90 seconds at 9 am: Oil prices sink

US factory output sags; Russia cuts rate; China targets internet cars; GE Money plans growth spurt; crude oil prices fall, output rises; NZ$1 = 74.1 USc, TWI = 79.5

17th Mar 15, 7:20am by David Chaston

Here's my summary of the key issues from overnight that affect New Zealand, with news of more downside news for oil and energy prices.

But first, American industrial production fell in February for the third straight month as the production of cars and a range of goods slipped from January, the latest indication of slower economic growth in the first quarter. But year-on-year, production was up +3.5%, more in the mining sector, less in the utilities sector. Capacity utilisation also slipped, although that too is up +3.1% from the same month a year ago at 78.9%.

Part of the reason relates to the recently settled US West Coast port strike, but the harsh weather and the strengthening dollar also took some of the blame. Analysts said it could be a few more months before this sag turns around.

In Russia overnight - in addition to the sudden re-appearance of Vladimir Putin - the news was of a 1% cut in their official interest rate to 14% after they had jumped to 17% in late 2014. The ruble is 50% lower since the start of their crisis but it has stabilised recently.

The rapid development of technology for cars is happening worldwide. "Control of the car dashboard" involves a desperate race between traditional car manufacturers and tech companies. The latest front has been opened in China where vehicle producer SAIC and e-commerce giant Alibaba plan to invest around NZ$220 million in a fund to develop internet-connected cars. These developments will likely overwhelm traditional 'public transport' and reshape it around cars.

We noted yesterday that the consumer finance arm of GE Money has been sold to new American owners. Today it is revealed that the new owners will be pushing the growth button. They are expected to pursue growth plans that could revive car and mortgage lending.

The UST 10yr yields continue to hover around the 2.10% level but are back today to 2.08%.

The crude oil price fell again overnight and is now at US$43/barrel which is the lowest it has been in more than six years, while the Brent crude price is down to US$53/barrel. World crude stocks are rising at the rate of 1.6 mln barrel/day. OPEC is now saying it won't be until late 2015 at the earliest that surging oil production in the US will start to fall due to low prices. Overnight news of an Iran-US deal could also bring a flood of new oil to market, undermining the OPEC expectations.

The gold price fell a little to US$1,150/oz.

The New Zealand dollar starts today stronger at 74.1 US¢, it is at 96.6 AU¢, and the TWI is at 79.5.

If you want to catch up with all the local changes on Monday, we have an update here.

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20 Comments

by Andrewj | 17th Mar 15, 7:41am 1426531260

U.S. crude oil production continues to reach new highs, despite significant reductions in oil rig counts.

http://www.attenbabler.com/crude-oil-overview-mar-15/

by Alter Ego | 17th Mar 15, 8:17am 1426533443

And the price at the pump increases here in NZ, as the unwary fund the compensation increases to compensate the blowouts, of the tax funded blowhards, to compensate for the lack of demand and to compensate for the MPs and banking wage increases to compensate for the lack of inflation they tried so hard to inflict on others.

Easy targets for those who have to go to work in gas guzzling cars, to actually pay for them as no public transport available due to profligate spending and excess borrowings elsewhere.

Yep, economisers are so used to spending other peoples munny. Cannot help themselves more, if they tried.

Economy working ..just fine.

Up North petrol 30c cheaper than big city dwellers. Ironically currently parked on motorway systems in 'rush hour'

by Boatman | 17th Mar 15, 8:48am 1426535319

Do we have a competition watchdog in NZ ?

by Stephen Hulme | 17th Mar 15, 8:35am 1426534543

GE Capital sold its mortgage book to Pepper Australia in 2011 for $5 billion. However, GE retained some auto loans and mortgages in run off, which means customers were repaying their debt but GE was not booking any new business. Several sources said the new owners are expected to revive the funding for these from the wholesale securitisation markets as well as seek new distribution channels for consumer finance outside its big retail partners.

I guess the local evolution to sub prime status is inevitable as those willing and able to pay are diminishing under the debt mountain.

Delinquencies on auto loans have been rising, more Americans are losing their cars to repossession, and inquiries have begun into the subprime auto industry’s lending practices.

Nevertheless, Santander Consumer USA had little trouble last week finding buyers for its latest bond deal made up of auto loans to borrowers with deeply tarnished credit.

Many of the loans bundled into the $712 million deal went to borrowers with significantly lower credit scores than in many of Santander’s past bond deals.

Moody’s Investors Service expects losses as high as 27 percent on the bond, much larger than the 17 percent loss that the ratings firm had projected on a bond that Santander sold last year.

It’s easy to see the attraction for investors. Yields on the highest rated slice of the Santander bond were 1.02 percent, compared with the equivalent Treasury bond yield of 0.12 percent, according to Empirasign Strategies, a market data firm. In short, investors could earn about eight times as much yield, while ostensibly taking the same amount of risk. Read more

by Alter Ego | 17th Mar 15, 8:44am 1426535078

http://www.bloomberg.com/news/articles/2015-03-16/fed-data-suggest-oil-…

But, not at the NZ pump. Our currency is not current as we are out of favour, plus above, plus GST, plus swings and new roundabouts for Expressway going South to get out of Awkland, even faster.

Not that I blame them, NZ has some of the finest remote places in NZ.

Cities, not remotely interested.

by Boatman | 17th Mar 15, 8:47am 1426535227

We are a funny bunch , we go ballistic over a Kauri tree being cut down , but are happy to say and do absolutley nothing about being shafted by multi-national oil companies oligopoly pricing model .

Petrol prices in some part of Aus are as low as 99cents a litre plus GST and diesel is also way cheaper than here ( after adjusting for RUC )

Why is there no protest or boycott ?

