A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The past few weeks has seen expert opinion on the oil price serve as an effective contrarian indicator – the rising tide of negative oil price forecasts has been met with steadily higher West Texas Intermediate crude prices.
This morning is no different. Concerns regarding supply disruptions form Libya have the oil price rising higher towards $53 a barrel (U.S.). But at the same time, Bloomberg columnist, consultant and author Gary Shilling wrote a logical argument that crude will head below $20 a barrel. Mr. Shilling presents a number of reasons, but the most surprising one is that far more oil production is profitable at $40 a barrel than most investors believe. This means supply will not be cut significantly and the glut will remain.
"Last month, Wood Mackenzie, an energy research organization, found that of 2,222 oil fields surveyed worldwide, only 1.6 percent would have negative cash flow at $40 a barrel. That suggests there won't be a lot of chickening out at $40. Keep in mind that the marginal cost for efficient U.S. shale-oil producers is about $10 to $20 a barrel in the Permian Basin in Texas and about the same for oil produced in the Persian Gulf. "
"Oil prices rise on supply fears " – Wall Street Journal
"Get ready for $10 oil" – Bloomberg
See Also: "U.S. rigs are being idled, but the oil boom is not ending" – Bloomberg
Similar sentiment were expressed by BMO Nesbitt Burns analysts Randy Ollenberger and Jared Dziuba in a research report late last week, noting his belief that "production reality has not set in" for domestic oil companies.
"[Production] guidance among our coverage group is so far only 3 per cent lower than our pre-budget estimates and still implies oil growth of 6 per cent or 1.3 million [barrels per day] over 2014….we expect further downward adjustments to spending and production guidance… we believe oil prices could be pushed lower in the near term, possibly testing the $40/bbl level."
See: "Canadian, U.S. investors hold divergent views on energy sector" – Kawa, Report on Business
European markets are largely ignoring the political bickering between Greece and European Union leadership, so I'll keep this short. Talks between Greece and the EU broke down yesterday but it appears the issues are largely semantic with Greek leaders making it clear they will not accept a "kick the can down the road" approach with an extension of existing bailout format.
"Greece: The deal & the risks" – BBC's Duncan Weldon (writing on personal site)
"Eurogroup may figure Grexit doesn't have to be the end of the Euro" – Tony Yates (University of Bristol)
"European markets shrug off collapse of Greek talks" – Financial Times
The Chinese steel industry provides further evidence that the country's economic growth strategy is played out. China's steelmaking capacity grew at a remarkable 15 per cent annual rate between 2000 and 2013 but lack of profitability now has the trend in reverse. This is terrible news for iron ore and metallurgical coal providers who have been expanding capacity as fast as they possibly could.
"China produced half of the world's steel last year, at 820m tonnes, yet exports accounted for nearly all net steel production growth, according to consultancy Wood Mackenzie.
Domestic steel consumption, on the other hand, fell 3.4 per cent to 740m tonnes, the first time in 30 years it has recorded a drop."
"Concerns raised as China steel enters 'peak zone'" – Financial Times
See Also: "China's economy to grow about 7 per cent this year" – Reuters
Tweet of the Day: "@sassy_SPY "Is the [market] Chop Actually Over? $SPY $SPX - The bigger picture & Next week outlook wp.me/p4gJug-13r pic.twitter.com/aRjGBPDWW5"
Diversion: The New Yorker's exhaustive profile of Apple chief designer Jony Ive, "The shape of things to come" – The New Yorker
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow