Oil could fall toward $20, but not for the reason you think

By William Watts Published: Jan 11, 2016 10:21 a.m. ET It’s more about the dollar than a global glut of crude The world’s awash in oil, but that’s not what’s driving crude toward $20 a barrel.The oil-in-the-$20s club just got a new member. But Morgan Stanley’s case for another leg lower has less to do with a global glut of crude than it does with a strengthening U.S. dollar. In a Monday note by analysts including Adam Longson, head of energy commodity research, Morgan Stanley argues that traders have put too much of the blame for recent weakness in commodities, especially oil, on market fundamentals. Instead, they contend that the primary driver over the last several months has been a strengthening U.S. dollar. Oil futures last week tumbled to their lowest levels in more than a decade, extending a selloff that has seen West Texas Intermediate crude CLG6, +2.40% the U.S. benchmark, and Brent LCOG6, +2.28% the global benchmark, drop by around 70% from their mid-2014 highs. And with China likely to further devalue its yuan currency and the Federal Reserve in tightening mode, further dollar strength seems likely, the analysts said. While oil markets are undoubtedly oversupplied, after a certain point, deteriorating fundamentals have little to do with the price action. “Oversupply may have pushed oil prices under $60, but the difference between $35 oil and $55 oil is primarily the USD (U.S. dollar), in our view,” they wrote. That’s because there is “no intrinsic value” for crude oil in an oversupplied market, they argued: The only guide posts are that the ceiling is set by producer hedging while the floor is set by investors and consumer appetite to buy. As a result, nonfundamental factors, such as the USD, were arguably more important price drivers in 2015. In fact, when we assess the [more than] 30% decline in oil since early November, much of it is attributable to the appreciation in the trade-weighted USD (not the DXY). With the oil market likely to remain oversupplied throughout 2016, we see no reason for this trading paradigm to change. Share   So given the prospect for further dollar appreciation, scenarios with oil in the $20 to $25 a barrel range are possible “simply due to currency”, they write. They calculate that a 15% devaluation of the yuan would boost the trade-weighted dollar by 3.2%. In turn, that could send oil down by 6% to 15%, or $2 to $5 a barrel,” they said, which would leave crude in the high $20s. If other currencies move as well, the move could be even more pronounced, they said. Bank of America Merrill Lynch analysts on Monday also said oil prices could drop below $30 and offered the dollar as one reason. They lowered their 2016 forecast for the average price of the U.S. benchmark to $45 a barrel from $48, and cut their Brent call to $46 a barrel from $50. ========================================================= CDC, local health departments implementing a plan to monitor people exposed to new bird flu strain in Indiana Top News Fri Jan 15, 2016 | 2:18 PM EST Wall Street hammered; S&P 500 hits lowest since Oct 2014 A trader speaks on the phone on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. REUTERS/Brendan McDermid A trader speaks on the phone on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15... Reuters/Brendan McDermid + Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. REUTERS/Brendan McDermid Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. Reuters/Brendan McDermid Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. REUTERS/Brendan McDermid Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. Reuters/Brendan McDermid A trader speaks on the phone on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York, January 15, 2016. REUTERS/Brendan McDermid Reuters/Brendan McDermid Reuters/Brendan McDermid › Wall Street hammered; S&P 500 hits lowest since..By Abhiram Nandakumar (Reuters) - U.S. stock indexes notched deep losses in volatile trading on Friday, with the S&P 500 hitting its lowest since October 2014 and the Dow losing more than 500 points, as oil prices dived below $30 per barrel. All 10 major S&P sectors were in the red and all 30 Dow components lower. The Russell 2000 small-cap index fell as much as 3.5 percent to its lowest since July 2013. The beaten-down energy sector's 4.43 percent slide led the declines, as oil prices fell 6.5 percent. The technology sector was down 4.31 percent, as Intel's weak report weighed heavily on chip stocks. "Investors are scared to death, and the fact that it's happening at the beginning of year has some historical