US government is considering state ownership of energy companies

Oil price

US companies are under pressure due to the low oil price.

(Photo: Reuters)

Washington The US government is considering state participation in American energy companies, which are under pressure due to low oil prices. “We’re considering a number of alternatives,” said Treasury Secretary Steven Mnuchin in Washington on Thursday (local time). “You can assume that this is one of the alternatives.”

President Donald Trump also said he wanted to help the industry. He suggested that the government could buy both fuel for the country and plane tickets in advance. “The energy business is very important to me and we will build it up,” Trump said. The United States is the largest consumer of oil and can buy the raw material at a high price.

The unprecedented drop in the price of oil at the beginning of the week is now the subject of investigations by the US derivatives regulator (CFTC). “In such a situation, we look at all possible explanations,” said CFTC commissioner Dan Berkovitz of the Reuters news agency. Because of the extreme price fluctuations, you will take a closer look this time.

The oil price had dropped by about $ 40 a barrel within 30 minutes, and for the first time the price of US oil fell into the red. Because of the corona crisis – which should lead to a global recession – there is currently much less demand for the raw material.

More: The drop in oil prices is a warning sign for the global economy. A comment.


Critical situation for WTI and Brent was not over

DOil prices have stabilized at the end of a historic week for the crude oil market. Despite slight losses, the situation on the market was calmed down. At midday, a barrel (159 liters) of North Sea Brent cost $ 21.30. That was 33 cents less than the day before. The American WTI was traded at $ 16.14 per barrel. It was 53 cents less than on Thursday.

The official price for crude oil from the Organization of Petroleum Exporting Countries (Opec) has risen accordingly. As the Opec Secretariat announced on Friday in Vienna, the basket price on Thursday was $ 15.23 per barrel (159 liters). That was $ 3.01 more than on Wednesday. Opec calculates its basket price based on the main varieties of the cartel.

At the beginning of the week, something unique had happened on the oil market. For the first time, the price of an oil futures contract had fallen into negative territory. The event is the result of an unprecedented drop in demand due to the Corona crisis and a much too high supply of crude oil with insufficient storage capacity.

Nothing has changed in this situation until the end. The fact that oil prices have risen somewhat since midweek is due to political tensions between the United States and Iran. The background to this is an incident at sea that prompted Donald Trump to make military threats. Iran reacted similarly.

Not pending yet

“The critical situation on the oil market is not over,” commented raw materials specialist Eugen Weinberg from Commerzbank. There are numerous risks on the demand side and in the available storage capacities. However, one can have hope that the recent turmoil has caused rethinking among retailers, producers and financial investors and has ensured a more stable price trend.

The Russian central bank even cut its key interest rate because of the fall in crude oil prices. The key rate will be reduced by 0.5 percentage points to 5.5 percent, the central bank said in Moscow on Friday. This was what economists expected. The central bank also held out the prospect of further interest rate cuts at the next meetings.

With the interest rate cut, the Russian central bank follows the international trend in the corona crisis. So far, she had not responded to the worsening of the crisis. The last time she cut interest rates was in early February.

The central bank expects economic output to shrink by four to six percent this year. The Russian economy, which is heavily dependent on energy exports, also suffers from a dramatic drop in oil prices in the Corona crisis. The central bank has halved its forecast for the price of a barrel (159 liters) of the Russian Ural oil grade from an average of $ 55 to just $ 27. Russia is an important oil producing country.


First brokers restrict oil deals to customers

A deep pump at sunset in Falls City, Texas

Trading companies are now drawing consequences from the turmoil on the oil markets to protect themselves and their customers.

(Photo: dpa)

Frankfurt The recent price chaos on the oil market has caught investors and traders cold. In response, some brokerage firms are now prohibiting certain customers from doing business. “Because of the extreme and unpredictable volatility, we take measures to protect our smaller clients and ensure that they are aware of the risks,” said INTL FCStone.

The competitors TD Ameritrade and Marex Spectron are taking similar steps. The US broker Interactive Brokers broke the turmoil with a loss of $ 88 million because customer accounts had to be liquidated.

Some brokers only allow customers to sell contracts when their expiry is approaching. Others only allow certain customers or require higher levels of security. According to insiders, smaller trading companies in particular limited their business with oil futures. So far, there are no restrictions with the large investment banks.

Oil price below zero for the first time

At the beginning of the week, the price for the US oil grade WTI had dropped below zero for the first time and to minus 40.32 dollars per barrel (159 liters). The reason for this was the expiry of the May futures contract.

Investors who hold this paper at this time will need to physically receive the appropriate amount of crude oil from its US hub in Cushing, Oklahoma. However, since the tank farms are almost filled to the brim due to the global oversupply, speculative investors did not want to take the futures.

So some of them even put money on it to get rid of the papers. Otherwise, they would have had to shoulder storage costs for the “black gold” without knowing when and at what price they could get rid of the oil.

“I have had dozens of emails and calls from hedge funds,” said Ernie Barsamian, chief of tank terminal broker Tank Tiger. “They had never really considered physical delivery before.” Refineries or other consumers typically hold futures contracts until they expire and then take the crude.

Falling demand and increasing supply

The main reason for the oil price crash is the coronavirus pandemic. Because the global economy is largely at a standstill, demand has plummeted. The situation was aggravated by the price war between Russia and Saudi Arabia that broke out at the beginning of March, when the kingdom had turned the oil tap all the way after negotiations to tighten the production brake had broken.

In the meantime, “Opec +”, which includes other exporting countries such as Russia in addition to the members of the export cartel, has agreed to cut back by almost ten million barrels a day. However, experts estimate the drop in demand due to the virus crisis at 30 million barrels per day.

More: How the Saudi Crown Prince gambles in the oil price war.


Tensions between the United States and Iran are driving oil prices

Oil production

Brent is the most important oil for Europe. The WTI variety comes from the USA.

(Photo: dpa)

Singapore Oil prices continued their significant recovery from the previous day on Friday. The decisive factor on Thursday, however, was not an easing of weak demand and excess supply, rather political tensions between the USA and Iran led to rising risk premiums for crude oil.

After an incident on the open sea, US President Donald Trump instructed the Navy on Wednesday to destroy Iranian ships should they stand in the way of American ships. Iran reacted sharply on Thursday with counter threats. Relations between the United States and oil-rich Iran have long been under strain.

In Asian trade, a barrel (159 liters) of the North Sea type Brent last cost $ 22.48. That was $ 1.15 more than the previous day. The US variety WTI was traded at $ 17.70 per barrel. It was $ 1.20 more than on Thursday. By contrast, oil prices on Monday and Tuesday still collapsed. The stock markets were also heavily burdened by this, as concerns about the American energy sector are associated with the price collapse.

After the stock market recovered somewhat as oil prices rose, US Treasury Secretary Steven Mnuchin recently announced that he was considering a loan program for the country’s troubled oil industry. According to those familiar with the matter, the loans would be provided through the Fed. However, the instrument is only one of several options: “We haven’t decided yet,” said Mnuchin.

Despite the current recovery, the enormous supply overhang in the crude oil market remained unbroken. From the perspective of market observers, this will also continue, which is why oil processors recently had a race for freight capacities on ships to store excess petrol and kerosene. Pipeline operators also tried to create more storage space.

With no light visible at the end of the tunnel, the market is preparing for a sustained weakness in demand that will change the oil industry. As the World Bank announced, it expects the weakest recovery in history after the slump in the oil market.

Market observers are initially hoping for a phase of relative stability with the production cuts beginning on May 1, which were agreed by leading oil nations. The start of the cuts was “very constructive,” said Michael McCarthy, strategist at broker CMC Markets Asia Pacific. It appears that the average price for WTI will range between $ 15 and $ 20 a barrel in the near future

Here is the page with the Brent Prize, here for STI course.


Recovery in the oil market in the second half of the year

M“Oil market chaos” was the title of a conference call in which Eugen Weinberg, oil specialist at Commerzbank, wanted to bring business partners from all over the world closer to the extraordinary development on the American oil market on Thursday.

Christian Siedenbiedel

Negative prices on the oil market, that was a very special situation, was his message, which traders, stock exchanges and banks all over the world would have to adjust to – and which could lead to unforeseen difficulties. Nevertheless, Weinberg believes that by the end of the year everything will have calmed down somewhat and the oil price for the North Sea Brent will be back at $ 40 a barrel (barrel of 159 liters).

“The physical market participants or hedge funds were not primarily responsible for the turmoil surrounding the American oil price on Monday,” says Weinberg, “but above all partially automatic actions of the investment products for private investors and forced liquidations”. In the past two to three weeks, there have been large inflows into exchange-traded index funds (ETF), exchange-traded commodities (ETC) and certificates on oil from private investors.

Treacherous roll losses

Many of them would probably not have understood that, unlike the stock market, such securities on oil would not automatically benefit from the so-called roll losses if the oil price rose. “Where there is oil, there is not necessarily oil in it,” said Weinberg.

Oil on the futures market is traded with contracts that regulate the purchase of oil at a time. Securities for investors build on this. These contracts expire at some point and can then no longer be terminated. At least for the American West Texas Intermediate (WTI) grade, the contracts cannot then be paid out in cash, but the beneficiary must physically receive the oil.

