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A Little Interesting News!

This week, as we get back in the saddle here at DHT and review fundamentals influencing oil prices, we continue to see the market contract and at the same time, staging for a comeback. I know, I know….. “Oil prices won’t lift until 2017” is the word on the street. But there is news in the market that could be a game changer. A price lift could be coming much sooner!

First, here are a few current oil price influences to watch:

1). A Libyan oil terminal was recently closed. This is the second time due to protesters demanding the Libyan National Oil Corp. make good on pledges to hire 340 people. Not to mention, the government has been in conflict with militia forces for quite some time. Twenty percent of Libya’s 1.6 million barrels a day of exports flows through this terminal.

This is a perfect example of the unrest we have referred to in previous articles that we predict will take place in countries suffering from lower oil prices. Countries which have sustained their economies with oil revenues and provided food and subsidies to their people, are now experiencing declining economies. The results are unrest, civil wars, and serious conflict with sitting leadership, which could ultimately inhibit or close down production. Libya is not alone.

2). Brazil’s Petrobas is struggling with union strikes over wages. This is another example of unrest, although they helped bring this problem on themselves with their corruption and scandal. The union, FUP, represents platform, refinery and other workers, plus other small unions. It is estimated that 40,000 of Petrobras’ 85,000 workers are on strike. Tuesday night the company estimated crude oil production had fallen by 8.5% and gas by 13%. Petrobas is the world’s 9th biggest oil producer.

3). U.S. Production is expected to further decline. The EIA posts reports today.

Countering these lower production situations is a sustained build-up of inventories. According to API, crude stocks increased by 2.8Mb the week of October 30th.

Libya, Brazil, and U.S. Frackers aren’t the only ones hurting from this oil price rut. Although Saudi Arabia’s strategies may temporarily appear to be to their advantage, they are starting to feel the pain.

Did you hear about Standard & Poor’s Credit Rating cut on Saudi Arabia? They have gone from an AA- to an A+. If they don’t reduce their deficit, in other words get their annual financials out of the red, their credit rating could be cut again!

According to S&P, Saudi Arabia has gone from a 1.5% deficit in 2014 to 16% deficit in 2015. Visit “Trading Economics” website for an update on current country credit ratings: http://www.tradingeconomics.com/country-list/rating.

Sovereign Credit Ratings are important, because they provide an assessment of the credit worthiness of a country in general or with respect to a particular debt or financial obligation. They also affect interest rates at which countries can attain funds. (see http://www.investopedia.com/)

A one notch change in a credit rating can have a significant impact on a country’s ability to present bonds in foreign debt markets. Also, their interest cost will go up and usually the level of foreign investor interest goes down. Saudi Arabia will now have to pay more to borrow money and may find international investors less enthusiastic about their bond offerings.

All of this begs the question…… How will they pay back debt and why are they offering bonds when they supposedly have large cash reserves? Perhaps, they over exaggerated those reserves?

Keep watching. This issue could be problematic for several countries and growing.

The ground is shakings underneath many countries, which were enjoying abundant oil revenues just a year ago. Subsidies for gas, food, and other resources for their citizens have dried up. Now, some of those hungry and broke people are beating on the golden gates of their leader’s palaces and demanding new leaders. We have just begun to get a glimpse of threats to production in countries where unrest and conflict are rising.

Now, for a little good news. I have saved the best for last….

This new development could result in new projections from Wall Street analysts: Did you hear that China is changing the one-child-per-family law?

According to About Education, “China’s one-child-policy was established in 1979 to limit population growth. …… With some exceptions, the policy limits couples to one child.……….Now, there are millions of young adults in or nearing their child-bearing years. This special provision allows millions of couples to have two children legally. If a couple is composed of two people without siblings, then they may have two children of their own…..”

So, my position on exponential population growth, which I have mentioned in previous articles, just scored a few points. Of course, I didn’t see this one coming. This law activates March of next year. Chinese couples have started conceiving children in anticipation of having their little bundles in April and beyond. Talk about a baby boom!

I’d say look for an energy demand boom in China come second or third quarter of 2016. China’s economy may see a pretty good boost, if large numbers of couples grow their families under the new law. Can you imagine all of the manufacturing and oil based materials that will be needed for diapers, strollers, clothing, and toys for those millions of couples?

Get ready Disney. The Chinese are coming!

Have a great week!

Jen
407-810-3102

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