Its cosing our economy billions and its extortion , nothing less

by Jay M | 17th Mar 15, 8:56am 1426535775

The oligopoly pricing model? or the Government shafting us with excise and GST?

This morning (if I chose to), I could have filled up for $1.609 per litre in Auckland - using my AA Smart fuel card at Caltex. If I'd gone to gull and had a 10 cents per litre discount coupon - could be $1.589 per litre.

Included in that price is 56.5 cents per litre of fuel excise duty, and ~24 cents of GST. 80.5 cents out of $1.609 is government revenue.

The fuel companies might be making 80.5 cents revenue, but they at least have costs to bring it in, shipping, pay wages etc. (I do however agree with your point, the prices are too high, but the Government tends to make a lot as well)...

by frazz | 17th Mar 15, 11:17am 1426544225

The Hin Simon Upton is watching the Oil Companies closely. Right now he will be writing a another letter to them, and checking if they still want to meet at the Sky Tower for lunch.

by Alter Ego | 17th Mar 15, 12:02pm 1426546972

And lunch is on whom...prey.

Which one is preying on each other??.

by Alter Ego | 17th Mar 15, 9:05am 1426536349

FYI...Hamilton is $1.94 before 4-8c kickback.

by Boatman | 17th Mar 15, 9:15am 1426536937

Why do we even have these fuel discount coupons? .... they are simply price manipulation .

The price should be the price without all the smoke and mirrors , rebates , discounts and confidential kickbacks and backhanders .

We actually have the messiest and most secretive fuel pricing model I have ever come accross ,and its a pity we dont have a Competition Commissioner to look after the public interest

by Jay M | 17th Mar 15, 9:58am 1426539506

To be honest - ours isn't too bad compared to the one I encountered when I lived in Australia. Where the pump prices change depending on what day of the week it is! Prices tended to be lowest on a Tuesday or Wednesday morning... they start getting higher on a Thursday, peak on a Friday/Saturday to sting people driving away for the weekend, and start dropping again on a Sunday... And then they had the discount coupons too...

I'm not sure if they still have variable pricing - I have been back in NZ for over 3 years.

by Alter Ego | 17th Mar 15, 10:05am 1426539908

Here is a solution for electric cars..Take the piss out of everyone...Friday/Saturday night in particular, in the case of Awkland.

No seriously...it would be electrifying.

http://oilprice.com/Latest-Energy-News/World-News/Pee-Power-A-New-Way-T…

Now that is forward thinking.

Maybe we should take in more refugees.

by Alter Ego | 17th Mar 15, 10:11am 1426540294

Number2.

http://oilprice.com/Latest-Energy-News/World-News/Poo-Power-Gas-From-Hu…

I think we have enough politicians to full fill this role...in its entirity. Euwww.

by steven | 17th Mar 15, 11:23am 1426544580

At least a use for a Politician!!!!!

Politicians are perfect on two grounds, from one end a) unlimited quantities of hot air every time they open their mouths and b) yes they are so full of it it means unlimited poo to produce the methane.

by Stephen L | 17th Mar 15, 11:22am 1426544539

Oil prices down further. Virtually all other commodities including iron ore are also well down. World capacity utilisation is still low. The exchange rate is higher than it was when Mr Wheeler said it was way too high a couple of weeks ago. Inflation is going nowhere other than down for some time in other words.

To have any credibility at all, it seems to me Wheeler has to:

Take steps to lower the NZD, or

Lower interest rates, or

Admit that he is pursuing targets other than his stated statutory ones.

by steven | 17th Mar 15, 11:31am 1426545060

While not thinking much of Alan Greenspan he made a comment recently after looking at the storage for WTI ie its full within 1 or 2 months. At that point there is nothing to absorb new oil production coming onto the market, that should drop the price through the floor I assume.

Well he has lots of conflicting data, as Grant A says some part of NZ's economy is doing OK, unemployment is not bad and getting better, so no sweat. The other parts not doing well it seems are being left to fend for themselves. However JK doesnt seem happy with that his Govn needs inflation and spending to make balancing the books easier and its aneamic.

I wonder whats going to give in, or rather how soon.

by Stephen L | 17th Mar 15, 12:10pm 1426547429

All fair enough. I may seem pedantic, but Wheeler's statutory objectives are not about "the economy doing okay" however that is defined. Maybe they should be, as many other countries in fact manage. E.g. High employment as in the US, or my favourite, a balanced or positive current account as in Singapore.

But they are not; they are CPI inflation 2% over time, or 1-3% at any one time. Plus financial stability- read bank solvency. There is no talk of "good" or "bad" inflation.

As it happens I argued (more importantly so did Labour, the Greens and NZ First) at the time of Wheeler's appointment for some review of the criteria, but English and Key stood firm.

Wheeler can potentially look through short term price blips, like a short term oil price decline.

But it pretty clearly isn't just oil, and it's not short term.

So either concede he is working to a world central bankers agenda and ignoring the statute, intervene with the currency (my favourite in a range of ways, but I sense he doesn't want to actively play in the currency wars) or get on with his 50bps interest rate drop.

I endeavour at least in my mind to be logical. The status quo is not compatible with that approach.

by OnwardsUpwards | 17th Mar 15, 11:51am 1426546266

The sky is falling! Peak oil is upon us. 1 Billion+ cars on the planet obviously means record high oil prices! (Below $45) Now climate change is upon us too!

Footnote: OPEC is kaput and 20 years from now it will be Iran enforcing US hegemony in the middle east. See ya Israel and Saudi-Arabia.

by Boatman | 17th Mar 15, 12:14pm 1426547669

I was wrong ... its now clear from the comments that KIWIS are annoyed at the petrol and diesel price levels and they dont like being played by the Big Oil Companies afterall !