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.
There were few obvious triggers for today’s move, although brokers and traders cite further speculation on a recovery; Fed officials late yesterday and early today made comments considered optimistic on the U.S. economy and flat U.S. interest rates, both factors that can help support oil prices.
Optimism also remains high that global exporters could finalize a deal to cap output at the April 17 Doha summit.
Data earlier this week showed an unexpected drop in crude inventories and a strong rise in demand from refiners.
"Talk of an OPEC cut is likely no more than an attempt to shift market sentiment," says Barclays' Michael Cohen, who thinks part of the rationale for Russia to sound a more amenable tone is that its government wants to be seen as a good negotiator.
The reality is that "it’s a hard sell for Saudi Arabia - and Russia, for that matter - to agree to cut production while Iran continues to ramp up output," Cohen writes.
"Political relations between Saudi Arabia and Russia are poor,” says Julian Jessop, head of commodities research at Capital Economics, who adds that "even if a high level deal could be done, it is not clear that Russia could deliver."
Analysts note that from a physical standpoint, it is difficult for Russia to turn on and off reservoirs without major complications; some production decline already is underway in Russia anyway, and further cuts during the winter are highly unlikely since it would bring about a near-permanent loss in the ability to produce from Russian wells.
Warning of "a substantial risk that prices may recover much more slowly over the medium term than many companies expect, as well as a risk that prices might fall further," Moody's now sees both WTI and Brent crude averaging $33/bbl this year, a $7 cut for WTI and a $10 reduction for Brent from its previous forecast.
The ratings firm also places 55 mining companies on review for downgrade as they battle a slump in commodity prices.
Among the companies placed on review are Alcoa (NYSE:AA), Schlumberger (NYSE:SLB), Chesapeake Energy (NYSE:CHK), Transocean (NYSE:RIG), Statoil (NYSE:STO), Vale (NYSE:VALE), Goldcorp (NYSE:GG), National Oilwell Varco (NYSE:NOV) and Diamond Offshore (NYSE:DO).
Crude oil futures settled more than 4% higher on the back of perceived oversold conditions, despite a higher than expected inventory build; March WTI jumped 4.2% to settle at $29.53/bbl after trading as high as $30.25, while Brent surged 4.9% to $29.25.
Crude prices were supported by the inventory increase in this morning's EIA report, which was less than the API’s report released on Wednesday, says Phil Flynn, senior market analyst at Price Futures Group; also, reports of Libyan oil tanks on fire eased speculation that Libya would be exporting more oil soon.
Also supportive for prices, oil production in the lower 48 states edged lower for the first time in seven weeks, “which is at least ‘less bearish’ for the extremely oversupplied global oil market,” says Tyler Richey of The 7:00’s Report.
Nymex crude oil settled -5.7% at $29.42/bbl, its lowest level since November 2003, with concerns that Iran will soon add to the world's glut of crude supplies added to fears about an economic slowdown in China.
When a decade of trade and banking sanctions against Iran end, perhaps as soon as Monday, the country could lift exports by 500K bbl/day and gradually raise shipments by the same amount again; Iran reportedly has 22 VLCCs floating off its coast, with 13 fully or almost fully loaded.
Energy stocks are broadly higher as U.S. crude oil bounces off $30/bbl to end pit trading at $31.22, +2.6%; the SPDR Energy ETF (XLE +5.1%) soars 5%, with 36 of its 40 equity components trading higher, after closing yesterday at its lowest level since September 2010.
Exxon Mobil (XOM +5.5%) and Chevron (CVX +5.9%) are the Dow's top two gainers; and pipeline companies sport strong showings with Kinder Morgan (KMI +8.2%), Plains All American Pipeline (PAA +11.7%) and Williams Cos. (WMB +27.4%) among the biggest winners.
Amid overwhelmingly negative sentiment, a few analysts are venturing out to say the worst may be over or nearly so: Deutsche Bank’s Torsten Slok thinks "we now have the worst behind us in terms of the negative impact of falling oil prices on the economy," and Gluskin Sheff’s David Rosenberg argues that the oil selloff is getting “long in the tooth.”
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.
The energy sector (-4.5%) paces the opening decline, as WTI crude oil prices -4% at $38.35/bbl following a 2.7% slide on Friday after OPEC's failure to agree on a production target to reduce the oil glut.
Investors are betting on oil prices staying lower for even longer after OPEC's non-decision, pushing U.S. crude futures for delivery nearly 10 years away below $60/bbl, Reuters reports.
But the oil glut is set to continue as much because of the U.S. as of OPEC, as U.S. shale drillers have only trimmed their pumping a little, and rising oil flows from the Gulf of Mexico are propping up U.S. production; the overall output of U.S. crude fell just 0.2% in September, the most recent monthly federal data available, and is down less than 3%, to 9.3M bbl/day, from the peak in April.
Goldman Sachs says it expects oil prices to remain "lower for longer," with a risk that prices could fall as low as $20/bbl.