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U.S. oil exports could derail the global oil rally, says energy expert

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The U.S. is exporting crude oil at a record pace with no signs of slowing down. That has the potential to unbalance a global oil market in recovery, says energy expert Tom Kloza.

“The exports are what we need to focus on through the next 30 days,” Kloza, co-founder of the Oil Price Information Service, told CNBC’s “Futures Now” last week. High U.S. production could decide how oil prices trade in the second half of this year and through 2019, he added.

Domestic exports have not dipped below 1 million barrels a day since late November, as U.S. oil producers fill the void left by reduced capacity from Mexico and Venezuela. Higher demand for petroleum and gasoline in South America has also boosted appetite for North American oil.

U.S. crude oil exports rose to 2.175 million barrels per day, or more than 15 million a week, at the end of March. That marked its highest level on record.

“We think that number is going to go up to probably 20 million or more [a week], get to maybe 2.5 million barrels a day,” said Kloza. “The United States is in essence going to be exporting more than the United Arab Emirates, Kuwait, Nigeria, those individual countries.”

Rising U.S. production and exports comes at a time when other oil producers are ramping up their own activity, said Kloza.

Russia recently had “the highest output in about 11 months and there’s some hints that maybe they’re not going to be in this long-term supply cutting agreement with the Saudis,” said Kloza. On top of that, “we’re going to see higher production from Kazakhstan, from Brazil, from the United States, and from Canada.”

Global oil production may put a dent in the progress made the Organization of Petroleum Exporting Countries in correcting a supply-demand imbalance. In 2016, OPEC and some non-OPEC members had agreed to limit production to re balance oil markets after their late-2014 plunge.

Political events and international relations bring drastic moves to the market come summer. Among them, Kloza sees the Iraqi and Venezuelan elections in May and “superhawks” John Bolton and Mike Pompeo coming into the White House as possible market movers.

Crude oil is “the ultimate macroeconomic product,” Kloza said, saying that major banks like Morgan Stanley and Goldman Sachs estimate oil could top $70, a level Kloza said is “priced for pure perfection.” Still, a number of headwinds are developing to keep crude’s gains curtailed.

West Texas Intermediate and Brent crude were both more than 1 percent lower on Friday, as trade tensions between U.S. and China escalated. On Thursday evening, President Donald Trump announced he would consider levying an additional $100 billion in tariffs against China in response to possible tariffs on U.S.-made products such as soybeans.

“Trade wars, a recession, any notion of any weakness in global economies are going to cut into,” oil prices, Kloza said. “So keep that in mind. We might yet be priced for perfection but perfection is a pretty difficult thing to see.”

Kloza forecasts an average of $67 a barrel for Brent crude oil this year. It currently trades at that level.

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Morgan Stanley had $911 million loss in Q1 tied to Archegos meltdown

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Bill Hwang in 2012

Emile Warnsteker | Bloomberg | Getty Images

Morgan Stanley posted blockbuster results for the first quarter, but a single prime brokerage client cost the firm nearly $1 billion.

In its earnings results, Morgan Stanley said Friday it had a $644 million loss from a “credit event” for that client, as well as $267 million in related trading losses.

That client was Bill Hwang’s Archegos, Morgan Stanley CEO James Gorman said during a conference call with analysts, confirming what a person with knowledge of the situation told CNBC earlier.

While Morgan Stanley was the biggest prime broker to Archegos, other banks suffered larger losses. Credit Suisse, which CNBC has reported was the No. 2 broker to Archegos, took a $4.7 billion hit to unwind the losing bets and shuffled top managers because of the meltdown. Nomura said it could face $2 billion in losses.  

During his scheduled call with analysts to discuss the quarter, Gorman said Archegos owed it $644 million after its meltdown in late March.

“We liquidated some very large single stock positions through a series of block sales culminating on Sunday night, March 28,” Gorman said. “That resulted in a net loss of $644 million which represents the amount the client owed us under the transactions that they failed to pay us.”

He added: “Subsequently, we made a management decision to completely de-risk the remaining smaller long and short positions,” Gorman said. “We decided we would be out of the risk as rapidly as possible, and in so doing, incurred an incremental loss of $267 million. I regard that decision as necessary and money well spent.”

Morgan Stanley may have been misled by the family office, CFO Jon Pruzan said during the call. The bank held collateral for Archegos based on facts that turned out to be untrue, he said.

Archegos representatives could not immediately be located for comment. Its previous communications firm said it no longer represented the family office.

At least part of the Archegos loss was driven by the fact that Morgan Stanley had been an underwriter on ViacomCBS shares the previous week, so it held off selling a block of the company’s stock until Sunday, which caused the bank to be later in selling than others, Gorman said.

During the call, an analyst asked Gorman if the episode would change the firm’s approach to risk management in the prime brokerage business.

