Oil slides more than 5% as hopes for output cut fade

FEB 2, 201611:31 PM

[LONDON] Brent oil fell more than 5 per cent on Tuesday, while US crude slid below US$30 per barrel, hit by worries about the demand outlook and rising supply, while hopes for a deal between OPEC and Russia on output cuts faded.

Brent for April delivery was down US$1.82 at US$32.42 a barrel by 1439 GMT, after settling down US$1.75, or 4.9 per cent, in the previous session.

The front-month contract for US West Texas Intermediate (WTI) was down US$1.63 at US$29.99, after falling to a low of US$29.92. It fell US$2.00, or 5.9 per cent, the session before.

Russia's energy minister and Venezuela's oil minister discussed the possibility of holding joint consultations between Opec and non-Opec countries in the near future, the Russian Energy Ministry said on Monday.

But Goldman Sachs said it was "highly unlikely" the Organization of the Petroleum Exporting Countries would cooperate with Russia to cut output, saying such a move would also be self-defeating as stronger prices would bring previously shelved production back to the market. "It's hard to see a successful agreement between Opec and Russia to cut production and people are starting to see that,"said Andy Sommer, senior energy analyst at Axpo Trading in Dietikon, Switzerland.

He said there was a good chance that oil could fall back below US$30 per barrel this month.

Didier Houssin, president of French Institute for Petroleum and New Energies said that a deal would benefit Russia and OPEC's main competitor, the United States.

"There is no way US producers will respect any OPEC - Russia deal meanwhile, they will be the first to benefit from any price recovery by ramping up production," Houssin said.

Underlining the well-supplied nature of the market, Russia's oil output rose to 10.88 million barrels per day (bpd) in January, from 10.83 million bpd in December, Energy Ministry data showed on Tuesday.

Stockpiles are still on the rise, leading many to speculate that global storage may be close to capacity, Sommer said.

US commercial crude oil inventories likely rose by 4.7 million barrels last week to a new record of 499.6 million barrels, a Reuters survey taken ahead of industry and official data showed.

The American Petroleum Institute, an industry group, releases its weekly inventory report later on Tuesday, while data from the US government's Energy Information Administration is due on Wednesday.

Investors await economic data later in the week, including US nonfarm payroll and unemployment figures and producer prices from the eurozone.

The tumbling crude price has hit oil majors, with BP slumping to its worst annual loss in more than 20 years last year, its results showed. Its shares fell more than 8 per cent. Exxon, meanwhile, reported a 58 per cent fall in quarterly profit and said it would cut spending in 2016 by a quarter.

REUTERS

    
 

Russia leaves door open to Opec deal even as output hits high

Two senior Russian officials talked up potential cooperation with Opec to prop up prices, but data showed oil production in Russia hit a post-Soviet high in January, suggesting the world's top producer was locked in a fierce struggle for market share. 

PHOTO: AFP

FEB 2, 20169:08 PM

[MOSCOW] Two senior Russian officials talked up potential cooperation with Opec to prop up prices, but data showed oil production in Russia hit a post-Soviet high in January, suggesting the world's top producer was locked in a fierce struggle for market share.

Russia has in the last week sent mixed signals about possible cooperation with Opec to support prices. It first suggested it should start talking to Opec before saying there was no decision to do so.

On Tuesday, the pendulum swung the other way again.

Top oil producer Rosneft, after its head Igor Sechin met Venezuelan oil minister Eulogio Del Pino, said the two men had discussed possible join efforts to stabilise global oil markets.

Foreign Minister Sergei Lavrov also said Moscow was open to further cooperation in the oil market with Opec and non-Opec countries.

Despite the rhetoric, preliminary data from the Energy Ministry on Tuesday showed Russia was actively ramping up production adding to a global glut.

Production hit another post-Soviet high last month of 10.88 million barrels per day (bpd), up from 10.80 million bpd in December, the data showed.

Opec production also jumped to its highest in recent history in January as Iran increased sales after the lifting of sanctions and rivals Saudi Arabia and Iraq also boosted supply, a Reuters survey showed last week.

That suggests an intensifying battle for market share, a trend that runs counter to growing speculation about some kind of coordinated output cut.

"I very much doubt there will be any success in coordination - there is no consensus inside Opec itself," said Alexander Kornilov, a senior oil and gas analyst with Aton in Moscow.

