All of the PowerShares DB Crude Oil ETNs are based on a total return version of the Deutsche Bank Liquid Commodity Index-Oil (the "Index") which is designed to reflect the performance of certain crude oil futures contracts plus the returns from investing in 3 month United States Treasury bills. The Long ETN is based on the Optimum Yield™ version of the Index and the Short and Double Short ETNs are based on the standard version of the Index. The Optimum Yield™ version of the index attempts to minimize the negative effects of contango and maximize the positive effects of backwardation by applying flexible roll rules to pick a new futures contract when a contract expires. The standard version of the index, which does not attempt to minimize the negative effects of contango and maximize the positive effects of backwardation, uses static roll rules that dictate that an expiring futures contract must be replaced with a contract having a pre-defined expiration date.
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Libya hopes it can restart production at one of its largest oil fields, Repsol-operated (REPYY, REPYF) El Sharara, in two to three days after protesters agreed to end their two-month stoppage of the facility.
The stoppage is one of several disruptions of Libya's oil supply caused by protesters, including workers and armed militia, which caused the country's output fell to below 250K bbl/day vs. 1.6M bbl/day in 2011 before Gadhafi's downfall.
The prospect of increased production in Libya is helping to push crude prices lower; WTI crude -2.5% to $95.95, and shares of most energy companies also are down.
South Sudan's government and rebels were due to start ceasefire talks in the Ethiopian capital of Addis Ababa today in an attempt to end over two weeks of ethnic bloodletting that has left more than 1,000 people dead and displaced at least 180,000.
The discussions will come after rebels regained the key city of Bor, the capital of Jonglei state, which has untapped oil reserves. The fighting has cut crude output in South Sudan, which has the third-largest reserves in sub-Saharan Africa.
The rebels are led by Vice President Riech Makar, who was sacked by President Salva Kiir in the summer. The latter is from the Dinkas group and Makar is from the Nuer, with some but not all of the dispute split along those ethnic lines.
Airline stocks dip in early trading after a government report shows U.S. crude oil supplies stayed in a downward trend. Violence in the South Sudan has also been a recent factor in oil prices.
Besides the prospect for higher prices for aviation fuel, the airline sector was ripe to blow off a little steam after rallying before and after the merger of American Airlines and U.S. Airways, note analysts.
Decliners: United Continental (UAL) -3.2%, Delta Air Lines (DAL) -2.6%, Spirit Airlines (SAVE) -2.4%, JetBlue (JBLU) -1.5%, American Airlines (AAL) -1.5%, Southwest Airlines (LUV) -1.3%.
Kenyan President Uhuru Kenyatta and Ethiopian Prime Minister Hailemariam Desalegn have arrived in Juba, the capital of South Sudan, for talks with the country's president in an attempt to bring an end to two weeks of fighting between government forces and those loyal to former Vice President Riek Machar.
The rebels have control of Bentiu, the capital of the of oil-rich Unity state, while battles have been reported in Malakal, the capital of Upper Nile state, another key oil region. South Sudan exports 220,000 bpd of crude, although the violence has led to a sharp drop in output.
The arrival of the regional leaders comes after the U.N. pledged to double its presence in South Sudan with 6,000 more soldiers and police amid fears that thousands have been killed by the fighting and amid a major refugee crisis.
OPEC doesn't need to reduce output in 2014 in order to offset potentially increased production from Iran, Libya and U.S. shale oil, Saudi Arabia, Kuwait and Iraq said yesterday.
The comments came after OPEC decided earlier this month to keep output at a maximum of 30M bpd until June at least.
Libyan supplies have fallen to 250,000 bpd from 1.4M bpd in March, due to rebels closing oil export ports for the past five months. The country is prepared to use force to reopen those ports, Oil Minister Abdulbari Al-Arusi said.
Mexico’s sweeping energy reform clears its final major hurdle, as San Luis Potosi becomes the 17th state legislature to give rapid-fire approval to constitutional changes that will allow foreign investment into what has been a 75-year-old state monopoly.
An influx of Mexican oil would contribute to a glut that is expected to lower the price of Brent crude, which has averaged $108.62/bbl YTD, to as low as $88/bbl in 2017; Exxon's recent prediction that North American production would vault ahead of every OPEC member except Saudi Arabia doesn’t even take into account any changes in Mexico.
Although the first Mexican opportunities may go to the major independent oil companies in the U.S. and Europe, Chinese groups such as Cnooc (CEO) and Sinopec (SNP) will actively seek opportunities; Mexico's president plans to visit Beijing in 2014 and his trip may reveal whether Chinese firms are acceptable partners.
Energy Secretary Ernest Moniz has indicated that he's in favor of revisiting the U.S.'s severe restrictions on crude oil exports, which stretch back to the OPEC oil embargo in the 1970s.
Moniz said his department would carry out a technical analysis of the issue.
The debate about easing the limits comes as U.S. production surges because of the shale boom.
Oil companies are naturally in favor, and argue that it would cause world oil prices to fall and bring relief to American consumers; opponents of relaxing the restrictions argue that it will lead to higher gasoline prices.
Mexico's Congress approves the landmark energy bill allowing foreign investment in oil, ending the government's 75-year monopoly on crude production.
