Peak Corporate Earnings (?)

[johnhemming2]

Looking at the most recently monthly OIL Market report from the IEA
https://www.iea.org/media/omrreports/ta ... -01-19.pdf

Non OECD extraction is expected to be 0.6mbd lower in 2016 than 2015
OECD extraction is expected to be 0.5mbd lower in 2016 than 2015.

Total demand for 2015 is 94.5 predicted for 2016 is 95.7
Total extraction for 2015 is 96.3

So if we assume Opec remains the same (they don't predict opec) then extraction for 2016 should be 95.2 which is 0.5mbd less than demand.

That being the case one would expect oil to be taken from stocks rather than put in stocks. It probably won't produce a price spike, but USD 50-80 is possible.

I personally, however, would not be surprised to see extraction tailing off a bit faster. No-one would sensibly invest capital in maintaining flows with oil prices as low as they are.

I don't think a black swan is needed for all of this.

[raspberry-blower]

Short of a major black swan event the oil price is highly likely to be trading at the current trading range for some considerable time.

How long is "some considerable time". I would expect to see production cuts within a year. The leeway is about 3% of production.

How long is a piece of string? My guess is that a considerable amount of time could be in terms of decades - making the assumption that QE is not restarted. My view is that QE will be restarted by the Fed at some point in the interim
A 3% cut in production isn't going to be a panacea. There will be a short term boost to the oil price - however we would need to see far greater cuts to have any meaningful long term impact on the oil price. According to Zero Hedge the oil tankers are sailing round Africa to find buyers
So anything shy of a double digit % cut is not going to make much impact at all in anything but the very short term.

Meanwhile, also on Zero Hedge, the BoA is reporting that Corporate balance sheets are the most unhealthy they've ever been

[johnhemming2]

I see no direct link between QE and oil prices. There is a direct link between supply (extraction), demand and price. You can see it in the 2008 price peak which was a proper geological peak in production.

It won't take long to see the outcome from this.

[raspberry-blower]

I see no direct link between QE and oil prices. There is a direct link between supply (extraction), demand and price.

None so blind as those who don't want to see

In fact, if we look at the beginning and end points for US QE, we can see a startling relationship. QE has the effect of lowering interest rates, especially on long-term debt.

It appears as if this is was what was needed to pump oil prices back up in late 2008.

The removal of US QE in late 2014 had the opposite effect: it let prices drop back down. This effect was made more pronounced by stagnating wages around the world and China’s recent slowdown in debt growth. If I am correct about the nature of the drop in oil prices, we can expect to see a range of consequences during the next couple of years.

Gail Tverberg: Impacts of falling oil prices

You can see it in the 2008 price peak which was a proper geological peak in production.

The data shows that conventional oil production peaked in 2005

It won't take long to see the outcome from this.

This will likely be in the form of another banking crisis as the hopelessly over leveraged fracking companies seek more refinancing and try to renegotiate terms and conditions. It will dwarf the scale of 2008 by magnitudes

[johnhemming2]

What happened in 2005-8 was that consumption exceeded extraction and there was a price spike. The precise date for peak conventional extraction will vary depending on how the figures were done.

I am not aware of any country that has actually reversed qe. Some have stopped doing it. Interest rates are , however, still low. So if that is supposed to link to oil prices it has not changed materially.

[AutomaticEarth]

It's not looking good for Tata Steel in the UK:

http://www.theguardian.com/business/201 ... find-buyer

[clv101]

It's not looking good for Tata Steel in the UK:

http://www.theguardian.com/business/201 ... find-buyer

Yeah, interesting one. What should be done?

Steel is a global commodity, the UK is a tiny player, making 12 million tonnes a year compared to China's 790 million. Also interesting to note China had made more steel in the last two years than the UK has in history!

The physical act of making steel is more expensive in the UK than elsewhere.

In addition to that some other countries, especially China are producing/selling below cost price with state subsidies.

I don't really think import tariffs are the answer as they just push the problem down the supply chain, UK car manufactures would be forced to pay more for steel than Chinese car manufactures etc.

It's not dissimilar to food. Many places can produce food far cheaper than we can, but we regard food production as strategically important so put billions of pounds of subsidies to it. The same didn't happen with the UK electronics industry in the 1970s and 80s - we were happy to let that one go.

Whilst plentiful, cheap steel can be imported easily now, that situation could change.

Should we subsidies steel manufacture as we do agriculture?
Should we let the industry die as we did with textiles, electronics etc?

I think I would support a loss making, state supported UK steel industry (like agriculture) but on a smaller scale than currently. Maybe a quarter the current scale - maintain the skills and key infrastructure without losing £1m a day.

[Little John]

We cant subsidise steel or, heaven forfend, nationalise the steel industry since it is in direct contravention of EU rule. Furthermore, if the EU signs us up to TTIP by the end of the year, which is the intent (funny how this is being assiduously not talked about in the MSM in the context of the EU referendum), then we wont be able to subside or nationalise the steel industry since Yank steel companies could then take us to TTIP arbitration (and win) on the basis that such subsidies were hurting their profits, both actual and expected.

[fuzzy]

The US has always imposed bogus 'anti-dumping' tariffs on others including British Steel. Presumably it will be worse with TTIP. We might keep the remelted furnaces at Rotherham etc if they can get cheap enough electricity, the scrap is almost free. We probably won't keep blast furnace capacity as well.

[PS_RalphW]

Here is a black swan to match all black swans

http://www.theguardian.com/business/201 ... t-71667879

Saudi Arabia is selling it's oil assets, hoping to raise $2T, presumably before their production crashes as Gahwar finally waters out, and the world's investment funds they have been sold the biggest pup in the history of fraud.

[PS_RalphW]

Err, but htne it is April the first......

[Little John]

From the article:

“The fact that they’re trying to decouple the country’s wealth from oil revenues will be seen by many as yet another sign that the end of the oil age is approaching fast. If the oil titans are looking for an exit strategy, all cannot be well in the fossil fuel sector.”

[raspberry-blower]

"Disappointing" corporate earnings continue.

CNN Corporate America's earnings are getting crushed

Apple (AAPL, Tech30), Chipotle (CMG) and Twitter (TWTR, Tech30) each got thumped Wednesday after reporting weak or disappointing earnings. Twitter and Chipotle have their own distinct failures, but Apple, like many, is also a victim of the global slowdown.

Overall, S&P 500 earnings so far this quarter are down 8%. That marks the third quarterly decline in a row and the worst since 2009, according to S&P Global Market Intelligence

Apple has been one of the most active on buying its shares back.

[AutomaticEarth]

Peak Bookies:

http://www.bbc.co.uk/news/business-36339782

Ladbrokes and Gala Coral to merge. If they need to sell a bunch of shops, how will casual betters place their bets? Not everyone can use online services.......

[woodburner]

Then those punters will probably be better off, and not wasting their money.