Here's my summary of the key events overnight that affect New Zealand, with news the oil price is teetering on falling below US$30 a barrel.
The price of US Crude oil has reached a fresh 12-year low, dipping to US$30.05. This is its lowest level since December 2003 when it fell to US$29.89.
[Since writing this piece at around 7.30 this morning, the price of US Crude oil has fallen to US$29.93].
While analysts at most the major international banks have cut their 2016 oil forecasts this week, Standard Chartered has gone so far as to say oil could fall as low as US$10 a barrel.
Supply remains robust, while demand continues to look fragile off the back of slowing growth in China. In fact, OPEC plans to export a record amount of oil from its southern oil terminals in February.
Nigeria's oil minister says market conditions have spurred a "couple" of OPEC members to request an emergency meeting for February or March. BP has also just announced plans to cut at least 4,000 jobs in the face of the oil crisis.
Concern over China's growth has also seen the price of copper fall to a six-year low this week.
Meanwhile, the People's Bank of China has stepped up its defence of the yuan overnight. It's repeatedly intervened in the offshore market, buying the currency in Hong Kong and sparking a record surge in the city's money-market rates to deter bearish speculators.
By hiking the cost of borrowing yuan, it's trying to curb bets on a rapid depreciation of the currency and close the gap between onshore and offshore rates.
The cost of insuring Aussie bank bonds, as measured by the credit default swap spreads, is rising steadily. This is not so much because of the banks' own positions, but the fact their debt is part of a market that includes Aussie miners whose prospects look poor.
This is affecting how markets see Australian investment grade debt; the poor outlook directly affecting what New Zealand banks pay for money.
Back in New York, the UST 10yr yield benchmark has fallen 5 basis points to 2.13%.
The price of Crude oil is sitting at US$30.05 a barrel, having bounced between US$30 and US$32 overnight. The price of Brent crude has fallen to US$30.50.
The gold price continues to slide, and is now at US$1,087/oz.
The New Zealand dollar starts the day slightly weaker than this time yesterday, at 65.4 US¢, 93.6 AU¢ and 60.2 euro cents. The TWI-5 is pretty much unchanged at 70.9.
If you want to catch up with all the local changes from yesterday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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28 Comments
Fuel prices in USA
https://blog.gasbuddy.com/posts/National-Average-Gas-Price-Touches-Fres…
And both Iran and the USA (they are kissing cousins nowadays) due to start exporting oil again!
http://www.bbc.com/news/business-35293332
Add to that US natural gas exports start in a few weeks. A lot of these sites were originally under construction to import the stuff.
"US exports are set to drive a transformation in LNG market trading & pricing dynamics. This is because US export contracts are structured very differently to standard LNG supply contracts. They allow contract buyers to source gas on a Henry Hub rather than an oil-indexed price basis. They also allow buyers complete destination flexibility to respond to prevailing global spot price signals."
And Aussie kicked off LNG export last weekend.
"The massive capital infusion to expand the sector will make Australia the world’s largest LNG producer and LNG our second-largest commodity export (after iron ore) by 2018. If all the US projects on the drawing boards went ahead, they would have the capacity to liquefy as much as 60 per cent of the gas produced in the US.
In any event, the US will be a major exporter of gas whose price will be referenced to its domestic gas price, rather than the oil price, and therefore it will impact global LNG prices."
http://www.theaustralian.com.au/business/opinion/stephen-bartholomeusz/…
Back in New York, the UST 10yr yield benchmark has fallen 5 basis points to 2.13%.
Hmmm, the 10-2 year Treasury spread printed 118, a new recent low.
A wholly flat and shapeless curve is the definition of monetary death, a binary regime which suggests that either there is no reward in lending at longer maturities or that risk is too extreme to make any such lending unwise. Read more
I do not see these low oil prices being reflected at the pump. At our present exchange rate, the fuel price should be $1.37/litre if their cents per litre profit margin equates to the long term historical average or $1.26 per litre if the same long term % margin is applied.
What other nations economists are "saying" is the cause of the delay in gas prices not changing as fast as the tanking barrel cost is ... they've slowed the shipping tankers down from gunning it at 22 knots to 9-12kts, no more land based capacity, its maxed out due to stockpiling, oh and refining costs, getting a bit tired of that excuse. Diesel too gets a better discount too, before the flow onto petrol. - Market Making at its Best.
And airlines still have a fuel surcharge.
http://onemileatatime.boardingarea.com/2015/12/24/airline-fuel-surcharg…
22knots for a bulk carrier sounds a little fast. 16~18knots would be more expected. The ones really slowing down are the containers ships that were in my day designed for 25knots, now doing 12. New ones are apparently being built for that reduced speed, a trade off of chartering per day cost v fuel use.
Here is the Brent crude price throughout 2000 http://futures.tradingcharts.com/historical/BC/2000/0/continuous.html.
I worked on a price of $28.50, The exchange rate that year was very low at about 0.46 which raised the NZ price of oil. Fuel cost about $1.07 per litre but one has to allow for the fact that taxes were only 35 cents per litre compared to 67 cents now and GST is now 15%. Their margin that year was comparitivly reasonable.
Where it has always been: a description of the production function of a non-renewable resource. As far as I know Hibbert's 1970's paper predicting the production function of easy-to-pump crude oil is on the money and we hit the production peak for that particular class of resource about 10 years ago and are now proceeding along the flat peak.
"Peak oil" was never about falling off an energy cliff. Since that prediction was made the world has seen alternative energy sources come into production including hard-to-get oil and gas. One of the greatest alternative energy sources has been increased energy efficiency which has taken the edge off some of the older linear demand projections.
So crude oil has some competition in the market and demand is volatile. No news there.
Just another example of the craziness of selling an asset - be it land or fishing rights. Remember all the youth Maori fishing training schemes and so on? They came to zilch. The quota should have remained a crown asset and leased. And so we continue with our asset sell off programme. The end of the family farm is upon us, as is the ability of our young to own a home. Yet barely a squeak....the applause for team Key goes on.
Don't forget the Sth Island high country, not a murmur
http://www.stuff.co.nz/environment/75500166/Internationally-significant…
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