OPEC+ on Sunday agreed to extend its production cuts for another quarter, but the reaction from oil markets was relatively muted as the agreement had already been priced in. Early on Monday1 morning, Brent crude was trading at $83.4, while West Texas Intermediate was sitting at $79.70 per barrel. The extension of the 2.2-million-bpd production cuts from OPEC+ was anything but a surprise. Yet making it official at the Sunday meeting sent a clear signal about the course OPEC+ will continue following. “The decision sends a message of cohesion and confirms that the group is not in a hurry to return supply volumes, supporting the view that when this finally happens, it will be gradual,” Jefferies analyst Giacomo Romeo told the Financial Times. There was one surprise out of Russia, which has said it would deepen its cuts by some 471,000 bpd in the second quarter while easing curbs on exports, to stay within its 500,000 bpd cut quota that covers both production and exports. “If the Russian cuts are fully implemented additional barrels would be removed from the market. So that is a surprise move no one expected and could lift prices,” UBS’ Giovanni Staunovo told Reuters.
“The OPEC+ rollover was baked in, it’s the Gaza crisis that prices are responding to,” Vandana Hari, founder of Vanda Insights, told Bloomberg. “As long as the cease-fire negotiations remain in a stalemate, crude is likely to either hover around current levels or come under further upward pressure.”
At the same time, analysts from ANZ said in a note today that signs of supply tightening are also exerting an upward pressure on prices. “Signs of tightness in the physical market continue to push crude oil higher. Output cuts by the OPEC+ alliance continue to reduce supply as the market worries about the renewed tensions in the Middle East,” they said, as quoted by Reuters.
Default danger rises in high-yield debt, while stress in commercial real estate ramps up
Private loans are most likely to perform best in credit as other categories of risky corporate debt face more defaults, according to the latest Bloomberg Markets Live Pulse survey. More than 40% of 387 survey respondents said private credit will outperform over the next 12 months. And that’s despite a majority also predicting weaker returns and lower quality in direct loans, as competition between lenders intensifies. Private credit generally involves lending directly to companies at higher rates than publicly-syndicated bond and loan markets offer. Those making such loans say that they can glean more information about a borrower by going direct, and secure better claims on assets if it struggles to pay back. Because the debt is usually offered at a floating rate, investors benefit when underlying interest rates stay high. It also doesn’t trade very much — if at all — making the loans hard to value, but also less volatile in investors’ portfolios when global markets get choppy. US junk bonds and leveraged loans have returned about 11% over the last 12 months, compared with a 30% gain in the S&P 500. Private debt investors expect to generate returns in the high teens without the volatility typically seen in publicly-traded debt and equity markets.
The $1.7 trillion private credit boom is drawing criticism — and the attention of regulators — for its lack of transparency and perceived mispricing of risk.
But the preferences highlighted by the survey show investors positioning for a protracted period of elevated base rates and volatility in other asset classes. The worry for some investors is that it’s hard to see when borrowers fail to pay on time because lenders can negotiate ways to keep them afloat. That’s a particular concern when high-risk companies face bigger debt payments, slumping earnings and a looming maturity wall. Some fear it’s a bubble that could burst, inflicting pain elsewhere.
On that note, most survey respondents predict that private credit margins and covenant quality will decline over the next 12 months as public markets compete more fiercely for business. High-yield bond and leveraged loan issuance has picked up this year, with demand from yield-chasing investors helping to make those markets more attractive to US corporate buyers. Even with all these potential pitfalls, private credit is a safer bet than junk bonds if the US economy stumbles, a majority of survey respondents said. In addition, the survey highlights a bearish outlook for high-yield bonds, with spreads on the debt predicted to widen to about 450 basis points over Treasuries in 12 months. That compares with just above 310 bps currently and would mark a selloff to levels last seen in the middle of last year, around the time of the 2023 regional banking crisis. That risk-off move in more public debt markets reflects survey respondents’ expectations of a rise in missed debt payments by cash-strapped companies. About 90% of survey participants predict a default rate will keep rising, after it surged to about 4.7% in US junk bonds, according to S&P Global Ratings. Still, most don’t expect that to impact financial markets more broadly. The other lurking danger for credit investors, commercial real estate, is only expected to escalate. Asked whether CRE stress will deteriorate over the next 12 months, roughly three quarters of respondents said yes. Of those expressing concern, about half think it will only hurt banks, while the rest also expect it to rip through other asset classes. Only about a quarter of survey participants expect it to bottom out over the next year. NN: the trillions of debt due to be refinanced at twice the rate will give us a black swan event
Israeli Minister Without Portfolio Benny Gantz (pictured) is set to engage in several crucial diplomatic talks during his visit to Washington, according to his itinerary, disclosed by the National Unity Party. His visit is set to conclude on Tuesday with a pivotal meeting with US Secretary of State Antony Blinken. It will also feature anticipated dialogues with Vice President Kamala Harris, National Security Adviser Jake Sullivan, and Brett McGurk, the administration’s Middle East and North Africa coordinator. The news follows reports that alleged Gantz’s US visit lacked prior approval from Prime Minister Benjamin Netanyahu.
