Saudi Arabia on Wednesday decided to drop the widely used West Texas Intermediate oil contract as the benchmark for pricing its oil, dealing a serious blow to the New York Mercantile Exchange.
The decision by the world’s biggest oil exporter could encourage other producers to abandon the benchmark and threatens the dominance of the world’s most heavily traded oil futures contract. It is the main contract traded on Nymex.
The move reveals the growing discontent of Riyadh and its US refinery customers with WTI after the price of the price of the benchmark became separatedfrom the global oil market this year.
The surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America’s pipeline system, depressed the value of the WTI against other global benchmarks, throwing the global oil market into disarray.
In January, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a discount of almost $12 – a record gap. This dislocation in the market continued well into the summer.
From January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil pricing company.
The Argus Sour Crude Index will track the price in the physical market of a basket of US Gulf Coast crudes, including Mars, Poseidon and Southern Green Canyon.
Argus said the change in policy reflected the “increased importance of the US Gulf coast sour crude market, in which both production and trading activity was rising sharply”.
Paul Horsnell, head of commodities research at Barclays Capital in London, said Saudi Arabia’s decision was likely to reflect a “wider discontent” from its customers in the US about WTI performance.
ExxonMobil, Marathon and Valero are among the US’s biggest buyers of Saudi crude oil.
Edward Morse, chief economist at LCM Commodities in New York, said: “It is a recognition by large players that WTI sometimes does not reflect the true value of crude oil in the waterborne market.”
Saudi Arabia has priced its oil using WTI since 1994.
The price was based on quotes from the physical market which were compiled by Platt’s, a unit of McGraw-Hill.
Oil companies then covered their exposure to WTI using the futures market on Nymex.
Bob Levin, managing director of market research at the CME Group-owned Nymex, said the exchange was ready to move with the market.
“We plan to introduce a cash-settled futures contract tracking the new Argus index,” he said.
Mike Vinciquerra, equity research analyst at BMO Capital Markets, said the new Argus index would not replace WTI. “It’s more a supplement,” he said
Wednesday, October 28, 2009
Wednesday, October 21, 2009
Not Peter Shiff, It is Karl Marx Right again
Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism.
Karl Marx, Das Kapital, 1867
The great October fall of the US dollar is turning into an avalanche. On Tuesday, the American currency lost nine kopeks in Russia and reached a new minimum mark this year - 29.5 rubles per dollar. Within six months (April through September) the dollar lost over 10 percent at the world foreign exchange trading, which marked the sharpest decline since 1991. Some experts believe that the American currency is close to collapse, which may lead to a new financial crisis.
The tendency of the US dollar devaluation has been observed for a few years, but the current rate of decline is unprecedented. Some jokesters even rushed to re-read the letters of Karl Marx to Friedrich Engels written during the US financial panic of 1857 discussing the collapse of America. It would have been funny if it wasn’t so serious.
The chief economist of HSBC Bank Stephen King believes that if the US officials fail to stop the fall of American currency, it may provoke another financial crisis. “A dollar collapse would be a disaster all round… It would leave the international monetary system short of stability and long of fear. It would unleash economic upheavals on a similar scale to those seen in the 1970,” King wrote for The Independent.
American officials don’t seem to be overly concerned since nothing is being done about it. The US hasn’t done anything to support the currency since 1955. But is a collapse inevitable? From the viewpoint of macroeconomic indicators, the US state of affairs is, indeed, scary: record budget deficit of $1.4 trillion, record state debt that now exceeds $11.9 trillion, high unemployment and weak currency. Huge inflows of capital into the economy that Obama is proud of haven’t yet shown results.
But on the other hand, weak currency may be good for the US.
“The economy is supported by industrial orders based on the current weak dollar and higher prices in the future. Key players in the market are ready to support their manufacturers by weakening the currency,” says Alexander Kuptsikevich, FxPro financial analyst.
If the state debt is growing, it means that the US continues to obtain loans.
“Market participants prefer to borrow money in dollars, and dollar loans are relatively affordable. They invest into more active instruments denominated in currencies of developing countries,’ explains Yevgeny Nadorshin, chief economist of Trust Investment Bank.
This causes growth of stock index. For example, Russian Trading System increased by 34 percent within two and a half months.
World center banks, who used to be trusted American partners, also turn their backs to dollar. They reduced investments into assets denominated in American currency. According to Barclays Capital , in April, May, and June, the banks invested 63% of their gains in euro or yen. If it continues, this may lead to further devaluation of dollar.
However, central banks of the countries that depend on export try not to let it happen. For example, last week a group of Asian central banks carried out unprecedented intervention in the financial markets by actively buying American currency. Bank of Russia was not a passive observer either. According to experts’ evaluations, the bank purchased over three billion dollars.
The good thing about it is that it helped Russian manufacturers to maintain competitiveness and bank reserves. The question is whether we would have to spend much more when investors change their minds and flee the Russian market changing their rubles into dollars. Last year we paid a high price for it.
“I’m not afraid that the events of the last year will repeat. The circumstances now are different. The world touched the bottom of the crisis and revival began, so there won’t be sharp moves,” says profile manager of Pilgrim Asset Management Olga Izyumova.