significance," said Phil Orlando, chief equity market strategist at Federated Investors in New York. At 13:01 p.m. ET (1801 GMT), the Dow Jones industrial average was down 448.5 points, or 2.74 percent, at 15,930.55. The S&P 500 was down 52.35 points, or 2.72 percent, at 1,869.49. The Nasdaq Composite index was down 159.40 points, or 3.45 percent, at 4,455.60. The three main indexes were set to test their percentage declines on Aug. 24 when the market plunged after China devalued the yuan. The S&P 500 has fallen 13 percent and the Dow 13.7 percent from their highs in May, pushing them into what is generally considered as 'correction territory'. The CBOE volatility index jumped as much as 29.2 percent to 30.95, it's highest since September. "When we started off the year, we were at the crossroads of concern and optimism and clearly, we've gone down the road of concern pretty quickly," said Dan Farley, regional investment strategist at U.S. Bank Wealth Management in Minneapolis. Dow components Exxon and Chevron were down 2.5-4 percent, while Caterpillar dropped 4.4 percent. Intel tumbled 10 percent to $29.48, its steepest drop in seven years, after the chipmaker's results and forecast raised concerns about its growth. That weighed on the chip index, which fell 5.8 percent, its steepest drop since March. Citigroup was down 7.5 percent at $41.99, while Wells Fargo fell 4.6 percent to $48.29, after reporting largely in-line quarterly earnings. Wynn Resorts was the among the very few bright spots, rising 7.4 percent to $55.29 after reporting in-line of quarterly revenue. U.S. economic data on Friday was also not very encouraging, with an unexpected drop in retail sales and industrial output declining again in December, underscoring a worsening outlook for fourth-quarter economic growth. "It depends on where we close today, but things could get worse before it gets better," said Art Hogan, chief market strategist at Wunderlich Securities in New York. Declining issues outnumbered advancing ones on the NYSE by 2,850 to 240. On the Nasdaq, 2,527 issues fell and 289 rose. The S&P 500 index showed no new 52-week highs and 135 new lows, while the Nasdaq recorded four new highs and 477 lows. (Reporting by Abhiram Nandakumar and Tanya Agrawal in Bengaluru; Additional reporting by Dion Rabouin in New York; Editing by Savio D'Souza) Wall Street hammered; S&P 500 hits lowest since...X Next In Top News Photo Iran oil headed for India, Europe, with sanctions lifting Trending Stories 1 Wal-Mart pulls plug on smallest store format, shuts 269 stores 2 French drug trial disaster leaves one brain dead, five injured 3 Friendly no more: Trump, Cruz erupt in bitter fight at Republican debate 4 Winners of $1.6 billion Powerball jackpot still unknown 5 Tennessee couple claim winning ticket for U.S. Powerball jackpot: NBC RECOMMENDED STORIES SPONSORED CONTENT Follow Us On Twitter Follow Us On Facebook Follow Us On LinkedIn Follow Us On Google+ Follow Us Via RSS Subscribe to Newsletters | Download our Apps Feedback | Advertise with Us | Site Index | Terms of Use | Privacy Policy | Ad Choices News and Media Division of Thomson Reuters Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. 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Shell’s offer for BG shows how the energy business is changing

Shell and BG A vote for gas Apr 11th 2015 | From the print edition JAM tomorrow, but never jam today. That was long the lament about Britain’s third-largest energy company, BG Group. In recent years it has been notable for its great prospects, troubled operations, wobbly management—and lately its weak share price, down by 20% in the past 12 months. Now Shell, an Anglo-Dutch giant, has pounced, with a £47 billion ($70 billion) cash-and-shares offer which pays BG shareholders a 50% premium on what their holdings were worth just before the bid. The combined companies’ stockmarket value will be around $250 billion. Barring regulatory objections, the merger will be completed early next year. The deal—one of several involving BG that has been rumoured, on and off, for years—shows that for the beleaguered international oil giants, buying reserves, even juicily priced, is cheaper and easier than finding and developing them. It also highlights the scope for consolidation since the fall in the oil price last year, which has sent companies scrambling to cut costs and pacify investors. In November Halliburton, an oil-services company with headquarters in Houston, bought Baker Hughes, a smaller rival, for $35 billion. This deal, far bigger, boosts Shell’s declining oil and gas reserves by a quarter, and