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Thursday October 30, 2008

NYMEX crude oil prices jump 10%, recovering from $61.30 low on Fed rate cut to 1%

Crude oil climbed as much as 10% amid signs that central bank interest-rate cuts may help revive fuel demand. The Federal Reserve lowered its benchmark interest rate by half a point to 1 percent today [29 Oct 2008], matching a half-century low. China also lowered rates today and the European Central Bank [ECB] may reduce them next week. Crude oil futures for Dec 2008 delivery rose as much as $6.51, or 10%, to $69.24 a barrel in after-hours electronic trading. Prices have tumbled 54% since reaching a record $147.27 on July 11, and hit a low of $61.30 earlier. Investors often purchase crude oil and other dollar-priced commodities when the US currency drops because of their use as an inflation hedge.

- That was quite a move. Commodity and especially crude oil bulls can probably heave a sigh of relief as crude oil prices have recovered from a relentless over 2-month drop day after day, so much so that peakoilers like myself have been joking on the boards that if NYMEX crude oil prices continue to drop $4-5 every day, in about 2-3 weeks' time, crude oil would have been free.

Of course, nothing goes straight down - or straight up for that matter. Just as the contrarians started to get nervous when crude oil went on its near-vertical ride to the $147.27 record, conversely on the other side, we have been getting increasingly nervous as the US dollar went ballistic, and everyone piled in on the same side of the trade.

The contrarian community has been looking out for a USDX trend reversal for some time now, and while we would still need confirmation to see if in the coming weeks it continues to drop below 86, 84, 82 and then solidly below the 23-year US dollar index support line of 80, this could be it, coming off from the recent USDX high of 87.884 :

It is still early days yet, but in time we'll see if the combination of a Fed rate cut, OPEC production cut, and continued supply declines due to Peak Oil (no, it has *not* been cancelled) are enough to trump over demand destruction due to the financial meltdown and credit crisis.

(2008-10-30 09:05:23 SGT) [Energy] Permalink

Wednesday October 29, 2008

New York may lose 165000 jobs on mass layoffs due to credit crisis

bloomberg.com :

New York City may lose as many as 165,000 jobs, including 35,000 in the financial industry, as the impact of the credit crisis spreads throughout the economy, Comptroller William Thompson's office said. Wall Street, which accounted for 9% of New York's tax revenue in 2007, has been upended by the global credit crisis and financial meltdown that has led to the downfall of Lehman Brothers, Merrill Lynch and Bear Stearns.

Economists at the Federal Reserve Bank of New York estimate that high-paying financial industry jobs have a multiplier effect. Each lost securities industry position may eradicate as many as 3 other positions in the city and state. Losses among Wall Street firms will be so large this year, many of them won't have to pay taxes to the city for years, Mayor Michael Bloomberg has said. He expects a budget deficit of at least $2.3 billion.

- The mass layoffs have already begun, and all indications are that they will worsen over time. As usual, the Singapore economy, property market, and job market tend to lag behind the US by a few months or so, hence we will be looking at a bigger impact in time to come. For the moment, the people of Singapore are still making travel plans, buying gadgets, shopping, eating out, and such. We'll see about that going into 2009.

(2008-10-29 18:05:43 SGT) [Biz] Permalink Comments [1]

Sunday October 26, 2008

Singapore property market downturn : Q3 2008 private home prices down 2.4% from Q2

This article belongs to the Singapore property market story arc.

channelnewsasia.com :

Private home prices in Singapore came in weaker than expected in the third quarter of 2008, dropping by 2.4% - worse than an earlier estimate of 1.8%. The quarter-on-quarter drop was the first decline in more than 4 years. URA data showed that prices fell across the board, with prices for high-end homes in prime areas seeing the biggest drop of 2.7%. Analysts said there has not been panic selling yet, but they expect prices to drop by about 3-5% in the quarters to come.

Donald Han, managing director of Cushman & Wakefield, said: "There will be people who've been affected by the stock market (declines), who might be late in their payment, and that might eventually translate to more pressurised selling." Prices for mass-market homes fell by 1.5%, while the mid-tier segment declined by 2.4%. URA said there are over 66,000 units of private homes in the pipeline. Some property consultants said developers may choose to launch their projects before the market gets worse. Rentals of private residential properties also fell in Q3 2008, dropping by about 1%.

- Once again, word on the street is way ahead of the mainstream media. Forummers have talked about price declines of 50% already happening, with Singapore condo prices in prime locations dropping by more than half from the heady heights of $2400 per square foot to $1000 per square foot. A rather more affluent "person of means" has reported being overwhelmed by calls and SMS messages from property agents hoping to unload their properties onto him - he says his standard reply to them is to lower the price by another 50%, "and then we'll talk".

And this is just the beginning. We're looking at a trend reversal here, and with this announcement, the Singapore property market downturn is now official. The Singapore housing market tends to lag the US market by around 6 months to a year, and that's roughly the same for the general economy. Follow the leader, that's what we do. Watch for a general economic contraction, more layoffs, and further property market declines to hit in 2009. "Interesting times" indeed.