“I think we’ll certainly be looking hard at family office-type relationships where they are very concentrated and you have multiple prime brokers and frankly, the transparency and lack of disclosure relating to those institutions is just different” from hedge funds, Gorman said. “That’s something I’m sure the SEC is going to be looking at and that’s probably good for the whole industry.”

— CNBC’s Dawn Giel contributed to this report.

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‘Roaring Kitty’ stands to rake in millions on his GameStop options bet Friday

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The Reddit logo is seen on a smartphone in front of a displayed Wall Street Bets logo in this illustration taken January 28, 2021.

Dado Ruvic | Reuters

It could be a big payday for Keith Gill, the Reddit trading crowd’s favorite and the man who inspired the epic GameStop short squeeze.

Friday is the expiration date of Gill’s 500 call options contracts he bought at the beginning of 2021. Gill — who goes by DeepF——Value on Reddit and Roaring Kitty on YouTube — attracted an army of day traders who piled into the brick-and-mortar video game stock and call options, pushing the shares up 400% in a single week in January.

GameStop closed at $156.44 a share on Thursday, up 730% for the year. Assuming Gill still holds the contracts and sells them Friday, at a $12 strike price, he will make more than $7 million on his position (The options cost the buyer $10,000 in total.)

It’s unclear if Gill has already closed his position at a profit. His last update on Reddit’s r/WallStreetBets forum was on April 1, which showed 500 outstanding call options in a position worth more than $8 million at the time. (The post was not independently verified by CNBC so we are assuming that it is his actual account.)

Gill has also been holding 100,000 shares of GameStop, which he bought earlier this year at around $27 apiece, according to the screenshots he posts on Reddit. As of April 1, the stake gained more than $16 million. It wasn’t clear if he sold the shares this month.

The investor was a former marketer for Massachusetts Mutual Life Insurance. Through YouTube videos and Reddit posts, Gill encouraged a band of retail traders to squeeze out short selling hedge funds in GameStop.

The action got so wild at one point that brokerages including Robinhood had to restrict trading in the stock as it blew up their clearinghouse margin. The mania also led to a series of congressional hearings featuring Gill around brokers’ practice, and gamifying retail trading.

Gill owned 10,000 shares of GameStop at the end of 2020 and increased his holding to 50,000 shares in January and to 100,000 in mid-February. Judging from the updates he posted on Reddit, he never sold his GameStop stakes amid the monstrous short squeeze or in the aftermath.

The GameStop story is still far from over. Besides the scrutiny the saga brought on around retail trading, the company itself is in the middle of a transformation, hoping to capitalize on the massive rally in the stock price.

GameStop announced a $1 billion stock sale at the beginning of April to accelerate its e-commerce transition led by activist investor and board member Ryan Cohen, who is Chewy’s co-founder. The company also hired former Amazon and Google executive Jenna Owens as its new chief operating officer.

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Danish energy giant Orsted pivots to onshore wind in $684 million deal

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Closeup of a wind turbine nacelle on blue sky.

lupmotion | iStock | Getty Images

Orsted said Friday it had reached an agreement with Brookfield Renewable to purchase a 100% equity interest in the latter’s Irish and U.K. onshore wind business, Brookfield Renewable Ireland.

Orsted said the deal would see it enter Europe’s onshore market. In 2014 the company, which was then known as DONG Energy, divested its last activities in onshore wind to focus on the offshore sector.

According to Orsted, the agreement has an enterprise valuation of 571 million euros ($684 million), although this figure is subject to adjustments. The deal is slated to close in the second quarter of 2021.

Brookfield Renewable Ireland, or BRI, is headquartered in the Irish city of Cork and specializes in the development and operation of onshore wind farms.

Orsted described BRI as having “an attractive portfolio” which includes 389 megawatts (MW) in operation and under construction as well as a development pipeline of over 1 gigawatt (GW).

“In the US, we’ve built a strong onshore business with 4 GW in operation and under construction,” Orsted CEO, Mads Nipper, said in a statement.

“The European market for onshore wind power is expected to grow significantly in the coming years,” Nipper added.

He went on to state his firm’s acquisition of BRI would provide it with “a strong platform that expands our presence in onshore renewables to Europe.”

Europe is home to a well-developed wind energy industry. According to figures from WindEurope, 2020 saw 14.7 GW of wind energy capacity installed there.

The industry body says 80% of these installations were in the onshore sector, with total onshore capacity amounting to 194 GW.

In the U.S., onshore capacity stands at more than 122 GW, according to the American Clean Power Association. China, a dominant force in wind energy, boasts over 278 GW of onshore capacity, the Global Wind Energy Council says.

Capacity refers to the maximum amount that installations can produce, not what they are necessarily generating.

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