Tag: Markets

The American oil industry is booming and that may undermine OPEC

~ Patrickhdjones ~ Leave a comment

America may well become the world’s leading energy producer by next year, according to the International Energy Agency.

The latest IEA report said that in the 3 months to November last year, U.S. crude output was seen increasing by 846,000 barrels a day.

The data revealed how fast rising production in non-OPEC countries (led by the U.S.) is likely to grow by more than demand this year. The relentless rise of American crude supply could undermine OPEC efforts to re-balance the global oil market, and may see the U.S. overtaking Saudi Arabia and Russia (two of the world’s largest producers) in oil production by the end of 2019.

Head of the oil industry and markets division at the IEA Neil Atkinson said: “We are seeing United States production rising very, very dramatically before our very eyes and that’s likely to continue in 2018.”

One reason this trend looks set to continue may be due to the Trump administration’s willingness to open up more areas in the U.S. to oil production. The U.S. Department of the Interior announced that it may conduct 16 auctions to open new oil and gas wells along the Atlantic and Pacific continental shelves. It will also sell 31 new leases near Alaska and in the Gulf of Mexico.

U.S. energy exports now compete with Middle East oil for buyers in Asia, and daily trading volumes of U.S. oil futures contracts have doubled in the past 10 years, according to the CME Group. This indicates just how much America has grown as a major player in world energy markets.

Conversely, the latest OPEC report showed production for the members of the group was little changed in January as they continued to limit their output for a second year in order to balance an oversupplied market. However, key members like Iraq raised their output in the first month of 2018.

Crude prices have jumped nearly 50 per cent since mid 2017 reaching highs of over $70 a barrel but have since lost steam, now sitting at around $62 p/b.

Patrick Jones

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Former ECB head calls time on debt & highlights risks to investors

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Trichet
Mario Draghi’s predecessor is concerned

Eurozone growth is up across the board, earnings season in the US was impressive, the UK’s FTSE100 has had a stellar year despite Brexit worries, and even Greece’s economic woes look far less terrifying.

Everything looks better, doesn’t it? Aren’t we through the worst of the post-crisis economic downturn, so now we have less to worry about? Jean-Claude Trichet, the former President of the ECB (pictured), doesn’t entirely think so.

Speaking to CNBC, Trichet said, “Despite the fact that real growth is active, I wouldn’t say buoyant, but very satisfactory, we have some indicators on global leverage that are not reassuring.” Referring to massive debt levels across the world, he added, “We are now at a level (of debt) which is higher than immediately before the financial crisis, so there’s no time for complacency.”

The International Monetary Fund has repeatedly warned about global debt levels. The IMF’s deputy managing director David Lipton said, “We are seeing some greater leverage in the corporate world, in some countries for households, so that rising indebtedness and that increase in market risk really is something policymakers should keep an eye on.” Last year, global debt hit a record high of $152 trillion, while the IMF warned it added major risks to recovery.

Even China, which has relied heavily on debt to boost their economy in the past, is slowing down borrowing in order to reduce risk. Yesterday they pulled a $4.6 billion subway project in Inner Mongolia.

Additionally, Jean-Claude Trichet pointed out that a very long period of ultra low interest rates, coupled with quantitative easing programmes carried out by central banks, has allowed for the prices of financial assets like stocks to rise rapidly. This presents the risk of major bubbles in financial markets, which some would argue are already present.

Indeed, surveys indicate that a large number of investors think stock markets are overvalued, though they are still choosing to take on high levels of risk. Bank of America Merill Lynch’s new fund-manager survey (which includes over 200 people who manage $610 billion) shows a record number of survey respondents are taking higher-than-normal risk, at a time when US stocks are close to their highest valuations in history. Overconfidence here could be dangerous. The data indicates investors are feeling emboldened at a time when they should be more cautious.

Regardless, US markets are likely to rise further, pushing up stock prices. UBS thinks tax cuts in the US could boost S&P500 earnings per share by at least 6.5% in 2018, with telecom and financials predicted to be the biggest winning sectors. They noted that the S&P500 rallied by over 40% after the 1986 corporate tax cut under Ronald Reagan, so this seems likely.

Patrick Jones