Oil below $80 as China slowdown chimes with OPEC warning

http://www.reuters.com/article/2014/11/13/us-markets-global-idUSKCN0IX02K20141113

By Marc Jones

(Reuters) - Oil fell below $80 a barrel for the first time since 2010 on Thursday, as more evidence of a slowdown in China's resource-hungry economy chimed with OPEC warning of a substantial drop in demand next year.

Data from Beijing showed below-forecast factory output and investment growth hitting a near 13-year low, reinforcing signs that the world's second-biggest economy will see its weakest growth for almost 24 years this year.

 

Stock markets .MIWD00000PUS, however, were not put off, wagering that the lacklustre figures could encourage more support measures from the Chinese authorities in the coming months, and that the slide in oil could aid growth globally.

European shares .FTEU3 rose 0.5 percent in a small rebound from falls on Wednesday. Futures markets pointed to a positive start for Wall Street ESc1 1YMc1 NDc1 later too after Asian .MIAPJ0000PUS and emerging market stocks .MSCIEF had edged up overnight.

But it was oil LCOc1 that remained the focus as it sat slumped at $79.60 a barrel, the first time since the end of September 2010 it had dropped under $80.

The Organization of the Petroleum Exporting Countries (OPEC) said in its latest report on Wednesday that demand for oil was expected to drop by around a million barrels a day next year because of the U.S. shale boom.

 

Its top producer, Saudi Arabia, also gave little away about whether it will cut output to remove surplus oil from the market, ahead of what is shaping up to be a landmark OPEC meeting on Nov. 27.

"There are not many bullish factors to lift the market now," said Avtar Sandu, senior manager for commodities at Phillip Futures in Singapore. "But it's not a one-way street down. Those who have been selling want to take profits around this area."

The robust dollar .DXY added to the pressure on oil as it moved towards a recent seven-year high against the yen, driven by speculation that Japanese Prime Minister Shinzo Abe will call a snap election in December.

A senior figure in Abe's ruling party told reporters it appeared the premier had indeed decided to call an election. If he wins, economists believe it will clear the way for further stimulus measures.

ROUBLE TROUBLE

  

Oil's ongoing slide also put renewed pressure on Russia's hard-hit rouble RUB=.

It was down well over 1 percent at 46.27 to the dollar and with tensions also bubbling in Ukraine again, traders were watching to see whether the central bank would be forced into more decisive action to defend the currency. [ID:nL6N0T31BG]

The central bank's deputy governor, Ksenia Yudayeva, told lawmakers in Moscow that the fall in the rouble was a "bad recipe" for the country's economy but also that the bank was against capital restrictions.

 

"Market participants are guessing about the central bank's next policy step after heavy verbal interventions recently and the limit imposed on FX swap operations," Maxim Korovin, a forex analyst at VTB Capital, said in a note.

The world's other big oil producers were being bruised too. Nigeria's naira NGN= fell hard for a fourth consecutive day despite central bank efforts to stabilise it, while Saudi Arabia's stock market .TASI, which is packed with oil firms, also tumbled.

In Europe's bond markets, both German and Italian yields dipped as a downbeat survey from the European Central Bank underlined the need for further policy easing, though the euro EUR= bucked the trend, rising 0.2 percent against the dollar.

Expert economists the ECB surveys every quarter cut their euro zone inflation forecasts for next year to just 1.0 percent and 1.4 percent in 2016, down from 1.2 percent and 1.5 percent respectively last time around.

 

"The balance of risks has become more clearly tilted to the downside. ... Respondents identify geopolitical tensions, mainly in Ukraine and Russia, but also in the Middle East, as by far the main risk," the ECB's report on the findings read.

Worries about low inflation are widespread and bolstering expectations of ongoing support and cheap money from the world's major central banks.

