The clean energy sector may get a boost after President-elect Donald Trump told the NYT he thinks "there is some connectivity" between humans and climate change, stating he was keeping an "open mind" on whether to pull out of the 2015 Paris climate agreement.
Meanwhile, Ben Carson has been offered the post of Secretary of Housing and Urban Development. The former Republican presidential candidate said he'll consider the offer over Thanksgiving.
The 2015 Paris Agreement negotiated by more than 200 countries to cap emissions and curb the global rise in temperatures will go into force on Nov. 4 after the pact reached the threshold necessary to formally take effect.
The treaty doesn't legally require countries to curb emissions or take other steps on climate change, but it does require countries to release their targets and report emissions.
The energy sector (XLE +0.1%) pokes into the green as crude oil prices pare earlier losses even after the collapse of the Doha meeting, and it's a mixed bag among the top global oil companies in early trading: XOM +0.1%, CVX +0.3%, RDS.A -0.9%, BP -0.3%, TOT -0.4%.
Kuwait may have achieved what Doha failed to do, at least in the short term, as a labor strike that began Sunday has cut the country's production by 60%, shuttering 1.7M bbl/day, slightly more than H1's global surplus that caused prices drop to a 12-year low in January.
JPM strategists note that earnings expectations have been managed aggressively going into earnings season. Four months ago, the "hurdle rate" for S&P 500 stocks was +5% Y/Y; now it's -4% Y/Y. “If this were to materialize, it would be the weakest quarter for EPS delivery so far in the upcycle.”
Energy sector earnings consensus signals only single-digit losses, while oil prices are 36% below the 21015 average.
Sees euro-zone earnings outperforming U.S. for second year running.
Overall, firm says risk/reward for stocks is poor. Use bounces as selling opportunities.
"You can be pretty much sure we’re short all of the major leveraged oil companies," Jim Chanos tells CNBC. The stocks, he says, have held up better than oil thanks to the companies' commitment to paying dividends, "but in effect, they're borrowing to pay their dividend."
It's no secret Chanos has been short Cheniere Energy (NYSEMKT:LNG), and it sounds like he remains so.
As for the price of oil, he's got no price target, but he's a bear. If he were OPEC, he says, he'd be pumping out as much oil as possible today because it might be worth even less in 15 years.
Famously short SolarCity (NASDAQ:SCTY), he's not fazed by this week's big tax-break related gains, and wishes he could borrow more shares. "We're not bearish on solar. We’re bearish on the guys who are knocking on doors, trying to put solar panels on your house."
That the price of oil has been in a bear market isn't news, but the $40-$41 range has proven to be pretty effective support. That level was breached on Friday after OPEC couldn't agree on production cuts, and black gold today has a $38 handle for the first time since the depths of the financial crisis.
WTI crude is lower by 4.1% on the session to $38.35.
Natural gas is down 3.3% today, and also at multi-year lows.
The Energy Sector SPDR (XLE -4.4%), is dragging the Dow and S&P each lower by 0.7%.
The borrowing party is about to end for smaller and more debt-laden oil producers, WSJ reports, with drillers bracing for cuts to their credit lines next month as banks re-evaluate how much energy companies’ oil and gas properties are worth and the low price of oil catches up to the producers.
Some smaller companies already are negotiating with their lenders, dumping assets at low prices and delaying payments to vendors.
"With eight bankruptcies already announced this year, weaker producers could live or die by the whims of capital providers," and banks will reduce borrowing bases by as much as 15%, according to Citi analysts, which WSJ says would dry up ~$10B of liquidity.
More distress likely is in store for many companies because the hedges they purchased as protection against low oil prices are increasingly expiring.
President Obama will unveil the final version of his plan to tackle greenhouse gases from coal-fired power plants on Monday, in what he calls the nation's most important step to combat climate change.
The revised Clean Power Plan will seek to slash carbon emissions from the power sector 32% from 2005 levels in 2030, and will require each state to submit a plan next year that spells out how it will meet the goal assigned to it.
Moody’s predicts the default rate for oil and gas companies with lower credit ratings may increase to 7.4% by March 2016 from 2.7%; even if oil prices recover gradually to $70-$75/bbl next year, the weaker oil and gas firms will be positioned for a “much greater risk of default," the report says.
Moody's expects independent E&P companies to have the most trouble, as they are typically smaller in size and more reliant on outsize capital spending to replenish their reserves, while refiners are better positioned to survive oil price volatility because their business is not directly tied to the price of oil.
Oil and gas companies already have suffered a drop in their credit ratings: As of May 1, the group accounted for 14.8% of all the companies covered by Moody’s with credit ratings of B3 or lower, up from 8% the prior year.