|Day's Range||66.46 - 66.88|
(Bloomberg) -- Oil clawed back some losses as signs of a recovery in the Chinese economy bolstered hopes for a rebound in demand though prices are still headed for the worst quarter on record.While New York futures rose for the first time in four sessions, adding 6.6% as equity markets gained on stronger-than-anticipated China manufacturing data, oil is still down 65% since the end of December. The spreading pandemic has led to lockdowns across the globe, sapping demand for crude and fuels.China’s oil refiners are also boosting crude processing rates to levels last seen before the outbreak, but the increase may be in vain. Global demand is plunging, with Goldman Sachs Group Inc. predicting consumption will drop by 26 million barrels, or 25%, this week.The slump in demand has shut refineries from South Africa to Canada, leading to excess barrels in the market. The huge oversupply is collapsing the oil market’s structure, and there may be more weakness to come as the world quickly runs out of storage capacity.“Any little bit of optimism is welcome even if it is little more than a false dawn,” said Stephen Innes, global chief market strategist at AxiCorp Ltd. “The demand devastation is the most aggravating factor these days, while the supply issues are exacerbating that pressure.”See also: Global Oil Refining Slowdown Deepens as Virus Hammers DemandWest Texas Intermediate for May delivery added $1.33 to $21.42 a barrel on the the New York Mercantile Exchange as of 11:03 a.m. Singapore time. The contract slumped 6.6% to $20.09 on Monday, the lowest since February 2002. Prices are also down 52% this month.Brent for May settlement rose 59 cents, or 2.6%, to $23.35 a barrel on London’s ICE Futures Europe exchange after dropping 8.7% Monday to settle at $22.76. The contract is down 54% in March and about 65% this quarter.See also: Oil Traders Hustle for Tankers to Divert U.S. Crude to AsiaFutures in the global Brent benchmark are suggesting a historic glut is emerging. The May contract is trading at a discount of more than $14 a barrel to November, a more bearish super-contango than the market saw even in the depths of the 2008-09 global financial crisis.In broader markets, S&P 500 futures edged higher and equity markets in Hong Kong and South Korea rose as the world’s second-largest economy showed signs that it’s restarting amid a growing threat from slumping external demand. China’s official purchasing managers’ index increased to 52 this month, up from a record low of 35.7 in February.In the market for physical barrels, prices are already far below those of futures benchmarks. Oil from Canada touched a record low of $3.82, while many other key grades are trading below $10, with some as low as $3.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Oil tumbled to an 18-year low as coronavirus lockdowns cascaded through the world’s largest economies, leaving the market overwhelmed by cratering demand and a ballooning surplus.Futures in London plunged by 9% to the lowest level since March 2002, while New York crude dipped below $20 a barrel before settling just above that level. While U.S. President Donald Trump spoke with Russian counterpart Vladimir Putin Monday to discuss the importance of stable energy markets, that did little to stanch the decline.A huge oversupply is further collapsing the oil market’s structure, and there may be more weakness to come as the world quickly runs out of storage capacity. The slump in demand has shut refineries from South Africa to Canada, leading to excess barrels in the market.At the key storage hub of Cushing, Oklahoma, inventories are said to have ballooned by more than 4 million barrels last week, according to traders with knowledge of Genscape data, raising fears about storage capacity limits being reached.“We’re grinding lower here and we’ll continue to get lower as runs get cut globally,” said John Kilduff, a partner at Again Capital LLC, a New York hedge fund focused on energy. “As we see specific points like Cushing near its limits, it’s just going to put greater and greater pressure on the price till we get to a clearing point.”Prices are on track for the worst quarter on record. Goldman Sachs Group Inc. estimates consumption will drop by 26 million barrels a day this week as measures to contain the coronavirus hurt global GDP. Consultant FGE estimated that refinery operating rates have been cut by over 5 million barrels a day worldwide, and could bottom out at between 15 million and 20 million lower.Meanwhile, Riyadh and Moscow are showing no signs of a detente in their supply battle as Saudi Arabia announced plans to increase its oil exports in the coming months.In the market for physical barrels of crude, prices are already far below those of futures benchmarks. Oil from Canada touched a record low of $3.82, while many other key grades are trading below $10 a barrel, with some as low as just $3.It’s a similar picture in Europe, where Kazakh crude was offered at a 10-year low. The six-month contango on the global Brent benchmark has grown bigger than in the financial crisis, at more than $13 a barrel. The equivalent six-month contango for WTI is about $12.The plunge in prices has caused distress in some OPEC nations. Algeria, which holds the cartel’s rotating presidency, urged the secretariat to convene a panel but the call has failed to gather the majority backing necessary to go ahead. Riyadh is among those opposing the idea.