According to Tuesday's data, Russia extracted 46 million tonnes of oil and gas condensate last month, up 0.7 per cent from 45.69 million tonnes in December. The increase was fuelled by Gazprom Neft, Bashneft, Novatek and projects under production sharing agreements.

Gas production was at 61.94 billion cubic metres (bcm) last month, or at 2 bcm a day.

"The growth was expected from Novatek, Bashneft and Gazprom Neft and I believe this trend will continue in the near future. Lukoil was the only one who actively cut drilling, while the picture was the opposite for others," said Kornilov.

On Monday, Russian Energy Minister Alexander Novak met Venezuela's Del Pino, who is visiting Opec and non-Opec countries to try to drum up support for joint action to prop up low crude prices.

Both discussed the possibility of holding joint consultations between Opec and non-Opec countries in the near future, the Russian Energy Ministry said.

Novatek, co-owned by its CEO Leonid Mikhelson, President Vladimir Putin's ally Gennady Timchenko and France's Total, started to pump oil at the Yarudeyskoye field last month at its full capacity of 3.5 million tonnes a year.

Gazprom Neft, the oil arm of state gas producer Gazprom , plans to start two new major oil projects, Novoport and Messoyakha later this year. That should help cover declines at other Russian brownfields countrywide.

Meanwhile, at the Samotlor field in Western Siberia, still one of the world's largest and which produced over 3 million bpd alone at its peak in the 1980s, drilling is under way to maintain production, a senior official told Reuters.

One of Rosneft's largest fields, Samotlor, produced 21 million tonnes of oil last year.

"The key task for 2016 is to stabilise production. All the programmes have already been approved," Valentin Mamayev, chief executive of Samotlorneftegaz, told Reuters.

He added that Samotlor plans to drill 227 new wells this year, twice as many as in 2014. "If we produce 20 million tonnes a year, this (Samotlor) could last for the next 50 years minimum," Mamayev said.

REUTER
S

BP profit falls 91%, missing estimates, as oil slump deepens

BP Plc reported a 91 per cent decline in fourth-quarter earnings after average crude oil prices dropped to the lowest in more than a decade.

PHOTO: AFP

FEB 2, 20164:24 PM

[LONDON] BP Plc reported a 91 per cent decline in fourth-quarter earnings after average crude oil prices dropped to the lowest in more than a decade.

Profit adjusted for one-time items and inventory changes totaled US$196 million, the London-based company said Tuesday in a statement. That missed the US$814.7 million average estimate of 10 analysts surveyed by Bloomberg, and compares with year-earlier profit of US$2.24 billion. Shares fell 5.1 per cent at 8:05 am in London.

While Chief Executive Officer Bob Dudley has trimmed billions of dollars of spending, cut thousands of jobs and deferred projects in response to the plunge in crude prices, BP's cash flow still doesn't cover spending and dividends. The company's debt level is rising and BP was among several major oil producers given a negative credit outlook by Standard & Poor's Monday. The slump has driven BP's market value below US$100 billion for the first time since the Gulf of Mexico oil spill in 2010. 

"It's very disappointing. We were expecting lower profit from upstream, but not a loss," Ahmed Ben Salem, oil and gas analyst at Oddo & Cie in Paris, said by phone. "The dividend payout is probably safe for this year, but if oil stays around US$30 then they would have to cut capex further."

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Profit has been lower year-on-year for six consecutive quarters as oil prices tumbled. The average price of benchmark Brent crude slumped 42 per cent in the fourth quarter from a year earlier to US$44.69 a barrel, the lowest since 2004.

PetroChina Co said last week it expects 2015 profit to fall at least 60 per cent. Chevron Corp. on Friday reported its first quarterly loss since 2002, while Royal Dutch Shell Plc said last month that fourth-quarter profit is likely to drop at least 42 per cent. The European oil major is scheduled to report full earnings on Thursday.

BP started cutting costs and selling assets following the 2010 oil spill. In October, it lowered its 2015 capital-spending forecast to about US$19 billion after investing about US$23 billion in 2014. The company said then it expects to spend US$17 billion to US$19 billion a year through 2017.

The company's ratio of net debt to equity jumped to 21.6 per cent at the end of 2015, an increase of almost five per centage points from a year earlier. BP maintained its quarterly dividend at 10 cents a share and reiterated its commitment to sustain it throughout the downturn.

