Oil rallies after US data shows spike in product demand

JAN 28, 201612:26 AM

[LONDON] Oil futures rallied back above US$32 a barrel on Wednesday, after US data showed a jump in weekly demand for products such as heating oil when a cold front hit the country, although analysts said the rise in prices may not last long.

Data from the US Energy Information Administration showed inventories of distillates such as heating oil fell by more than 4 million barrels, trumping expectations for a rise of nearly 2 million.

"The draw in distillate stocks is bullish, but we know there was cold weather in the United States in the last week, so I would say the reason behind the draw has something to do with the cold winter weather and, as such, the impact should be short-lived," Tamas Varga of PVM Oil Associates said.

The data also showed US crude oil stocks hit their highest on record in the latest week, due largely to increases on the US Gulf Coast, a major oil hub.

Brent crude was last up 10 cents at US$31.90 a barrel by 1600 GMT, having hit a session low of US$30.83.

US crude futures were down 21 cents at US$31.24 a barrel, having previously fallen to a session low of US$30.14.

Partly fuelling the rally was relief that the build in inventories shown by the EIA fell short of that reported by the American Petroleum Institute the day before.

"The market picked its head back up after the report came out. It seems as if it's gaining some support from the crude number because the build is smaller than the API report," Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said.

Oil has risen from last week's 2003 lows after speculators unwound some of the record-high bearish positions they had racked up over the last six months.

"There is dove-tailing of moves in oil with moves in equities that is happening and of course the equity markets, we've seen, are so prone to risk aversion," BNP Paribas global head of commodity strategy Harry Tchilinguirian said.

"Right now oil is buffeted between short-covering, cross-asset correlations and its own weak fundamentals."

Oil prices have fallen nearly 16 per cent in January, bringing total losses since the start of the decline in mid-2014 to 77 per cent.

REUTERS

    
 

US oil explorers seen reporting US$14b in 2015 losses

During the next eight days, independent US oil explorers are expected to report 2015 losses totaling almost $14 billion, the result of the steepest price collapse in a generation. 

PHOTO: AFP

JAN 27, 20169:43 PM

[NEW YORK] During the next eight days, independent US oil explorers are expected to report 2015 losses totaling almost $14 billion, the result of the steepest price collapse in a generation.

Hess Corp kicked off earnings season for the companies on Wednesday, reporting a net loss of US$1.82 billion for the quarter and US$3.06 billion for the year, its first annual loss since 2002. The company also reduced its estimate of proved oil and gas reserves by 24 per cent, because of lower crude prices and reduced drilling plans. Hess will be followed by peers including Murphy Oil Corp. and Anadarko Petroleum Corp, which also have been squeezed by a crude drop of more than 70 per cent since June 2014.

"It's not going to be pretty," said Carl Larry, head of oil and gas for Frost & Sullivan LP in Houston.

Investors have punished oil and gas explorers, wiping out more than US$300 billion in market value for the companies in the Bloomberg Intelligence North America Independent E&Ps Valuation Peer Group in the past year. Distressed debt exchanges and bankruptcies are mounting. The companies have fired thousands of workers, abandoned drilling projects, cut dividends and restructured debt to conserve cash and fend off insolvency.

For most independent explorers - those that don't also own refineries and retail gasoline stations - cash flows have been "decimated" by the decline in oil prices, a team of analysts at Wells Fargo Securities LLC including David Tameron and Gordon Douthat said in a note to clients on Jan 25.

After spending the past half-decade slimming down from an owner of refineries, filling stations and oil wells to a pure- play crude explorer, Hess may have few assets left to sell if it finds itself needing to raise cash, Fitch Ratings said in a report this month. Hess cut its 2016 drilling budget by 40 per cent to US$2.4 billion on Tuesday.

The New York-based producer's per-share fourth-quarter loss, excluding one-time items, was $1.40 a share, beating the $1.47 average of 22 analysts' estimates compiled by Bloomberg. That's the biggest estimated loss among the 61 companies in the BI E&Ps group.

Later on Wednesday, Murphy Oil is expected to post a full- year loss of US$1.85 billion, which would be the worst 12-month result for the driller since at least 1987, according to data compiled by Bloomberg.

Anadarko is next in line with results on Feb 1. The producer is expected to post a US$6 billion loss for last year, which would also be its worst result since at least 1987. Anadarko has been clobbered by both the fall in oil and tumbling prices for natural gas, which is more than 60 per cent of the company's output.

Occidental Petroleum Corp and ConocoPhillips are expected to post full-year losses of US$2.74 billion and US$1.58 billion, respectively, on Feb 4. For Occidental, that would represent the steepest annual decline since at least 1987. ConocoPhillips hasn't reported an annual loss on that scale since 2008. Both companies are based in Houston.

The combined estimated loss for those five companies is US$13.8 billion.

