WSJ : Are OPEC’s Cuts Adding Up to Lower Oil Prices?

Are OPEC’s Cuts Adding Up to Lower Oil Prices?
Traders look beyond group’s compliance numbers to measure impact of output pledge

Measuring the success of OPEC’s production cuts has never been harder.
Oil traders say they aren’t just looking at the most recent numbers from the Organization of the Petroleum Exporting Countries showing it is complying with its pledge to cut almost 1.2 million barrels a day from the global market. Instead, they are watching for signs that U.S. oil output is growing, that oil storage is falling and that other big producers like Russia are curtailing their flows of petroleum.
The complicated math has helped put a cap on oil prices and kept crude trading in a roughly $5 band between $51 and $56 a barrel, following a 20% surge in prices after the Nov. 30 OPEC deal.

The latest evidence of this came Monday, when OPEC—notorious for not following through on its own agreements—delivered an optimistic report with numbers showing almost full compliance with its pledge. Oil prices fell anyway, with Brent dropping 2% to $55.59 a barrel.


The main reason for the fall in prices, traders and analysts say, is that production increases were baked into OPEC’s agreement, blunting the cartel’s ability to force traders to draw down the vast supplies of oil stored in tanks across the world.
In 2009, when OPEC said it would cut more than 4 million barrels a day to stabilize prices during the financial crisis, there was only one exception: Iraq. This time, the cartel’s agreement exempted two big producers, Nigeria and Libya, and allowed Iran to increase a bit, too.
Including Nigerian and Libyan output, BNP Paribas put OPEC’s compliance rate at 77%, and if Nigerian output keeps growing, that could fall to 63%, BNP said—about the same level as in 2009. U.S. Energy Information Administration numbers suggest OPEC cuts, including Nigeria and Libya, amount to about 75% of what it promised.
Another wild card is non-OPEC production. Russia and 10 other countries said they would cut a total of 558,000 barrels a day this year, but the deal was light on details, making it difficult to judge compliance, traders said.
Russia, the world’s largest producer, cut 100,000 barrels a day in January, the International Energy Agency said last week, but that was down from post-Soviet records and less than the 300,000 barrels a day it agreed to cut. Goldman Sachs estimates total compliance by OPEC and 11 non-OPEC countries, which agreed to jointly cut output in December, at around 85%.

“It is a numbers game,” said Doug King, chief investment officer at RCMA Asset Management and manager of that firm’s $230 million Merchant Commodity hedge fund. “Despite good noises from OPEC, there are important exemptions and we don’t really know what’s going on in Russia,” he added.
Another wrinkle for the deal is U.S. shale producers, which are using the bump in prices over the past two months to jump-start output. OPEC on Monday doubled its estimate of non-OPEC production growth in 2017, blaming “a pick up in drilling activities and investment in the U.S.”
“The panic is that [the OPEC cuts] are giving a lifeline to shale production,” said Helima Croft, chief commodities strategist at Canadian bank RBC Capital Markets.

Increased U.S. production has some market participants questioning whether inventories will decrease much this year. OPEC’s goal was to draw down more than 300 million barrels from storage to bring supply back into balance with demand and spark a sustainable price rally.
The compliance mathematics matters for investors who have amassed a record number of bullish bets on oil prices after OPEC clinched the production deal. Wagers on rising U.S. oil prices by hedge funds and other big money managers are near their highest point in more than 10 years of record-keeping by the Commodity Futures Trading Commission.
That carries risks for prices, Mr. King said. “There’s a lot of complacency out there. If these bets start to unwind, it will be a bloodbath.”
To be sure, OPEC’s swiftly executed production cut has helped the group’s credibility. For years, it had been considered all but dead, incapable of putting aside its internal disputes and geopolitics.
Jim Krane, an energy studies fellow at Rice University’s Baker Institute in Houston, said the agreement showed that “archenemies” such as Saudi Arabia and Iran could make a deal. Also, new satellite technologies mean oil shipments are now “very transparent,” he said, adding, “Cheating is very easy to detect.”

