If BP (BP) didn’t comprehend it before, the U.S. Supreme Court simply created it signally clear: nation oil producer has backed itself into a perilously vulnerable position within the Gulf of United Mexican States spill-liability wars. Associate in nursing abrupt “no thanks” to BP’s invitation—which, as is their follow, the justices didn’t explain—could have a lot of broader implications. Currently that they choose, Carl Barbier of latest Orleans, not should worry regarding the Supreme Court second-guessing his oversight of the BP case, it’s possible BP pays an upscale penalty for having repeatedly challenged the integrity of the settlement method he has overseen and defended.
Plaintiffs’ attorneys Sir Leslie Stephen Woodrow Charles Herman and James Roy same in a very statement that the high court’s rebuff “should finally place to rest BP’s biennial attack on its own settlement.” Seeking to avoid an attempt on one class of doubtless intensive business and economic claims, the company united in 2012 to a settlement whose value it calculable at $7.8 billion. It had been this portion of the dispute that the Supreme Court declined to review. BP miscalculated that it may draw the justices into the case at this stage.
Having questioned Barbier’s oversight of the settlement method, BP may very well have drawn extra attention to the pact’s loose terms. Geoff Morrell, BP’s top U.S. spokesman, same via e-mail that the corporate “remains concerned” that it’s being asked to pay claims unrelated to the 2010 spill. “On behalf of all our stakeholders, we’ll so still advocate for the investigation of suspicious or implausible claims and to fight fraud wherever it’s uncovered. With today’s Supreme Court (non)action, however, that charge progressively sounds like it won’t be enough.
Oil Headed to $100? This Billionaire Says Yes
At least one billionaire investor says he’d be buying shares in airlines right now. This happened only days after Warren Buffett had announced that Berkshire Hathaway has sold all of its airline stocks.
Perhaps unbelievably, the billionaire also sees an opportunity in tourism and hotels and says oil will head much higher.
Naguib Sawaris, chairman and CEO of Orascom Investment Holding and the only non-North Korean to hold a telecom license in North Korea, said during a recent appearance on CNBC that he sees plenty of opportunities right now.
“With every crisis there is opportunity,” Sawiris said. “You can go and buy an airline today for $1 if you are assuming the bulk of the debt.”
Most US-based airline stocks are down 50% this year, and air travel has plunged more than 95%. This took place as the coronavirus pandemic has brought the travel and tourism industry to a grinding halt.
Hope exists that as the country starts reopening and eases restrictions, the travel and tourism industry can start to recover.
Sawaris says that President Trump’s decision to reopen the country is “one of the few times” he has been right. He also said that there is too much uncertainty around the possibility of a potential cure for the country to remain locked down.
“They might not find the cure, they might not find the vaccine, so how long are we going to be in prison in our homes?”
$100 Oil in 18 Months
Sawaris says that the recent price war between Saudi Arabia and Russia was a “calculated” move not against each other. However, he also believes this move serves as a coordinated effort to cripple the shale industry here in the United States.
He also believes that even if the OPEC+ nations, which includes both Saudi Arabia and Russia, had reached an agreement in March to cut production, both countries knew that oil prices were still going to fall as demand plunged across the globe due to the coronavirus. He said a deal in March would have meant lower oil prices. However, he pointed out that “it would have not fallen to this level.”
There are expectations that prices were going to continue falling. With this, both countries ramped up production when the existing agreement ended on April 1. There’s no other reason for this than to try and drive American shale companies out of business.
“I think it was calculated,” he said. “I think they knew that this was going to happen and they still wanted to do it because, by killing a competitor, the price will rise beyond 50 or 60 dollars.”
Sawaris went on to say that he expects oil prices to head much higher.
“I actually believe that 18 months from now oil will hit $100,” he said.
However, as John Browne, former CEO of British Petroleum points out, oil prices could stay low for a lot longer.
“The prices will be very low and I think they will remain low and very volatile for some considerable time,” Browne told the BBC in a recent interview.
“This is very reminiscent of a time in the mid-1980s when exactly the same situation happened – too much supply, too little demand and prices of oil stayed low for 17 years.”
Editor’s Note: What’s your take? Will oil prices push towards $100/barrel in the next 18 months? Or is cheap oil here to stay? Leave us your thoughts below.
One Chart Sums Up Oil’s Week, Latest Oil ETF Move Called “Garbage”
The financial markets were roiled on Monday when what once seemed impossible happened. For the first time in history, the price of oil fell below zero.
And not just a little below zero, but a negative $37.63 per barrel. It was only the May futures contracts that expired the very next day (Tuesday) that fell below zero. However, it literally meant that if you were willing to take physical delivery of a barrel of oil in Cushing, Oklahoma, the producer would pay you $37.63 to take the oil off their hands.
It’s the most extreme indicator yet of the ongoing troubles in the oil patch. Also, unfortunately for producers, there doesn’t seem to be a quick fix in sight. Demand has collapsed by an estimated 29 million barrels per day in April. Without that daily drawdown, supplies are on the verge of overrunning every storage facility available.
Producers Store Oil
Producers and refiners here in the US are resorting to storing oil in railcars and unused pipelines. Meanwhile, in Europe, salt caverns in Sweden and other Scandanavian countries are either full already or have been booked.