"It's going to be interesting to see what the companies do with their 2016 budgets," said Michael Scialla, an analyst at Stifel Nicolaus & Co in Denver. "Most have said they plan to stay within their cash flows but with oil now down around US$30, I think they're going to be forced into some draconian cuts."

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China's growth will decline further below 6%, Hormats says

China's economic growth will continue to decline, falling below projections for a 6 per cent expansion, Kissinger Associates Vice Chairman Robert Hormats said. 

PHOTO: REUTERS

JAN 27, 20168:47 PM

[NEW YORK] China's economic growth will continue to decline, falling below projections for a 6 per cent expansion, Kissinger Associates Vice Chairman Robert Hormats said.

"They are in the middle of a major transition," Hormats, a former US under secretary of state for economic growth, said Wednesday in an interview on Bloomberg TV. "They are trying to make a transition from heavy dependence on exports and heavy dependence on capital investment" toward more consumption and services, he said.

"They are not moving rapidly enough," Hormats said, adding that China can avoid a "crash landing," but not slower growth.

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EU apparent steel consumption growth to slow: Eurofer

The EU steel market will improve further over the coming two years, but the growth of consumption will be more muted than in 2015, European steel association Eurofer said on Wednesday. 

PHOTO: REUTERS

JAN 27, 201610:26 PM

[BRUSSELS] The EU steel market will improve further over the coming two years, but the growth of consumption will be more muted than in 2015, European steel association Eurofer said on Wednesday.

The group sees apparent steel consumption, which includes changes to inventories, rising by 1.1 per cent in 2016 and by 1.7 per cent in 2017 after 2.3 per cent growth last year. Prospects, it said, were "mildly positive".

Eurofer sees investment replacing private consumption as the prime growth driver in the EU economy, with faster growth of real consumption. However, heavy destocking at the end of last year and the start of 2016 would limit the rise.

Eurofer said in a statement that the key uncertainty for EU steel mills is import pressure as a result of overproduction in certain regions.

REUTERS

Apple's Safari browser crashing for some users worldwide: The Verge

Apple has informed developers that it is planning to change App Store pricing in a number of countries, including Singapore, within the next 72 hours. 

PHOTO: REUTERS

JAN 27, 20168:43 PM

[SAN FRANCISCO] Apple Inc's Safari search browser is crashing for some users when they run a search from the address bar in both iOS and OS X devices, the Verge reported.

The problem appears to be affecting iOS and OS X devices worldwide, the Verge reported on Wednesday.

Apple's iPhones and iPads run on iOS, while its Mac computers operate on OS X.

The problem, which is related to Safari's search suggestions feature, can be rectified temporarily by disabling the feature or using the private mode option in the browser, the Verge reported, citing an iOS developer Steven Troughton-Smith. Apple was not immediately available for comment.

Apple forecast its first revenue drop in 13 years and reported the slowest-ever increase in iPhone shipments on Tuesday.

REUTERS

Opec-led attempt for oil-cut deal under way, prospects slim

Opec is renewing efforts among members and producers from outside the group for a deal to fix an oil glut and boost prices, but it is too early to say whether the attempt will work, Opec sources said on Wednesday.

JAN 27, 20169:55 PM

[LONDON] Opec is renewing efforts among members and producers from outside the group for a deal to fix an oil glut and boost prices, but it is too early to say whether the attempt will work, Opec sources said on Wednesday.

Such a deal has been mooted and dismissed for over a year and the lack of any supply restraint by the Organization of the Petroleum Exporting Countries and rivals such as Russia has helped send prices to a 12-year low close to $27 a barrel.

Hopes were raised on Tuesday when Iraq's oil minister said top Opec producer Saudi Arabia and Russia were showing new signs of flexibility about agreeing to tackle the oversupply in the market.

And Venezuelan President Nicolas Maduro announced on Tuesday that the country's oil minister would tour Opec and non-Opec countries in a bid to drum up support for joint action.

Opec delegates, including those from Gulf countries, speaking after Iraq's comments, said Venezuela's attempt to get everyone around the table for a deal faced challenges.

"Something is cooking but it might not be done fast. There is communication within Opec trying to get all sides together," one Opec source said. "But the main challenge is Iran and Russia." Moscow, seen as key to any agreement, has so far refused to cooperate. Opec member Iran is pressing ahead with plans to boost its oil supply after international sanctions against it were lifted earlier this month.

A second Opec source said he did not know whether Venezuela's latest initiative would succeed, but he hoped for an agreement to lift prices. "I have no idea. I am looking for something to have a fair price, which will last," the source said.

Venezuela has also requested an emergency Opec meeting and the current Opec president, Qatar's Energy Minister Mohammed al-Sada, is seeking feedback from members on whether to hold one. "The president is still awaiting answers," the second Opec source said.

