BlackMask Breaking News

Producers may need to stick with output curbs for the entire year, and the cooperation of all is far from guaranteed.

OPEC+ may have put a floor under crude prices by extending oil supply cuts for another quarter, but the group will soon face a more grueling test. Saudi Arabia and its partners agreed Sunday to keep roughly 2 million barrels of daily output offline until midyear, a move that should balance global markets and buoy futures above $80 a barrel. Bullish traders may even cheer that alliance member Russia has pledged to focus more on constricting production than exports. If Moscow follows through, that may help tighten inventories when oil demand climbs during summer in the Northern Hemisphere. Yet a tougher choice lies in store when the Organization of Petroleum Exporting Countries and its partners hold their next ministerial meeting, scheduled for June 1 in Vienna.  If the coalition wants to prevent global markets from tipping back into surplus, it may need to persevere with output curbs for the entire year, projections from the International Energy Agency show. Other forecasters, such as Standard Chartered Plc, contend that demand will be strong enough for OPEC+ to relax the cuts and revive production. Saudi Arabia has shown it’s willing to keep a tight rein on supplies, but if cutbacks are prolonged further, the cooperation of fellow OPEC+ members is far from guaranteed. The producers have been restraining output — and sacrificing sales volumes — for most of the time since the group was founded in 2016. They must weigh up how much longer to keep oil in the ground when the energy transition is starting to erode demand growth. The United Arab Emirates is now sitting on about 1.5 million barrels a day of idle output, or about a third of its total, after investing substantially in new facilities. Abu Dhabi has always been eager to monetize its capacity, and has clashed before with Riyadh over the right to have it recognized. Then there’s Iraq, which is once again flouting its OPEC+ production quota while seeking revenues to rebuild its shattered economy. Baghdad has promised to do better, and will need to deliver for the group’s collective effort to succeed. “The need for unity and discipline must prevail,” brokerage PVM Oil Associates said. “OPEC+ will be sorely tested in 2024.” NN: what do you think will happen price of oil  When and if Mr drill baby  drill TRUMP  becomes president. And he  is a contender.

• OPEC and its allies extended output cuts to the end of June
• China unveils 5% GDP growth target this year at key meeting

Oil fluctuated between gains and losses as the economic outlook in the biggest importer China vied with OPEC+’s widely expected extension of output cuts. A slew of announcements from China’s National People’s Congress received only a lukewarm response from investors. Crude has been on a slow-motion ascent that has seen Brent gain around 7% this year, aided by strength in physical markets as chunks of global shipping avoid the Red Sea and OPEC+’s limiting of supply. That optimism has been tempered by strong production from outside of the cartel, a shaky demand outlook in China and the paring back of expectations for when central banks will start monetary easing. “OPEC+ must ensure that the measures agreed are implemented as strictly as possible so that the oil price remains above $80 per barrel even if the geopolitical risk premium recedes,” said Commerzbank analyst Carsten Fritsch. “An oversupply in the second quarter should now be avoided.  OPEC increased oil production last month as Libya restarted its biggest field, while other members faltered in the delivery of new cutbacks. The group’s output rose by 110,000 barrels a day to 26.68 million a day, according to a Bloomberg survey, as the North African nation ramped up the Sharara field, which was closed earlier in the year due to protests. the United Arab Emirates, continued to pump above a new quota set at the start of the year. However, an extension for a further three months was already expected.” China set its annual growth target at around 5%, raising expectations for officials to unleash more stimulus as they try to lift confidence in a slowing economy. The nation also set a more ambitious target for reducing the energy needed for economic expansion, or energy intensity, this year.

Oil prices shed over 1% on Monday despite rising tensions in the Red Sea and on the front lines of the Israel-Hamas conflict, with OPEC+ extending voluntary production cuts and demand sentiment taking a beating from an unusually mild winter. On Sunday, OPEC+ agreed to extend its 2.2-million-barrel/day voluntary production cuts for another quarter, with this outcome already having been priced in ahead of time. Russia also said it would deepen cuts by over 470,000 bpd in the second quarter of this year, while also easing curbs on exports. Russia already has a 500,000-bpd cut quote for production and exports.  While this was a surprise move, it failed to move the oil price needle on Monday.  “With OPEC loadings appearing steady and aggregate OPEC supply potentially showing little effect from incremental voluntary cuts implemented in Q1, we do not view the extensions from the broader group as particularly impactful,” Macquarie energy strategist Walt Chancellor told Reuters on Monday. Some analysts saw this morning’s brief increase in oil prices as a response to the Israel-Hamas conflict and the current stalemated ceasefire negotiations. “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.” Rystad Energy’s Jorge Leon told Reuters that OPEC+ cuts would result in 34.6 million bpd in output for Q2, down 1.4 million bpd from earlier forecasts. NN: Remember this. Its all about consumption. As it should be OPEC is worried. Mild winter, increased output especially from America and plunging demand. OPEC is not cutting production  because it  wants to….. It has to.. Problem it still needs to cut another million  BPD.

• Wharton Business School Professor Joao Gomes has said the debt mountain marks a ‘moment in history’ and it could ‘derail the next administration’
• Experts are currently predicting that the eye-watering debt-to-GDP ratio will reach 190 percent by 2050 if it remains on its current trajectory 

America’s $34 trillion debt will disrupt the global economy as early as next year if the next president pursues expensive policies, a finance expert has warned.  Wharton Business School Professor Joao Gomes has said the public debt mountain marks a ‘moment in history’ – and it could ‘derail the next administration’.’Toward the latter part of the decade we will have to deal with this,’ he told Fortune. ‘It could derail the next administration, frankly.  ‘If they come up with plans for large tax cuts or another big fiscal stimulus, the markets could rebel, interest rates could just spike right there and we would have a crisis in 2025. ‘It could very well happen. I’m very confident by the end of the decade one way or another, we will be there.’ Gomes warned he doesn’t think it will be considered a big issue by either the Republican or Democrat parties.

‘It’s a really obvious moment in history for us to say: “OK, what are our choices, what can we feasibly do, who has the better plan?”‘ he told Fortune.  ‘I suspect neither party is interested in that and it might all be pushed under the rug.’  Gomes is the Senior Vice Dean for Research, Centers and Academic Initiatives at Wharton Business School, part of the University of Pennsylvania.  US national debt reached a record high of $34 trillion at the end of 2023. Data published by the Treasury Department showed that outstanding federal borrowing soared to eye-watering figure on December 29. The staggering figure, which is a major point of contention between Republicans and Democrats, is equal to $101,233 in federal debt for every person in America, according to the Peter G. Peterson Foundation. The ballooning deficit means the US government spends more than $1.8 billion a day on interest payments alone, the bipartisan group found, which it said threatens America’s economic future. Experts warn that a higher debt load could put upward pressure on inflation, keeping interest rates higher and pushing up the cost of household borrowing. It could also impact major programs including Social Security and Medicare.

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