Here's my summary of the key news over the weekend with news of oil and gold at centre-stage.
Firstly in the US, the talk is of softer Thanksgiving retail sales, but actually that is the bricks-and-mortar result. The continuing shift online is bolstering overall spending and shifting it later.
China has announced it will start a state-backed insurance system for bank deposits, a move toward scrapping remaining controls on interest rates and allowing lenders to fail in a more market-driven economy.
In Switzerland, voters have rejected going back to the gold standard. The vote was a clear 40/60 rejection of the initiative. The result will take even more off the gold price when it opens although markets anticipated the vote and the price of the yellow metal fell US$30/oz on Friday London time.
In Australia, the recent slide in the iron ore price has prompted ANZ to cut its economic growth forecast for the 'lucky country' by -0.25% to 2.9% in 2015 , but the bank is still expecting the RBA to begin lifting rates next year. That compares to their 3% forecast for NZ next year.
UST 10yr bond yields are keeping on falling and ended last week in New York at just 2.17%, its lowest level in more than 17 months. The same thing happened here last week with falls in our wholesale swap rates and they flattened at the same time. Given the New York benchmark moves, I expect the local downward trend will continue. In fact we are seeing the main banks drifting their mortgage rates down and term deposit customers will be starting to get uneasy at these levels.
Meanwhile, the oil price seems to be in free fall. the US WTI price is now below US$66/barrel and the Brent price is just on US$70/barrel. The combination of too much supply and leveling demand in Europe and China seems to be the spur for the decline. Lower oil prices will drive inflation data lower. But on the flip side it means we are not spending as much on this energy source, leaving cash available to other purchases. In New Zealand we see the oil retailers 'keeping' as much as 10c/litre more in margin than they usually do as prices fall at the pump. When the latest crude prices show up in New Zealand pricing, petrol will be well below $2/litre, probably more like $1.90 if the retailer margin reverted to normal.
That is a lot of extra spending power in the New Zealand economy. We have calculated that since the $2.20/litre price that basically applied all year up to mid October, a minimum 20c reduction in pump prices is equivalent to $50 mln per month in customer savings, $35 mln that accrues to households and about $15 mln that accrues to businesses. Diesel savings are on top of this. At an annual rate that is a $600 mln windfall. Low petrol prices - and the resulting lower CPI - won't all be 'bad'. In fact, the pump price savings will likely end up much more than 20c.
The gold price has also taken a big drop and is now at just US$1,167/oz.
The US dollar is the main beneficiary of all this. The NZ dollar starts the week marginally lower at 78.3 USc, 92.4 AUc a four month high, and the TWI is at 78.5.
If you want to catch up with all the changes from yesterday we have an update here.
The easiest place to stay up with today's event risk is by following our Economic Calendar here »
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11 Comments
Oil subprime? Hmm interesting on how money has been invested in shale oil though,
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10957…
"The cumulative blitz on energy exploration and production over the past six years has been $5.4 trillion, yet little has come of it"
Indeed.
"Output from conventional fields peaked in 2005. Not a single large project has come on stream at a break-even cost below $80 a barrel for almost three years.
"What is shocking is that upstream costs in the oil industry have risen threefold since 2000 but output is up just 14pc," said Mark Lewis, from Kepler Cheuvreux. The damage has been masked so far as big oil companies draw down on their cheap legacy reserves.
"They are having too look for oil in the deepwater fields off Africa and Brazil, or in the Arctic, where it is much more difficult. The marginal cost for many shale plays is now $85 to $90 a barrel."
So when we get to $50~55 (not un-reasonable) why would the Industry continue to bleed capital?
"companies are committing $1.1 trillion over the next decade to projects that require prices above $95 to break even. The Canadian tar sands mostly break even at $80-$100. Some of the Arctic and deepwater projects need $120. Several need $150."
$150? we have never seen that and the expectation to sustain it? and we could spend months at 1/3rd that and all next year at 1/2 that. "investors" look to lose their shirts?
regards
and from AEP today... hate you think you were cherry picking 6 month old articles.
“We can produce down to $50 a barrel,” said Harold Hamm, from Continental Resources. The International Energy Agency said most of North Dakota’s vast Bakken field “remains profitable at or below $42 per barrel. The break-even price in McKenzie County, the most productive county in the state, is only $28 per barrel.”
Efficiency is improving and drillers are switching to lower-cost spots, confronting Opec with a moving target. “The (price) floor is falling and may not be nearly as firm as the Saudi view assumes,” said Citigroup.
Mr Morse says the “full cycle” cost for shale production is $70 to $80, but this includes the original land grab and infrastructure. “The remaining capex required to bring on an additional well is far lower, and could be as low as the high-$30s range,” he said.