Safe-haven gold was steady at $1,160.76 per ounce XAU=, above Friday's 4 1/2-year low of $1,131.85, while growth-attuned metal copper CMCU3 was lifted 0.2 percent to $6,694 a tonne by the Chinese stimulus hopes. [MET/L]

(Additional reporting by Jacob Gronholt-Pedersen in Singapore and Alexander Winning in Moscow; Editing by Hugh Lawson)

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How oil tycoon will pay his $995M divorce settlement

It's one of the largest divorce settlements in history. A judge has ordered Oklahoma oil tycoon Harold Hamm to pay his ex-wife Sue Ann Hamm $995.5 million.

http://www.aol.com/article/2014/11/11/how-an-oil-tycoon-will-pay-his-995m-divorce-settlement/20992054/?icid=maing-grid7%7Cmain5%7Cdl40%7Csec1_lnk2%26pLid%3D561638

NBC explained how the massive settlement breaks down:

"One word: installments. According to the filing, just over $322 million must be paid by the end of 2014. The remaining $650 million will be paid out on a monthly basis - at least $7 million a month."

So what to do with all that money? ABC thought it would be fun to find out what one can get for $7 million: "How about 140 2015 BMW convertibles? Seventy Kentucky Derby contenders? Or a little getaway like this in the Hollywood Hills?"

The couple didn't have a prenuptial agreement. The settlement represents just a fraction of the Continental Resources CEO's wealth.

The New York Times reports Harold Hamm is the 24th richest man in the U.S. with his net worth of more than $18 billion.

Forbes' Christopher Helman writes, "This is a very positive outcome for [Harold] ... who may have been somewhat concerned that an adverse ruling could have forced him to sell enough shares to dilute his stake below 50%."

USA Today says this divorce settlement ruling allows Harold Hamm to keep hold of his almost 70 percent stake in Continental Resources.

Sue Ann Hamm is also getting some real estate in the settlement in addition to the cash.

She'll receive a home in Oklahoma that's valued at a little more than $4.6 million, a $17.5 million California ranch, and another home in Oklahoma that she and her ex-husband purchased the year after they were married. It's valued at $800,000.

The couple's divorce settlement looks meager though, next to the roughly $4.5 billion a Russian oligarch was ordered to pay his ex in May.

The media speculated that it was the most expensive divorce ever.

CNN reports that trusts for the Hamms' two daughters won't be affected by the divorce settlement.

The Recovery That Wasn't: Two Years Since Hurricane Sandy

For Gold Miners, Another Terrible Run

Nathan Vardi Forbes Staff

http://www.forbes.com/sites/nathanvardi/2014/11/10/for-gold-miners-another-terrible-run/

For years, the gold mining sector has been the worst investment sector imaginable. There was a while in 2014 when it seemed like the gold mining sector might avoid another disastrous 12-month stretch, but that seems unlikely after what has taken place in financial markets in the last few weeks.

With gold trading down to $1,149 an ounce, the companies that try to extract the yellow metal from the ground got hit hard yet again on Monday. The Market Vectors Gold Miners ETF fell by 6.3% and is now down by 17% in 2014. The gold mining sector has pretty much been the worst investment sector for the last three years.

Some prominent investors rallied behind an investment thesis that focused on gold miners in the years following the financial crisis, viewing the sector as the perfect antidote to currency instability and national governments run amok. As the price of gold spiked in 2011, gold mining companies borrowed billions of dollars and spent tens of billions of dollars more on ambitious new projects and ventures. As the price of gold has fallen, many of those projects have become uneconomical and caused a cash crunch that has rippled through gold mining companies, both large and small.

Barrick Gold, the world’s biggest gold mining company, has remained a strong example of what has gone wrong. Shares of Barrick fell by 6.7% on Monday and are now down by 36% in 2014.

The vast majority of Barrick’s revenue comes from gold mining operations. With some $10 billion in net debt, Barrick has not been able to reduce its debt-load in any meaningful way as the price of gold has plunged. Its 2011 purchase of Equinox Minerals for $7.4 billion did not work out and construction on its key and half-built Pascua-Lama gold project on the Chilean-Argentine border remains temporarily suspended after environmental and legal delays.

“With the project not just vying for social acceptance in Chile (and regulatory approvals on water), but also contingent on more robust project economics, the uncertainty is heightened,” Deutsche Bank recently said in a research note. “Management’s target net debt of $7bn, conveyed on its 3Q14 earnings conference call, is a tall order without a combination of a higher gold price and asset sales.”