The oversupply has already started to affect the price of the June futures contract. The price down to roughly $14 per barrel. This is the lowest price an oil contract has been with this much time remaining to its expiration date since the late ‘90s.
To put this week’s plunge into visual context, two strategists from Deutsche Bank, Jim Reid and Nick Burns, plotted oil prices going all the way back to 1870 in both nominal price and inflation-adjusted.
Amazingly, in nominal prices, oil was cheaper on Monday than it was 150 years ago in 1870.
“In nominal terms, it’s not a surprise to see that, over the 150 years for which we have data, there’s never been a negative price print before,” wrote Reid and Burns.
“This is stunning as it basically says that a barrel of oil earlier this week was effectively cheaper than it was in 1870.” they added.
You can see their charts below, the first one is nominal prices, the second is inflation-adjusted.
Source: Deutsche Bank
What This Brought
Fallout from Monday’s historic price collapse continues to dog the US Oil Fund ETF (USO). As we’ve covered, the ETF has quickly had to adjust its structure to avoid more massive losses as the price of oil futures keeps falling. The fund switched from only front-month contracts to allow contracts for a series of months in different amounts.
Today, it announced another switch in an attempt to stay afloat: an 1-for-8 reverse stock split. The move, which would take place after the market’s close on April 28, effectively shrinks the number of shares outstanding by 8x and multiplies the share price 8x. Nothing else about the fund changes, and investors won’t own more (or less) of the fund.
Kyle Bass, CIO of Hayman Capital Management, quickly tweeted his thoughts, calling the move “garbage.”
“After vaporizing billions from unweary investors this week alone, the retail killer USO begins the day at a 36% premium to its current asset value of $2.06. Reverse splitting garbage continues to give you garbage.”
Also warning retail investors to be cautious is Warren Pies, an energy strategist at Ned Davis Research. He says that most don’t fully understand what they are investing in.
“At best, they are expensive ways to gain programmatic futures exposure. At worst, they are designed to implode. Still, money continues to flow into the USO ETF. As of last week, USO’s assets reached an all-time high of more than $5 billion. To reiterate: In this environment, USO is a train wreck. Stay away.”
Unfortunately, for investors who piled into the ETF, thinking they were timing the bottom, the warning may be too little, too late.
Oil Plunge Continues, Senate Approves Additional $320 Million For Small Businesses
Stocks closed down for a second straight day as the carnage in the oil market shows no signs of slowing down anytime soon.
The Dow Jones Industrial Average dropped 2.6% or 630 points, bringing its two-day slide to over 1200 points. The S&P 500 lost 86 points and fell 2.7% while the Nasdaq fell nearly 300 points to lose 3.5%.
After Monday’s chaotic trading in oil futures that saw the expiring May contracts trade at a negative amount, Tuesday’s trading saw the same dramatic decline in June’s contracts, which slid 43.4% to close at $11.57 per barrel.
The steep decline in the value of the futures contracts has a popular oil ETF scrambling to restructure in an attempt to avoid
The United States Oil Fund ETF (USO), a popular way for retail investors to invest in the oil markets, fell by 25% yesterday. This took place as investors scrambled to exit as quickly as possible. The ETF usually trades around 100 million shares per day, but yesterday saw almost 992 million shares traded hands.
Oil Plunge Continues
The ETF holds primarily oil futures contracts. With Monday’s upheaval, trading in the ETF was halted before the market opened on Tuesday. It happened as the fund took drastic measures to avoid further losses. Previously, the fund invested in the front-month oil futures and rolled to the next month as the expiration date approached. With almost 80% of the fund in the front-month and 20% in the second month, the May wipeout on Monday meant huge losses that got even worse on Tuesday as the second-month June contracts took a beating.
The fund filed regulatory paperwork that now allows it to buy any monthly availability at any percentage it sees fit. The fund now holds a mix of June, July and August contracts.
Kyle Bass, CIO of Hayman Capital Management has been warning investors about underlying challenges of ETF that try to track the price of oil using futures contracts.
On a CNBC appearance Monday, Bass said “Retail has been plowing into these oil contracts thinking they’re buying spot crude oil when they’re buying the next front month. So they’re paying $22 a barrel when the spot market’s negative $38. Retail investors are going to get fleeced if they continue to fly into these oil ETFs.”
Other Markets That Fell
Oil prices weren’t the only drag on the markets. IBM, Merck and Boeing all slid more than 3% on Tuesday.
IBM fell 3.03% after it reported that net income fell 26% quarter-over-quarter. Their revenue also decreased by 3.4% amid the spread of the coronavirus. The company also withdrew all 2020 guidance due to the pandemic.
Merck dropped 5.46% and Boeing fell 5.07%. With this, Boeing announced late last night that it was creating a new division that would focus on “protecting its supply lines” and “preparing now for the post-pandemic industry footprint.”
The lone bright spot yesterday was news that Senate Democrats and Republicans agreed to provide $320 billion in additional funding for the Paycheck Protection Program. The program ran out of money last week as millions of small businesses applied for $350 million in loans from the SBA.
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