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Oil slump may see wave of junk bond defaults
DOW JONES NEWSWIRES DECEMBER 02, 2014 4:45AM

Junk bonds have financed the US shale boom, and now the sharp drop in oil prices could lead to a massive wave of defaults on that high-yield debt.

Should oil prices fall below $US65 per barrel and stay there for the next three years, Tarek Hamid, a high-yield energy analyst at JP Morgan Chase, estimates that up to 40 per cent of all energy junk bonds could default over the next several years.

Energy companies, the fastest growing segment of the high-yield bond market in recent years, account for nearly 18 per cent of all outstanding high-yield bonds, up from 9 per cent in 2009, according to JP Morgan.

Mr Hamid says that the 40 per cent possible default rate is the upper limit over the next few years, and that energy companies will take steps to avoid falling into bankruptcy, including cutting spending and selling assets.

Still, even if companies make smart moves to cut costs, with oil at $US65 per barrel or below for the next three years, he estimates that default rates high-yield bonds from the energy sector could still hover around 20 per cent to 25 per cent.

"It would become a very dire scenario," Mr Hamid said.

After a steep plunge in oil prices last week, WTI crude, the US benchmark, was recently up 3 per cent to $US68.14 a barrel in Monday morning trading.

He predicts that not that many companies will default in 2015 because many companies have hedged their exposure. But he expects that energy companies will run into trouble in 2016 as even the most conservative energy companies will see most of their hedges run off.

Energy companies are the largest sector in the high-yield universe by a wide margin. The next largest sector, JP Morgan estimates, is the healthcare sector, which accounts for 7.1 per cent.

The oil market is hard to predict, as in the stock market...

Oil jumps as much as five percent from five-year low; focus on shale

NEW YORK - Crude oil markets jumped as much as 5 percent on Monday, rebounding from five-year lows with their biggest daily gain since 2012, on fears that the high U.S. shale output blamed for the global oil glut may be shrinking.

A weaker dollar, which makes commodities denominated in the greenback more affordable to holders of other currencies, also fueled buying in oil and other natural resource markets, traders said.

Benchmark Brent crude oil settled up $2.39 at $72.54 a barrel, after a session peak at $72.73. It fell as much as $2.62 earlier to $67.53, a low since July 2009. The 3 percent gain on the day was Brent's largest since October 2012.

U.S. crude finished up $2.85 at $69 a barrel, after initially plumbing a five-year bottom at $63.72. The 4 percent rise was the largest one-day move up in U.S. crude since August 2012. U.S. crude continued to surge post-settlement, gaining almost 5 percent to $69.34 by 2015 GMT.
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http://www.todayonline.com/business/oil-...ocus-shale

I think is traders creating havoc again

Big Dead cat bounce?? Or mass short covering by shortist. Either way up down traders profit. Maybe like libor there is some price fixing?'

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Citi calls bottom on oil price collapse

PUBLISHED: 7 HOURS 10 MINUTES AGO | UPDATE: 0 HOUR 39 MINUTES AGO


Citi calls bottom on oil price collapse
Many oil exporting countries need oil prices of at least $US100 a barrel to break even or balance government budgets . Photo: Reuters
JOHN KEHOE Washington
Santos under oil price gun
Saudis centre of oil hootenanny
Oil at $US40 possible as global market transforms

The collapse in the oil price to a five-year low may have run its course and the cost of oil has probably bottomed, Citigroup says.

The assessment came as the New York Federal Reserve said cheaper energy prices were good for the US economy and other net importers of oil.

The crude oil price on Monday touched its lowest level since mid-2009.

Brent crude oil plunged as much as $US2.62 to $US67.53 a barrel, while the price of West Texas Intermediate crude fell $US2.43 to $US63.72. Both later rebounded from their lows.


Analysis by Citi technical analyst Tom Fitzpatrick said the speed of the move down in the oil price and the levels reached “suggest to us that this move may have finally run its course” for the near term and possibly the medium term.

The analysis is based on historical comparisons to oil price routs in 1998, 2008 and 2010.

Crude oil has fallen about 40 per cent since mid-June.

Some analysts have said the oil price slide could continue, forcing the price to as low as $US40 a barrel.

A supply glut and weakening demand from China and Europe are chiefly responsible for the shock plunge in the price of oil in recent months.