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- President Donald Trump said he’s concerned oil prices have fallen too far and called Vladimir Putin on Monday to discuss Russia’s oil-price war with Saudi Arabia.The leaders, who also talked about the spread of the coronavirus, agreed to discussions on oil between energy officials in the two countries, according to the Kremlin. Both leaders “agreed on the importance of stability in global energy markets,” the White House said in a statement.The U.S. president said earlier he doesn’t want to see the American energy sector “wiped out” after Russia and Saudi Arabia “both went crazy” and launched into a conflict that depressed oil prices.“I never thought I’d be saying that maybe we have to have an oil increase, because we do. The price is so low,” Trump said in an interview on “Fox & Friends.”Crude oil futures tumbled as much as 7.7% in New York, touching an 18-year low.The Trump-Putin call came at the request of the U.S. and was “prolonged,” according to the Kremlin. Neither the White House or Kremlin statements said specifically how long the two leaders talked.Trump’s view on the oil dispute marks a shift from earlier this month, when he likened the plunge in oil prices to a “tax cut” for Americans. The U.S. president spoke to Saudi Crown Prince Mohammed bin Salman on March 9 about the price war.Trump has long argued that improving relations between Washington and Moscow could help solve international disputes. The president said he wanted to discuss trade with Putin, though he said he expected the Russian president to raise objections to U.S. sanctions. State-run Tass quoted Kremlin spokesman Dmitry Peskov as saying that Putin didn’t ask Trump for sanctions relief on the call.Oil tumbled earlier to its lowest point in nearly two decades, heading for the worst quarter on record as coronavirus lockdowns cascaded through the world’s largest economies, leaving the market overwhelmed by cratering demand and a ballooning surplus. The slump in demand has shut refineries from South Africa to Canada.Goldman Sachs Group Inc. estimates consumption will drop by 26 million barrels a day this week. Meanwhile, Riyadh and Moscow are showing no signs of a detente in their supply battle as Saudi Arabia announced plans to increase its oil exports in the coming months, despite U.S. warnings against flooding the market.Some analysts argue Russia’s motivations extend well beyond oil and are complicated by the federation’s anger over U.S. sanctions and opposition to the Nord Stream 2 pipeline linking Russia to Germany. And the price for getting Russia to back down could be too high.“Russia’s concerns with the U.S. go beyond market share. Putin is frustrated with sanctions and may be more interested in punishing the U.S. than Saudi Arabia,” said Dan Eberhart, a Trump donor and chief executive of drilling services company Canary LLC. “If Trump wants an agreement with Putin, he may have to promise to ease up on sanctions. I am not sure he can deliver without the backing of congress.”Rosneft PJSC over the weekend sold its assets in Venezuela to the Russian government, a move that shields the Russian oil giant from further U.S. sanctions while keeping Moscow behind the regime of Nicolas Maduro. Fears of broader sanctions have grown after the U.S. in recent months slapped restrictions on Rosneft trading companies for handling business with Venezuela.In the call, the White House said Trump “reiterated that the situation in Venezuela is dire, and we all have an interest in seeing a democratic transition to end theongoing crisis.” The statement didn’t say how Putin responded.Talks between members of the Organization of Petroleum Exporting Countries and its allies broke down in early March as Russia refused to sign on to larger production cuts proposed by Saudi Arabia. The failure to reach an agreement prompted the Saudis to unleash a price war which, combined with the devastating effect of the virus pandemic, caused the market to crash.Global demand is slumping by as much as 20 million barrels a day, about 20%, as billions of people go into lockdown to slow the spread of the virus. The outlook remains dire, with traders, banks and analysts forecasting a huge oversupply as governments effectively shut their economies.Oil industry leaders, trade groups and some Republican senators have pressed the Trump administration to seek a diplomatic solution with Saudi Arabia. Six senators from oil-producing states last week urged Secretary of State Michael Pompeo to take a tougher stance against Saudi Arabia, while highlighting several “powerful tools at our disposal,” including sanctions, tariffs and other trade restrictions.“Trump would have better success pressing Saudi Arabia than Russia since they are dependent on the U.S. for protection, intelligence and arms sales,” Eberhart said.On the coronavirus outbreak, the two sides expressed concern about the scale of its spread, according to the Kremlin. The leaders discussed steps they were taking to fight the virus and potential areas of cooperation.The White House said in its statement that “the two leaders agreed to work closely together through the G-20 to drive the international campaign to defeat the virus and reinvigorate the global economy.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
With the approval of increasing their stake in respective securities JV, Morgan Stanley (MS) and Goldman (GS) are set to further diversify their revenues.
S&P 500 dividends will fall by 25% this year as the coronavirus crisis drives companies across many sectors to conserve cash, Goldman Sachs said in note Monday.
