudi Arabia have been plunged into a painful bear market, losing 42pc and 38pc respectively, ever since Saudi Arabia decided to ramp up oil production in November 2014.

Oil prices fell below $30 for the third time last week as traders prepared for the prospect of Iranian oil flooding global markets.

The Islamic Republic has vowed to return its oil production to pre-sanction levels that stood above 3m barrels a day.

“The oil ministry, by ordering companies to boost production and oil terminals to be ready, kicked off today the plan to increase Iran’s crude exports by 500,000 barrels,” the official Islamic Republic News Agency reported on Sunday, citing Amir Hossein Zamaninia, deputy oil minister.

Fears that the Islamic Republic could quickly ramp up production sent Brent crude falling by 3.3pc to $29.43 on Friday - matching lows last seen in 2004.

West Texas Intermediate also slipped back to $29.60, a decline of 4.5pc.

Standard Chartered became the latest bank to raise fears over the oil price by downgrading its outlook to $10, following the likes of Goldman Sachs, RBS and Morgan Stanley.

The price of oil was $115 per barrel 18 months ago until Saudi Arabia greatly increased production to crush rivals in the US and Russia.

Oil price crash means petrol could become cheaper than bottled water

18 months ago a barrel of #oil bought you a bottle of Pol Roger 2004 champagne. Today it gets you Tesco Finest.pic.twitter.com/ROxaaTmW3H

— RBS Economics (@RBS_Economics)January 15, 2016

The relentless fall in oil has seen prices return to levels not seen since 2004.

Mapped: How the world became awash with oil

Interactive: Oilmapembed

COMMENTS

Glutted oil market faces new flood from Iran | The Times

www.thetimes.co.uk

Millions of extra barrels of Iranian crude oil could begin spilling on to world markets next week, adding further to fierce downward pressure on prices, experts have warned.

With the United Nations, which completed inspections at an Iranian nuclear site yesterday, expected to approve the removal of trade sanctions as early as Monday, Iran has pledged to begin pumping up to half a million barrels of extra crude per day within one week.

The excess output promises to exacerbate a growing international glut of oil that has already sent prices sinking to their lowest level in 12 years. The price

COMMENTS

I'm Really Not a Conspiracy Theorist, But...

If any of you reading this are true conspiracy theorists, please don't try to friend me. I generally don't get along with your types because the way you connect dots is ridiculous, your facts are usually made up and your conclusions are at best leaps of faith.

That being said, why did gas go up $0.42 in one single jump at all gas stations at midnight the night of election November 6, 2012? I'm sorry I don't have before and after pictures. It wouldn't even be believable. I never subscribed to the all-powerful, secret "Gas Price Czar" that sends down orders to all gas stations what the prices are to be, but after last Wednesday, there cannot be any other explanation that He exists and that Obama had corrupted this mystery man to help get him elected. The thing is, gas price spikes and dips are very predictable. When oil goes up, gas follows one to two weeks. When oil goes down, oil follows. When there is a problem in the Middle East, gas spikes up pretty quickly - usually within a couple of days. When there is a hurricane in an area that has off-shore drilling, there is usually a pretty quick spike in price. But Hurricane Sandy did the opposite. Before Sandy hit, oil refineries were shut down so gas production stopped, but there was so much devastation, that gas demand dropped enough to cause gas to go down. We saw this. It happened as expected. Gas in my neighborhood gradually dropped from $3.49 all the way down to $3.07 over the course of about a week immediately after Sandy hit. Late Tuesday evening, gas was between $3.07-3.09 at all gas stations. Very early Wednesday morning, gas at my local station was $3.49. Now NORMALLY when gas moves that much that quickly there is ALWAYS another station nearby that still has the old price. Not every gas station changes at the exact same time - in fact I've seen spans of up to 36 hours where nearby stations have not yet adjusted to a major change in gas prices.

Not Wednesday after the election. With absolutely zero warning, nothing in the news, no change in oil price, no terrorist attacks and no new hurricanes or any other news that would warrant a significant change in gas price, every single gas station, all within several hours (maybe minutes) popped their price by 40-42 cents. Am I the only one that feels like there is something very fishy about that?


In other conspiracy news, can someone explain to me why more Mormons would vote for John McCain in 2008 than for the Mormon, Mitt Romney in 2012? Please find a plausible explanation for this apparent fact...