In 2014, the gold miners have yet again continued to underperform gold itself, which is down a relatively modest 4% in 2014. Gold miners have now underperformed gold—through both good times and bad—in nine of the last 13 years.

TOR workers make strong case for troubled refinery

http://www.ghanaweb.com/GhanaHomePage/NewsArchive/artikel.php?ID=334053

The junior staff chairman of the troubled Tema Oil Refinery (TOR) says the refinery has the capacity to process any crude oil in the world, especially the Jubilee crude, but financing has been a challenge.

“Although there has been some misconception that TOR cannot refine crude oil, we can; even the worst crude oil has been processed by us -- Jubilee crude is sweet, and what makes it sweet is the sulphur content of 0.22% which is equal to that of Nigeria.”

Mr. Emmanuel Eduah Offoh told this to B&FT in an interview on the sidelines of a forum organised by the General Transport Petroleum and Chemical Workers’ Union of the Trades Union Congress (Ghana) in Takoradi.

He noted that successive governments over the years have not been able to invest capital into the company -- “government is sole shareholder of the refinery and every project or service we render to companies comes from our internally generated funds”.

From 2009, he noted that TOR has been battling with the state of the refinery -- “We have been to government on several occasions for support, and they made promises which have not been fulfilled.

“The forces that we are battling with are not easy; currently we are not processing because we do not have the crude oil to process, but we are doing our best to get some from the market,” he said.

According to him TOR is trying on its own to get credit, “but no single bank is ready to support us since we do not have a letter of credit from the Bank of Ghana.

Because of Single Obligor Limit, no bank can give us credit -- we buy the crude oil in dollars and sell in cedi. The Bank of Ghana says you can sell in cedi but we will not give you the dollar,” he added.

He pointed out that workers of TOR do not take salaries from the government chest, but from the company’s coffers -- the internally generated fund.

He added that TOR is ever-ready to refine any crude in the country, and urged stakeholders in the industry to support the company.

FPSO problems hits Teekay

http://www.tankeroperator.com/ViewNews.aspx?NewsID=6131

Teekay Corp has reported an adjusted net loss of $12.6 mill for the third quarter of this year, compared to adjusted net loss of $36 mill, for the same period in 2013.

       

The adjusted net loss excluded a number of specific items that had the net effect of increasing GAAP net income by $15 mill for the quarter and increasing GAAP net loss by $13.1 mill for the 3Q13.

Including these items, the company reported, on a GAAP basis, a net income of $2.4 mill for 3Q14, compared to net loss of $49.1 mill for 3Q13. Net revenues for 3Q14 increased to $456 mill, compared to $426.8 mill for 3Q13.  

For the nine months ended September 30, 2014, Teekay Corp reported an adjusted net loss $29.2 mill, compared to an adjusted net loss of $81 mill for the same period of 2013.

Again this adjusted net loss excluded a number of specific items that had the net effect of increasing GAAP net loss by $11.9 mill and decreasing GAAP net loss by $37.1 mill for the same period last year.

Including these items, the company reported, on a GAAP basis, a net loss of $41.1 mill, compared to a net loss of $43.9 mill for the same period in 2013. Net revenues for the nine months ended 30^th September, 2014 increased to $1,346.3 mill, compared to $1,256 mill for the 2013 period.

"While the third quarter 2014 results improved from the previous quarter, our results were lower than anticipated due to lower than expected production on the ‘Foinaven’ FPSO relating to subsea issues and the delayed start-up of the ‘Banff ‘FPSO and the Hi-Load DP unit charter contract," commented Peter Evensen, Teekay's president and CEO.

"We recently announced our new dividend policy, which represents the next step in Teekay's transformation into a pure-play owner of two general partnerships," Evensen continued. "Based on the increase in cash flows, we expect to receive from our general partner and limited partner ownership interests in Teekay Offshore following the proposed dropdown of the ‘Knarr’ FPSO, we intend to raise Teekay's annualised cash dividend to between $2.20 and $2.30 per share, representing an increase of approximately 75-80%.