BP posted a net loss of US$3.31 billion, reflecting one-time charges in its exploration and production unit and US$450 million of restructuring costs. That compared with a loss of US$4.41 billion in the fourth quarter of 2014.

BP's shares have increased 3.7 per cent this year following last year's 14 per cent decline. It's the best performer on the eight-member FTSE 350 Oil & Gas Producers Index after BG Group Plc.

BLOOMBERG

    
 

Tens of thousands of Chinese new year travellers stranded

Tens of thousands of Lunar New Year travellers in China were stranded Tuesday at a station in Guangzhou, state media said, after snow and ice elsewhere disrupted the world's largest annual human migration.

PHOTO: EPA

FEB 2, 20166:03 PM

[BEIJING] Tens of thousands of Lunar New Year travellers in China were stranded Tuesday at a station in Guangzhou, state media said, after snow and ice elsewhere disrupted the world's largest annual human migration.

Many trains to the capital of the southern province of Guangdong were delayed after north and central China were hit by the big freeze, leaving no transport available for those waiting to leave.

Police said the numbers stuck at two of the city's main stations, Guangzhou and Guangzhou East, had totalled nearly 100,000 on Monday afternoon, prompting the mobilisation of almost 4,000 police and security guards to maintain order.

By lunchtime Tuesday Guangzhou station and its surroundings were still packed with more than 50,000 anxious travellers as 24 trains were behind schedule, the official Xinhua news agency reported.

As China's manufacturing powerhouse, Guangdong is a major hub for the vast numbers of migrant workers who leave their homes in the countryside to labour in factories.

Many only return home once a year, when tradition dictates that all family members must gather before midnight on the eve of the Lunar New Year which falls on February 8 this time.

The phenomenon puts huge pressure on China's transport infrastructure.

The government estimated that 2.91 billion trips would be taken over the holiday's 40-day travel season, in what is thought to be the largest yearly movement of people in the world.

Much of China was struck by a teeth-chattering cold snap late last month that broke decades-old records, with snow falling in some areas for the first time in years.

The freeze also delayed 55 trains at a station in Shanghai, forcing around 30,000 travellers to wait for hours on Monday before they could get on board, according to state broadcaster China Central Television.

Guangzhou police warned of more train transport chaos to come as the bad weather was expected to continue.

Police urged passengers not to go to railway stations too far ahead of their train's scheduled departure time to avoid "waiting for overly long time" and "overcrowding the surrounding areas".

AFP

    
 

Update: EU executive, US strikes transatlantic data transfer pact

FEB 2, 201611:56 PM

[BRUSSELS] The European Commission said on Tuesday that it had struck a deal with the United States on a new transatlantic data transfer pact to prevent EU regulators from restricting data transfers by firms.

"We have a deal," Commission spokesman Christian Wigand said on Twitter.

Earlier on Tuesday, sources told Reuters that the two sides were close to an agreement.

REUTERS

US corporate liquidity stress highest since 2009: Moody's

FEB 2, 201611:19 PM

[NEW YORK] US companies, particularly those in the energy sector hit by tumbling oil prices, faced the toughest climate to get cash to run their business in more than six years, a report from Moody's Investors Service released late Monday showed.

The rating agency said its "Liquidity-Stress Index" jumped to 7.9 per cent in January from 6.8 per cent in December 2015, the highest since December 2009 and the biggest one-month gain since March 2009.

Reduced issuance of high-yield bonds and growing risk premiums investors demand on them propelled the index higher last month, Moody's said. "Operating weakness and maturities coming due in early 2017 are straining the liquidity of companies of some low-rated companies," said John Puchalla, a Moody's Senior Vice President in a statement.

Moody's liquidity index on oil and gas companies increased to 21.4 per cent in January from 19.6 per cent in December, which is not far below its 24.5 per cent recessionary peak in March 2009.

Increasing struggle for companies with junk ratings to raise cash portends more defaults, it added "As borrowing rates rise and credit markets tighten, companies closer to the margin will find it challenging to cost-effectively refinance their upcoming debt maturities." Moody's projected the default rate on US junk bonds would climb to 4.4 per cent in December this year from 3.2 per cent in December 2015.

Liquidity stress was also felt outside the energy sector.

