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Shale Producers Face $42 Billion In Hedging Losses

  • BloombergNEF: hedging losses are mounting in U.S. shale.
  • Hess Corp found itself spending $325 million in March to exit hedges at a serious loss.
  • Shale giant Pioneer lost $2 billion to exit hedges last year.

With earnings season underway, America’s shale producers are expected, almost across the board, to report stellar earnings, but as Bloomberg reports, they’ll also be taking huge losses from hedging against falling oil prices.  In total, BloombergNEF estimates that through next year, U.S. shale companies will face $42 billion in oil and gas hedging losses, based on 2021 data. That means that while balance sheets might remain intact, companies will spend big to exit positions.

BloombergNEF notes that Hess Corp found itself spending $325 million in March to exit hedges at a serious loss, while Pioneer paid a similar amount to exit and lost $2B on hedges last year, while EOG lost $2.8 billion in Q1. 

Dropping those hedges could mean a lot more revenue for shale producers this year; however, there’s a substantial amount of risk that comes with that if oil prices fall and no hedges are in place.  “These large companies, their balance sheets are so much cleaner and their risk appetite is higher,” Bloomberg quoted Enverus analyst Andy McConn as saying. “They’ve recognized the demand from investors for exposure to the near-term prices. And so all those things considered, they’re saying, it’s worth our interest to just get rid of hedges.” Smaller Appalachian natural gas companies are also feeling the hedging pain, with less ability to manage it. Pennsylvania-based EQT recorded $3 billion in losses on derivatives that were not designated as hedges, according to the Post Gazette, while CNX lost some $1.7 billion in the first quarter, compared with $1 billion in losses for Texas-based Range Resources.  For 2022, EQT has some 65% of its production hedged. For 2023, it has nearly half hedged, but gas prices are still rising.  NN: I have been know as a lucky guesser when hedging. And the best thing to do is if your a trader trade. And if your a producer produce. DO NOT HEDGE. Their is no really saftey or price protection. Sorry that is how the world works. I have advise producers for years to sell high price product when prices are high. And sell low priced product when prices are low… AND do not borrow against your production……

 

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Kuwait Follows Saudis In Slashing Oil Prices For Asia

Kuwait has become the second-largest OPEC member to cut its prices for Asia this month after Saudi Arabia cut its export prices for the first time in four months.

Per a Reuters report citing a Kuwaiti document, the exporter slashed Kuwait Export Crude prices for June oil deliveries to Asia by as much as $4.95 per barrel from the prior month to a $4.35 premium to the DME Oman and Platts Dubai benchmarks.

Kuwait also lowered the price of its Super Light Crude by $4.95 per barrel to $4.70 above the DME Oman and Platts Dubai benchmarks. Kuwaiti oil prices had hit a record high in May, the report noted. However, it seems that the lockdowns in China are beginning to worry exporters, prompting them to adjust prices. Saudi Aramco reduced its oil export prices for the first time in four months this week as China locks down cities with millions of residents in pursuit of its zero-Covid policy. According to a Bloomberg report, Aramco cut the price for its Super Light for Asia by more than $5 per barrel ad the price for its Extra Light by $4.95 per barrel for June deliveries. Crude oil prices for Europe were reduced more moderately by the Saudi state giant, by between $2 and $3 per barrel, Bloomberg also reported. Prices for exports to the United States remained unchanged from May. Meanwhile, Kuwait is supporting the united front that OPEC+ is demonstrating to an increasingly oil-hungry world. Last week, the country’s oil minister said the OPEC+ deal to add moderate amounts of oil to monthly production ensured market stability and balance. This week, the opinion was echoed by the UAE’s Suhail Al Mazrouei, who said, as quoted by Reuters, that the oil market is balanced and the price volatility comes from the fact that “some don’t want to buy certain crudes and it takes time for traders to move from one market to another.” NN: Besides the fact we had big profits the main driver in “taking Profits” Friday was the fact the market in crude is oversupplied for now. With oil at $108 a barrel and the equivalent grades out of the middle east selling around $100 a barrel i decided to take the money and run. The crises is in refined products. And unless and until Russian crude is remove form the market its hard to justify crude oil at these NY prices. When we get oil production cuts and increased demand its wise to not play RUSSIAN ROULETTE in the oil market.