Yevgeniy Nadorshin agrees with her. He also thinks that dollar will continue weakening. But many experts think that as soon as the US announces the raise of interest rates, American currency will stop falling and even start growing. When is it going to happen?
Ben Bernanke, the Chairman of the United States Federal Reserve evades the answer. All he says is that this will happen when the US is sure of stable growth. On Tuesday investors discussed information obtained from the US official sources that the Federal Reserve will start raising interest rates no earlier than the second half of the next year.
Karl Marx, Das Kapital, 1867
The great October fall of the US dollar is turning into an avalanche. On Tuesday, the American currency lost nine kopeks in Russia and reached a new minimum mark this year - 29.5 rubles per dollar. Within six months (April through September) the dollar lost over 10 percent at the world foreign exchange trading, which marked the sharpest decline since 1991. Some experts believe that the American currency is close to collapse, which may lead to a new financial crisis.
The tendency of the US dollar devaluation has been observed for a few years, but the current rate of decline is unprecedented. Some jokesters even rushed to re-read the letters of Karl Marx to Friedrich Engels written during the US financial panic of 1857 discussing the collapse of America. It would have been funny if it wasn’t so serious.
The chief economist of HSBC Bank Stephen King believes that if the US officials fail to stop the fall of American currency, it may provoke another financial crisis. “A dollar collapse would be a disaster all round… It would leave the international monetary system short of stability and long of fear. It would unleash economic upheavals on a similar scale to those seen in the 1970,” King wrote for The Independent.
American officials don’t seem to be overly concerned since nothing is being done about it. The US hasn’t done anything to support the currency since 1955. But is a collapse inevitable? From the viewpoint of macroeconomic indicators, the US state of affairs is, indeed, scary: record budget deficit of $1.4 trillion, record state debt that now exceeds $11.9 trillion, high unemployment and weak currency. Huge inflows of capital into the economy that Obama is proud of haven’t yet shown results.
But on the other hand, weak currency may be good for the US.
“The economy is supported by industrial orders based on the current weak dollar and higher prices in the future. Key players in the market are ready to support their manufacturers by weakening the currency,” says Alexander Kuptsikevich, FxPro financial analyst.
If the state debt is growing, it means that the US continues to obtain loans.
“Market participants prefer to borrow money in dollars, and dollar loans are relatively affordable. They invest into more active instruments denominated in currencies of developing countries,’ explains Yevgeny Nadorshin, chief economist of Trust Investment Bank.
This causes growth of stock index. For example, Russian Trading System increased by 34 percent within two and a half months.
World center banks, who used to be trusted American partners, also turn their backs to dollar. They reduced investments into assets denominated in American currency. According to Barclays Capital , in April, May, and June, the banks invested 63% of their gains in euro or yen. If it continues, this may lead to further devaluation of dollar.
However, central banks of the countries that depend on export try not to let it happen. For example, last week a group of Asian central banks carried out unprecedented intervention in the financial markets by actively buying American currency. Bank of Russia was not a passive observer either. According to experts’ evaluations, the bank purchased over three billion dollars.
The good thing about it is that it helped Russian manufacturers to maintain competitiveness and bank reserves. The question is whether we would have to spend much more when investors change their minds and flee the Russian market changing their rubles into dollars. Last year we paid a high price for it.
“I’m not afraid that the events of the last year will repeat. The circumstances now are different. The world touched the bottom of the crisis and revival began, so there won’t be sharp moves,” says profile manager of Pilgrim Asset Management Olga Izyumova.
Yevgeniy Nadorshin agrees with her. He also thinks that dollar will continue weakening. But many experts think that as soon as the US announces the raise of interest rates, American currency will stop falling and even start growing. When is it going to happen?
Ben Bernanke, the Chairman of the United States Federal Reserve evades the answer. All he says is that this will happen when the US is sure of stable growth. On Tuesday investors discussed information obtained from the US official sources that the Federal Reserve will start raising interest rates no earlier than the second half of the next year.
Wednesday, October 14, 2009
Next Great Bubble is about to bust - NYC Commercial Real Estate
This one's been in trouble for awhile, and now WSJ is reporting that the epic NYC apartment complex Stuyvesant Town is just months away from implosion.
The 56-building, 11,000 unit complex was acquired at the peak of the bubble for $5.4 billion by Tishman Speyer and BlackRock, with investors ranging from CALPERS (naturally) to the Church of England (not as obvious).
Here's the deal:
Meanwhile, this sad state of affairs explains why StuyTown is so eager to advertise on subways and magazines, in a desperate bid to gain tenants? Perhaps you want to help them out and live in converted public housing (which is what it is).
The 56-building, 11,000 unit complex was acquired at the peak of the bubble for $5.4 billion by Tishman Speyer and BlackRock, with investors ranging from CALPERS (naturally) to the Church of England (not as obvious).
Here's the deal:
- The property is now thought to be worth just $2.1 billion.
- The buyers originally projected income would triple to $336 million in 2011, but right now it's only at $139 million.
- They've got just $33 million cash on hand from its interest reserves to cover its debt, and a burn rate of $16 million.
Meanwhile, this sad state of affairs explains why StuyTown is so eager to advertise on subways and magazines, in a desperate bid to gain tenants? Perhaps you want to help them out and live in converted public housing (which is what it is).
Subscribe to:
Posts (Atom)