Critics of US shale may have misunderstood its economics. There is a fast decline in output from new wells but this is offset by a “long-tail phase” for a growing number of legacy wells. The Bakken field has already reached 1.1m bpd, and this is expected to double again over the next five years.
http://www.telegraph.co.uk/finance/oilprices/11263851/Saudis-risk-playi…
Some can indeed produce down to $50 Im sure, the point is its very unlikely many can. Or if its even worth drilling new when there is so little margin.
Sure they IEA?EIA get their numbers right eh? not like 95% downgrades...
http://www.theguardian.com/environment/earth-insight/2014/may/22/two-th…
2/3rds of the shale oil gone....poooof....never existed.
Lower cost-spots? yeah sure, bit of a wee lie from you again? They drill the spots most likely to produce the best, so what they are switching to is the poorer spots likely to produce far less oil per well, and their costs are climbing.
The long tail phase? oh dear its well massively below the initial few years, so lots of legacy wells producing hardly anything, yeah it makes sense to keep them producing.
Lots of smoke and mirros here, citigroup? probably the ones who were "enabling" the oil investments and buyouts, for a fee of course....not exactly the best record in town.
Never mind we get to se soon...just whos right.
regards
Yes I am liar Steven a verbatim quote from the Telegraph proves such. You see so many smokes and mirrors can you not have a rational debate with lamo you're a liar BS?
As for Marcellus the oil is still there it has hasn't disappeared - glass half full types are figuring out how to get it out of ground right now I'm sure. Proven reserves going from 600B to 1.6 trillion since 1980 is proof the EIA have inderestimated not overestimated in the overall scheme of things. They also got it spectacularly wrong on Marcellus shale gas but that is another story.
How soon to get we get to see? Five years ago you were telling us it was 1-2 years till handbasket time... now 2023 WTI futures are under $80.
I like rational debates, however when I have to go back and check every detail you post then and find that most do not add up. Well it simply isnt possible to have a rational debate with someone who invariably quotes out of date, incorrect, twisted info.
Macellus? now who isnt being rational again, it has to be economic to extract at a price us the consumer can afford to pay. If its above $150/barrel I suspect we'll never extract it in any meaningfull quantity.
600B to 1.6T, there you go again. One huge chunk of US shale got vapourised and on top of that the rest of it around the world is a guess. The tar sands and heavy oils are little better than shale, priced higher than we as an economy are able to pay and keep expanding..
I doubt I said handbasket but with no URL I cant see what I meant. Which implies finished? dunno, growth certianly is) Here you go looks like you are attempting to use out of context again. Five years ago? 2009 there you go again, context? URL? and btw that was probably a comment that conventional crude production per day has probably peaked ( actually in 2005~2006 which so far it has not been exceeded) and we were/are unlikely to see that surpassed with a possible peak window out to 2018, maybe. Though some oil geologists said 2010~12 but really its pretty moot as the production is effectively flat give or take a little. The trend is there, we have either just passed, are at or will shortly.
WTI at 2023, well that is a futures, so someone is gambling that the price will be lower and they can profit. Bearing in mind how nutty and unstable the market is who knows really, could be $35, could be $120.
regards
oh and it would be usual when quoting to,
a) Use quotes and
So,
Efficiency is improving and drillers are switching to lower-cost spots, confronting Opec with a moving target. “The (price) floor is falling and may not be nearly as firm as the Saudi view assumes,” said Citigroup.
part of that rational debate thing. Rather hard to tell if its your opinion or the piece.
b) Consitanlty provide the URL so it can be checked, especially in your case.
Prices down to $28? sure, how much of it is way above thet? looks like chery picking a sweet spot.
Oh what utter crap Steven. If you bother read the link before speeling you would know where the quote came from and not write such a ridiculous comment.
I said it was from that days AEP Telegraph piece and I put the link at the bottom of the post(!). Then you called me a liar and I stated again it was verbatim from the Telegraph.
If you have trouble finding quotes Steven just drop the quote into Google and it will come up. But I guess you know that and just like to obfuscate when the data doesn't suit your world view.
Here is the link for the proved oil reserves going from 600B in 1980 to 1.6 trillion today but I guess you probably knew where to find that also.
http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=5&pid=57&aid=6&…
Can you provide a link for your opinion/arithmetic failure the other other day "The total amounts have not changed just the conventional crude has always been 600 (and probably not that actually)". Or will you just fall back on your the IEA and EIA are liars rant?
Proven reserves go up and down depending on technology innovation and the economics of the day. The Marcellus oil being largely removed from proven reserves shows the system works. If it was left in then you would have a point.
The OTI has a different trend in the q3 trade statistics.
Import prices (down 0.1 percent) were flat overall. The key movement was a 5.4 percent fall in electrical machinery and apparatus prices, led by goods such as cell phones, TVs, and cameras. Offsetting this fall was a 2.7 percent rise in petroleum and petroleum product prices, led by higher prices for crude oil.
There was a decrease in the oilcost spot rate over this period,suspicions are there was a period of hedging amongst aligned company entities over this period,and the treatment of confidential information by statsnz.
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