WSJ : How a Saudi Royal Sparked an OPEC Deal and Sent Oil Prices Past $50

How a Saudi Royal Sparked an OPEC Deal and Sent Oil Prices Past $50
The directive was a departure for Deputy Crown Prince Mohammed bin Salman, the powerful 31-year-old son of King Salman

Saudi Arabia’s deputy crown prince sent his energy minister to an OPEC meeting last month with a difficult mission: Make a deal with rival Iran but don’t compromise the kingdom’s ability to fight for oil-market share, people familiar with the matter said.
The directive was a departure for Deputy Crown Prince Mohammed bin Salman, the powerful 31-year-old son of King Salman who is prosecuting Saudi Arabia’s war in Yemen against Iran-backed rebels. Prince Mohammed scuttled previous attempts at oil-production deals with the Organization of the Petroleum Exporting Countries this year as Saudi Arabia worried about Iran’s rising output following the end of Western sanctions.
The agreement struck in Algiers last week would slash 1% to 2% of the 14-nation cartel’s 33.2 million barrels a day of production, the first time OPEC has agreed to limit output in eight years. Oil prices have surged, with U.S. crude prices breaking $50 a barrel on Thursday for the first time since late June, up over 13% since the Sept. 28 OPEC deal.

Oil prices have also been boosted in recent days by significant drawdowns of stored oil in the U.S.

The U.S. Energy Information Administration on Wednesday said U.S. crude inventories declined by 3 million barrels in the week ended Sept. 30, falling for the fifth straight week. It was another sign that demand is catching up with the oversupply of crude that caused prices to collapse in 2014.
But the OPEC deal took oil-market observers by surprise after two years of indecision from the cartel. Analysts said it raised the question of whether Saudi Arabia was reversing its policy of fighting for market share in the era of low crude prices.
According to the people familiar with the matter, Prince Mohammed didn’t authorize a sea change in Saudi Arabia’s market-share strategy. While Saudi Arabia will take on the bulk of OPEC’s proposed cuts, slashing up to 400,000 barrels a day by the end of the year, the kingdom was planning to make those cuts anyway, the people said.
Saudi energy minister Khalid al-Falih could only offer to bring the kingdom down from record highs this summer to more sustainable levels that were pumped in the spring, the people said.
Meanwhile, Iran agreed to a still-undefined cap on its production for the first time. Other OPEC members agreed to cut as well, in amounts still to be determined.

Attempts to reach Prince Mohammed were unsuccessful. Mr. Falih didn’t respond to requests for comment.
A Saudi energy ministry official denied that Mr. Falih has taken orders from the deputy crown prince but said, “Mr. Falih is always in constant consultation on oil policies with the king, the crown prince and the deputy crown prince.”

The OPEC deal “is not really a change in the Saudi oil strategy or a big compromise on the Saudis’ part,” said a Saudi oil-industry official. “The kingdom would still be able to meet all of its customers’ demand comfortably at these levels and without losing market share.”
On Wednesday, for instance, Saudi Arabia cut the prices it charges for oil in key markets in Asia and Europe, intensifying its market-share rivalry with Iran, Iraq, Angola and other OPEC members. Saudi price cuts are generally matched or beaten by those countries to stay competitive.
Oil traders are now watching whether non-OPEC members such as Russia join the production cuts. Russia, which produces more crude oil than any other country, is meeting with Saudi Arabia and other OPEC members next week at a conference in Istanbul to discuss potential cuts.
Prince Mohammed is second in line to the throne in Saudi Arabia and has been given an expansive policy portfolio, including economics and defense. He has been entrusted by his father to oversee several jarring changes to reform the economy and reduce its reliance on oil. The prince also heads Saudi Arabian Oil Co.’s Supreme Council, the top decision-making body for the world’s largest oil company, and has been heavily involved in oil policy decisions in the past year.
The prince stopped Saudi Arabia from making a deal on oil production with Russia and other OPEC members in Qatar in April.
People with knowledge of Saudi strategy-making have said the kingdom was pushed into action after more than two years of slumping oil prices began imposing economic pain on ordinary Saudi citizens who had grown accustomed to a subsidized lifestyle. Saudi Arabia also needed money to continue pressing its war on its southern border with Yemen.