West Texas Intermediate, the New York-traded benchmark for U.S. crude prices, was down $1.51, or 7%, at $20 per barrel by 1:32 PM ET (17:32 GMT). “With the lockdowns extending geographically to India, the U.S. (and) now Russia, as well as extending in time in other regions, the focus has entirely shifted to demand destruction,” said Olivier Jakob of Zug, Switzerland-based oil risk consultancy Petromatrix.
(Bloomberg Opinion) -- At the point we’re now at, postponing the oil-price war won’t make a lot of difference for an industry that’s already breaking down under the weight of demand destruction. With prices hitting a 17-year low on Monday, it’s too late to use diplomacy and artful negotiations to share the burden of output cuts that are now inevitable.The pumping free-for-all unleashed by Saudi Arabia and Russia is important for the long-term shape of the oil industry, but, as my colleague Javier Blas pointed out here, it’s a sideshow to the havoc being wrought by the lockdowns crippling economies worldwide in response to the coronavirus pandemic. Forecasts of a catastrophic drop in oil demand abound, with estimates of a whopping 20% year-on-year reduction in global consumption in April becoming more common. That’s 20 million barrels a day, equivalent to the entire consumption of the United States. And even those gloomy views may be too optimistic, according to Goldman Sachs.It would be impossible for any small group of producers to mitigate that kind of impact by reducing output, unless Saudi Arabia and Russia were both to slash their production to almost zero. And that’s not going to happen. On Wednesday, U.S. Secretary of State Mike Pompeo called on Saudi Arabia’s Crown Prince Mohammed bin Salman to take the lead as his country prepared to host a meeting of the Group of 20 nations. Pompeo urged the kingdom “to rise to the occasion and reassure global energy and financial markets.” That’s a reasonable request. Somebody has to show leadership and it doesn’t look like it’s going to be President Donald Trump.The trouble is that I suspect what Pompeo meant is for Saudi Arabia to cut its production unilaterally, rather than trying to bring together a short-term “coalition of the willing,” including the U.S., to work together to confront a global problem. After all, that’s always what’s happened in the past.Take for example the response to the Asian financial crisis. In February 1999, then President Bill Clinton’s energy secretary, Bill Richardson, expressed U.S. concerns over oil prices that had fallen below $10 a barrel. Two months later the Organization of Petroleum Exporting Countries agreed to its third successive output cut and by the end of the year Brent crude had recovered to $25 a barrel.It’s no surprise that Saudi Arabia was willing to take the lead back then, and to bear the bulk of the output cuts. It, too, wanted higher oil prices. Those were the days when oil was regarded as a depleting asset whose value would only rise in the future, as demand outstripped available supply. Cutting production would leave oil in the ground that would appreciate in value.But that was a long time ago. That view no longer holds sway — battered both by the tsunami of crude extracted from shale rocks and the growing awareness of the need to reduce carbon dioxide emissions that has seen concerns about peak oil production replaced with worries (for producers) of peak oil demand. Oil left in the ground now is at risk of never being produced at all.Of course back in 1999, it would have been unreasonable to expect America to join in the output reduction effort. The U.S. was pumping a little over 6 million barrels a day — less than half its current production — and the gas-guzzling nation imported about 10 million barrels a day more crude and refined products than it exported.But 2020 is not 1999. The U.S. is now the world’s biggest crude producer, pumping 13 million barrels a day — more even than Saudi Arabia can supply if it opens its taps fully. And so far this year it has exported more oil than it has imported.Yet a lack of leadership — from Riyadh and Washington — means that it’s now too late to make a coordinated response to the collapse in demand.As it stands at the moment, OPEC is not due to meet until early June, and whether the cartel’s external allies including Russia join them in an enlarged OPEC+ shindig remains to be seen. No matter, any action agreed then wouldn’t have an impact until July, at the earliest. Even an agreement reached tomorrow would have little impact until May, with April crude sales now largely completed.By then storage tanks around the globe will be close to capacity; ships full of unwanted oil will be floating in safe anchorages; and producers will be forced to shut wells because they have simply run out places to put any crude they pump out of the ground.Without output cuts, production shut-ins are inevitable. Consultants IHS Markit see a surplus of 1.8 billion barrels of crude building up during the first half of 2020, and yet there’s only 1.6 billion barrels of storage capacity available.The window to distribute those cuts in an orderly manner between producers has closed. OPEC had its last chance in March and America’s leaders subsequently squandered their chance at leadership. As it now stands, production cuts will be distributed by the market on the basis of who has access to storage tanks and who is losing money by pumping. Welcome to the free market.(Adds oil price decline and new Goldman Sachs outlook in first two paragraphs.)This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
AT 9 AM ET (1300 GMT), U.S. crude futures traded 4.4% lower at $20.55 a barrel, having dropped below $20 earlier Monday, while the international benchmark Brent contract fell 5.4% to $26.46, hitting the lowest level in 17 years. Late Sunday President Donald Trump extended the current guidance on social distancing to the end of April, after the U.S.’s top infectious disease expert said deaths there may reach 200,000. Trump had earlier said he wanted the economy to return to near normality by Easter.