SAUDIS SEEK TO SHAKEOUT US SHALE SECTOR
Revolutionary new fracking and horizontal drilling techniques at US fields have unleashed a wave of new oil on to the energy market.

The US pumped out 8.8 million barrels of oil per day in September, 56 per cent higher than in 2011.

At the same time, the traditional suppliers of oil in the Middle East have maintained pumping too.

The Organisation of the Petroleum Exporting Countries surprised markets last week when it refused to cut production to support prices.

In previous price troughs, Saudi Arabia has stabilised prices by trimming production.

By keeping up supply, Saudi Arabia is believed to be trying to eliminate higher-cost US producers in the Bakken shale area in North Dakota and oil fields in Texas.

Energy stocks have been hammered in recent weeks, with smaller US explorers and producers hit the hardest. The US energy index fell 9 per cent in November.

Fringe and emerging US projects require oil prices of $US70 ($82) to $US80 to break even, but mature projects can endure prices as low as $US40, Citi estimates.

Citi global head of commodities research, Ed Morse, has warned the era of $US100 a barrel of oil is over.

FED’S DUDLEY SEES SILVER LINING IN COLLAPSE
The price plunge is forcing producers to rethink their investment and drilling plans.

In the US, ConocoPhillips, Pioneer Natural Resources and Continental Resources are curtailing plans to add drilling rigs next year.

Despite energy companies hurting, New York Federal Reserve president Bill Dudley said on Monday that the sharp decline in energy prices was, overall, positive.

A $US20 per barrel decline in global oil prices results in an income transfer of about $US670 billion a year from producers to consumers, Mr Dudley said.

“Despite the impressive recent gains in natural gas and crude oil production, the US still is a net importer of energy,” Mr Dudley said in a speech.

“As a result, falling energy prices are beneficial for our economy.”

Despite the recent boom, oil and gas investment is a small share of US GDP.

Many oil exporting countries need oil prices of at least $US100 a barrel to break even or balance government budgets.

Iran requires oil prices of around $US130 to balance its budget. Venezuela is even more vulnerable, requiring prices around $US150 to stay in the black and Russia needs prices above $US100.

Low-cost Saudi producers can be profitable at $US10 a barrel. But given the country’s dependence on oil revenues, Saudi Arabia needs an oil price of about $US90 to avoid a budget deficit.

MercBloc president Dan Dicker said it was very difficult to pick the bottom of the oil price, but the oil price was getting “very, very close” to its low.

The Australian Financial Review

BY JOHN KEHOE
John Kehoe
John is The Australian Financial Review's Washington correspondent.

@Johnkehoe23

(02-12-2014, 10:29 AM)BlueKelah Wrote: [ -> ]Big Dead cat bounce?? Or mass short covering by shortist. Either way up down traders profit. Maybe like libor there is some price fixing?'

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Ha! Ha!
Price manipulating? What? Price fixing?
No lah;
Let's just say, "With money, anything can happen".

My guess would be the dip was a bit overextended in the first place. That was followed by some profit taking, short covering and short term long position on yesterday (which I think it was also a bit overextended). Oil price is open slightly lower today (~-0.8% as of now).

A short-term decline shouldn't play a significant role on their decision, but a sustained low oil price will definitely play a significant role in their decision...

Low oil price won't deter Chevron from new projects in Mexico

MEXICO CITY - Slumping international crude oil prices will not play a major role for U.S. oil major Chevron Corp as it determines future investment opportunities in Mexico's newly opened energy sector, a top company executive said on Monday.

Crude oil markets have in recent days been hovering near five-year lows, with benchmark Brent crude dipping below the $70 per barrel level on Monday before recovering slightly.

"That doesn't play a significant role in our long-term decisions," Ali Moshiri, Chevron's Houston-based head of exploration and production for Latin America and Africa, said in an interview.

"You can't look at the moment and decide about Mexico," he said.
...
http://www.todayonline.com/business/low-...cts-mexico

Local authority view on the low oil price...

Long-term outlook for oil and gas sector positive despite volatile oil prices: Iswaran

SINGAPORE – The long-term outlook for the oil and gas industry remains positive, despite volatile oil prices and global uncertainties, said Second Minister for Trade and Industry S Iswaran today (Dec 2).

Mr Iswaran said strong economic fundamentals in the Asia Pacific, along with rapid population growth and economic development, will continue to drive energy demand. This will, in turn, spur expenditure on exploration and production activities.