US rift with Netanyahu grows as top officials meet with his rival:
The Biden administration’s rift with Israeli Prime Minister Benjamin Netanyahu became even more acute Sunday, when Vice President Kamala Harris called for a cease-fire in Gaza the day before a controversial meeting with a top Israeli official and longtime Netanyahu rival. Israeli Cabinet minister Benny Gantz traveled to Washington without the endorsement of Netanyahu, who instructed the Israeli Embassy in the U.S. to withhold assistance in arranging his meetings, Israel Hayom reported. An official from Netanyahu’s far-right Likud party, who spoke on condition of anonymity, said Netanyahu had a “tough talk” with Gantz and told him the country has “just one prime minister.” Gantz, a centrist who joined Netanyahu’s hardline government following Hamas’ Oct. 7 attacks, arrives amid deep disagreements between Netanyahu and President Joe Biden over the Israeli military’s conduct in Gaza and a postwar vision for the enclave. Gantz is scheduled to meet Monday with Harris and national security adviser Jake Sullivan and on Tuesday with Secretary of State Antony Blinken, his National Unity Party said. They are expected to discuss the urgency of a hostage deal and cease-fire, the American commitment to increasing the flow of humanitarian aid to Gaza, and the imperative of reducing civilian casualties, a White House official told the New York Times. At an event Sunday commemorating the 1965 Bloody Sunday attacks on demonstrators in Selma, Alabama, Harris told the audience: “Given the immense scale of suffering in Gaza, there must be an immediate cease-fire for at least the next six weeks, which is what is currently on the table.” The U.S. has previously refrained from calling for a cease-fire but, along with Qatar and Egypt, has been trying to mediate a six-week truce that would lead to the release of hostages and enhanced aid for Gaza. NN: Biden refuses to speak to Netanyahu after relief convoy food riot. The will be a peace deal even if its crammed down BB’s throat.
United States Vice President Kamala Harris urged Israel and Hamas to arrange an “immediate ceasefire” in their fights in the Gaza Strip for “at least the next six weeks” due to “the immense scale of suffering” there. “What we are seeing every day in Gaza is devastating, and our common humanity compels us to act,” Harris wrote on X, formerly known as Twitter. Her comments came following the reports Israel will not go to Cairo for negotiations about a new ceasefire.
Israel reportedly won’t join ceasefire talks in Cairo
A delegation from Israel allegedly won’t join ceasefire talks in Cairo on Sunday due to Hamas declining to provide information on how many of the Hamas-held captives are still alive, Israeli news outlet Ynet reported. “Hamas refuses to provide clear answers and therefore there is no reason to dispatch the Israeli delegation,” the news agency quoted an Israeli official as saying. Al Jazeera reported that Hamas “does not care” if Israel joins the talks in Cairo. “We are here to meet with the Egyptian and Qatari brothers and to present the movement’s vision,” a senior Hamas official told the news agency, adding that Israel’s absence does not concern them. Alongside Hamas representatives, the talks had been joined by delegations from the United States and Qatar.