(Bloomberg) -- In a deal that’s currently at risk of falling apart, a handful of investors would be the main beneficiaries of SoftBank Group Corp.’s plan to buy $3 billion of WeWork stock, according to a person familiar with the matter.As part of the agreement, scheduled to be completed next week, $2.1 billion in proceeds from stock purchases is slated go to five investors, according to the person, who asked not to be identified discussing private information. Benchmark, the venture capital firm that backed WeWork from its earliest days, is seeking to sell up to $600 million worth of shares, said the person, who asked not to be identified discussing private information. That figure puts Benchmark behind only Adam Neumann, WeWork’s co-founder and former chief executive officer, who has the right to sell as much as $970 million in the deal.Representatives for Benchmark and Neumann didn’t immediately respond to requests for comment. WeWork declined to comment.SoftBank, the biggest investor of WeWork parent We Co., has threatened to withdraw from the deal, the proceeds of which would not go to WeWork itself, but rather to its institutional investors and other shareholders. Still, if the transaction falls apart, it will have negative repercussions for the company, which would not receive $1.1 billion in debt from SoftBank.Besides Neumann and Benchmark, other top sellers in the deal include WeWork investor T. Rowe Price Group Inc., former WeWork Chief Financial Officer Ariel Tiger, who served in the Israeli military with Neumann and another venture capital firm, the person said. A spokesman for T. Rowe Price declined to comment. Tiger did not immediately respond to a request for comment.“SoftBank remains fully committed to WeWork’s success as its largest shareholder and is proud of the tremendous progress the company has made over the past six months,” a spokesman for SoftBank said in a statement.SoftBank’s stock buyback was scheduled to close April 1, but the Japanese conglomerate has said that it is not obligated to go through with the purchase. SoftBank has said under the terms of its original agreement, it could withdraw from the offer if certain conditions weren’t met, and that unresolved government investigations into WeWork qualify. Two board members disputed that assertion.SoftBank agreed to the rescue package for WeWork in October, shortly after the company’s plans for an initial public offering dramatically unraveled. SoftBank said it has provided $13.4 billion to WeWork, including $5 billion in working capital since October, and is honoring its obligations as laid out in the agreement.A special committee of WeWork board members has said that it is weighing options including legal action if SoftBank does not follow through with the purchase. That committee has two members: Benchmark’s Bruce Dunlevie and independent director Lew Frankfort. A representative for the committee declined to comment. Other investors slated to sell a large amount of WeWork stock to SoftBank in the deal include JPMorgan Chase & Co., Goldman Sachs Group Inc., Jefferies and Fidelity Investments, according to two people with knowledge of the matter. Spokespeople for JPMorgan and Fidelity declined to comment. Representatives for the other investors did not immediately respond to requests for comment. Less than 10% of the proceeds from the stock buyback would go to WeWork employees, SoftBank has said. Many employees repriced their stock options and thus aren’t part of this stage of the tender offer.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
It's been an insane month for airlines stocks. Legacy carrier United Airlines (NASDAQ:UAL) has been no exception. UAL stock traded for $90 as recently as January. Last week, it sold for a low of just $18, amounting to an 80% loss of value in scarcely two months.Source: NextNewMedia / Shutterstock.com However, United's fortunes are back on the upswing. The Senate recently approved an emergency economic relief package by unanimous vote. The House of Representatives should vote on the bill in coming days as well.This aid package will provide tens of billions of dollars to the airline industry in the form of cash grants and loans. Traders have rushed to buy back into the airlines. United Airlines stock, for example, has doubled from its low point over the past week, though admittedly the current $33 price is far short of the previous $90 peak.