So magazine covers:
I would highly recommend that nobody draw inferences from what happened in the 1920s, for the following reasons (there is no global boom coming once we get past this crisis — a lot of time and effort will be spent cleaning up all these debt excesses).
For one, coming out of WWI, which was ending as the Spanish flu was starting, the U.S. had come to account for half of global manufacturing production. That’s because the war savaged the entire European economy and gave U.S. industry the opportunity to grab global market share in exports and industrial production.
Second, the U.S. dealt with the Spanish flu totally differently. The economy never went into full lockdown. People just learned to live with the disease, which ultimately vanished on herd immunity. Back then, nobody turned to the government for help; it was all about community and charity. These were the days before welfare and unemployment insurance benefits and company bailouts. Public attitudes toward illness and death were far different and there was no internet or social media to try and influence people’s perceptions and stir up emotions.
The economy did collapse back then, but the government did not blow its brains out on fiscal largesse. So, we went into the 1920s with tremendous pent-up demand once the crisis ended, and balance sheets were in far greater shape. Government debt-to-GDP was 10% — not over 100%. And that better public sector balance sheet allowed the federal government to CUT taxes by the mid-1920s — top marginal rates for corporations were initially raised from 10% in 1920 to 13.5% by 1926 but cut to 11% by the end of the decade; for individuals, the rate went from 58% after the war to 24% by 1929. Does anyone think taxes are going to be coming down in the U.S. any time soon?
Meanwhile:
Tech. is muted, which largely explains the shift into value out of growth. This is not really sudden, this has occurred already over a period of time. It is going to continue while rates continue to rise.
That being said, my model calls for 1.5%, which is down on the 1.6%.
All however is not well. It looks as if Junk is ready to rollover. That could (would) explain the lowering of the Treasury (10yr) rate down to 1.5% and possibly lower still if we have a run back to safety.
ATM, I have no idea why Junk might be ready to rollover, but, shoot first ask questions later. Just in case you are in any doubt, Junk rolling over is a very bad thing for the market.
And Mr flippe-floppe-flye:
News from the oil patch:
- U.S. exports of propane
reached record highs in 2020, up 13%.
- Propane became the largest source of refined product exports, surpassing distillate fuel oil.
- The increase is the result of strong petrochemical and heating demand in Asia.
Market Movers
-
Eni (NYSE: E) may
spin off its new retail and renewable energy business next year, while taking a minority stake in the company, in an effort to raise money for the energy transition. Reuters reports that the company could be worth around 10 billion euros.
- The oil majors are moving into “overbought” territory, according to
Seeking Alpha.
- Vineyard Wind may soon receive a greenlight from the Biden administration. The $2.8 billion 800-MW offshore wind farm off the coast of Massachusetts would be the
first major offshore wind project in federal waters.
Tuesday, March 9, 2021
Oil prices took a breather after a huge rally last week. Brent dipped back below $68 per barrel in early trading on Tuesday. While analysts broadly see the oil market as tight and potentially moving tighter following the OPEC+ cuts, the flip side is that high prices could start to eat into demand.
$70 oil could slow demand. While the unexpected rollover of the OPEC+ production cuts sent Brent Crude prices up to $70 a barrel, the highest oil prices in more than a year could dampen global oil demand recovery, which the OPEC+ group itself still
sees as fragile.
Vitol: “OPEC+ is in control.” One of the world’s top oil traders says that OPEC+ decision-making is the key factor driving the oil market this year. “The market is telling us that OPEC+ have control,” Mike Muller, Vitol’s head of Asia,
said Sunday in an online forum hosted by consultant Gulf Intelligence. “We’re going to get a stock-draw that is going to accelerate through the second quarter and that’s why the market is doing what it’s doing.”
OPEC+ leans towards over-tightening. The surprise OPEC+ extension signals an “overtightening of the market is likely, and is only likely to be corrected after a significant lag,” Standard Chartered said in a note. The investment bank hiked its oil price forecast by $14, with Brent averaging $66 per barrel this year. But higher prices hit 2022 demand, and the bank sees Brent averaging $59.
Refiners’ fortunes rebound. Seven of 18 refineries affected by the Texas grid crisis -- making up over 2 million barrels a day of crude processing capacity -- were
operating normally as of Monday. U.S. sour crudes have seen margins shoot up as OPEC+ extended cuts and demand globally looks healthy.
Houthis hit Aramco. Houthi forces in Yemen
fired drones and missiles at Saudi Arabia, including a Saudi Aramco facility at Ras Tanura that is vital to petroleum exports. But Saudi Aramco said there was no loss of property.
Chevron keeps spending restraint. Chevron (NYSE: CVX) will
keep CAPEX at $14 billion for the next few years, while still hoping to grow Permian production to 1 mb/d by 2025. Chevron also promised improved returns and a modest reduction in carbon intensity, although not a reduction in absolute emissions.
Saudi Arabia doubts demand strength. Last week, Saudi oil minister Prince Abdulaziz bin Salman Al-Saud expressed some skepticism that the global economy would roar back to life imminently, a sentiment that appears to have bolstered the OPEC+ extension. “I will believe it when I see it,”
he said multiple times.
Iran reaches out to Asian buyers. Iran has
reached out to refiners in Asia, suggesting that it hopes to soon step up oil exports. The overtures are perhaps an indication that Iran expects a thaw in relations with the U.S. in the coming months.
China leaves climate plans vague. Analysts expected China to add more meat on the bones to its strategy of ratcheting down greenhouse gas emissions last week when it released details of its latest 5-year plan, but analysts were disappointed with the lack of information. China
said Friday it plans to lower emissions per unit of gross domestic product by 18% by 2025—the same level it targeted in the previous five-plan. Meanwhile,
analysts see the size of China’s carbon market growing to $25 billion by 2030.
Goldman ups Imperial Oil to Buy. Goldman Sachs
upgraded Imperial Oil (TSE: IMO) to a Buy rating from Sell, with a price target of C$36. Goldman sees earnings improving due to both better operations and costs, and the bank sees positive revisions to cash flow and earnings and now sees 23% total return for the shares.
Tesla is building a secret energy storage project in Texas. Tesla (NASDAQ: TSLA) is building a gigantic battery storage project in southern Texas, one that has been literally under wraps until
Bloomberg discovered it.
Qatar’s massive LNG buildout moves it closer to China. Qatar has plans to expand its LNG footprint with a
$29 billion buildout, which will increase export capacity by a third to 110 mtpa. A string of recent deals also suggest that Qatar may be shifting a bit
closer towards China’s sphere of influence.
Energy transition leads to surging metals prices. Three billion tons: this is how much metals and minerals the energy transition will
require, according to a World Bank report. Demand for some of these, such as copper, lithium, cobalt, and graphite, is set to increase 500 percent by 2050.
California drilling moves ahead. Kern County
approved a plan to allow 40,500 new oil and gas wells in the county over the next 15 years.
Shell to sell some Egypt assets. Royal Dutch Shell (NYSE: RDS.A) plans on
selling upstream assets in Egypt worth up to $926 million.
Rystad: Oil employment more resilient in China. The job losses in the oil and gas industry from the pandemic were not as bad in China as they were elsewhere. A Rystad Energy analysis shows that the world’s top oil and gas employer, China, lost only 5.3% of its massive workforce. The toll in the US was more devastating, estimated at 11.1%, worse than its European peers and Russia.
India wants to cut Mideast dependence. Following the OPEC+ decision to roll over the production cuts into April, India is asking its state-owned refiners to aggressively look to
diversify imports away from the Middle East, as the world’s third-largest oil importer isn’t happy with the tighter oil market and higher oil prices.
jog on
duc