Oil

The ruble fell for a sixth day Tuesday, continuing to drop despite efforts by Russia's central bank to halt the historic slide.

The ruble fell to 70 per dollar for the first time, slumping further hours after Russia's central bank raised a key interest to an eye-popping 17% in an effort to halt a steep slide in the currency and avert a perilous bout of inflation.

The Bank of Russia increased its benchmark rate to 17% from 10.5% Monday after the ruble's value had fallen 10%. That move followed U.S. Congress authorization of tougher sanctions against Russia and further drops in oil prices.

The central bank's move followed a 1 percentage point increase in the rate on Thursday.

"The decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks," the central bank said in a statement.

The ruble has fallen 50% against the dollar since September as oil prices have plummeted. Oil accounts for about two thirds of the country's exports and about half of government revenue, according to Charles Movit of IHS Global Insight.
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In Russia, investors are growing increasingly worried that the Kremlin has in effect decided to print money to address a growing debt problem. Traders are also raising concern that the cronyism and opaque insider dealings that have plagued business here have now spread to monetary policy.

According to analysts, the ruble’s fall on Monday was sparked by word of an opaque deal involving the central bank and the state-controlled oil company, Rosneft. The well-connected business executive running the company, Igor I. Sechin, a longtime associate of Mr. Putin, had apparently persuaded the central bank to effectively issue billions of new rubles to his company to help cover debts.
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Rosneft, for example, had been clamoring for months for a government bailout to refinance debt the company ran up while making acquisitions when oil prices were high. Because of sanctions, those loans cannot be rolled over with Western banks. Debt payments are coming due later this month.

Relying only on the company’s own cash reserves would disrupt oil development projects that Russia is relying on for future revenue. With the oil giant in a bind, the central bank ruled that it would accept Rosneft bonds held by commercial banks as collateral for loans.

Rosneft issued 625 billion rubles about $10.9 billion at the exchange rate at the time, in new bonds on Friday. The identities of the buyers were not publicly disclosed, but analysts say that large state banks bought the issue.

When these banks deposit the bonds with the central bank in exchange for loans, Rosneft will have been financed, in effect, with an emission of rubles from the central bank. The deal roiled the ruble on Monday, according to analysts.
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rblong2us said:

Theres a fairly strong view that Putin is the master chess player and will have anticipated a drop in oil price.

Even a not too smart person in Putins gang ought to have seen an attack on oil price coming, if it is in fact a US led attack ?

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mmerlinn said:

Also, scrap prices are very soft. Aluminum today is at 60 cents, down from 64 just a few weeks ago. Iron is down from $240/ton a few months ago - Mine is going in tomorrow and I hope I can still get $200/ton.

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And that, ladies and gentlemen, is what the great oil collapse of 2014/2015 is all about. For those who want to know when to buy oil, the answer is simple: just after (or ideally before) Putin announces he will no longer support the Assad regime. If, that is, he ever does because that act will effectively destroy all leverage Putin may ever have over Europe, and in the process, also end - quite prematurely - his career.

Until then, every single HFT-induced spike in oil is one to be ultimately faded, because as the past few months have shown, it is the Saudis who set the price, and they will not take no for an answer, even if it means crippling the entire US shale, and energy, industry in the process.

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Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets.

If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets.

“This is the first time in 20 years that OPEC nations will be sucking liquidity out of the market rather than adding to it through investments,” said David Spegel, head of emerging markets sovereign credit research at BNP Paribas SA in London.

Saudi Arabia, the world’s largest oil producer, is the prime example of the swiftness and magnitude of the selloff: its foreign exchange reserves fell by $20.2 billion in February, the biggest monthly drop in at least 15 years, according to data from the Saudi Arabian Monetary Agency. That’s almost double the drop after the financial crisis in early 2009, when oil prices plunged and Riyadh consumed $11.6 billion of its reserves in a single month.
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Excluding Iran, whose sales are subject to some sanctions, members of the Organization of Petroleum Exporting Countries are expected to earn $380 billion selling their oil this year, according to U.S. estimates. That represents a $350 billion drop from 2014 — the largest one-year decline in history.

“The shock for oil-rich countries is enormous,” Rabah Arezki, head of the commodities research team at the IMF in Washington, said in an interview.