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThat said, sometimes when a stock price doubles in a few days, you should take advantage of it and get out while the getting is good. This is one of those cases. While the bailout money will certainly help the airline industry, it's not a cure-all.We're still in the early innings of this economic slowdown, and heavily exposed companies like airlines have plenty more turbulence ahead. Government Bailout and UAL StockThe stimulus package that made it through the Senate is set to give the airlines roughly $50 billion in aid. Bulls have taken that headline number and run with it, bidding up airline , including UAL stock, sharply. * 10 Stocks to Buy That Will Benefit From Coronavirus Mayhem But let's slow down for a second. The actual language around the bailout is not fully hammered out and leaves a lot of leeway. Yes, the $50 billion figure seems set. But it's not clear how much of this will be cash grants, and how much will be loans.It also appears to give Treasury Secretary Steve Mnuchin a lot of authority to set the rules on what happens with the $50 billion. Airlines will have to cap executive pay for two years. And perhaps more importantly for shareholders, all airlines will have to suspend dividends and buybacks for at least a year.In case the government aid isn't big enough, or doesn't arrive soon enough, United has also taken other measures to shore up its finances. On Thursday, for example, it announced that it had secured a $500 million term loan from Goldman Sachs (NYSE:GS). United will have to pay back the loan one year from now, which isn't that far into the future. Still, it's a nice chunk of liquidity to hold the company over until operations start to pick back up, hopefully later in 2020. United's Uneven Competitive PositionCompared to the other legacy carriers, United is in a bit of an awkward position. Of the big three, Delta Air Lines (NYSE:DAL) has the best balance sheet by a significant margin. Delta perhaps would have been able to ride out the current storm even before the stimulus bill passed. On top of that, Delta is aggressively cutting back capacity on its routes to save money.American Airlines (NASDAQ:AAL) is in the worst shape of the big three. However, that comes with a hidden risk to United. There's been a great deal of speculation that American could be the first major U.S. airline to go bust. In fact, its bonds were trading in distressed territory heading into the bailout announcement. Assuming air travel doesn't return to normal quickly, American could easily still end up using Chapter 11 to reorganize.That, in turn, would potentially leave United in a situation where Delta has more operational flexibility from the front, while American would be reinvigorated on the other end, putting United in a squeeze.United runs nearly all its routes through hubs, several of which are facing extreme competition. It has relatively little fat to cut in terms of its flying without losing major market share and clientele to the other legacy carriers. Southwest Could Gain At United's ExpenseThere's one more possible risk on the horizon. It appears that Southwest (NYSE:LUV) may reject its bailout funds altogether. Southwest is in fantastic financial shape, and carries hardly any net debt. This would allow it to possibly forego the government aid, and thus avoid the strings attached to it.Southwest could continue operating without having to comply with the higher wages, environmental standards and other regulations attached to the bailout funds. It could also continue to lay off employees -- that's something that the bailout would prohibit.Southwest, you may recall, has been building Denver into its largest hub. This, in turn, is a crisis for United and its own formerly dominant position in the Mile High City. Southwest potentially has a golden opportunity to steal the catbird position at one of United's best hub locations thanks to the coronavirus from China. My UAL Stock VerdictIf you bought UAL stock near the lows over the past week, you got a great entry price. Buying low and selling high is the name of the game. People that bought into last week's panic have earned their reward. But don't overstay your welcome.Bear market rallies, historically, tend to be the most vicious. Traders think all is clear, and then out of the blue, the next wave of selling kicks off. It's too early to say whether we're going to go plunging back to the market lows from a week ago. But if we do, the stocks that are currently riding the bailout-induced sugar high will get crushed.The government's actions are a good first step. However, the economy is still closed for business, and will probably remain that way for quite awhile. The stock market rally this week hasn't cured the virus, nor has it fixed the economy. Travel demand isn't going back to normal levels all that soon, and high-cost levered players like United still have a ton of downside risk.Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he owned GS stock. More From InvestorPlace * America's Richest ZIP Code Holds Wealth Gap Secret * 10 Stocks to Buy That Will Benefit From Coronavirus Mayhem * 5 Bank Stocks to Buy Now Because This Isn't 2008 Again * 12 Stocks to Buy That Are Already Positive The post Sell the Bailout Rally in United Airlines Stock appeared first on InvestorPlace.