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Powell: Would have been better for Fed to have raised interest rates ‘a little sooner’

Federal Reserve Chairman Jerome Powell on Thursday said he agrees with what many economists are saying — that the U.S. central bank was late to pivot policy and start raising its benchmark interest rate. “I have said, and I will say again that, you know, if you had perfect hindsight, you’d go back and it probably would have been better for us to have raised rates a little sooner,” Powell said, in an interview with Marketplace that will air this evening. “I’m not sure how much difference it would have made, but we have to make decisions in real time, based on what we know then, and we did the best we could,” he added. The Fed didn’t hike rates until March. Some economists, including former Fed Gov. Randal Quarles, think the first move should have come last September. On Thursday, the Senate confirmed Powell to a second four-year term as Fed chairman, ending in 2026. Economists say Powell gets an “incomplete” on his first term, at least until it is clear whether the Fed can bring down inflation from an over-8% annual rate without causing a severe contraction. Asked for five words to describe his thinking, Powell said “get inflation under control.” Powell has said that it is possible for the Fed to cool inflation without causing a severe recession. This is called a “soft landing,” In the Marketplace interview, the Fed chairman said that the central bank’s plans to achieve a soft landing isn’t entirely in its own hands. “So the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control,” Powell said. What the Fed can control is demand in the economy, and it will be raising rates to try to “moderate demand in a way that lets the labor market get back in balance and help inflation get back to 2%,” he said. At its policy meeting last week, the Fed raised its benchmark interest rate by a half-percentage-point increase, the biggest hike in over 20 years. At the meeting, Powell said the Fed thought that “if the economy performs about as expected, that it would be appropriate for there to be additional 50-basis-point increases at the next two meetings.” Asked about the possibility of an even larger rate hike — a 75-basis-point move that has only been made one time — Powell prevaricated. He quibbled with the suggestion that he had taken such a large move “off the table.” “I said we weren’t actively considering that,” Powell said. “But I would just say, we have a series of expectations about the economy. If things come in better than we expect, then we’re prepared to do less. If they come in worse than we expect, then we’re prepared to do more.” Asked if “prepared to do more” meant a 75-basis-point hike, Powell said it was clear the central bankers would “adapt to the incoming data and the evolving outlook.” Financial markets have been unsettled since the Fed’s meeting on May 4. The Dow Jones Industrial Average DJIA, 1.20% has fallen for six straight trading sessions, while the S&P 500 index SPX, 1.91% has flirted with bear-market territory. The yield on the 10-year Treasury note TMUBMUSD10Y, 2.907% has remained just below 3%.. NN:Never has a Fed made a bigger mistake. Inflation as out of control. And the oil embargo and record gasoline, natural gas and diesel fuel price are the straw that broke the camels back……. A global depression is coming……

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Oil extends gains, up over 3%

Crude futures extended gains on Friday, rising more than 3%, as concerns about an impending European embargo on Russian oil pushed prices up. Ukrainian Foreign Minister Dmytro Kuleba urged the European Union once again to impose oil sanctions against Russia and expressed hope Hungary will cave in and approve the embargo. Investors also digested OPEC’s monthly report in which the organization said it expects global demand to slow to 1.9 million barrels per day (bpd) in the second quarter. International benchmark Brent for deliveries in July jumped 3.33% to go for $111.42 per barrel at 2:33 pm ET and West Texas Intermediate (WTI) for settlements in June climbed 3.63% to go for $110.36 per barrel at the same time.

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Russia Could Cut Gas Supplies To Finland Tomorrow