Under the new law, Mexico will offer profit-sharing and production-sharing contracts and licenses to foreign firms, but will maintain ownership of the oil while allowing the firms to book reserves, a crucial concern for oil companies that depend on reserves for valuation and borrowing.
The measure still needs approval from 17 of Mexico’s 31 state governments before becoming law, and there's plenty of opposition.
Booming U.S. production and the prospect of easing supply disruptions in the Middle East and North Africa has Deutsche Bank cutting its 2014 estimate for WTI crude by a whopping $10 per barrel to $88.75. At the moment, WTI is at $98.50, up 1.2% on today's session.
"We see the growing risk of an oil supply glut developing," says Michael Lewis, the bank's head of commodity research.
Any dip in price may be temporary though, as Deutsche expects OPEC to cut production to defend prices - a move likely to be successful, says the bank, due to its upbeat outlook for world growth.
Deutsche is also dour about the refiners, noting the current capacity glut is growing thanks to rapid and sizable expansions in Asia and the MIddle East. The industry would need to shut about 2M barrels/day of refining capacity (2% of the market) to balance the market, says the bank.
Legislators in Mexico are today due to start debating a draft bill to open up the country's energy industry and end the decades-long monopoly of state-run Pemex, which suffers from inefficiency, falling output and chronic under-investment.
The measures would allow private oil companies to explore for, produce, and refine oil and gas, as well as share and market the resources they extract. Firms would also be able to include the projected income of long-term contracts on their balance sheets, something that is crucial for obtaining funds. However, the proposals stop short of offering firms full-blow concessions - a loaded term in Mexico.
If the bill becomes law, it could add 50-100 bps to Mexico's GDP and prompt rating agencies to give the country's debt a positive outlook, says economist Pedro Tuesta.
Congress is expected to pass the legislation this week, as it's supported by the main opposition party as well as by the government, although it faces significant public hostility.
With U.S. and Iraqi oil output rising, and Iran possibly being allowed to export more oil next year, OPEC is divided about which member countries should trim production to offset the increase in crude supply.
The rift has emerged ahead of a meeting of the cartel in Vienna on Wednesday, when the group isn't expected to decide to lower output even though it projects that demand for its oil will slip 300,000 bpd in 2014. OPEC has maintained an overall limit of 30M bpd for two years.
Iraq is on course to produce 3M bpd this year, the most for at least 20 years, while Iran's exports could rise if diplomatic progress is made over its nuclear program.
A six-month deal to curtail Iran's nuclear ambitions is enough to send oil futures sliding 0.85% in Monday's early electronic trading. The easing of geopolitical tensions is usually a good excuse to pare bullish bets on crude.
Although the deal doesn't officially ease restrictions on crude oil sales, it does represent progress and some believe the agreement may be a precursor to the eventual resumption of exports.
"We can ... expect some price weakness as the market adjusts to the future prospect that Iranian exports will resume,” one Societe Generale strategist tells Bloomberg.
Iran and the P5+1 world powers have struck a six-month interim agreement in which the Persian nation will limit its nuclear program in exchange for an easing of international sanctions that will provide the country with $6-7B of foreign exchange.
However, "the key oil, banking, and financial sanctions architecture, remains in place," the White House said in a fact sheet.
"The EU crude oil ban will remain in effect and Iran will be held to approximately 1M bpd in sales, resulting in continuing lost sales worth an additional $4B per month," the sheet said.
Iran will eliminate uranium enriched to 20%, halt the installation of advanced centrifuges, refrain from commissioning its Arak heavy water reactor - from which plutonium can be made - and remove its stockpile of the fissile material, which is thought to be almost enough to make one nuclear bomb.
The sides now plan to spend the next six months working on a permanent deal.
The P5+1 and Iran have expressed satisfaction with the deal, but Israeli ministers have already rushed to the airwaves to denounce it.
Iran and the P5+1 world powers are due to meet again from today until Friday in an attempt to thrash out a deal in which the Persian nation would scale back its nuclear program in return for an easing of international sanctions.
While an interim deal was close last time the sides met earlier this month, President Obama has lowered expectations about the chances of an agreement this week. Much skepticism exists in Congress - where there's a push to ratchet up the sanctions - and amongst the U.S.'s allies, particularly Israel, about the suggested terms of any settlement.
However, if the sides do come to an agreement, analysts have said that oil prices could slide at the prospect of an Iranian return to the market.
WTI is +0.3% to $94.18 and Brent is flat at $106.94.
The International Energy Agency says in its annual report the U.S. will be the world’s no. 1 oil producer in 2015, surpassing Russia and Saudi Arabia, but fields in North Dakota and Texas will move past their peak in the next decade and the Middle East will reclaim its role as world leader in oil supply growth.
A high market price for oil will help stimulate drilling for light tight oil, the report says, but the resource is finite, and the low-cost suppliers are in the Middle East.
Sensitive commodity prices have rolled over in afternoon trade with Lockhart's December taper talk as good of an excuse for the move as any.
Off 2.1% to $93.14 per barrel, WTI crude (USO -1.9%) hits its lowest close since right around Memorial Day. As heating season gears up in the northeast, heating oil (UHN +0.5%) at $2.86 per gallon is about a dime cheaper than this time last year.
Gold is -1.2% to $1,265 per ounce, and now off about 10% since Labor Day. GLD -1.3%.