OPEC+ extended its oil supply cutbacks to the middle of the year in a bid to avert a global surplus and shore up prices. The curbs — which on paper total roughly 2 million barrels a day — will remain in place until the end of June, according to delegates who asked not to be identified because the information isn’t public. Group leader Saudi Arabia accounts for half of the pledged reduction. Traders and analysts had widely expected the extension, seeing it as necessary to offset a seasonal lull in world fuel consumption and soaring production from several of OPEC+’s rivals, most notably US shale drillers. An uncertain economic outlook in China is adding to the need for caution. Ample supplies have anchored international oil prices near $80 a barrel this year, even as conflict in the Middle East disrupts regional shipping. While that offers some relief for consumers after years of rampant inflation, prices may be a little low for many in the Organization of Petroleum Exporting Countries and its partners. Riyadh needs a price above $90 a barrel as it spends billions on an economic transformation that spans futuristic cities and sports tournaments, according to Fitch Ratings. Its largest partner in the alliance, Russia, also seeks revenue to continue waging war on Ukraine. In the first month of this year, the group’s implementation of the cutbacks didn’t live up to the pledged 2 million barrels a day. Iraq and Kazakhstan collectively pumped several hundred thousand barrels a day above their quotas, but promised to improve compliance and even compensate for any initial overproduction. Russia meanwhile, has shown a very mixed performance. It only recently fully implemented the production cutbacks it promised to make almost a year ago. In January, the nation reduced its exports of crude oil as agreed by roughly 300,000 barrels a day, but promised curbs to shipments of refined fuels were less clear. The group’s decision to extend its curbs for the second quarter may have been widely expected, but OPEC+ will likely face a tougher choice at its next scheduled meeting on June 1, when ministers will set policy for the second half of the year. Forecasts from the International Energy Agency in Paris suggest that, with growth in global oil demand slowing and new supply from the Americas soaring, OPEC+ will need to persevere with its cuts all year. “You don’t want to bring barrels back in too early,” Saad Rahim, chief economist of commodity trading giant Trafigura Group, told Bloomberg television last week. It’s unclear whether all members would be willing to subscribe to that policy. While Saudi Arabia has often urged the need for caution, its neighbor the United Arab Emirates has been keen to make use of recent investments in new production capacity. Some forecasters believe that won’t be a problem, as strengthening demand will allow the group to relax its curbs and add more barrels later in the year. There has been “an improvement in overall market fundamentals,” said Paul Horsnell, head of commodities research at Standard Chartered Bank Plc. “OPEC could increase output” without flooding world inventories. NN: this widely expected production cut announcement was timed to lesson market fallout if some kind of peace deal with Israel is agreed to in the next week. PLEASE NOTE: The differential in Brent a year out is a whopping negative $7.00. This is extreme backwardation.
A Hamas delegation, alongside representatives from Qatar and the United States, arrived in Cairo on Sunday for discussions on a potential temporary ceasefire and a hostage deal in the Gaza Strip, Palestinian media reported. The absence of an Israeli delegation in the Egyptian capital has been noted, however, the country is set to join during the day, contingent upon receiving a complete list of hostages held by Hamas since its October 7 attack on southern Israel, according to the Egyptian Al-Qahira television channel. A tentative framework for a six-week pause awaits final approval from both Israel and Hamas.
Hamas reportedly says Gaza ceasefire possible in 24-48 hours
A senior Hamas official told AFP on Sunday that a potential ceasefire in Gaza could be finalized “within 24 to 48 hours” if Israel agrees to Hamas’s terms during the ongoing negotiations. The official, who spoke anonymously, reportedly emphasized that key demands include the return of displaced Palestinians to northern Gaza and an increase in humanitarian aid, noting that the prospect of a truce hinges on Israel’s willingness to meet these conditions. The news comes after delegations of Hamas, Qatar and the United States arrived in Cairo to resume ceasefire talks, with Israeli representatives expected to join later.
OPEC raised its oil production in January despite voluntary production cuts that the group was supposed to be adhering to, according to new data published on Friday by Bloomberg.
A new Bloomberg survey showed that OPEC’s production rose by 110,000 barrels per day to 26.68 million barrels per day—with Libya accounting for much of the increase as it brought production back online at its Sharara oilfield.
Iraq—a chronic overproducer, did lower its February production, but it is still producing more than its agreement with OPEC calls for. The survey showed that the UAE also produced more than its quota. OPEC voluntarily agreed to deepen its oil production cuts for the first quarter of this year, although several members have been struggling to meet those commitments. Several countries have promised to make up for any overages in subsequent months. Most analysts predict that OPEC+ will extend its production cuts into the second quarter, and the market is eagerly awaiting the news from the group regarding their plans for April and beyond. OPEC+’s voluntary production cuts could even be extended through the end of the year, three OPEC+ sources told Reuters earlier this week. The sources said that extending the cuts into the second quarter was “likely”. OPEC+ members collectively decided to voluntarily cut 2.2 million bpd from the group’s production this quarter, although much of that was production cuts that were already in effect, including Saudi Arabia’s 1 million bpd voluntary cut. Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, has always left the door open to extending the cuts, saying as far back as December that the production cuts could extend beyond March should the market require it. NN: They are playing lip service to production cuts. Do not be fooled.