“In addition, with a project backlog of approximately $5 bill of known growth capital expenditures at Teekay Offshore and Teekay LNG, we expect that Teekay's dividend will continue to grow by approximately 20% per annum for at least the three years, following the initial dividend increase.

"The proposed dropdown of the ‘Knarr’ FPSO is an important milestone in Teekay's transformation because it will provide for significant de-leveraging of Teekay Parent's balance sheet. The ‘Knarr’FPSO, which has now been offered to Teekay Offshore and is currently being reviewed by Teekay Offshore's conflicts committee, is anticipated to achieve first oil in December of this year," he said.

As for Teekay’s publicly listed entities, Teekay Offshore’s  cash flow from vessel operations increased to $120.1 mill in 3Q14, from $92.3 mill in 3Q13.

This increase was primarily due to the contributions from the ‘Voyageur Spirit’FPSO following the commencement of its timecharter in August 2013, the three BG shuttle tanker newbuildings following commencement of their respective timecharters in August and November 2013 and January 2014, respectively and the ‘Suksan Salamander’FSO following commencement of its timecharter in August 2014.

These increases were partially offset by the layup and sale of older shuttle and conventional tankers during 2013 and 2014, as their charter contracts expired, or terminated and the scheduled drydocking of the ‘Navion Saga’ FSO during 3Q14.

The results for the third quarter of 2014 were also negatively impacted by the delayed start-up of the Hi-Load DP unit charter contract.This unit continues to undergo operational testing and related delays in commencement of operations may affect its previously anticipated cash flow. Upon successful completion of the testing, the unit is expected to commence its timecharter contract with Petrobras.

In October 2014, Teekay Offshore, through its 50/50 joint venture with Odebrecht Oil & Gas, signed a letter of intent with Petrobras to provide an FPSO for the Libra field located in the Santos Basin offshore Brazil.

The contract, which is expected to be finalised in the fourth quarter of this year, will be serviced by a new FPSO converted from Teekay Offshore's 1995-built shuttle tanker, ‘Navion Norvegia’.

The conversion project will be completed at Sembcorp Marine's Jurong Shipyard in Singapore and the FPSO is scheduled to commence operations in early 2017 under a 12-year firm period fixed-rate contract with Petrobras. The FPSO conversion is expected to be completed for a total fully built-up cost of about $1 bill.

In late October 2014, Teekay Offshore, through its wholly-owned subsidiary ALP Maritime Services (ALP), agreed to acquire six modern long-distance towing and anchor handling (AHTS) vessels for around $220 mill.

Including these vessels, along with ALP's four long-distance AHTS newbuildings, scheduled to deliver in 2016, ALP will become the world's largest owner and operator of DP AHTS. All 10 vessels will be capable of long-distance towing and offshore unit installation and decommissioning of large floating exploration, production and storage units, including FPSOs, FLNGs and floating drill rigs.

Teekay LNG's total cash flow from vessel operations, including cash flows from equity-accounted vessels, was $123.3 mill in 3Q14, compared to $125.2 mill in 3Q13.

The decrease was primarily due to the sale of three 2000 and 2001-built conventional tankers and four older LPG carriers in Exmar LPG BVBA in 2013 and 2014 and the scheduled drydocking of one LNGC and two LPG carriers in Exmar LPG BVBA during 3Q14, partially offset by the acquisitions of, and contributions from, the two Awilco LNGCs in late 2013 and higher revenues from Exmar LPG BVBA, as a result of three newbuilding deliveries in 2014.

In late October 2014, Teekay LNG agreed to acquire a 2003-built 10,200 cu m LPG carrier, ‘Norgas Napa’, from IM Skaugen (IMSK) for about $27 mill. Teekay LNG expects to take delivery of the vessel in mid November, 2014. Upon its delivery, IMSK will bareboat charter the vessel back for a period of five-years at a fixed rate, plus a profit share component based on actual earnings of the vessel, which is trading in IMSK's Norgas pool.

Meanwhile, cash flow from vessel operations from Teekay Tankers increased to $21.2 mill in 3Q14, from $14 mill in 3Q13. This increase was primarily due to stronger average spot tanker rates in the third quarter of this year, compared to 3Q13, an increase in fleet size due to the addition of six  chartered-in vessels during 2014 and higher equity income, as a result of commercial and technical management fees earned through Teekay Tankers' 50% interest in the conventional tanker commercial management and technical management operations acquired from Teekay on 1^st August, 2014.