Hours after Moscow warned there would be retaliation for Helsinki’s announcement that it is applying for NATO membership, Finnish media reports that the Kremlin threatened to cut the country off from Russian gas by Friday.  Citing unnamed sources, Finland’s Iltalehti reported the Russian warning to politicians, who refrained from specific comment. Prior to this warning, the local media outlet noted expectations that Finland would be cut off from Russian gas after May 23rd, when its next contract payment with Gazprom comes due and the country refuses to pay in rubles. In late April, Russia cut off gas supplies to Poland and Bulgaria for refusing to pay in accordance with the Kremlin’s ruble scheme.  Speaking to Iltalehti on Thursday, Finnish Defense Minister Antti Kaikkonen said he could not confirm the warning.
Parliamentary group chairman Ville Tavio told Iltalehti that working groups had been informed of “various scenarios of Russia’s retaliation”, noting that preparations have already been made.   Between 60% and 70% of Finland’s natural gas comes from Russia, though the country’s main sources of energy are oil, biomass and nuclear power, with natural gas representing only 5% of the total consumption. According to the Finnish government, renewable energy surpassed fossil fuels and peat in total energy consumption in 2020, leaving the country less dependent on Russian energy sources.  On Thursday, Finland announced their intention to apply for fast-tracked NATO membership due to Russian aggression in Ukraine. Sweden is expected to make its announcement in the coming days, according to the Associated Press.  “Finland must apply for NATO membership without delay,” President Sauli Niinisto and Prime Minister Sanna Marin said. “We hope that the national steps still needed to make this decision will be taken rapidly within the next few days.” Russia has also threatened “military-technical” retaliation against Finland if it joins NATO.  “Russia will be forced to take retaliatory steps, both of a military-technical and other nature, in order to stop the threats to its national security that arise in this regard,” the Russian foreign ministry said. NN: This is really stupid. Putin’s war is all amour stopping NATO’s aggression. The way he sees it NATO is preparing for an invasion. He was horrified as NATO supplied sophisticated Rockets, Fighter Jets and radar defense systems to former Soviet Block Nations. Putin feels he is backed into a corner. The last thing you would want to do is make him more desperate. Expanding NATO will not back him down. Just the opposite it makes him more desperate. This is not the way to deal with a man who has the worlds biggest nuclear arsenal and the fastest known to man unstoppable Hyper missle. Oh and the largest fossil fuel supplier in the world.

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Sanctions on Russia could lead to monetary crisis – Medvedev

Russian Security Council Deputy Chairman Dmitry Medvedev explained that the possibility of a new monetary crisis is high due to uncertainties in the markets led by sanctions imposed against Moscow, the chairman wrote on his Telegram channel on Friday. Medved also warned of the “full-fledged international food crisis” that could potentially lead to starvation in certain countries, noting this will be a direct consequence of the sanctions the West has imposed against Russia. Therefore, the chairman asserted the high probability of increased military conflicts in “unstable regions” as well as an increase in terrorist activities across the globe, as Western authorities remain focused on sanctioning Moscow following the Ukrainian conflict. In addition to this, Medvedev warned of new epidemics outbreaks as a result of biological weapons or rejection of cooperation in resolving health crises globally. Meanwhile, he asserted that the potential conflict between Russia and NATO could turn into “nuclear war,” as the alliance continues supplying Ukraine with weapons and conducting military drills in the country.

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Powell: Hard landing is a possibility… AKA a Depression

https://www.marketplace.org/shows/make-me-smart/we-learn-some-of-what-jerome-powell-is-thinking

Federal Reserve Chairman Jerome Powell warned Thursday that getting inflation under control could cause some economic pain but remains his top priority.

Powell said he couldn’t promise a so-called soft landing for the economy as the Fed raises interest rates to tamp down price increases running near their fastest pace in more than 40 years.

“So a soft landing is, is really just getting back to 2% inflation while keeping the labor market strong. And it’s quite challenging to accomplish that right now, for a couple of reasons,” the central bank chief said in an interview with Marketplace. He noted that with a tight labor market pushing up wages, avoiding a recession that often follows aggressive policy tightening will be a challenge. “So it will be challenging, it won’t be easy. No one here thinks that it will be easy,” he said. “Nonetheless, we think there are pathways … for us to get there.” The remarks were published the same day the Senate overwhelmingly confirmed Powell for a second term, a move that came nearly seven months after President Joe Biden first submitted the nomination. On top of the list for his second-term priorities will be to control price inflation that in April ran at an 8.3% annual rate, just off a more than 40-year high posted in March. The Fed last week approved a half percentage point interest rate increase that followed a quarter-point hike in March. Markets expect the rate-setting Federal Open Market Committee to hike another half-point in June and to keep increasing benchmark rates through the end of the year. For his part, Powell said he understands the added pain that higher rates may cause, but said the Fed needs to act aggressively. “Our goal, of course, is to get inflation back down to 2% without having the economy go into recession, or, to put it this way, with the labor market remaining fairly strong,” he said. “That’s what we’re trying to achieve. I think the one thing we really cannot do is to fail to restore price stability, though. Nothing in the economy works, the economy doesn’t work for anybody without price stability.” Powell has come under some criticism for the Fed’s delay in raising rates and halting its bond-buying program even as inflation mounted. Moreover, at his post-meeting news conference last week, he made remarks that were interpreted as taking more aggressive steps, like a 75 basis point increase, off the table. He said in the Marketplace interview that he’s “not sure how much difference it would have made” to act more quickly, adding, “we did the best we could.” “Now, we see the picture clearly and we’re determined to use our tools to get us back to price stability,” Powell said. NN: What a colossal fuck up. Finally they admit that their doctoral algo analysis was wrong. Now he is preparing you for the hard landing. And once again he is blowing blue sky up your ass. It will not be a landing unless you consider a crash candying a landing. I call it a wreck at the end of the runway. As in a full blow depression, stock market crash and a real estate wipe out. And for good measure throw in rioting in the streets, famine and anarchy.