But there are also concerns that the current levels of compliance with the cuts won’t last.
Saudi Arabia says it has cut almost 800,000 barrels a day by itself, far more than the 486,000 barrels a day it agreed to and carrying the load for countries that have fallen short of their goals, such as Algeria, Iraq and the United Arab Emirates. The kingdom often reduces output in the winter anyway for maintenance, and it isn’t clear how long it will maintain low production levels.
Meanwhile, Iraq and Libya could boost production even more, says Olivier Jakob, head of Swiss consultancy Petromatrix. Iraq’s largest field is undergoing maintenance, while Libya has said it could increase output by a further 200,000 barrels a day.

9to5.com ; Apple fighting new ‘right to repair’ legislation after successfully l

Apple fighting new ‘right to repair’ legislation after successfully lobbying against it in the past

Apple is fighting ‘right to repair’ legislation which would give consumers and third-party repair shops the legal right to purchase spare parts and access service manuals. The state of Nebraska is holding a hearing on the proposed legislation next month, and Motherboard reports that Apple will be formally opposing the bill.
According to the source, an Apple representative, staffer, or lobbyist will testify against the bill at a hearing in Lincoln on March 9. AT&T will also argue against the bill, the source said. The source told me that at least one of the companies plans to say that consumers who repair their own phones could cause lithium batteries to catch fire …

It’s not known whether Apple is the company which will be arguing the safety point.
Nebraska is reportedly one of eight states to consider granting product owners and third-party companies the right to repair products, following lobbying by Repair.org, a trade organization of independent repair shops.
Apple has successfully lobbied against similar legislation in New York.
Gay Gordon-Byrne, executive director of Repair.org, says that the safety argument is one that has been used by lobbyists in the past, and she plans to poke fun at the idea during the hearing.
Last year, industry lobbyists told lawmakers in Minnesota that broken glass could cut the fingers of consumers who try to repair their screens, according to Gordon-Byrne. Byrne said she will also testify at the Nebraska hearing and “plans to bring band aids.”
Repair.org hopes that getting a single state to pass a right to repair bill will result in manufacturers giving in, citing the precedent of similar legislation in the car industry.
In 2012, a Massachusetts law guaranteeing the right to repair automobiles became de-facto national legislation after car manufacturers decided to comply with the law nationwide rather than continue to fight burgeoning legislation in other states.
Tekserve, the go-to third-party store for Apple product repairs in New York City, closed last year. It was also reported that Louis Rossmann who runs a YouTube channel full of Apple repair tutorials was being sued by Apple, but Rossman later said that there was just an issue with a particular schematic. The channel continues to be updated today.
There can be pitfalls for those conducting their own repairs. Last year it was discovered that replacing the Home button on an iPhone 6 can lead to the device being deliberately bricked. Apple stated that this is to prevent the security of a phone being compromised by someone swapping out the Touch ID sensor.

WSJ : General Motors’ Opel Sale Faces Political Resistance in Europe

General Motors’ Opel Sale Faces Political Resistance in Europe
Hotly contested elections in Germany and France this year could be the biggest obstacles to any deal

The chief executives of General Motors Co. and Peugeot moved quickly on Wednesday to head off political resistance emerging in Germany to the potential sale of GM’s struggling Opel unit to its French rival.

Both companies said on Tuesday they were in talks that could lead to the sale of GM’s European business to Peugeot. It quickly became clear, however, that political opposition to job cuts in a year of hotly contested elections in Germany and France would be one of the biggest obstacles to any deal.

GM’s chief executive Mary Barra and the company’s president, Dan Ammann, flew to Germany overnight to meet Opel’s management and senior labor representatives at Opel’s headquarters in Rüsselsheim. The meeting appears to be the first extensive discussion about the sale that Ms. Barra has held with senior management at Opel.


In Paris, Peugeot chief executive Carlos Tavares, credited with a swift three-year turnaround of the French car maker, reached out to German Chancellor Angela Merkel to try to win her backing for the deal.

Ms. Merkel’s spokesman told reporters that the government hadn’t yet received a request from Mr. Tavares, but stressed that the government would play an active role in any sale of Opel.