Prince Mohammed met Russian PresidentVladimir Putin at the G-20 summit in China in early September. After the meeting, the Saudi and Russian energy ministers announced a pact to stabilize the market.
Mr. Falih wanted to make OPEC relevant again and feared the cartel could collapse without at least a show of action this year, people familiar with the matter said. He met with Prince Mohammed to consult about the meeting in Algiers, the people said.
“Falih was given the green light to make this happen by Mohammed bin Salman,” said a person familiar with the matter. They “really wanted a deal or at least the framework of a deal.”
The deal struck in Algiers could still fall apart. OPEC has a long history of agreeing to production cuts, only to have the pact collapse when countries change their minds. Iran is trying to increase production, not reduce it, and so are OPEC members Nigeria and Libya, where security problems have cut off output.
The rise in oil prices could help American shale producers, who could in turn help sink oil prices with new output. A U.S.-based oil boom caused the oil-price crash, and the flood of new crude helped shape the so-called Saudi market-share strategy. Saudi output cuts would only help American producers, Saudi officials have said, so the kingdom would pump up its own output and compete at low prices.
Robin Mills, chief executive at Qamar Energy, a Dubai consulting firm, said Saudi Arabia appeared to be just tweaking its strategy, aiming it less at the U.S. and more at OPEC competitors such as Iran.
“I would see it as a definite move away from the market-share strategy in terms of OPEC vs non-OPEC,” Mr. Mills said. “But within OPEC, it’s a continuation of the market-share strategy, at least aiming to prevent Iran from taking much more market share from Saudi Arabia.”

FT : UK fracking go-ahead boosts shale gas industry

UK fracking go-ahead boosts shale gas industry
Government overturns objections to project at Lancashire site
Britain’s shale gas industry has won a significant victory after the government overturned local council objections to a fracking scheme in Lancashire, clearing the way for the first exploration since an earthquake halted drilling five years ago.

Sajid Javid’s decision was the clearest sign yet of the government’s willingness to push through shale gas development in the face of fierce opposition from local communities and environmental groups.
The communities secretary said shale gas had “the potential to power economic growth, support 64,000 jobs, and provide a new domestic energy source, making us less reliant on imports”.
Mr Javid ruled that Cuadrilla Resources should be allowed to drill four horizontal wells at its Preston New Road site near Blackpool, the first time permission has been granted in the UK for a form of fracking that would extend beneath homes.
A decision was deferred on a second set of four wells at the nearby Roseacre Wood site but Mr Javid said he was “minded to allow” the project if concerns about its impact on local road traffic could be overcome.
At the same time, the push for alternative sources of hydrocarbons took a blow in Scotland, where the Scottish National party administration blocked a propsal to extract gas from under the Firth of Forth using a controversial coal-burning technique. There is already a moratorium on shale gas fracking in Scotland.
Advocates of fracking said the English ruling was a breakthrough in the push to unlock Britain’s shale gas resources after a near-standstill since exploratory drilling by Cuadrilla in Lancashire caused small earth tremors in 2011.