(Bloomberg) -- Only the old hands at the Coffeyville oil refinery could remember anything like the prices posted this month. The small Kansas plant in the heart of rural America was offering just $1.75 a barrel for Wyoming sweet crude.With more than two billion people on virus lockdown from India to California, energy demand has plunged. In corners of the U.S., Canada, Russia and China, oil prices at the well-head are collapsing under the weight of an unprecedented glut.And with it, the industry is bracing for something that last happened on this scale 35 years ago: producers shutting down their wells as pumping crude makes no economic sense.“I have never seen anything like this in the markets,” said Torbjorn Tornqvist, the co-founder of Gunvor Group Ltd., a large commodity trading house. “We’ve never seen anything even close to today.”The oil market -- hit by the double blow of a demand slump and a supply surge as Saudi Arabia and Russia wage a price war -- is battling a surplus of as much as 20% of global consumption.The consequences are brutal: prices are now low enough to force a widespread suspension of production, or a shut-in as it’s known in the industry. For those waging the price war, it counts as a victory -- as long as the shut-ins happen elsewhere.Brent and West Texas Intermediate, the benchmarks closely followed in Wall Street, are hovering around $25 a barrel. But in the world of physical oil -- where actual barrels change hands -- producers are getting much less.The industry is navigating what Paul Sankey, a veteran oil analyst at Mizuho Bank Ltd, described as “uncharted waters to unknown lands.”Wyoming Sweet, a landlocked crude with few outlets other than American refineries like Coffeyville, is paradigmatic of how the dynamics of the oil market are forcing output cuts. There are others: North Dakota Light Sweet has traded at $9.97 a barrel. Across the border, Western Canadian Select has plunged to $6.45. In Siberia, Russian crude has changed hands for less than $10 and Chinese domestic prices have fallen to single digits.Ultra-low oil prices are starting to work: Petrobras, the Brazilian state-run producer, is cutting output by 100,000 barrels a day from high-cost offshore platforms. Glencore Plc., the commodity giant, is shutting down its oilfields in Chad. In Canada, Suncor Energy Inc. has partially shutdown its Fort Hills oil sands mine.As the pain spreads, industry executives believe many other companies will stem production in the next few days.“We need to cut crude supply by 10 million barrels a day pretty quickly,” said Russel Hardy, the head of top independent oil trader Vitol Group. “Oil prices will need to go lower, to bring the prices to a level that triggers a response.”The last time the oil industry faced widespread shut-ins was in 1986, when Saudi Arabia also ravaged the market in a price war. During the price battles of 1998-99 and 2015-16 the industry also saw cuts, but not on a large scale.Put simply, the world cannot continue pumping at the current level of about 100 million barrels a day while demand is as much as 20% lower. The surplus would overwhelm storage capacity within weeks.In some emerging markets, where infrastructure is less developed, it’s already happening. Pakistan has told refiners to stop importing gasoline and diesel as the tanks are already brimming.Rush to SeaWhere there’s access to the sea, traders use tankers to store oil -- and wait for prices to go up. Crude is now moving onto ships at a record pace, according to one of the industry’s largest shipowners.But inland, producers are reliant on sending crude to local refineries like Coffeyville and the lack of storage capacity will be decisive.“The surge in inventory in coming weeks will inevitably saturate local infrastructure, in our view, forcing many inland producers to shut-in wells,” said Damien Courvalin, oil analyst at Goldman Sachs Group Inc.Some producers will prefer to take the hit of negative prices -- paying someone to take the oil off their hands -- to the long-term costs of shutting down a well. In the aftermath of the last major downturn, a North Dakota sour crude went to a negative 50 cents.But as storage fills up, production will have to respond. IHS Markit Ltd., a consultant, estimates the Canadian province of Alberta has inland tanks able to store the equivalent of just 3.2 days of daily production. The central U.S., which includes Wyoming, has room for just 12.8 days’ output.“Production is going to have to be reduced or even shut in,” said Jim Burkhard, head of oil markets at IHS Markit. “It is now a matter of where and by how much.”(Adds detail on tankers)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Goldman Sachs and Morgan Stanley received regulatory approval on Friday to take control of their Chinese securities joint ventures, becoming the latest foreign banks to take advantage as China opens up its financial services sector.In separate announcements on Friday night, the American banks said the China Securities Regulatory Commission had approved their bids to own majority stakes in their securities joint ventures, Goldman Sachs Gao Hua Securities Company and Morgan Stanley Huaxin Securities.Following intense lobbying from foreign banks, China said it would raise its cap on foreign ownership limits to 51% in April 2018. The ruling allows foreign banks to compete more effectively onshore and to integrate their mainland business with their global operations.The approvals followed the Office of Financial Stability and Development Committee and the State Administration of Foreign Exchange announcing in July they would ease rules and further open up China's financial sector a year earlier than planned.Goldman Sachs said it would increase its stake from 33 per cent to 51 per cent and began moving business units operating under Beijing Gao Hua Securities to one single corporate entity. The joint venture was started in 2004, but Goldman has operated in the Chinese capital markets since the 1990s."This is a significant milestone in the evolution of our business in China," Todd Leland, co-president of Goldman Sachs for Asia-Pacific, excluding Japan. "We will be seeking to move towards 100 per cent ownership at the earliest opportunity."Morgan Stanley separately said it would increase its ownership stake in Morgan Stanley Huaxin Securities from 49 per cent to 51 per cent. The joint venture was started in 2011, but Morgan Stanley has had a presence in the mainland since 1994."China is a core strategic focus for the firm and a market in which we and many of our clients see significant opportunities", said Wei Sun Christianson, Asia-Pacific co-chief executive officer and CEO of China at Morgan Stanley.Beijing has gradually been relaxing foreign ownership rules against the backdrop of a trade war that has raged between the United States and China for 18 months, as well as a slowing economy.UBS was the first foreign bank to win China's approval under the 2018 rules to take control of its securities joint venture in November 2018, while JP Morgan and Nomura were given approval to set up majority-owned joint ventures in March 2019.In April of last year, Credit Suisse said it plans to take a controlling stake in its securities joint venture, injecting 628.7 million yuan into the company and taking a 51 per cent holding.HSBC won approval to form a majority-controlled securities joint venture, HSBC Qianhai Securities, in the mainland in 2017 under a different set of rules specifically for Hong Kong-based banks. The lender has made a big bet on rising incomes in the Pearl River Delta and plans to shift capital from Europe and the United States to growth markets, such as mainland China, as part of its latest overhaul.China's economy has since slowed further as the coronavirus pandemic has forced cities across the globe to order lockdowns and disrupted the flow of goods and people around the world.The timing of the approvals came soon after Chinese President Xi Jinping and his US counterpart Donald Trump spoke by phone on Friday to try to ease weeks of tension over the pandemic.On Friday, Xi called on the US to cooperate to help contain the pandemic, which has infected more than 536,000 people globally and led to more than 24,000 deaths.Additional reporting by Alison Tudor-AckroydPurchase the China AI Report 2020 brought to you by SCMP Research and enjoy a 20% discount (original price US$400). This 60-page all new intelligence report gives you first-hand insights and analysis into the latest industry developments and intelligence about China AI. Get exclusive access to our webinars for continuous learning, and interact with China AI executives in live Q&A.; Offer valid until 31 March 2020.This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.