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More Oil From U.S. Strategic Petroleum Reserve Heads To Europe

Europe is set to receive more cargoes of U.S. crude from the Strategic Petroleum Reserve (SPR) as the European Union discusses an oil embargo on Russia and looks to reduce reliance on Russian oil, Bloomberg reported on Thursday, citing tanker-tracking data and sources with knowledge of the shipments.

In recent weeks, Europe has increased purchases of U.S. crude as it considers the details of a ban on imports of Russian crude and refined products.

A week after the European Commission officially proposed a full ban on Russian crude and oil product imports by the end of the year, the EU is still scrambling to find a common position, trying to persuade Hungary and some other central European countries to drop their opposition to an embargo. “We made progress, but further work is needed,” European Commission President Ursula von der Leyen said late on Monday following a meeting with Hungarian Prime Minister Viktor Orban.

Meanwhile, U.S. crude is flowing to Europe at rates never seen before.  

Two cargoes of high-sulfur crude from the U.S. strategic reserve are headed to Italy and the Netherlands, according to tanker-tracking data and sources briefed by Bloomberg. The tankers have loaded crude at terminals connected to storage caverns of the SPR in Texas and Louisiana. According to Matt Smith, oil analyst at commodity data firm Kpler, these would not be the last crude exports out of the U.S. SPR to Europe. In April, some 1.6 million barrels of U.S. crude from the strategic reserve made its way to Europe, Smith told Bloomberg, adding: “That’s the largest amount of SPR crude that’s been shipped to the continent based on historical monthly data.” Although the EU is still working out the details of an embargo on Russia’s oil, many buyers in Europe are generally staying away from Russian crude and products, while May 15 is the deadline for European buyers to wind down and halt transactions with Russian oil firms, including Rosneft.  NN: Since the SHIT oil from the strategic reserve has been released crude oil prices have gone up by $20 a barrel. Does it make any sense. Their has been no benefit from Biden’s release of crude to Americans. In fact distillate supplies(gasoline, diesel and jet fuel)  have plunged and prices are at record highs because the oil went to the refineries in Europe… STUPIDITY on exhibition.

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Russia Curbs Gas Supplies to Germany in Warning for Europe

Germany said Russia is using energy as a “weapon” after Moscow reduced natural gas supplies in retaliation for Europe’s penalties over the war in Ukraine. A unit of Gazprom PJSC that was seized by Germany has had its deliveries reduced by about 10 million cubic meters a day, according to German Economy Minister Robert Habeck. While the move appears to be largely symbolic — amounting to about 3% of Germany’s Russian gas imports, according to Habeck, the Kremlin is showing it won’t shy away from squeezing its largest customer. Benchmark gas prices in Europe surged more than 20%.“The situation is escalating to the point that the use of energy as a weapon is becoming a reality,” Habeck told reporters on Thursday in response to Russia’s move.  On top of the German standoff, shipments to Europe via Ukraine were curtailed on Thursday after a key cross-border entry point was put out of action because of troop activity on the ground, according to Kyiv. Moscow’s counter-sanctions also targeted a pipeline that crosses Poland, removing a potential backup route for European customers to receive Russian gas.