Francis Egan, Cuadrilla’s chief executive, welcomed a decision he said would “create new economic growth opportunities and jobs for people in Lancashire and the UK”.
Campaigners say fracking — which involves pumping large volumes of water, sand and chemicals under the ground at high pressure to release gas and oil trapped in rock — pollutes groundwater, causes geological instability and, ultimately, undermines efforts to tackle climate change. Frack Off, a coalition of local groups, has called for a demonstration at Preston New Road on Saturday and vowed to try to disrupt drilling.
The Labour party, which has promised to ban fracking, said the decision “bulldozes local democracy” and “risks locking Britain into an old-fashioned dirty energy infrastructure” when it should be investing in renewable power.
Lawyers said the ruling greatly improved the prospects for approval of fracking elsewhere in the UK. Claire Dutch, a partner at Hogan Lovells, said Mr Javid’s ruling was “extremely positive” for the industry because of the “great weight” he had attached “to the national need for shale gas”.
“He has concluded that concerns over public health, visual amenity and environmental issues can be overcome by planning conditions,” she said.
Geological surveys have indicated sizeable shale gas resources in England across large parts of the north, the Midlands and the south-east. However, there remain big economic and geological obstacles and many analysts are sceptical of the UK’s ability to replicate the shale gas boom that has transformed the US energy market.
“The jury’s still out on whether the economics of developing a UK shale industry really stack up. This is particularly true now, when the world is awash with cheap liquefied natural gas,” said Richard Black, director of the Energy and Climate Intelligence Unit, a think-tank.
When Lancashire County Council rejected an application by Cuadrilla to explore for shale gas near Blackpool in June 2015, the decision was celebrated by opponents as “a Waterloo for the fracking industry and a triumph for local democracy”.
Mr Javid’s decision on Thursday to overturn the council’s ruling and grant planning permission had those same campaigners declaring “a new low in the government’s plan to force fracking on the UK”.
Greenpeace, the environmental group, said it “makes a mockery of the government’s claim to champion local democracy”.
The furious reaction — and the promise by activists to continue efforts to block development — suggest that, while Cuadrilla’s victory marks an important step forward for shale gas developers, it will not end debate over the merits of fracking in the UK.
Advocates see shale gas as a way to bolster energy security at a time when the government is grappling with how to replace coal-fired power — due to be phased out by 2025 — while keeping power bills affordable.
Labour unions, eyeing the job creation potential of a new onshore energy industry in the UK, were among those who welcomed Mr Javid’s intervention.
“The go-ahead will reduce the gas we will need to import from regimes fronted by henchmen, hangmen and head choppers as the UK will need to use gas for years to come to heat our homes and generate electricity on the 60 days each year when there is no wind,” said Stuart Fegan, national officer of the GMB union.
Thursday’s go-ahead for Cuadrilla came a week after the first shipment of US shale gasarrived in the UK for use in chemicals manufacturing at Ineos’s Grangemouth refinery in Scotland. Fracking advocates said this exposed the folly of blocking shale gas development in the UK while importing the product from overseas.
Ineos is among a handful of companies, in addition to Cuadrilla, pressing for access to UK shale resources. Others include IGas, whose shares rose by 23 per cent after Mr Javid’s decision on Thursday raised hopes for approval of other projects.
Sarah Easton, partner at Thomson Snell & Passmore, the law firm, said the ruling set a precedent for local authorities and suggested that planning applications for fracking “may face less delay under [prime minister] Theresa May’s leadership”.
Nottinghamshire councillors this week deferred until November a decision on an application for test drilling by IGas at a former cold war missile site near Bassetlaw after a legal submission from Friends of the Earth.
North Yorkshire council granted approval in May for Third Energy to test frack for shale gas at an existing well outside the village of Kirby Misperton. It would need fresh permission to produce on a large scale, which could lead to several hundred wells in the region.
However, aside from these few isolated projects, the energy industry has generally been cautious about UK shale. Executives at large oil and gas groups say they are sceptical about whether the scale of the opportunity will outweigh the obstacles.
“It all depends on the underlying economics,” says one consultant who has worked with companies interested in UK fracking. “There’s got to be a large quantity of resource in the ground that’s easy to access. Not enough work has been done to demonstrate that.”
While fracking advocates tout the potential for a US-style shale revolution, sceptics highlight the differences between fracking in the wide expanses of North America and the small and crowded British Isles. Thousands of wells were drilled in the US before the economic case for large-scale fracking was proved.
The US shale boom was spurred by a permissive regulatory regime, generous government research and development support and large volumes of equity investment. None of those conditions exist in Britain.
The first shipment of US shale gas to Britain arrives in Scotland last week © PA
Laws governing UK mineral rights provide little incentive for local communities to embrace fracking. Whereas in the US, landowners own the resources beneath their property, in the UK anything deeper than 50 metres is owned by the Crown.
The government has offered payments to local communities to try to increase support but there have been mass protests wherever the drillers have gone.

“One day there will probably be some shale gas produced in the UK but will it be enough to move the needle? The jury’s out,” said the consultant who has worked with shale gas companies.
The relatively high costs of operating in the UK are another deterrent to investment at a time when the global market is awash with supplies from the US, Australia, the Middle East and elsewhere.
James Heappey, Conservative MP for Wells in Somerset, and a member of the House of Commons committee on energy and climate change, is among those who question whether the sums will ever add up for UK fracking. “We’ll be importing cheap American shale gas before we’re fracking on large scale in UK,” he said.

WSJ : ECB Sees Rising Scarcity of Bonds for QE Program

ECB Sees Rising Scarcity of Bonds for QE Program
Policy makers also hinted the program could be expanded again

FRANKFURT—European Central Bank policy makers warned at their September meetingof growing challenges in sourcing bonds for their €1.7 trillion ($1.91 trillion) quantitative-easing program, and hinted that the program could be extended again.
ECB officials haven’t previously acknowledged that they could face problems sourcing bonds. But President Mario Draghi said in September that ECB staff would review the design of the QE program, to ensure it didn’t run out of bonds—a move that could presage an extension.
The details of the ECB’s Sept. 7-8 policy meeting, published Thursday, reveal widespread concerns within the bank’s 25-member governing council over the failure of inflation to pick up more substantially much in the eurozone.