“Opel is an innovative company with a long history in Germany,” said Steffen Seibert, Ms. Merkel’s spokesman. Considering “the consequences for jobs at many locations in Germany, it’s clear that we, the government of the Federal Republic, will be involved,” he said.

The Opel sale opens old wounds for Ms. Merkel. In 2009, she fought hard with GM to ensure that GM’s planned sale of Opel to Magna International Inc. of Canada wouldn’t lead to massive job cuts at the German factories. Two months after signing the deal, GM changed its mind, and pulled out of the sale in a bid to rebuild its European business.

GM’s new turnaround comes as Ms. Merkel faces a tough reelection bid. Her liberal immigration policies have boosted a antiestablishment party,—Alternative for Germany—which is gaining in the polls. And, for the first time in years, a resurgent Social Democratic party leads Ms. Merkel’s conservatives in the polls. The two parties share power in Ms. Merkel’s coalition government.


Surprised by GM’s renewed change of heart, Ms. Merkel’s cabinet held “intense discussions” about the sale and Opel’s future at its weekly meeting on Wednesday, said Andrea Nahles, a Social Democrat, and labor minister.

“Our highest priority is securing the three Opel factories in Germany,” Ms. Nahles told reporters after the cabinet meeting.

Opel is one of Germany’s oldest car makers. The company began making sewing machines in 1862 and began making cars in 1899. GM bought the struggling company in the midst of the financial crisis of 1929.

Today, Opel and its British Vauxhall unit operate 10 factories in Europe. The company employs 38,000 people, 19,000 of them in Germany.

Brigitte Zypries, Germany’s economics minister, said it was “completely unacceptable” that GM and Peugeot carried out negotiations about the sale of Opel without any involvement from trade unions or the company’s workforce, which under German law has extensive rights to influence management decisions.

“We will study a potential sale of Opel/Vauxhall to (Peugeot) without reservations based on our previous experience with Peugeot,” Ms. Zypries said.

Members of Ms. Merkel’s Christian Democrats also cited job security for Opel’s German workforce as their priority. Volker Bouffier, prime minister of Hesse state, where Opel is based, said it didn’t matter who owned Opel, adding: “What matters is what happens here.”

While fear of job losses could be expected to spark protests, it is less clear whether Germany has the power to block a deal. In the 2009 sale, in the wake of the financial crisis, the German government provided subsidies to ease the costs of restructuring. That gave Berlin a voice in the negotiations.

George Calliers, an analyst with Evercore ISI, said Peugeot may not plan big job cuts, at least not at first. He said Mr. Tavares can achieve large savings by combining research and development costs and other capital expenses, allowing him to avoid raising the specter of job cuts in an election year.

“Restructuring is probably a longer-term story,” said Mr. Calliers.

>>> Fossil: Color on Quarter --> FOSL -19.6% pre open 800k shares traded

Fossil: Color on Quarter (22.87)
  • Wells Fargo downgraded to Underperform from Market Perform.
  • Cowen cuts tgt to $15.
  • Telsey Advisory Group lowers their FOSL tgt to $23 from $27. The wearables offering has seen an uptick, particularly at the Kors and Fossil brands. In addition, management sees the ability to recapture margin through improved volume pricing, mid-single digit revenue growth, and driving organizational efficiencies. However, the costs of investment in the wearables roll out remain heavy, at a time when the headwinds of the slowing traditional watch market, a strong dollar, and increasing interest expense are weighing on profitability. In addition, the jewelry and leathers businesses have remained slower as management focuses its efforts on connected technologies. They therefore still see earnings visibility as challenging, and remain cautious on the shares of FOSL.
  • Mizuho cut tgt to $17 from $19 following a disappointing FY17 guide that reflects the business model transition. While FOSL ramped up the wearables business to 5.5% of FY16 sales on 100+ wearable SKUs across 8 brands, the strategy to give up margins to drive cost efficiencies could end up backfiring on the LT margin profile for the total business. Additionally, they were disappointed the FY17 guide already reflects 40% of the New World Fossil profit improvement, demonstrating limited upside to EPS from cost cuts going forward. Given multiple headwinds and lack of sales/margin clarity, they maintain their negative stance.
  • Note we initially reported GAAP EPS guidance for Q1 and FY17 last night but we have since edited that comment, it was below consensus either way but should have read: guided Q1 adj. EPS of ($0.25)-(0.10) vs. $0.11 Capital IQ Consensus; revs down 9.5-13% to ~$574-597 mln vs. $659.18 mln Capital IQ Consensus. Sees FY17 adj. EPS of $1.00-1.70 vs. $1.91 Capital IQ Consensus; revs flat to down 6.5% to ~$2.84-3.04 bln vs. $3.06 bln Capital IQ Consensus.