(Bloomberg Opinion) -- At the rate the coronavirus is spreading, car companies won’t be making vehicles or big profits for a while. Who’s going to foot their bills in the event of an economic downturn like 2008? A financial crisis-like bailout won’t be a good look.Heading into this slump, carmakers were hardly exercising restraint, splashing out on big, tech-savvy investments and electric vehicles. Many global brands like Ford Motor Co. botched their bets in China, the world’s largest market, and have struggled to keep up there as it weakened.Now, from the U.S. to India, Vietnam and Thailand and elsewhere, auto giants are shutting down production. It means more than turning the lights off. Sales are expected to fall almost 15% this year to fewer than 80 million vehicles, according S&P Global Ratings. In the U.S., the drop may be the biggest since 2009. Even as China tries to get back to work, auto and parts factories will likely run at low capacity.The pandemic is showing up vulnerabilities on balance sheets. Over the past two days, Moody’s Investors Services downgraded auto manufacturers including Toyota Motor Corp. and BMW AG, and put several others on review, including General Motors Co., citing “weaknesses in their credit profiles including their exposure to final consumer demand for light vehicles.” S&P downgraded Ford to junk status and put Toyota on review.The billions of dollars of cash that car companies are sitting on may give investors comfort that contingency plans are in place. But automakers run cash-intensive businesses, paying suppliers and funding operations. Having a cushion helps in tough times, but not for long.Unlike other cash-heavy enterprises, most also run so-called negative working capital, meaning their current liabilities are higher than current assets. A dollar upfront is better than a dollar in a few weeks. The reason they can do this is because they get paid by their dealers before delivery – especially in the U.S, which is a credit-driven market.That’s all good when the cars are selling. But when things turn down, these companies start burning through cash quickly, as my colleague Chris Bryant has written. Pre-virus sales outlooks were already poor. The trouble with Covid-19 is that no one knows how long it will last or when buyers will return. That makes it harder to say how much cash they’ll need, part of the reason some are proactively drawing down their credit lines.In the current gloom, it’s worth looking at how far every dollar of sales goes toward meeting operational expenses and paying down short-term debt, or the ratio of working capital to sales. Companies still have to meet their payables, but inventories aren’t being drained. During the financial crisis a decade ago, Bloomberg Intelligence’s Joel Levington notes the ratio started slightly negative and rose to 5%. If that occurred again, he estimates, an average automaker would need an additional $6.9 billion of capital. With cash needs cropping up across the economy, it’s unclear where that money would come from.The descent can be quick: At the height of the crisis, Japanese automakers in the U.S. ran negative free cash flows of 830 billion yen ($7.7 billion), according to Goldman Sachs Group Inc., dropping from close to positive 2 trillion yen. In China, cash flows are highly correlated to profitability. If you’re running losses, working capital will bite. The cascading effect of a cash crunch could run far and wide. Some large Chinese auto parts manufacturers rely on international automakers for 30% to 50% of their business to generate positive operating cash flow. “This could change quickly,” says Jefferies Financial Group Inc. analyst Alexious Lee.Then there’s the debt coming due. Automakers haven’t piled on large amounts except for their financing arms. But, per Levington, as of last week $179 billion of debt had a 30%-plus chance of default. The convulsions in markets will make it more expensive to pay. The likes of Tata Motors Ltd.-owned Jaguar Land Rover Automotive Plc have seen their bonds trade down to as low as 59 cents on the dollar. Across the sector, more than $100 billion matures this year with almost 40% rated below A, he notes.Financing arms, a big source of problems in 2008, have again become major drivers of operating profits. If China is any indication for how quickly things can sour, defaults on auto loan-backed securities rose sharply last month and prepayments fell to a record low.The position of car giants is now reminiscent of the pre-financial crisis years. When Detroit’s automakers were on the verge of collapse, the U.S. government braved public rebuke and stepped in with $82 billion in various forms to avoid the economic pain of collapse. The bailout remains debated, but one thing is clear: Carmakers will need help this time, too. While Washington’s new $2 trillion stimulus could indirectly benefit the sector, prolonged pain would need more support.Cars may have gotten better since the last crisis, but automakers haven’t readied their balance sheets or operations for one as severe as this is turning out to be.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Crude prices fell almost 8% on Thursday after the $2 trillion U.S. Covid-19 fiscal rescue left out the Trump administration’s plan to top up the country’s oil reserves in a bid to throw a lifeline to shale drillers. Also weighing on crude were record jobless claims filed by Americans and signs of no ceasefire yet in the crude production-and-price-war between Saudi Arabia and Russia. West Texas Intermediate, the New York-traded benchmark for U.S. crude prices, settled down $1.89, or 7.7%, at $22.60 per barrel.