makes the new firm the world’s third-largest gas producer (see chart). Among Western-owned oil and gas firms, it will be second only to ExxonMobil by market capitalisation, and by 2018 its output will overtake that of its American rival. That assuages one worry for Shell’s investors—that it is not replacing its reserves speedily enough to secure its long-term future. But it may not quell another (contradictory) one: that a notoriously spendthrift management is splurging (To indulge in an extravagant expense or luxury: splurged on room service.) cash on acquisitions which it could be returning to shareholders. Shell counters this as follows: it has already said it is cutting capital spending by $15 billion; it now says it will raise asset sales to $30 billion in 2016-18. It also insists it will maintain its dividend and raise its share buy-backs, all to its newly enlarged investor base. It expects the takeover to generate $2.5 billion of cost savings, in everything from purchasing to trading. The deal underlines the way the money is moving in the energy industry. Shell managers highlight the increasing attractiveness of midstream (transport) and downstream (refining and distribution) activities, which offer less risk and fatter margins than finding and developing new oil and gas. One of BG’s strengths, for example, is in the liquefaction, transport and storage of gas. Its fleet of giant tankers will boost Shell’s clout in the world gas market. The purchase also demonstrates that gas is a more promising business than oil. Indeed, Shell is now more Gas Giant than Big Oil. This is not easy money: the global gas industry has been plagued by high costs (much gas is in hard-to-reach places such as the Arctic and deep oceans) and low prices (thanks to competition from other fuels and America’s shale-gas glut). But the market is growing, supplies are abundant and the environmental outlook friendlier than for oil. BG has promising offshore assets, including in east Africa, Kazakhstan and Trinidad. Some are troubled: a big investment in Egypt is beset by political difficulties. Others are doing better. A $20 billion Australian project is now producing gas from coal. Having tripped up in shale ventures in China and America, Shell is now betting heavily on offshore gas. Simon Henry, its finance chief, says he doubts the gas glut will persist. In any case, a bigger and stronger company is better placed to ride it out. Other deals may follow, just as the last oil-price crash in the 1990s brought a wave of mergers. Among possible takeover targets are Tullow, a British oil and gas explorer (whose share price rose by 4.5% on news of the BG deal, having fallen by half since last summer). Such small companies with exciting but risky projects are particularly exposed in current conditions. But bigger acquisitions could be on the horizon too, perhaps even involving BP, Britain’s largest energy company, which no longer looks too big to buy. Absorbing BG will keep Shell busy for a while (particularly given its mixed record in managing previous purchases). But the deal could prompt one of its two main American rivals, Chevron or ExxonMobil, to try to regain dominance by making a move on BP. For all their enthusiasm for the deal, Shell and BG are merging mainly from necessity. Though BG had stopped disappointing shareholders, and had brought in a capable new boss, Helge Lund, from Norway, its fortunes were too closely tied to volatile gas prices; and its main oil partner in Brazil, Petrobras, is mired in a corruption scandal. For its part Shell was struggling to replenish reserves and cut costs. Assuming BG delivers, the deal solves both these problems, and strengthens Shell’s cashflow. The fall in the oil price has highlighted the weaknesses of energy companies that place big, long-term bets on difficult production and exploration projects. When times were good they excited their engineers with the technical challenges, and boosted their executives’ egos with ever-bigger balance-sheets. Firms are now dealing with rising debts—those of the largest American and European energy companies have risen by $31 billion so far this year—and falling share prices, down by a fifth since the summer. They are selling assets in a buyers’ market. Behind the Shell-BG deal, and the speculation of more mergers to come, is an even more fundamental shift in the energy industry. Contrary to some expectations, the oil-price fall has not derailed the American shale boom. The small, flexible and innovative firms that specialise in horizontal drilling and hydraulic fracturing are proving better at cutting costs, raising productivity and adapting to market fluctuations than the lumbering giants who have long dominated the industry. Dinosaurs may mate to ensure the survival of their species. But this is an age of mammals. From the print edition: Business

