Oil Prices Plunge Oil prices continued to plunge, with Brent crude falling below $60 a barrel for the first time since May 2009.
(…) On Monday, the Organization of the Petroleum Exporting Countries signaled that it won’t call for an emergency meeting unless something drastic happens in the oil market, the United Arab Emirates’ oil minister Suhail Al Mazrouei said.
“I think it’s premature personally to have a meeting,” minister Mr. Mazrouei said. “We haven’t even started 2015. We said earlier that we need to be patient and that we are not targeting a certain price.” (…)
- U.S. Shale to Feel the Oil-Price Plunge-JBC U.S. shale players have announced cost-cutting measures that will most likely cause a reduction of drilling activity starting from the first quarter, says JBC Energy. Expects lower activity will cause slower growth more towards the second half of 2015.
Oil price fall threatens $1tn of projects Majors delay their plans for big-ticket production
Almost $1tn of spending on future oil projects is at risk after a brutal plunge in crude prices to nearly $60 a barrel, Goldman Sachs has warned.
Any cancellation of these developments would deprive the world of 7.5m barrels a day of new output over the coming decade — or 8 per cent of current global oil demand. (…)
Goldman has examined 400 oil and gasfields around the world, many of which are still awaiting a final investment decision. Its analysis, based on a $70 oil price, shows that fields representing 2.3m b/d of output by 2020 and awaiting a green light have now become uneconomic. That figure rises to 7.5m b/d of production by 2025. The analysis excludes US shale.
The bank shows that companies will need to cut costs by up to 30 per cent — for example by forcing suppliers to take steep price cuts — to make these projects profitable at $70 a barrel.
In total, the production at risk from such fields adds up to $930bn of investment. (…)
Figures from Wood Mackenzie, the energy consultancy, also point to a sharp fall in spending. They suggest the industry could cut a quarter of its capital expenditure over the next five years, by as much as $250bn annually by 2018.
Ruble Drops to Record Low Despite Rate Increase The battered ruble fell to a new record low against the dollar, just hours after the Russian central bank’s surprise move overnight to jack up interest rates to 17%.
(…) Facing a spiraling currency crisis, the central bank in an emergency meeting held after midnight Monday night raised its key interest rate by 6.5 points to 17%, a move made all the more dramatic because the bank had just increased the rate by a point last week. But investors saw that move as insufficient to stem the rising selling pressure and the ruble’s plunge accelerated on Monday, with the dollar rising to nearly 67 rubles—a record high—in after-hours trading. (…)
“This was a move reflecting just how far the CBR had got behind the curve,” Standard Bank analyst Tim Ash wrote of the rate hike. “In a situation where a central bank allows its currency to depreciate by 10% in a day, the message is that they have lost control, and their very credibility is at stake.” With the ruble giving up some of its early gains Tuesday, he wrote, “The CBR cannot allow this move to fail, they will now have to come back with a big, big FX intervention, or yet more rate hikes.” (…)
At a conference in Qatar, Russian Energy Minister Alexander Novak said Russia would maintain its present level of oil production next year, but Russian oil companies might reconsider some investment projects.
“The Ruble’s fall is telling us something which Putin’s Moscow has been trying to deny, namely that the economy is falling to pieces and that, quite possibly, the Western sanctions have done nothing other than to strip the veneer off a country with not much more to show than its oil,” says Anthony Peters, strategist at financial advisory firm SwissInvest. “Not since Soviet times have we seen such steadfast refusal by the Kremlin to acknowledge the presence of severe political and economic problems while sacrificing the people in the name of orthodoxy. The Russian people are legendarily stoic in the face of hardships but beware if, as and when their patience runs out.”
(…) expectations are strengthening that investors will be drawn out of riskier markets, as the U.S. draws nearer to increasing interest rates. The U.S. Federal Reserve is expected to deliver its latest interest-rate outlook, in a statement Wednesday that could send the dollar rising further against currencies around the globe. (…)
New EU car registrations, a reflection of sales, rose to 953,886 vehicles in November, up 1.4% from a year earlier, according to data published Tuesday by the European Automobile Manufacturers’ Association, or ACEA.
Sales declined 1.8% in Germany, Europe’s biggest car market by sales, and 2.7% in France. Sales in the U.K., Europe’s second-largest car market, rose 8% in November, continuing the strong recovery seen all year.
Countries hit hardest by the eurozone debt crisis posted the strongest increase in sales, albeit from low volumes during the crisis. Car sales rose 32.6% in Portugal and were up 17.4% in Spain and 5% in Italy.
In the 11 months to November, car sales in the EU rose 5.7% to 11.6 million vehicles, putting the EU car sales on track to grow for the first time in six years but remaining well below precrisis levels.
Weidmann Rejects Sovereign-Bond Buying Even If Deflation Emerges Jens Weidmann said there’s no need for the European Central Bank to expand monetary stimulus, and argued that sovereign-debt purchases aren’t a solution even if slumping oil prices cause deflation.
“Such a development initially requires no monetary policy response, as long as no second round effects are to be seen,” the Bundesbank president said at an event late Monday in Frankfurt. “There’s a whole row of economic reasons that speak against government-bond purchases, even before you consider the legal question of whether they’re compatible with the ban on monetary financing.” (…)
“We have already acted, pre-emptively, in the expectation of a worsening of the economic situation,” Weidmann said. “But this plays only a minor role in the discussion. Instead, it’s only ever asked, ‘what is coming next?’ And then mostly the question, ‘when will you finally buy government bonds?’ That raises the expectations for this measure to such a level that they can only be disappointed.”
“Markets at some point have to learn that not every expectation, not every wish, will be fulfilled,” he said. “It’s maybe not so bad when the impression arises that the debate on the Governing Council doesn’t resemble a group of lemmings all running in the same direction.”
This, to me, is a bigger threat to markets than oil.
Meanwhile, in our Lonesome Cowboy’s country:
Industrial production jumped 1.3% last month (5.2% y/y) following a 0.1% uptick, revised from -0.1%. Manufacturing sector production surged 1.1% (4.7% y/y) following an upwardly revised 0.4% rise, last month reported as 0.2%. Three-month growth in overall production surged to 9.5% (AR). A 0.7% gain in total production was expected in the Action Economics Forecast Survey.
The capacity utilization rate increased to 80.1%, the high since 80.5% averaged in 2007. In the factory sector, the capacity utilization rate jumped to an expansion high of 79.2. Total industry capacity rose an improved 3.1% y/y while factory sector capacity increased 2.2% y/y.