(2008-10-26 11:00:23 SGT) [Biz] Permalink

Natural Gas OPEC : Exporters agree to deal for OPEC-style alliance

russiatoday.com, telegraph.co.uk :

Russia, Iran and Qatar have agreed to form a powerful OPEC-style group for exporting gas. The consortium would control over 60% of the global natural gas reserves - and spark fears in the West that it could lead to higher prices. The news comes after a meeting between Gazprom chairman Alexey Miller, Qatar Energy Minister Abdullah Ben Hamad Al-Attiya, and Iranian Oil Minister Gholam Hossein Nozari. Talk about the creation of the group will send shivers down the spines of the United States and the European Union, which rely heavily on imports. The founders of any such group would be Russia, Iran, Qatar, Venezuela and Algeria. The United States and the EU fear an OPEC-style natural gas cartel would lead to a monopoly on supplies and higher prices. It's estimated Russia holds around a quarter of the global natural gas reserves.

The move was immediately condemned by the European Commission (EC), amid fears that the trio could use gas as a political weapon. Russia accounts for about 20% of Europe's gas imports. Officials from Russia's state-owned energy company Gazprom met counterparts from Iran and Qatar on Tuesday [21 Oct 2008] to discuss the creation of a "big gas troika". Alexei Miller, Gazprom's chairman, said: "We are united by the world's largest gas reserves, common strategic interests and, which is of great importance, high co-operation potential in tripartite projects. We have agreed to hold regular – three to four times a year – meetings of the gas G3 to discuss the crucial issues of mutual interest." Meanwhile, members of the OPEC cartel, which controls about 40% of the world's crude has recently announced a 1.5 million barrels per day production cut in order to put a floor under the tumbling price oil.

- They are calling it by various names, whether it's a Gas OPEC, G-OPEC, "Big Gas Troika", Gas G3, or whatever. But the fact remains that this group will control a larger proportion of global natural gas production, 60%, than OPEC's 40% proportion of global crude oil production. Canada's natural gas issues aren't exactly helping the Western cause either, with tar sands operations gobbling up rapidly declining gas reserves there.

In addition, as world crude oil production declines, and depletion rates soar (and NYMEX crude oil prices eventually catch on), there will be an increasingly larger reliance on natural gas and LNG as part of the hydrocarbon energy mix, a fact that the members of this gas OPEC are sure to capitalize on.

(2008-10-26 10:33:17 SGT) [Energy] Permalink

Friday October 24, 2008

Property developers crash on negative Singapore real-estate, rental housing market outlook

This article belongs to the Singapore property market story arc.

bloomberg.com :

CapitaLand led Singapore's developers and property trusts lower after Goldman Sachs said office and retail rents will decline amid the widening global financial crisis and economic slowdown. Prime office rents may drop 40% by 2010 from the peak in Q2 2008, while retail rentals could fall 15% by 2010, Goldman Sachs analysts said, cutting their share-price forecasts for property developers by as much as 46% and property trusts by 49%. Grade A office rents peaked last quarter at S$18.80 a square foot a month for as vacancy climbed 1.2%. Prime rents were at S$16.10. Rents may start falling amid increasing supply - the Marina Bay Financial Centre will be completed in 2010, the biggest downtown property development in a decade.

Singapore's economy slid into recession for the first time since 2002, with the GDP projected to have declined 0.5% from a year earlier. The Singapore property market fell in Q3 2008, the first time in more than 4 years. The FTSE Straits Times Real Estate Index has dropped 56% this year, outpacing the 44% loss in the benchmark Straits Times Index. The share price of CapitaLand, Singapore's largest developer, has fallen over 58% in 2008.

- Sources say that the 40% drop in office rentals has already taken place, but the exact location and companies involved remain undisclosed. It might be more useful to look for an accelerating trend instead of a linear extrapolation, as the financial system meltdown continues to rippple faster and faster through the economies of the world.

I have two friends and fellow investors - one net short the local housing market, the other net long. I am more or less net neutral, being in a HDB flat, nearly halfway through the home loan - foreigners could pretty much consider it low-cost public housing. The bottom in the Singapore housing market could well come in at prices that would have been unbelievable just a short few months ago. Meanwhile I am sitting back and watching things crash.

(2008-10-24 23:56:16 SGT) [Biz] Permalink

OPEC agrees to production cut of 1.5 million barrels a day from Nov 2008

bloomberg.com :

OPEC has cut oil production targets for the first time in almost 2 years to stem a collapse in prices. The 13 OPEC nations decided to lower supply by 1.5 million barrels a day from Nov 2008, oil ministers said today [24 Oct 2008] at the end of a meeting at the group's Vienna's headquarters. Crude oil has tumbled 57% from a July 11 record of $147.27 a barrel as the financial market crisis spreads, job cuts increase and fuel consumption slows. Prices fell as much as 7.1% to $63.05 on NYMEX after the decision. Another cut in December is "possible," depending on how the oil market reacts, Qatari Oil Minister Abdullah bin Hamad al-Attiyah said.

- The markets are going haywire, as NYMEX crude oil prices continued to fall through the floor even after the production cut. World markets are pricing in for a global economic collapse and for all we know, we might just get one. One of my favourite plays has got over $1.8 billion worth of NI 43-101 certified uranium resources in the ground, and if you look at that alone, never mind the other assets such as equipment and cash in the bank (over $6 million), at the current market cap of less than $6 million, it is going for a price/book ratio of 0.003.

The production cut was interesting, coming in exactly in the middle of the rumored 1 to 2 million barrels per day. What is more interesting is the way NYMEX crude oil prices fell after the decision. Price are going insane and all indications are they will get even more so.

(2008-10-24 18:28:48 SGT) [Energy] Permalink

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