What Oil Companies Do With Their $375 Million a Day Profits

By Rebecca Leber, ThinkProgress 26 July 12 he Big Five oil companies – BP, Chevron, ConocoPhillips, ExxonMobil and Shell – are slated to announce their 2012 second-quarter profits later this week. We can expect these companies, all of which rank in the top 10 of the “Fortune 500 Global Ranking,” to reveal billions of dollars more in profits, after earning $375 million in profits per day in 2011 ($261,000 per minute), and $368 million per day in the first three-months of 2012 — bringing their combined profits to $1 trillion from 2001 through 2011. Below is a quick look at just how much these Big Oil companies are making, and where they are spending their billions in profits. Big Oil’s Big Profits, In 24 Hours •The five biggest oil companies earned a combined profit of $375 million per day, or a record $137 billion profit for the year, in 2011, despite reducing their oil production. •In 60 seconds, these five companies earned $261,000 — more than 96 percent of American households make in one year. •These five oil companies received $6.6 million in federal tax breaks every day. •In 2011, the three largest domestic public oil companies spent $100 million of their profits each day, or over 50 percent, buying back their own stock to enrich their board, senior managers, and largest share holders. •The entire oil and gas industry spent on average $400,000 each day lobbying senators and representatives to weaken public health safeguards and keep big oil tax breaks, totaling nearly $150 million. •Each CEO of the Big Five companies received an average of $60,110 in compensation per day last year. On average, their pay jumped 55 percent in 2011. Exxon CEO Rex Tillerson’s compensation came close to $100,000 per day last year. Millions in Political Contributions and Lobbying •Despite ranking as some of the most successful companies in the world, big oil and gas companies continue to receive $4 billion in tax breaks each year. •The oil and gas industry has already given over $30.5 million in federal campaign contributions this year, with a whopping 88 percent going to Republicans. •Big Oil has spent an additional $37 million on lobbying Congress this year, with the top spenders being Exxon, Shell, Chevron, Koch Industries and BP. •Their efforts are paying off. This is the most anti-environment Congress in history, with the House of Representatives averaging one anti-environment vote per day, or a total 247 votes through mid-June. The biggest beneficiary of these votes has been Big Oil. The House voted to enrich the oil and gas industry 109 times, a total 44 percent of its anti-environment votes. •The House is on track to collect a record amount of oil industry contributions this cycle, having already reached 2008 and 2010 levels. And these are direct donations only — it does not include Super PAC spending or other campaign assistance. Outside Interests and Big Oil Allies Spending Tens of Millions More to Influence the Energy Debate •Fueled by Koch Industries and other Big Oil interests, the industry is spending hundreds of millions to fund false ads in this year’s elections. According to the Annenberg Public Policy Center, 85 percent of the dollars have funded false ad, during a season where most advertising have focused on energy. •Pro-Romney outside interest groups spent $24.6 million on energy ads through June 24, according to Kantar Media CMAG data. This is more than ten-times the amount spent by pro-Obama groups, which spent $2.3 million on energy spots. •American Energy Alliance, Americans for Prosperity, American Future Fund, and Crossroads GPS – the top outside pro-oil and pro-Romney interest group spenders – have spent a total $24.9 million on deceptive ads, many of them energy-related, according to the Annenberg Public Policy Center. •Koch-backed Americans for Prosperity has devoted more than 90 percent of its ad spending to energy ads. Two of the Americans for Prosperity ads pushed patently false claims — roundly debunked by fact checkers — that the stimulus funded jobs overseas. •Fact checkers have thoroughly debunked these anti-clean energy ads. Both Politifact and the Washington Post Fact Checker have given the ad their worst ratings of “pants on fire” and four Pinocchios, respectively. Politifact found all three examples used to be false, with the ad stringing together “alarming” soundbites that are “ultimately ridiculous.” Comments We are concerned about a recent drift towards vitriol in the RSN Reader comments section. There is a fine line between moderation and censorship. No one likes a harsh or confrontational forum atmosphere. At the same time everyone wants to be able to express themselves freely. We'll start by encouraging good judgment. If that doesn't work we'll have to ramp up the moderation. General guidelines: Avoid personal attacks on other forum members; Avoid remarks that are ethnically derogatory; Do not advocate violence, or any illegal activity. Remember that making the world better begins with responsible action. - The RSN Team +5 # Adoregon 2012-07-26 08:22 All the money in the world won't save these rapacious solipsists (hey, solipsists sounds better than calling them deranged fu*ks) and their children from the ecological collapse their actions are responsible for bringing about. +5 # JSRaleigh 2012-07-26 09:02 Quoting Adoregon: All the money in the world won't save these rapacious solipsists (hey, solipsists sounds better than calling them deranged fu*ks) and their children from the ecological collapse their actions are responsible for bringing about. I don't care anything about saving them or their children. I care about what they're doing to my family. +7 # reiverpacific 2012-07-26 08:38 They can't breath or eat their money and may yet choke on their lobbyist maintained lies -or are they building big McMansions in floating bubbles so they can watch the rest of us drown and/or suffocate? The planet has many tricks up it's sleeve and will hit back; already is in fact. Yet the damage marches on and we destroy ourselves, as the natives of this continent predicted. Let them eat tar-sands. +2 # paulrevere 2012-07-26 08:51 Add to all those number manipulations the costs of environmental remediation and health afflictions born by WETHEPEOPLE and these cretins are true vampires on the fiscal jugular of OUR treasury. +4 # Billy Bob 2012-07-26 09:52 The oil industry is using a lot of that money to undermine efforts to fix the environmental devastation they are creating. In another thread one of the right-wing commenters asked, in effect, "how much money was changing hands to 'support the green industry' ". It's not an exact quote, but that was the meaning of the remark. It doesn't deserve an exact quote anyway. Disingenuous arguments by the far right are just as pursuasive as the truth. That fact, alone, is the biggest threat to our ability to actually fix this and the global warming that is taking place as we speak. +8 # The Voice of Reason 2012-07-26 10:30 Well, someone FINALLY writes to complain about the porcine wealth of the Oil Companies and the politicians they own. What's the sudden rush? They have been ripping off the general public for 60 years or more without a complaint (as in 'shouldn't we be paying more for gas?) by selling us a product we don't need (fuel) and designing vehicles that waste this worthless fuel to guarantee their enormous riches. How do we not see this? and for so many, many decades. Until we demand an end to fuel based economies (or sucker economies) and the politicians who support them, we are indeed the suckers who pay for our own poverty. +3 # jwb110 2012-07-26 10:56 You can bet with the 6.6 million dollars in tax breaks that that us the first money to go into the Citizens United pot. So in effect the American Public is beng MADE to contribute to candidates that they may oppose. If this isn't a conflict of interest I don't know what is. +5 # thinkchip 2012-07-26 12:29 Let's not forget it's the deranged fu*ks in government that protect the people in these corporations from facing the consequences of their actions. I'm no fan of corporate oil goons, but what do government people do with the profits from their racket? Imprison millions of innocent people here and abroad, turn middle Eastern children into red mist, pad their own nests, etc. More powerful, better funded government is not the answer to this problem. No longer tolerating exploitation, fraud, theft, and violence wherever it's found is (even under the guise of government). Oh, and raising our children peacefully and respectfully so they never even consider submitting to or allowing this kind of crap. That's the real solution. -4 # Howard T. Lewis III 2012-07-26 13:35 B-A-A-A-A-A-A!! ! +1 # Howard T. Lewis III 2012-07-26 13:37 We are outnumbered by self-involved sheeple. A good overthrow would take care of these suckers just like the crooked bankers and pedophiles of the Bush cabal and various churches with their broad spectrum affronts to humanity. 