Since the storage capacities in America are scarce and therefore expensive, nobody wanted that, and the price for the May contract continued to fall. The providers of investor securities on oil, in turn, “roll” these contracts, that is, they sell the expiring ones and buy the new ones. If oil is now much more expensive to trade in June than in May, as was the case at the beginning of the week, the providers of the securities will receive fewer new contracts for the proceeds from the old contracts – so the investor will not benefit, even though the oil price is recovering optically.

“The fact that the oil price has become negative for the first time has huge effects – even if you should not expect that in future, if you need money, you can simply drive to the petrol station instead of the ATM and get money for refueling there too,” said Weinberg.

Brent price also wobbles

He stated that the Brent price could also slide into the negative. “I think that is less likely for the futures market on Brent because, unlike WTI, contracts can also be paid out in cash,” said Weinberg: “But for the market for physical oil, it is quite possible that the physical prices sometimes become negative if the producer offers a large discount to the Brent oil price. ”Saudi Arabia, for example, offers its European customers a discount of more than $ 10 a barrel for May deliveries. Oil suppliers who have high transport costs are already paying part of the price.

“I expect the oil market to recover in the second half of the year,” said Weinberg. However, it is easier to predict what will happen in six months than what will happen in six minutes. He expects the Brent price to recover to $ 40 by the end of the year, but nothing more. “The price war could continue, and the large stocks are also well filled. “If production surpluses stop this year, around a billion barrels of oil in warehouses and oil tankers are likely to be brought back on the market.”


Oil prices continue to recover

Dhe slight recovery in oil prices continued on Thursday morning. In the wake of the continuing double burden of supply flood and slump in demand due to the corona pandemic, oil prices remain depressed.

A barrel of North Sea Brent last cost $ 21.80 in Asian trade. That was $ 1.45 more than the previous day. The American variety WTI was traded at $ 15.21 per barrel. It cost $ 1.46 more than on Tuesday. At the start of the week, the price of a futures contract on American oil that had expired had fallen below the zero line. It was the first time that anything like this had happened.

Bottlenecks at the delivery terminal in Oklahoma

In addition to concerns about sufficient crude oil storage capacity, this price drop was also due to bottlenecks at the Cushing delivery terminal in the US state of Oklahoma. However, the price of European oil also suffered. On Wednesday, it fell to $ 15.98, the lowest level since 1999. In the afternoon, however, prices recovered visibly.

The decisive factor for the then rising oil prices was a threat by US President Donald Trump to Iran. Trump tweeted that he had instructed the Navy to destroy Iranian ships if they should get in the way of American ships. The background was an incident on the open sea. After Trump’s threat, risk premiums on the oil market rose. The relationship between the United States and oil-rich Iran is under heavy strain.

Recovery does not last

But this recovery could not last, according to the ICE Futures Europe commodities exchange. The trading platform that was decisive for the Brent price already announced on Tuesday that it was also preparing for negative prices for the North Sea variety. As long as production cuts don’t keep pace with the slump in market demand, the company expects prices to be near or below the zero line. Meanwhile, traders are also adapting their risk models to the new realities.

Despite the recent price increases, the situation on the oil market is still drastic. It is characterized by a massive drop in demand due to the corona crisis, a much too high supply and low storage capacity. On duty, the American Petroleum Institute (API) reported another strong increase in American crude oil stocks. The U.S. Department of Energy followed on Wednesday and also announced a significant increase in oil stocks.

Market observers also recently viewed the turbulence on the oil market as more than just an anomaly in futures trading. “Although some see the negative WTI prices as a capitol of the future market at the beginning of the week, it is an ominous sign,” said Victor Shum, Vice President of Energy Consulting at the British market research institute IHS Markit. It shows the brutal market forces that are forcing producers to adjust to a much lower global oil demand.


The world of negative prices

The official price for a barrel of West Texas Intermediate oil (WTI.
Picture: dpa

Savings rates, bond yields, electricity on the stock exchange and now also oil: Many prices that you never thought would suddenly become negative. Is there a common cause for this?

I.On the night of Tuesday, even very experienced oil specialists rubbed their eyes. The official price for a barrel of West Texas Intermediate (WTI) oil was at times almost minus $ 40. It was a bit of a special case that had to do with the peculiarities of the futures market for crude oil and scarce storage capacities in America.

Christian Siedenbiedel

Other oil prices have also collapsed due to the weak demand caused by the Corona crisis. The North Sea Brent, for example, was temporarily at its lowest level since 1999 – but still positive. Smaller types of oil had already reached negative prices in the previous weeks – but that was a sensation for a large, trend-setting type of crude oil.