On Monday, senior officials from Opec and Russia stepped up vague talk of possible action. But Moscow said on Wednesday that while Russia talks regularly to various countries about the oil market, it was too early to speak of joint action. "At the moment one cannot speak of coordinating actions in a practical sense," Kremlin spokesman Dmitry Peskov said.

A third Opec delegate said he doubted Opec would be able to reach an agreement with outside producers, citing the failure of previous attempts. In 2001, Russia pledged to join supply cuts with Opec but later reneged. "I still don't think that any real joint action between Opec and non-Opec is going to happen because of old trust issues,"the delegate said.

REUTERS

    
 

Alibaba's dependence on Chinese economy morphs into liability

Alibaba Group Holding Ltd's initial public offering was the biggest ever as the company profited from being a proxy for a Chinese economy that investors were counting on. Just 16 months later, that reliance is perceived to be a liability. 

PHOTO: REUTERS

JAN 27, 20168:34 PM

[HONG KONG] Alibaba Group Holding Ltd's initial public offering was the biggest ever as the company profited from being a proxy for a Chinese economy that investors were counting on. Just 16 months later, that reliance is perceived to be a liability.

Alibaba has lost almost US$29 billion in market capitalization this month alone as investors fret over the e- commerce emporium's dependence on China, where there's slowing growth, tumbling markets and a weakening yuan. Shares almost reverted to the IPO price, underperforming both the New York Stock Exchange Composite Index and the Bloomberg China-US Equity Index.

The battering comes as Alibaba's quarterly results due Thursday are expected to show revenue growth of 27 per cent, its lowest since at least June 2012. The portion of sales coming from China rose during the last three quarters to 83 per cent, prompting billionaire founder Jack Ma to pursue growth abroad through deals including ride-sharing service Lyft Inc and Hong Kong's South China Morning Post newspaper.

"Investors largely see Alibaba as a proxy for China's economy, and right now there's just not a lot of good news," said Li Muzhi, a Hong Kong-based analyst at Arete Research Service LLP. "Alibaba has been trying to branch out revenue streams, but that takes time to develop."

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Ma warned investors in November of a rocky 15 months ahead, saying many Internet companies would fail as China tried to rebalance its economy. He told Bloomberg Television he wanted more than 50 per cent of revenue to come from outside China, and his strategy included a spree of 28 announced deals worth a combined US$17.3 billion.

The company invested in the movie "Mission: Impossible - Rogue Nation," appointed directors for its operations in France and Germany, and expanded its online payment system Alipay to more than 100 countries. This year's priorities include adding the largest American brands to its platform for Chinese buyers, President Michael Evans said in November. The company's international strategy may use acquisitions as well as organic growth.

"Over reliance on China will make the stock more risky to hold and also cap its valuation," Cyrus Mewawalla, managing director of London-based CM Research, said in an e-mail. "To justify a higher market cap it really needs to be a global player."

Yet Chinese buyers remain a focus, and not just for Alibaba. Wall Street's pessimism toward the company may be undeserved as investors overlook the transformation taking place in China. President Xi Jinping wants to pivot the economy away from a focus on debt-funded investment, heavy industry and overseas demand to one driven by consumption, services and innovation.

Consumption accounted for about 66 per cent of GDP growth in 2015, compared with 51 per cent the year before, according to the National Bureau of Statistics. That should help smartphone vendors, brick-and-mortar retailers and movie-ticket sales.

Apple Inc said Tuesday its sales in the Greater China region grew 84 per cent last year, and Chief Executive Officer Tim Cook vowed to continue investing there through any downturn. Starbucks Corp plans to open about 500 new coffee stores in China in the year ending Sept. 27, compared with 450 a year earlier. China also is expected to become the world's biggest movie market by next year.

Alibaba, which has a hand in selling many of those products, generated record revenue of 91.2 billion yuan during its annual Nov. 11 promotion known as Singles' Day - a 60 per cent increase from a year earlier.

"Stocks have been going down with the consideration of China, but that may not be fully justified," said Gil Luria, an analyst at Wedbush Securities Inc in Los Angeles. "Within China, consumption should be the source of the growth." Still, Alibaba shares declined 22 percent in New York last year, falling below the IPO price of $68. The plunge, at one point, destroyed about US$121 billion in shareholder value.

This year, shares are down another 14 per cent amid estimates that China's annual GDP growth will decelerate to 6.5 per cent. Alibaba on Thursday will report earnings for the quarter ended Dec. 31.

Revenue is expected to reach 33.2 billion yuan, according to the average estimates of 28 analysts surveyed by Bloomberg. That compares with 26.2 billion yuan during the same period a year earlier. Net income is projected to grow 73 per cent to 10.3 billion yuan, according to 20 analyst estimates.

"My suspicion is that the results will look better than the headlines coming out of China," said RJ Hottovy, a Chicago- based analyst with Morningstar Inc who is second on the Bloomberg Absolute Return Rank. "Alibaba is viewed as a proxy on consumer spending, and we think that data will do fairly well."

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