World economy talk

[Lady Bathory]

Brent crude fell more than WTI as expected. There was more selling pressure on Brent due to overbought conditions as market participants were too eager to bet on a price recovery. Speculative net longs were so high but fundamentals show no sign of slowdown in oil production forcing market participants to unwind long positions.

April 2015

May 2015

June 2015

[Lady Bathory]

The dollar index reaches 100.

[Lady Bathory]

Why I think oil price rallies are unsustainable: Not only is there a record amount of oil in above-ground storage, many shale oil producers are leaving oil in the ground. They're leaving wells uncompleted. Producing oil from shale is a two-part process -- a rig drills a horizontal tunnel through the shale then fracking fluid is injected to release the oil completing the process. They drilled but they're not fracking. They're waiting for prices to recover. They'll complete the wells when prices are high enough but that will put pressure on oil prices. In other words, any rally in oil prices will just run into a huge supply of oil making rallies unsustainable.

[niky]

Why I think oil price rallies are unsustainable: Not only is there a record amount of oil in above-ground storage, many shale oil producers are leaving oil in the ground. They're leaving wells uncompleted. Producing oil from shale is a two-part process -- a rig drills a horizontal tunnel through the shale then fracking fluid is injected to release the oil completing the process. They drilled but they're not fracking. They're waiting for prices to recover. They'll complete the wells when prices are high enough but that will put pressure on oil prices. In other words, any rally in oil prices will just run into a huge supply of oil making rallies unsustainable.

US operations are so oversaturated they're looking at hiring and even buying tankers for offshore storage.

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Why I think oil price rallies are unsustainable: Not only is there a record amount of oil in above-ground storage, many shale oil producers are leaving oil in the ground. They're leaving wells uncompleted. Producing oil from shale is a two-part process -- a rig drills a horizontal tunnel through the shale then fracking fluid is injected to release the oil completing the process. They drilled but they're not fracking. They're waiting for prices to recover. They'll complete the wells when prices are high enough but that will put pressure on oil prices. In other words, any rally in oil prices will just run into a huge supply of oil making rallies unsustainable.

US operations are so oversaturated they're looking at hiring and even buying tankers for offshore storage.

[Lady Bathory]

Yes i mentioned that in an earlier post.

Traders are storing crude oil to sell at higher prices in the future. Storage facilities are almost full so traders are renting supertankers to store oil. The spread between spot and futures prices encourage storage.

But storing oil in supertankers is very expensive. Right now the spread between spot and futures prices isn't large enough to make the trade profitable.
ANALYSIS: Narrowing crude contango takes steam out of floating storage - Shipping | Platts News Article & Story
Storing crude on tankers not profitable enough –Statoil | Hellenic Shipping News Worldwide

WTI is back below $45/barrel.


The rally in oil prices lost momentum when reality of caught up. There's already too much oil out there and when prices recover even more oil will be produced.

[Monseratto]

May look good but really bad for OFWs and BPOs...

Currencies gaining on the USD...



How a Bunch of Different Currencies Are Doing Against the Dollar This Year - Bloomberg Business

[Monseratto]

[Lady Bathory]

The IEA reported global oil demand increased by 1 million barrels/day from last year. Low prices boosted demand from China, India, etc. which slowed inventory builds outside the U.S. which explains the spread between Brent and WTI. But I see downside risk to Brent -- refineries in Europe and Asia will be undergoing maintenance shutdown which will reduce demand for crude, a deal could be reached with Iran over its nuclear program which will clear the way for lifting of sanctions which will set free a flood of oil from Iran.

[Lady Bathory]

WTI falls below the January low. That didn't take long.

Brent May 2015. Watch the $50 level.

[Lady Bathory]

Not only is there an oversupply in crude oil, there's an oversupply in sugar.

(Bloomberg) -- The world has never been so awash in sugar.

Just as cane harvests expand in India and Thailand, farmers in Brazil, the world’s largest producer, are ramping up exports to take advantage of a tumble in the exchange rate that has swelled their profit margins. And crops that were hurt by drought last year have been revived by rain. Global output is set to exceed demand for a fifth straight year, leaving the biggest stockpiles on record, the International Sugar Organization said.

[Monseratto]

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[Lady Bathory]

The market waits for the U.S. Federal Reserve’s monetary policy statement on Wednesday. The Fed is expected to signal they're ready to raise interest rates. Everyone will be watching if the Fed will remove the word "patient" from the statement. If the word is removed it would signal a June rate hike.

[Lady Bathory]

The word "patient" was removed but the Fed dialled back its optimism on the U.S. economy. The dovish tone sent the dollar index crashing but it was clearly an overreaction.

I'm still bullish on the dollar even if U.S. economic growth loses momentum. BOJ and ECB QE will drive dollar strength.

[Lady Bathory]

The strength of the U.S. dollar is causing concern within the Fed. Their just-released monetary policy statement sounded dovish. Eventhough they removed the word “patient” which signals the beginning of a rate hike cycle, the statement noted that “economic growth has moderated somewhat” and “export growth has weakened”. It's because the strong dollar makes U.S. exports more expensive and foreign currency earnings brought home are smaller when converted to dollars. In a way the strong dollar is tightening financial conditions similar to the effect of raising interest rates. Even if the Fed isn't tightening yet, the strong dollar is already doing it.

[Lady Bathory]

After the Fed statement market participants liquidated some long dollar positions. The long dollar trade is overcrowded so any disappointing news will drive more liquidation and consolidation in the short term. I think the dollar uptrend is still intact given the divergence in monetary policy between the U.S. and and other major economies. I think a rate hike in June is still in play but odds are favoring September.

Airconditioning is one of the greatest inventions ever...

[Lady Bathory]

Of course Saudia Arabia will not cut production all by itself. Why should they? Their customers will just go to other suppliers if they did. Either everybody agrees to cut production or nobody does.

(Reuters) - Oil prices dropped over a percentage point on Monday after Saudi Arabia said over the weekend that the market defined prices and the kingdom would not unilaterally cut its output to defend prices.

Since oil prices started to fall in June 2014, many analysts have expected OPEC's biggest producer to eventually curb its output as it has done many times in the past to support prices.

Yet Riyadh has so far opted to keep its output stable to protect market share against non-OPEC producers such as the United States - where production has soared as a result of the shale exploration boom - and Russia.

[Gumusut_Amige]

The strength of the U.S. dollar is causing concern within the Fed. Their just-released monetary policy statement sounded dovish. Eventhough they removed the word “patient” which signals the beginning of a rate hike cycle, the statement noted that “economic growth has moderated somewhat” and “export growth has weakened”. It's because the strong dollar makes U.S. exports more expensive and foreign currency earnings brought home are smaller when converted to dollars. In a way the strong dollar is tightening financial conditions similar to the effect of raising interest rates. Even if the Fed isn't tightening yet, the strong dollar is already doing it.

LB, let's say i got 100k usd right now what track i should take? Dump them now or will hold on until when?

[Lady Bathory]

i'm long term bullish USD. I'll reconsider my view when there's a shift in monetary policy among major central banks.

[Lady Bathory]

There's an ongoing correction in the U.S. dollar. It's possible the dollar rally has ended at least for a while. Funds remain heavily long the dollar index so we could see further liquidation.

[Lady Bathory]

Crude oil prices rally on weaker dollar, Yemen.