Natural Gas Runs Through Ukraine

Source: The Oxford Institute for Energy Studies Note: Only the portion of pipelines that run through Ukraine are displayed on the map

The tension comes just as a solution appeared to be emerging for what has been the main headache for weeks — Moscow’s demand for ruble payments for its gas. Companies including German giant Uniper SE were increasingly confident they could keep buying Russian supplies without breaching sanctions.  Italian Prime Minister Mario Draghi on Wednesday seemed to back such a move, and more European buyers are opening ruble accounts.  Germany has been seeking to wean itself off Russian gas, but it still accounts for about 35% of the country’s supplies, down from more than half before the invasion of Ukraine in late February. It will take another step later this year when the its first floating liquefied natural gas terminal goes on line. Habeck said Germany can cope with the latest disruption in part by securing alternative supplies, adding that there’s no need to elevate Germany’s alert level in response to Moscow’s sanctions against Gazprom Germania GmbH. The country’s three-stage emergency plan, which is currently at its first level, could see its network regulator eventually ration gas if supplies get tight. The fuel is a crucial part of the energy mix of Europe’s largest economy. Some 15% of Germany’s electricity is generated from gas — compared with less than 9% in 2000, as the country winds down nuclear and coal. The fuel is also critical for heating homes and industrial processes in the chemicals and pharmaceuticals sectors. Moscow prohibited dealings with Gazprom Germania and its various subsidiaries now under the control of Germany’s energy regulator. That includes energy supplier Wingas GmbH, a European gas storage business, the London-based trading arm of Gazprom and EuRoPol Gaz, owner of the Polish section of the Yamal-Europe pipeline connecting Russia to Germany.

Russia Order Bans Using Europol Pipe for European Flows: Gazprom

Germany last month temporarily took control of Gazprom Germania. Most of the group’s companies had come under pressure after clients and business partners refused to do business with them after Russia’s invasion of Ukraine. That raised the prospect that owners of key European energy infrastructure wouldn’t survive. “We are monitoring the situation closely,” he told lawmakers earlier Thursday. “Energy can be used powerfully in an economic conflict.” NN: It should be pretty obvious that its a energy war and the democracies of the world are losing.

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OPEC+ Misses Production Target By Whopping 2.7 Million Bpd

  • All 13 members of OPEC saw their production rise by just 153,000 barrels per day.
  • OPEC’s collective production rose to 28.648 million bpd in April.
  • Saudi Arabia, raised its production by 127,000 bpd to 10.346 million bpd in April.

OPEC continues to undershoot its oil production target in the OPEC+ deal, failing in April to boost output as much as required by the agreement. All 13 members of OPEC – including Iran, Libya, and Venezuela exempted from the OPEC+ deal – saw their production rise by just 153,000 barrels per day (bpd) collectively, to 28.648 million bpd in April, the organization’s Monthly Oil Market Report (MOMR) showed on Thursday. The top three OPEC producers, Saudi Arabia, Iraq and the UAE, saw the highest increases in their respective oil production last month, while output in Libya plunged by 161,000 bpd to below 1 million bpd, at 913,000 bpd, according to OPEC’s secondary sources. Libyan oilfields and terminals have again been under blockade in recent weeks amid protests, clashes, and disputes over the distribution of oil revenues in the country with two rival governments, with incumbent Prime Minister Abdul Hamid Dbeibah refusing to step down for newly sworn-in eastern Prime Minister Fathi Bashaga. Excluding Libya and the other two producers exempted from the OPEC+ deal, the ten OPEC members bound by the agreement saw their collective production at 24.464 million bpd in April, OPEC’s figures showed. This compares with a collective quota for OPEC-10 of 25.315 million bpd for last month.

The gap is more than 800,000 bpd, mostly due to severe underperformance from African members Angola and Nigeria, which have been pumping 300,000 bpd-400,000 bpd below quotas each, for months, due to a lack of investment and capacity.

Per OPEC’s secondary sources, the biggest OPEC producer, Saudi Arabia, raised its production by 127,000 bpd to 10.346 million bpd in April, versus a quota nearly 100,000 bpd higher – 10.436 million bpd. The Kingdom, however, self-reported to OPEC higher production, one of 10.441 million bpd.


Image source: commoditycontext.com

Secondary sources showed that OPEC’s second-largest producer, Iraq, boosted production by 103,000 bpd to 4.405 million bpd, nearly reaching its April quota of 4.414 million bpd. Last week, the wider OPEC+ group agreed to leave its production plan unchanged, aiming to boost crude oil production in June by 432,000 bpd, in a move widely expected by the market. While OPEC+ is sticking to its policy of modest monthly increases, many of its members are not pumping to their quotas and the group is estimated to be around 1.5 million bpd below its quota.   NN: the market is grossly undersupplied. Do not kid yourself we are seeing a seventies style oil embargo. AND their will be shortages and rationing….