Dax up on the second day after the oil crash

NAfter the previous day’s slide, the German stock market caught on Wednesday. The rising oil price provided some relief for investors. The Dax recovered 1.6 percent to 10,415 points. On Tuesday, price drops of historic proportions on the oil markets had a severe impact on the stock markets worldwide. The Dax had lost four percent. For the M-Dax of the medium-sized values, Wednesday rose by 1.5 percent to 22,274 points.

Another $ 480 billion stimulus package from the United States to combat the economic consequences of the Corona crisis was also seen by the market as helpful for share prices. “The global economy is terribly weak, but the politicians are not standing idly around,” commented the analysis house BCA Research. The aid pledges around the world outshone those at the time of the great financial and debt crisis. Aid measures are particularly extensive in Germany and America.

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To detailed view

In the leading German index Dax, Infineon’s papers top the list with an increase of more than five percent. The competitor STMicroelectronics’ sales forecast proved to be the driver.

Semiconductor stocks from behind the Dax, such as Siltronic and Aixtron, also rose significantly. The shares of the payment processor Wirecard gained almost one and a half percent – here investors are waiting for the results of the special audit.

The papers from the software specialist Teamviewer once again lived up to their reputation as one of the Corona crisis winners with another record high and an increase of 5.7 percent. By contrast, Fraport, as one of the losers in the crisis, lost 3.6 percent, burdened by a Citigroup recommendation to sell.


Leverage certificates on the oil price expire

DThe historic slump in oil prices at the beginning of the week, sometimes even far into the negative range, may have been a bit too violent even for many experienced certificate investors. Whoever buys leveraged certificates usually deliberately takes high risks. Depending on the strength of the lever, the profit or loss of such investments is significantly higher than the price fluctuation of the underlying. How does this affect buyers of structured securities whose underlying is the oil market?

Mark Fehr

At first glance, one could expect a real bloodbath, after all, given the significantly lower oil price in the previous weeks, many investors may have bet on rising prices. The fall in American WTI oil delivery prices in May should have broken all barriers that could lead to a sudden decline (knock-out) and thus total loss of leverage certificates.

Even automatic sell orders, which are supposed to limit or prevent losses in the event of falling prices (stop-loss), may not have taken hold quickly enough given the steep crash. But if you ask important issuers of oil certificates, a more differentiated picture emerges.

Saving change in the next month

“We didn’t have many knockouts,” says Heiko Geiger, who is responsible for Vontobel’s European certificates platform. This is due to the fact that the sharp drop in the oil price down to the negative range related to the futures contract due in May. However, most of the knock-out products with no term limit were rolled into the next due June contract in the previous week, the slump of which was less dramatic.

According to certificate specialist Geiger, private investors in particular use these certificates to bet on rising or falling prices. Knock-out products with no time limit generally roll, so switch to the next oil contract every month. “The massive drop in prices in the May contract primarily affected institutional market participants who were still invested in them until shortly before the due date,” said Geiger.

Kemal Bagci from Bank BNP Paribas reports something similar. “Our investors did not go through the dramatic expiry of the May contract because certificates with an endless maturity roll month after month,” says the certificate professional. “The May contract was regularly replaced by the June contract last week.” And the oil certificates with term limits from BNP Paribas relate to futures contracts that each correspond to the product term and are quoted significantly higher than contracts that were due earlier.

With heavily leveraged products, however, the buffers are quickly used up here too. “Investors who have bet on rising oil prices are likely to have been knocked out a lot,” says Bagci. BNP Paribas has around 3000 current oil securities on offer. In the past four to eight weeks, there has been particularly strong growth in demand for oil ETCs that depict the oil price one-to-one, i.e. without leverage.

Profiteers of the crisis

From the perspective of certificate buyers, price drops are not necessarily negative events. An important aspect of these securities is that private investors can also use them to bet on falling prices. This was most recently demonstrated by the prominent case of a Commerzbank board of directors, which made high profits privately with warrants on the Dax and S&P 500 stock indices, because stock exchanges crashed shortly afterwards due to the Corona crisis. The manager is said to have bought the papers to hedge other positions in his portfolio. Incidentally, he donated the profit beyond the hedged risk.

Therefore, there should also be winners among private investors in the oil segment of the certificate market. The bottom line for each of these depends on how the other positions in the portfolio developed. Price movements on the stock market were now violent, but not as steep as on the oil market. Therefore, the high-risk strategies may actually have worked.

At least an investigation by economists Lutz Johanning and Steffen Meyer on behalf of the German Derivatives Association DDV says that fans of leveraged certificates are not necessarily gamblers. According to their estimates, around 400,000 experienced private investors use leverage products. Accordingly, more than two thirds of buyers use these securities to hedge against losses and to protect their securities accounts against price fluctuations.