Israeli representatives informed Qatari and Egyptian mediators that they are not ready to continue negotiations on the ceasefire deal until Hamas provides the list of the hostages who are still alive and gives a concrete response on the number of Palestinian prisoners that the mediators suggested to be released, Axios reported on Friday citing two Israeli officials with knowledge of the matter. Egypt and Qatar previously promised they would put more pressure on Hamas if Israel accepted sending its delegation to Doha for talks. “The mediators promised that Hamas would give numbers and that didn’t happen,” an Israeli official told the media outlet, adding that the country’s delegation returned from Qatar on Thursday without answers. Israel is currently waiting to hear whether United States President Joe Biden’s talks with representatives of Qatar and Egypt, held on Thursday, will have any effect and push Hamas to provide answers.
Egypt expects ceasefire deal to be agreed by Ramadan
Egyptian Foreign Minister Sameh Shoukry said on Friday that his country expects the agreement on a ceasefire in the Gaza Strip to be reached by Ramadan, which should begin on March 10 or 11. “We are hopeful that we can reach a cessation of hostilities and exchange of hostages. Everyone recognizes that we have a time limit to be successful before the start of Ramadan,” the minister stated at the Antalya Diplomacy Forum in Turkey. Previously, United States President Joe Biden said that he hoped a ceasefire deal to be reached by Monday, March 4, but retracted it on Thursday after the Israeli military opened fire on Palestinians waiting for humanitarian aid in Gaza City, leaving over a hundred dead.
NN: OPEC has got a big problem here. Any perceived market tightness is VERY TEMPORARY. All we are seeing is a 10 to 15 day delay as oil avoids the red s ea. A lot of DELAYED cargoes, but none lost, start arriving this month. And as we continue to publish Europe and China are in a real slow down. Add to that the Middle East is as ugly as it gets. And no oil has been lost to that war. So the two variables are OPEC extending production cuts and peace in the middle east. OPEC is widely expected to extend production cuts. But at $84 Brent no one is going to comply with the cuts. And they are over their dream price. In the Israel Hamas war i believe its run its course. Biden is about to step on Israels dick and shut off its water. THE MARKET IS SOON A SELL. WAIT FOR PEACE IN THE VALLEY
The price of a WTI barrel soared to heights not seen since November as the market braces for an OPEC+ decision on oil production levels in April and beyond. Behind the rise in price is the market’s anticipation that OPEC+ will extend its voluntary production cuts for the next quarter and the volatility that could come from updated U.S. crude oil and crude products inventory data that will be released from the American Petroleum Institute (API) at 4:30 pm ET on Tuesday. WTI prices are now at their highest level since early November 2023. The market is anxiously awaiting a decision from OPEC+ on the plan for Q2 2024. The group has yet to divulge a date when it will meet to discuss the issue with its members, although April is quickly approaching. OPEC+ will need to determine whether it will stay the course and extend the current voluntary production cuts into the second quarter, whether it will deepen the cuts, or whether it will scale them back or scrap the cuts altogether. Most industry watchers favor the first option, arguing that OPEC+ has no choice but to extend the current level of production cuts if it wants to keep prices from falling. This weeks price rise does provide OPEC+ with a bit of cover, although OPEC+ still insists it is not managing prices but managing supply based on market needs. NN: OPEC has got a big problem here. Any perceived market tightness is VERY TEMPORARY. All we are seeing is 10 to 15 day delay as oil avoids the red s ea. A lot of DELAYED cargoes none lost start arriving this month. And as we continue to publish Europe and China are in a real slow down. Add to that the Middle East is as ugly as it gets. And no oil has been lost to that war. So the two variables are OPEC extending production cuts and peace in the middle east. OPEC is widely expected to extend production cuts. But at $84 Brent no one is going to comply with the cuts. And they are over their dream price. In the Israel Hamas war i believe its run its course. Biden is about to step on Israels dick and shut off its water. THE MARKET IS SOON A SELL. WAIT FOR PEACE IN THE VALLEY