>>> Bunge notes from conf. --> +4.60% pre opne - low volume

Bunge notes from conf. (68.29)
  • A solid Q4 to end a challenging year
  • Agribusiness finished the year on a positive note
  • Significant improvement in Food & Ingredients
  • Record results in Sugar & Bioenergy
  • Agribusiness-Foods ROIC continues to exceed WACF
  • Strong cash generation Co has ~$4 billion of long term debt (BBB rated)
  • Committed credit facilities of ~$5 billion, all of which was unused and available at 12/31/2016
  • There's a huge corn crop coming
  • Co expects to see an improvement in farmer prices BG is not expecting the Brazilian economy to really help them out In co's 2017 outlook, they are starting a
  • Agribusiness:
    • Expect EBIT to return to historical range of $895 to $1,050 million vs 2016 adjusted EBIT of $782 million
    • South America expecting record crops, which aligns well with our footprint
    • Brazil farmers have only priced relatively small percentages of 2017 soy and corn production
    • Expect return to normal levels of soy meal inclusion in feed rations as year progresses
    • Higher softseedcrush margins due to greater seed supply from large crops and robust vegetable oil demand
    • Expect slow start to the year with progressive improvement as volumes and margins pick up in South America
  • Food & Ingredients:
    • Expect EBIT of $270 to $290 million vs. 2016 adjusted EBIT of $229 million
  • Sugar & Bioenergy:
    Expect EBIT of $100 to $120 million vs 2016 adjusted EBIT of $51 million
  • Have hedged much of our 2017 sugar production at higher year-over-year prices
Fertilizer: Expect EBIT of ~$30 million vs. 2016 adjusted EBIT of $38 million