Moody's said its non-oil and gas sector liquidity stress index rose to 4.5 per cent in January, which was the highest since November 2010 and up from 3.6 per cent in December.

REUTERS

    
 

UK foreign secretary expects no major opposition to EU reform plan

British Foreign Secretary Philip Hammond said he did not expect major opposition from other European Union countries to proposals announced earlier on Tuesday that seek to persuade Britons to vote to stay in the EU in a planned referendum. 

PHOTO: EPA

FEB 2, 201611:08 PM

[LONDON] British Foreign Secretary Philip Hammond said he did not expect major opposition from other European Union countries to proposals announced earlier on Tuesday that seek to persuade Britons to vote to stay in the EU in a planned referendum.

"I would imagine that (European Council President) Donald Tusk would have consulted with key groups of EU leaders and key countries as he's been discussing this emerging text with us," Hammond said in an interview with Sky News television.

"So I would be very surprised if we have significant negative reaction across the EU to the text that's been tabled because I assume that's something the Council will already have looked at."

Hammond also said he wanted the referendum to take place as soon as possible, once the proposed changes to the relationship between London and Brussels are approved, but said it was important to make sure Britain had the right deal.

REUTER
S

Fearing lean times, US companies tighten purse strings

FEB 2, 20169:43 PM

[NEW YORK] The capital spending slump that originated in the hard-hit energy sector appears to be spreading more widely across other US industries.

Companies cutting or flat-lining their capital expenditures in 2016 outpace those that say they will increase spending by a factor of more than two to one, according to a Reuters analysis.

Companies in industries as diverse - and relatively strong - as healthcare, consumer goods and restaurants are among those tightening their belts in yet another sign that economic growth in 2016 may be anemic.

For instance, McDonald's Corp, which saw its stock jump 26.1 per cent in 2015 and is trading at record levels now, said it would keep capex flat with 2015 at about US$2 billion, the company's lowest budget in more than five years.

Drugmaker Eli Lilly is holding its capex budget flat and Verizon Communications Inc said it plans to cut its budget from US$17.8 billion, to between US$17.2 and US$17.7 billion.

"I think companies are going to be lean and mean and are going to keep the purse strings tight and only spend where absolutely necessary, because cash isn't coming into them," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

Companies typically invest more when they feel confident that the economy is improving, so a downturn in capital spending could portend further weakness ahead.

That corporate caution follows another expected decline in revenues in the fourth quarter and data showing U.S. economic growth braked sharply in the quarter.

To be sure, some well-heeled companies in healthy industries are bumping up their investments.

Medical technology company Stryker expects to have capital expenditures as high as US$450 million in 2016, up from US$270 million in 2015. Facebook plans capital expenditures between US$4 billion and US$4.5 billion this year, up from US$2.5 billion.

But even growth in information technology spending - which has been strong in recent years - appears to be off its recent peaks, according to International Data Corp analyst Stephen Minton. "U.S. companies will increase their spending, but not by the rate it has been over the last two years," he said.

Hardware spending in 2016 for all U.S. companies is expected to grow 3 per cent to about US$133 billion. Telecommunications and financial services companies - typically among the biggest spenders on IT - are expected to have flat to little growth in spending, he said.

At least 43 companies plan to cut, or leave unchanged, their capital spending levels in 2016, while about 20 are increasing, according to a Reuters review of Standard & Poor's 500 companies that have given explicit early guidance.

Not surprisingly, the collapse in capital spending by energy companies - which typically lead in capex - appears to be accelerating.

This year marks the second round of big cuts for energy companies, which have had to sharply scale back spending because of the drop in oil prices since mid-2014.

A slew of energy names have announced capex cuts for 2016 including Hess, Anadarko Petroleum, Halcon Resources Corp, Noble Energy Inc and Continental Resources Inc.

The broad slump in commodities prices has hit spending by materials companies, including DuPont, which is cutting capex from US$1.4 billion to US$1.1 billion, and industrials such as railroads Union Pacific and Norfolk Southern, both of which slashed capital spending plans for 2016.

Even airlines, which benefit from low energy prices, are being careful. Delta Air Lines, for example, said it would hold the line in 2016 at US$3 billion in spending. "That is really the optimum number that we can execute on,"said Richard Anderson, Delta chief executive.

REUTERS