0 # The Voice of Reason 2012-07-26 18:28 Wheeeeeee! The federal wrist slappers are coming!! 0 # geonomist 2012-08-08 17:25 Most people notice only the size of oil profit, not the kind. Oil companies do earn some money from extraction, transporting, refining, and retailing, but they reap their biggest harvest merely from the value of oil in the ground. Norway charges 80% of the world price to extract their oil yet oil companies still pay it because the other 20% is rewarding enough. Imagine if every government had the guts of Norway; oil companies would be about one fifth their current size and the public treasury that much richer. We could pay ourselves a dividend, invest in alternatives, have time to enjoy life. Let's act! ================== Deputy oil minister: 6 mln liters of gas oil is being smuggled from Iran daily 26 November 2012, 11:38 (GMT+04:00) About 6 million liters of gas oil is being smuggled from Iran each day, deputy oil minister said on Sunday. The prices of fuels in neighboring countries are 7 or 8 times higher than Iran, so smuggling gasoline and gas oil has created a great market for the smugglers, the ISNA news agency quoted Alireza Zeyqami as saying. "Iran needs to increase the price of fuels in order to prevent smuggling," Zeyqami said. Considering the official reference rate of 12,260 rials to the US dollar, the real price of gasoline in Iran is 10,000 rials (about 82 U.S. cents). Currently gasoline is sold at two prices: a 60-liter monthly allowance at 4000 rials (33 cents) per liter, and any amount above that at 7000 rials (57 cents) per liter. Last year the International Monetary Fund commended the Iranian government for the subsidy reform policy, which it said had led to a reduction in fuel consumption. ==================== U.S. judge approves settlement in BP class action suit Fri, Dec 21 21:11 PM EST * Settles claims for economic losses and property damage * Does not cover separate medical benefits settlement * BP expects to pay $7.8 billion to settle class action claims By Terry Baynes Dec 21 (Reuters) - A U.S. judge on Friday gave final approval to BP Plc's settlement with individuals and businesses who lost money and property in the 2010 Gulf of Mexico oil spill. The order only addressed the settlement of economic and property damage claims, not a separate medical benefits settlement for cleanup workers and others who say the spill made them sick. BP has estimated that it will pay $7.8 billion to settle more than 100,000 claims in the class action litigation. U.S. District Judge Carl Barbier initially approved the deal in May, but held a "fairness hearing" in November to weigh objections from about 13,000 claimants challenging the settlement to resolve some of BP's liability for the worst offshore oil spill in U.S. history. London-based BP's Macondo well spewed 4.9 million barrels of oil into the Gulf of Mexico over a period of 87 days. The torrent fouled shorelines from Texas to Alabama and eclipsed the 1989 Exxon Valdez spill in Alaska in severity. Lawyers for some affected parties had objected to the deal, reached in March between BP and lawyers representing plaintiffs ranging from restaurateurs, hoteliers, and oyster men who lost money from the spill. They argued that some claimants would be underpaid or unfairly excluded. But in a 125-page order approving the settlement, Barbier called the deal "fair, reasonable and adequate," citing the low number of class members who objected or opted out. BP welcomed the approval order in a statement, adding that the settlement resolves the majority of economic and property damage claims stemming from the accident. "Today's decision by the Court is another important step forward for BP in meeting its commitment to economic and environmental restoration efforts in the Gulf and in eliminating legal risk facing the company," BP said. Separate from the class action claims, BP has been locked in a year-long legal battle with the U.S. government and Gulf Coast states to settle billions of dollars in civil and criminal liability from the explosion. In a settlement with the U.S. government announced last month, BP agreed to pay $4.5 billion in penalties and plead guilty to felony misconduct. The government also indicted the two highest-ranking BP supervisors aboard the Deepwater Horizon rig during the disaster, charging them with 23 criminal counts including manslaughter. The class action case is In Re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico on April 20, 2010, U.S. District Court for the Eastern District of Louisiana, No. 10-2179. ==============