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • FOSL -18.9%, ESNC -16.9%, TRUP -11.7%, PLAB -11%, LC -9.5%, CALX -8.5%, NAII -7.8%, HOLI -5.6%, AIG -5%, CRNT -3.9%, MASI -3.2%, OMI -3.1%
  • CZR -2.3%, ASGN -2.1%, CBB -1.6%, SEV -1.4%, BYD -1.3%, VDSI -1.3%, RPXC -1.2%, NBIX -0.9%, MFS -0.9%, LXFT -0.7%, DNOW -0.7%, TECK -0.6%
Select oil/gas related names showing early weakness:
  • SDRL -3.2%, BP -2.3%, RDS.A -2.3%, SLB -0.5%
Other news:
  • EARS -18.3% ( to sell common shares and warrants to purchase its common shares in an underwritten public offering; updates on patent case again Otonomy)
  • UNXL -10.7% (may be related to yesterday's announcement of public offering)
  • SBCF -4.7% (commences common stock offering)
  • CSX -2.1% (calls special meeting in light of Mantle Ridge and Hunter Harrison requests; CSX has concerns with proposals)
  • STNG -1.8% (announced that Scorpio Services Holding Limited, a related party affiliate, purchased an aggregate of 650,000 common shares of the Company in the open market at an average price of $4.40 per share)
  • MRK -1.4% (announces EPOCH study of Verubecestat for the treatment of people with mild to moderate Alzheimer's disease to stop for lack of efficacy )
  • DE -1.4% (Berkshire Hathaway decreased stake)
Analyst comments:
  • UAA -1.5% (downgraded to Negative from Neutral at Susquehanna)
  • OHI -0.9% (downgraded to Hold from Buy at SunTrust )
  • HOLX -0.5% (downgraded to Neutral from Buy at BofA/Merrill)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:
  • CIDM +15.7%, IOTS +12.7%, WIX +7.5%, SODA +7.2%, IVTY +5.8%, SEDG +5.5%, ANGI +4.6%, ELOS +4.3%, CCS +3.9%, CCS +3.9%, ALKS +3.5%
  • ADI +3.5%, OZM +3.3%, IOSP +3%, A +2.7%, FANG +2.4%, PBPB +2.4%, HUN +2.3%, VNOM +2.2%, BG +1.9%, SHOP +1.7%, ADHD +1.7%, DVN +1.4%
  • KRNT +1.4%, WGBS +1.4%, HUM +0.7%, PAAS +0.7%, ETR +0.6%
M&A news:
  • FIG +28.2% (SoftBank confirms plans to acquire Fortress Investment Group for $3.3 bln)
Select EU financial related names showing strength:
  • DB +1.6%, CS +1.1%, BCS +0.9%, LYG +0.9%, HSBC +0.7%
Select Airline related names showing strength:
  • LUV +2.8%, UAL +2.6%, AAL +2.5%, DAL +2%, JBLU +1.4%, SAVE +1%
Other news:
  • PAH +3.2% (Elliott Management discloses new position)
  • PG +2.5% (Nelson Peltz's Trian takes stake)
  • SIRI +2.3% (new Berkshire Hathaway stake)
  • TWTR +2.2% (CEO Jack Dorsey disclosed purchase of nearly 426K shares worth $7 mln)
  • ARDX +2.2% (reports its Phase 3 trial evaluating tenapanor as a treatment for hyperphosphatemia in patients with end-stage renal disease who are on dialysis met its primary endpoint and was generally well-tolerated)
  • NTCT +1.2% (ValueAct new position),
  • FOLD +1.1% (reports new positive data analyses for the oral small molecule pharmacological chaperone migalastat HCl for Fabry disease)
  • CRM +1% (new Corvex stake)
  • MON +1% (new Berkshire Hathaway stake)
  • HTZ +0.9% (Icahn increases stake)
Analyst comments:
  • RH +3% (upgraded to Overweight from Sector Weight at KeyBanc Capital Mkts)
  • OLED +2.2% (initiated with a Positive at Susquehanna; tgt $100)
  • BBVA +2% (upgraded to Overweight from Neutral at JP Morgan)
  • PH +1.5% (upgraded to Buy from Neutral at BofA/Merrill)
  • V +0.6% (initiated with Buy ratings at Loop Capital)
  • NDSN +0.5% (upgraded to Overweight from Sector Weight at KeyBanc Capital Mkts)

>>> US Foods beats by $0.04, reports revs in-line; guides FY17 EPS in-line, revs

US Foods beats by $0.04, reports revs in-line; guides FY17 EPS in-line, revs below consensus (27.19)
  • Reports Q4 (Dec) adj. earnings of $0.53 per share, $0.04 better than the Capital IQ Consensus of $0.49; revenues fell 4.3% year/year to $5.68 bln vs the $5.68 bln Capital IQ Consensus. Excluding the extra week, Net sales increased 1.7% driven by case volume growth offset by deflation in dairy and beef. Excluding the extra week, sales from acquisitions completed in the last 12 months boosted Net sales by ~ 1.7%.
  • Total case volume decreased 1.9% and Independent Restaurant case volume decreased 1.0% from prior year, impacted by an extra week of operations in 2015. Excluding the extra week, total case volume increased 4.1%, of which 2.0% was organic growth, and Independent Restaurant case volume increased 6.1%, of which 3.8% was organic growth. Strong growth with Independent Restaurants and the addition of new healthcare and hospitality business contributed to the fourth quarter volume growth.
  • Adjusted Gross profit was 18.2% compared to prior year of 17.6%. The increase in Adjusted Gross profit as a percentage of Net sales primarily resulted from favorable customer mix and margin improvement initiatives, including strategic vendor management.
  • Co issues guidance for FY17, sees EPS of $1.26-1.40, excluding non-recurring items, vs. $1.38 Capital IQ Consensus Estimate; sees FY17 revs +1-3% to ~$23.15-23.61 bln vs. $23.62 bln Capital IQ Consensus Estimate; total case volume +2-4%; EBITDA +7-10%.