Speaking at the opening of the International Oil and Gas Industry Conference at Marina Bay Sands, the minister said Singapore offers an attractive value-proposition to firms seeking to serve growing offshore exploration and production activities in the region. The continued growth of such activities is expected to support the growth of Singapore’s marine and offshore industry, he added.

The growth will create more opportunities for Singaporeans to engage in high-value research and engineering activities, Mr Iswaran said. More than 20,000 Singaporeans are currently employed in the industry, largely in skilled jobs covering engineering and project management. CHANNEL NEWSASIA
http://www.todayonline.com/business/long...es-iswaran

(02-12-2014, 10:11 AM)Ben Wrote: [ -> ]I think is traders creating havoc again

Brevan rumored to have shut a 600mio fund - probably quite a few blokes similar-ish pos.

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from WSJ:


Brevan Howard Asset Management LLP plans to close its commodity hedge fund following recent poor performance, according to two people familiar with the matter.

The fund, managed by Stephane Nicolas, has $630 million in assets. It lost 4.2% last year and is down 4.3% this year to the end of October, according to performance data reviewed by The Wall Street Journal.

It is not clear what Mr. Nicolas’s role might be following the commodity fund’s closure, a person familiar with the matter said. Attempts to reach Mr. Nicolas were unsuccessful.

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Brevan Howard Asset Management LLP’s commodities hedge fund, which is being shut, suffered heavy losses on derivatives contracts despite correctly betting that the oil price would fall.

The $630 million Commodities Strategies fund, which was launched in 2010 and managed by Stephane Nicolas, suffered its worst-ever hit in September when it slumped 11.2%.

Even before September the fund had suffered, but it was closed after a particularly difficult period for commodities investors. Oil prices slumped to a five-year low on the back of geopolitical concerns, including Western sanctions against Russia and slowing growth in China.

The Commodities Strategies fund is the latest in a long line of commodity hedge funds to be shut, with BlueGold Capital Management LLP, Clive Capital and Centaurus Capital among those wound down in recent years.

“The majority have been struggling in the past couple of years,” said one large investor in hedge funds. “It’s increasingly hard for us to find decent commodity managers.”

The Brevan fund’s fall primarily was driven by losses in energy, where the fund had a large exposure, according to investor letters reviewed by The Wall Street Journal.

“September was likely what was the final straw—a brutal month,” said one hedge-fund investor familiar with the fund’s performance.

Even though the fund was betting that oil would fall, it was caught out by incorrect bets on futures spreads, the change in price difference between two futures contracts. One of the fund’s newsletters points to sharp moves in spreads in West Texas Intermediate, or WTI, futures during the month, both in their own right and relative to Brent-crude futures.

“Although the fund remained generally short the crude complex as a whole during the month, adverse moves in spreads resulted in negative returns,” read the investor update.

Many oil market investors have been surprised by the speed and direction of the move in oil. Brent peaked above $115 in June but on Monday was trading around $69. Investors also have been surprised by the way in which spreads have moved.

Brent moved into what is known as “contango,” where near-term prices are lower than contracts further out, from the opposite state, called “backwardation,” over the summer. WTI, in contrast, went into backwardation in January and stayed there until November.

Going into October, the fund cut its exposure to short-term contracts and was able to profit from its bearish positions that month, gaining 4.1%. In November it was down 0.9%.

The Wall Street Journal reported Saturday, after the oil price posted an intraday fall of up to 8% two days earlier, that Brevan would close the fund.

A source close to the company said the decision to close the fund was taken “over the last couple of weeks” and said it was “not performance-related.”

The fund returned 7.8% in 2010 and 5.9% in 2012, but lost money in 2011 and 2013 and was down this year, according to an investor update.

The Brevan fund was also caught out as precious metals such as palladium fell sharply.

More than $200 million of the fund’s $630 million in assets came from other Brevan Howard portfolios that had invested in the fund.

The closure of the fund comes after Brevan, which is known in the industry for having a low tolerance to traders running up big losses, shut its currency fund last year and its emerging-markets fund earlier this year.

The source close to Brevan added that it wanted to focus on its core business.

Brevan’s $24 billion flagship fund has never had a losing year since its launch in 2003, but so far this year is down 1.6% to the end of October.