Oil
Slump Blindsides Bulls That Wagered on Rout Ending: Energy- (www.bloomberg.com) Speculators
added to wagers that the slump in oil futures, the worst since the global
recession, is ending. Prices kept falling anyway. Money managers raised their
net-long position in U.S. crude to the highest in two
months in the week ended Dec. 9, U.S. government data show. Most of the change
came from short holdings
contracting to the lowest level since August. Oil fell to a five-year low last
week after OPEC producers including Kuwait andIraq reduced prices and the International
Energy Agency cut its estimate for global demand for the fourth time in five
months. Saudi Oil Minister Ali Al-Naimi indicated he won’t trim supply,
reiterating OPEC’s decision last month to leave the group’s production target
unchanged even as the U.S. pumps the most oil in more than three decades. “A
number of investors think we’re close to the bottom,” Michael Lynch, president
of Strategic Energy and Economic Research in Winchester, Massachusetts, said by phone Dec. 12. “It’s always difficult
to get the timing right.”
Oil
Storm Has Texas Wildcat Veterans Warning Bakken Rookies to Take Cover - (www.bloomberg.com) Autry
Stephens knows the look and feel of an oil boom going bust, and he’s starting
to get ready. The West Texas wildcatter, 76, has weathered four such
cycles in his 52 years draining crude from the Permian basin, still the most
prolific U.S. oilfield. Though the collapse in prices since June doesn’t yet
have him in a panic, Stephens recognizes the signs of another downturn on the
horizon. And like many bust-hardened veterans in this region -- which has made
and broken the fortunes of thousands -- he’s talking about it like a gathering
storm. The ups and downs of oil are a way of life in Midland and Odessa, Texas,
dating all the way back to the Great Depression. It’s as much a part of the
culture as Gulf Coast hurricanes, and residents often prepare accordingly. “We’re
going to hunker down and go into survival mode,” Stephens, founder of Endeavor
Energy Resources LP, said in an interview from his Midland office, where
visitors are first greeted by a statuette of a Texas Longhorn steer. “Stay
alive is our mantra, until the price recovers.” Go about 1,300 miles (2,100
kilometers) due north and you get a very different take from the rookie oil
barons in North Dakota,
where crude output from
the Bakken formation went from 200,000 barrels a day in 2008 to about 1.2
million today. They’re not seeing any need to take shelter, and it shows in
their swagger.
Ukrainian
PM appeals to EU for immediate financial aid – (www.reuters.com) Ukrainian Prime Minister Arseny Yatseniuk
appealed to the European Union for urgent financial aid on Monday, saying the
government was doing all it could to fix a shattered economy but needed help. A year of revolution and
war with pro-Russian separatists has pushed Ukraine's hryvnia currency to
record lows and crippled the economy, which was already near bankruptcy after
years of corruption and economic mismanagement. Asked when Ukraine needed
new financial assistance, Yatseniuk told reporters in Brussels: "Let me
put it in a nutshell - yesterday." The EU, which last year offered a $15
billion package of loans and grants to Ukraine, is demanding far-reaching
economic reforms in return. Brussels has refused to organize a donors'
conference to help Ukraine until Kiev produces a detailed blueprint for
the country's economic development. Yatseniuk said Ukraine was doing
all it could. Ukraine has lost 20 percent of its economy due to
Russia's annexation of Crimea and the pro-Russian separatist uprising in the
east, the Ukrainian currency has fallen sharply, and yet the government has
raised more money in taxes, he said.
Venezuela
Bonds Fall Below 40 Cents as Maduro Affirms Subsidies - (www.bloomberg.com) Venezuelan bonds dropped to a 16-year low as
President Nicolas Maduro said he has no plans to curb fuel subsidies while not
ruling out the possibility of default. The government’s benchmark bonds due in
2027 fell 8.2 percent to 37.835 cents on the dollar, the lowest on a closing
basis since 1998, as of 4:57 p.m. in New York. The extra yield investors demand
to hold Venezuela’s
overseas notes instead of Treasuries rose the most in the world. Swaps contracts
protecting bond investors from non-payment imply a 97 percent chance of default
in the next 12 months, according to CMA data. Maduro said in televised speeches
over the weekend that he saw no need to cut the government subsidies that leave
gasoline selling for 6 cents a gallon, and that he will keep a 6.3
bolivar-per-dollar fixed exchange rate for priority imports. He said there’s no
possibility of default unless it was part of a strategy to bolster economic
development and no such plans are in place. Oil, which makes up 95 percent of
exports, fell 2.9 percent in New York to extend its drop since June to 47
percent. “Maduro’s speech over the weekend was a problematic change of tone,”
said Ray Zucaro, who helps oversee about $450 million of investments at SW
Asset Management LLC. “The vice around Mr. Maduro is getting tighter and he’s
running out of options. All the easy fixes remain undone.”
Fed Bubble Bursts in $550 Billion of Energy
Debt: Credit Markets - (www.bloomberg.com) The
danger of stimulus-induced bubbles is starting to play out in the market for
energy-company debt. Since early 2010, energy producers have raised $550
billion of new bonds and loans as the Federal
Reserve held
borrowing costs near zero, according to Deutsche Bank AG. With oil prices
plunging, investors are questioning the ability of some issuers to meet their
debt obligations. Research firm CreditSights Inc. predicts the default rate for
energy junk bonds will
double to eight percent next year. “Anything that becomes a mania -- it ends
badly,” said Tim Gramatovich, who helps manage more than $800 million as chief
investment officer of Santa Barbara, California-based Peritus Asset Management.
“And this is a mania.” The Fed’s decision to keep benchmark interest
rates at
record lows for six years has encouraged investors to funnel cash into
speculative-grade securities to generate returns, raising concern that risks
were being overlooked. A report from Moody’s Investors Service this week found
that investor protections in corporate debt are at an all-time low, while
average yields on junk bonds were recently lower than what investment-grade
companies were paying before the credit crisis.
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