In October 2014, Teekay Tankers secured timecharter-in contracts for two additional Aframaxes, which increased the company’s' total timechartered fleet to 10 vessels. The new timecharter contracts have an average daily rate of $18,000 and firm contract periods of six months to 33 months, with extension options.

Finally, for 3Q14, Teekay Parent generated negative cash flow from vessel operations of $13.1 mill, compared to a negative cash flow from vessel operations of $36.3 mill in 3Q13.

The reduction in negative cash flow is primarily due to the ‘Banff’FPSO recommencing operations under its timecharter contract in July 2014 following a storm event in late-2011, the re-delivery of several chartered-in tankers over the past year and higher spot tanker rates.

In July 2014, repairs to the gas compressors on the ‘Foinaven’ FPSO were completed and the unit was available to produce at its maximum capacity. However, due to issues with the subsea flow lines, which are the responsibility of the charterer, the field was unable to produce at maximum capacity. As a result, the FPSO is expected to generate lower revenues until these issues are resolved by the charterer.

In late-June 2014, Teekay Parent took delivery of the newbuilding ‘Petrojarl Knarr’ FPSO and the unit arrived in Norway in mid-September 2014. Following installation and offshore testing on the Knarr field, the unit is anticipated to commence its 10-year charter contract with BG Group in December 2014.

In September 2014, Teekay Parent offered to sell the FPSO to Teekay Offshore for its fully built-up cost of about $1.16 bill. The offer is currently being reviewed by Teekay Offshore's board. Once approved by the conflicts committee and the board, the sale will remain subject to the ‘Petrojarl Knarr’ achieving first oil.

U.S. gasoline prices move with Brent prices this week

U.S. Energy Information Administration  

http://www.cattlenetwork.com/cattle-news/US-gasoline-prices-move-with-Brent-prices-this-week-281660751.html

Recent increases in U.S. crude oil production have sparked discussion on how this increase in supply will be used by U.S. refiners, given current limitations on exporting domestic crude. On October 30, EIA released a study that explored the relationships between crude oil and gasoline prices (Figure 1).

Key findings from the analysis include:

The price of Brent crude oil, an international benchmark, is more important than the price of West Texas Intermediate (WTI), a domestic benchmark, for determining gasoline prices in all four U.S. regions studied, including the Midwest.

The effect that a relaxation of current limitations on U.S. crude oil exports would have on U.S. gasoline prices depends on its effect on international crude prices, such as Brent, rather than its effect on domestic crude prices.

Gasoline is a globally traded commodity, and prices are highly correlated across global spot markets.

Gasoline supply, demand, and trade in various regions are changing; one effect is that U.S. Gulf Coast and Chicago spot gasoline prices, which are closely linked, are now often the lowest in the world during fall and winter months.

A change in current limitations on crude oil exports could have implications for both domestic and international crude oil prices. Such a relaxation could raise the prices of domestically produced oil. If higher prices for domestic crude were to spur additional U.S. production than might otherwise occur, the increase to global crude oil supply could reduce the global price of crude.

The extent to which domestic crude prices might rise, and global crude prices might fall, depends on a host of factors, including the degree to which current export limitations affect prices received by domestic producers, the sensitivity of future domestic production to price changes, the ability of domestic refiners to absorb domestic production, and the reaction of key foreign producers to changes in the level of U.S. crude production.

Relationships between gasoline and crude oil prices

U.S. retail gasoline prices reflect four key components: the price of crude oil; refining costs and profit margins; retail and distribution costs and profit margins; and taxes. The first two factors tend to be more volatile, causing most of the variation in retail gasoline prices, while the latter two reflect the retail portion and tend to be relatively stable.

A general guideline for how crude oil prices affect gasoline is that a $1-per-barrel change in the price of crude oil translates into a change of about 2.4 cents per gallon of gasoline. (There are 42 gallons in one barrel, and 2.4 cents is about 1/42 of $1.)