(Bloomberg Opinion) -- A tiny country that’s long been the barometer of global commerce is sending up distress flares. How big a blow the Covid-19 pandemic inflicts on Singapore’s economy will depend much on events outside its control.Gross domestic product fell an annualized 10.6% in the first quarter, the Singapore government reported Thursday in an advance reading. That's worse than many economists — already bracing for a bad number — had forecast. Officials project a contraction of 1% to 4% for the year; GDP hasn’t hit that lower boundary since Singapore split from Malaysia five decades ago.As grim as all this sounds, Singapore's economic performance since January has echoes in the swings of global and regional capitalism. The city-state took a big hit during the Asian financial crisis, the aftermath of the Sept. 11 terrorist attacks (which also constrained international travel) and in the Great Recession. Growth shrank 10% in the first quarter of 1998 as regional markets cratered and neighboring Indonesia seethed with political upheaval. It contracted 10% from April to June in 2001 and 8.6% the following quarter. In the first quarter of 2009, the economy declined 9.9%. Singapore pulled through, as did the world, despite what many called “unprecedented” crises.To be sure, Thursday’s numbers are inauspicious, particularly in a landscape cluttered with downgrades. Few economists anticipate the pandemic causing anything less than a global recession. Morgan Stanley tips a drop of 30.1% in U.S. GDP during the second quarter; Goldman Sachs Group Inc. expects a dip of 1% for the world in 2020.But there’s plenty Singapore is doing to stave off the worst of outcomes. The government, praised at home and abroad for its response to the virus, has been frank with its citizens, and has responded with ample fiscal stimulus and the promise of more to come. An easing by the central bank appears all but certain next week. The mix of fiscal and monetary policy is correct.For a city reliant on tourism, Singapore’s steps to curb the flow of people also shows seriousness. Short-term visitors have been barred while citizens and residents returning are required to self-isolate. Bars and cinemas will close. Yet schools remain open and there's no lockdown or state of emergency resembling that in Malaysia, the Philippines or parts of Indonesia. Authorities are trying to thread the needle. To its credit, the death toll is among the lowest in the Asia region.Since its inception, Singapore has been a locus of capital flows, trade and international labor markets. What happens to the world's major commercial powers is often reflected in its economic data. With much of the global economy powering down, it will be tough for Singapore to push ahead.This downturn is unique in that the world's major economies have all been dented at more or less the same time. China and Japan, two of Singapore’s biggest trading partners, are trying to restart after effectively grinding to a halt. Whether the U.S. is open for business next month or next quarter, America will be slower to restart than Asian powers.In the past, bounces in the U.S. and China’s unstoppable growth trajectory helped Singapore regain its footing. With China in a long-term slowdown before the virus outbreak, that will be difficult to replicate. But, in time, both poles will revive, albeit with scars. The tides of global economics have buffeted the city-state before. For signs of eventual recovery, look here first.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Investors might have noticed something bizarre during the stock market’s brutal selloff over the past two weeks. Gold, the commodity usually considered a haven asset, saw its price tumble by more than 10%, from $1,675 per ounce on Mar. 9 to $1,484 as of last Friday. Already, gold prices rallied this Monday and Tuesday after stabilizing a bit last week.
Brian Jacobsen, Wells Fargo Asset Management Multi-Asset Strategist, joins Yahoo Finance’s Seana Smith to discuss how the market outlook amid the coronavirus outbreak.