Oil-rich countries will sell more than $200 billion of assets this year to bridge the gap left between high fiscal spending and low revenues, Spegel said.
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The potential impact of the selloff has divided analysts and officials.

One argument is that petrodollars and other commodity- linked foreign reserves are not a large enough force in an ocean of investments from pension funds, asset managers, insurers and individuals to make a real impact in asset prices and overall liquidity. Plus, bond purchases by central banks involved in so- called quantitative easing mitigates the impact of sales.

The other school of thought, broadly backed by the IMF, says that petrodollars matter because they’re significant enough to turn market sentiment as flows switch direction.
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11C1P said:

Drilling is plummeting here, also they aren't fracking several drilled holes, waiting to see if the price stays below $55 iirc, then they will get a huge tax break and make the holes more profitable to pump. I am very much ready for all the oil field trash to blow out the state and take the crime, littering, traffic, pollution with them. I would pay $4 gas for $30 oil, just so they leave.

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If oil stays around $50 a barrel, most countries in the region will run out of cash in five years or less, warned a dire report from the International Monetary Fund this week. That includes OPEC leader Saudi Arabia as well as Oman and Bahrain.
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Saudi Arabia, the world's largest oil producer, needs to sell oil at around $106 to balance its budget, according to IMF estimates. The kingdom barely has enough fiscal buffers to survive five years of $50 oil, the IMF said.

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Iran's break-even oil price is estimated at $72 and it could survive cheap oil for less than 10 years, the IMF estimates. It's a rosier outlook compared to its neighbors. But Iran's outlook is clouded by potential sanctions relief (which hasn't come yet) and a surge in oil production from its nuclear deal with the West.

Iraq has virtually no fiscal buffer remaining, according to the IMF. The country is grappling with internal strife and has lost large swaths of land to ISIS.

"Violence increasingly affects civilians, and has a particularly adverse effect on confidence and expectations, and consequently on economic activity," the IMF warned.

Bahrain is also under great financial pressure, with the likelihood of also running out of options in less than five years. The country already has lots of debt and has been running deficits for several years in a row.

"They are in a relatively tight spot. They are going to have to undertake a more significant tightening," said Jason Tuvey, a Middle East economist at Capital Economics.

However, a handful of countries are well positioned to face the storm. Topping that list are Kuwait, Qatar and the United Arab Emirates. That's partially because these countries don't need sky-high oil prices to balance their budgets.

Kuwait's break-even oil price is estimated by the IMF at just $49, or just a tad higher than current levels. The magic number is believed to be $56 in Qatar, the host of the 2022 World Cup, while the UAE needs $73 oil.

But these three countries have built up mountains of oil money that protect them during the leaner times. The IMF said the UAE has enough fiscal buffers to withstand $50 oil for nearly 30 years. Qatar and Kuwait can sustain cheap oil for almost 25 years.

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One of the great unknowns facing the US shale industry, and threatening the recurring rumors of its imminent demise, is how it is possible that despite the collapsing number of oil wells, and despite the plunge in crude prices which supposedly are well below all-in shale production costs, does production not only refuse to decline, but in fact has been largely increasing in the past 6 months, with just a modest decline in recent weeks.
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According to a report by the Bloomberg Intelligence analysts William Foiles and Andrew Cosgrove, ... a break-even model for the Permian Basin and Eagle Ford shows that oil production across five plays in Texas and New Mexico may remain profitable even when WTI prices fall below $30 a barrel, according to a 55-variable Bloomberg Intelligence model for horizontal oil wells.
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sunction said:

Oil will rise to $70 in the end of 2016. :rotflmbo:
These are the words of perma oil magnate T. Boone. What do you think?

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Just four days ago, on Monday afternoon, "legendary" oilman T Boone Pickens said that crude has hit bottom at $26 per barrel, and predicting that prices should double within 12 months.
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Earlier today, literally days after he predicted oil would double from its $26 "bottom", Pickens told Bloomberg that he has cashed out.

But, but, what happened to oil prices will double from their bottom? And did he just liquidate all his holdings just $4 above this so-called bottom?

Well... yes.
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DoChenRollingBearing said:

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But, at some point, oil companies (anything oil really) will become a BUY. ...

Almost all hyperinflations happen AFTER a deflation...

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... (based on the shale industry’s very own breakeven prices)...

... the shale industry may have to sell a quarter of its oil production (1.5 million barrels per day) just to service its debt by the end of 2019. ...

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