The
rug has been pulled out from under Latin America - (www.businessinsider.com) But
the boom times are over. Latin America is getting hit with a double whammy: the
collapse in commodity prices and the sudden economic turmoil in China. Low oil
prices are hurting Latin America’s exporters. Mexico’s state-owned oil company
Pemex has already slashed its budget for the year, cutting spending from $27.3
billion to $23.5 billion. Pemex has also borne the brunt of government spending
cutbacks. And the much-anticipated first auction of Mexico’s offshore oil
resources following a historic liberalization of its energy sector produced disappointing results, as low oil prices scared away bidders. Brazil
has fared worse. Compounded by a colossal corruption scandal, Brazil’s
Petrobras is drowning in debt as oil prices have plummeted. In late June,
Petrobras announced it
would slash spending by one-third, divest itself of billions of dollars in
assets, and it lowered its long-term oil production target to just 2.8 million
barrels per day (mb/d) by 2020, down from a previous target of 4 mb/d.
Junk-Rated
Offshore Drillers Headed into Bankruptcy: Fitch - (www.wolfstreet.com) At
the leading edge is rig-contractor Hercules Offshore. In March 2014, before the
oil price collapsed, it had the temerity to sell for 100 cents on the dollar
$300 million in junk bonds. Since then, its shares have collapsed to near zero.
Its bonds have collapsed too. And on Thursday last week, it and a whole gaggle
of related companies filed for Chapter 11 bankruptcy. It won’t be the only
junk-rated offshore driller with that fate, according to Fitch Ratings. Investors are going to get their pockets
cleaned. “This is the lowest level of demand we have seen since the early days
of the offshore industry,” Hercules CEO John Rynd had told investors in a
quarterly conference call on April 29. Hercules had already cut its
global workforce – about 1,800 employees at the end of 2014 – by nearly 40%, he
said. Offshore drillers have been buffeted from two directions: the collapse of
drilling activity and the collapse in the daily rates they can charge for their
offshore drilling rigs. So fewer rigs, and less money for each of the fewer
rigs: Hercules’ revenues in the second quarter plunged 67% from a year
ago!
Emerging
market turmoil spreads to western stock markets – (www.ft.com) The
US stock market slid by the most since February 2014 on Thursday, wiping out
all of this year’s gains to trade at a six-month low, as the deepening emerging
markets turmoil triggered by the commodity slide and China’s devaluation
rattled global bourses. With many developing
countries benefiting
from China’s voracious demand for commodities in recent years, last week’s
devaluation of the renminbi has increased concern that a primary engine of the
global economy is spluttering. The shift towards more flexible exchange rates
in countries such as Kazakhstan and Vietnam underscores how China’s devaluation
has ratcheted up pressure on emerging markets, already struggling with concerns
over the commodity price collapse, a looming US interest rate rise and capital
outflows.
Kazakhstan Tenge Slides 23% as Emerging-Market
Rout - (www.bloomberg.com) Kazakhstan
relinquished control of its exchange rate in the latest sign emerging nations
will stop defending their currencies after China roiled global markets by
devaluing the yuan. The central Asian nation, which counts Russia and China as
its top trading partners, said it was switching to a free float, triggering a
23 percent slide in the tenge to a record 257.21 per dollar. Since the shock
yuan devaluation last week, a gauge of 20 developing-nation exchange rates
capped its longest slump since 2000, Vietnam devalued the dong and currencies
from Russia to Turkey and Malaysia slid at least 4.6 percent.
Oil
Goes Down, Bankruptcies Go Up - These 5 Frackers Could Be Next To Fall – (www.forbes.com) So
who will be next to fall? The list of troubled companies slumping toward
Chapter 11 is growing. SandRidge Energy, Goodrich GR +% Petroleum, Swift
Energy, Energy XXI, and Halcon Resources have all lost more than 90% of
their market value since 2014, are larded up with too much debt, and would be
lucky to survive the bust. Shalemageddon is coming, albeit delayed a bit, a-la
bank extend-and-pretend, 2007-crash style. This part of the article is
especially funny to us: Samson is the biggest bankruptcy of the oil bust so
far, and a huge black eye to private equity giant KKR, which in 2011 led a $7.2
billion leveraged buyout of the company. The deal was a classic LBO: about $3
billion in equity backed by more than $4 billion in debt. It seemed like a good
idea at the time...
U.S. crude prices fall towards $40 on global glut - (www.reuters.com)
Impact of Tianjin disaster reverberates across Chinese economy - (www.bloomberg.com)
Asian Stocks Fall Fifth Day on Fed Minutes, China Slowdown Fears - (www.nikkei.com)
Kazakhstan Scraps Currency Trading Band, Moves to Free Float - (www.bloomberg.com)
Bulls Walk Away From U.S. Options Market as Put-Call Ratio Jumps - (www.bloomberg.com)
Fed's Williams: Raising rates to pop housing bubbles 'very costly' - (www.reuters.com)
July Was Earth’s Warmest Month in Records Going Back to 1880 - (www.bloomberg.com)
North, South Korea Trade Fire Along Border as Tensions Worsen - (www.bloomberg.com
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