The ECB has rolled out unprecedented stimulus in recent years in an effort to reinvigorate the region’s weak economy, cutting interest rates below zero and buying €80 billion a month of public and private debt. Policy makers hope that by buying bonds, they can drive down interest rates, encouraging people to borrow and bolstering growth.
So far, it hasn’t been enough. Economic growth is still weak, and inflation was just 0.4% last month, far below the ECB’s target of just below 2%.
Despite that, Yet the ECB left its stimulus unchanged at its policy meeting last month, frustrating some investors who had hoped for an extension of the bond-purchase program beyond March, when it is currently due to end.
While officials “widely agreed” to hold fire for now, they expressed concerns that inflation “was still not showing convincing signs of a sustained pickup,” according to the minutes.
“Great emphasis had to be placed on the [ECB’s] willingness, capacity and ability to act, if warranted, to achieve its objective,” the minutes said.
According to its latest economic forecasts, published last month, the ECB expects inflation to increase gradually to 1.6% by 2018.
Crucially, those forecasts incorporate financial-market expectations that the ECB will provide fresh stimulus, according to the minutes.
That means if the ECB doesn’t boost its stimulus again, inflation could continue to fall short.
Howard Archer, an economist at IHS Global Insight in London, said the minutes suggested “that an extension to the ECB’s asset buying scheme remains highly possible.”
Like many economists, he expects the ECB to extend its bond purchases by six months at its December policy meeting.
Financial markets slumped earlier in the week after a report suggested that the ECB could start to taper its asset purchases, gradually reducing the monthly total, as the Federal Reserve did when it wound down its own QE program in 2014. The ECB denied that any such discussions had taken place.
According to the minutes, policy makers agreed widely in September that “financing conditions had to remain supportive” given economic risks outside the bloc, including “considerable uncertainty” around the longer-term fallout from Britain’s vote to leave the European Union.
“There is little [in the minutes] to suggest that policy makers are mulling the idea of tapering seriously,” said Jennifer McKeown, an economist at Capital Economics in London.
If the ECB does extend its bond purchases again, analysts have long warned it could face shortages in some bond markets, particularly German bunds. That is because of self-imposed constraints that restrict its purchases to bonds yielding more than minus 0.4%, and no more than 33% of most bond issues. The ECB also buys in proportion to the size of each economy.
Benoît Coeuré, an ECB board member responsible for market operations, told policy makers at the September meeting that the bond purchases were “continuing to progress smoothly overall,” according to the minutes. But he warned of “increasing scarcity of some bonds,” and “challenges to implementation in the future.”

The minutes also show policy makers are worried about the weakness of eurozone banks, whose stock prices have slid around 20% this year amid concerns about their future profitability in an environment of low interest rates. Officials warned that those weak profits and low stock prices could potentially curb future lending to the economy.
They also called again on governments to help out the ECB by boosting public investment and implementing growth-boosting reforms.

WSJ : Snapchat Parent Working on IPO Valuing Firm at $25 Billion or More

Snapchat Parent Working on IPO Valuing Firm at $25 Billion or More
IPO of virtual-messaging firm could take place as early as late March

Snap Inc. is working on an initial public offering that could value the popular virtual-messaging company at $25 billion or more, in what would be one of the highest-profile debuts in years.
The company, formerly known as Snapchat, is preparing the paperwork for an IPO with a view toward selling the shares as early as late March, according to several people familiar with the matter. There’s no guarantee the four-year-old Venice, Calif., company will proceed with a share sale on that time frame or what its valuation might be.
If Snap, best known for allowing users to send disappearing messages from their smartphones, moves forward as planned, it would be the biggest company to go public on a U.S. exchange since 2014. That’s when Chinese e-commerce company Alibaba Group Holding Ltd. debuted at a $168 billion valuation. Snap would become the first of a small group of highly valued and closely watched venture-backed companies, led by Uber Technologies Inc., to test the public markets.

A level of $25 billion or more would also represent a significant premium to Snap’s most recent valuation, which was pegged at $17.8 billion in its last funding round in May. That would bode well for a new-issue market that until recently suffered from reluctance on the part of public investors to match the private valuations of many Silicon Valley startups.
Underpinning Snap’s valuation is the company’s dramatic revenue growth since it first started running advertisements in 2014.
The company told investors earlier this year it expected revenue of between $250 million and $350 million in 2016 and as much as $1 billion in 2017. It’s already ahead of the top end of its 2016 forecast, according to two people familiar with the matter.
In 2015, the company generated just $60 million in revenue. It’s not clear whether Snap is profitable.

FT : Deutsche Bank wins BaFin reprieve in Russia probe

Deutsche Bank wins BaFin reprieve in Russia probe
German financial watchdog is not planning to ask for further actions from the lender


Germany’s financial watchdog, BaFin, is not planning to impose further penalties on Deutsche Bank as it comes to the end of its investigation into€10bn worth of trades involving the bank’s Russian arm.

Authorities in the US and the UK are also looking into the so-called mirror trades, which took place between 2011 and 2015, and which involved Russian clients buying securities in roubles through Deutsche’s Moscow office and then selling identical ones for foreign currency, including US dollars, through the bank’s London office.
John Cryan, Deutsche’s chief executive, has made it a priority to resolve the affair, which — alongside a $14bn initial request from the US Department of Justice to settle a separate investigation into the alleged mis-selling of mortgage-backed securities — is one of the biggest legal uncertainties hanging over the bank.
BaFin’s investigation is not yet formally complete, but the watchdog has no plans to ask for further actions from the bank, beyond the requests that it has already made that Deutsche improve its systems for catching suspicious transactions, according to people familiar with the situation.
BaFin and Deutsche both declined to comment on the news, which was first reported by Germany’s Süddeutsche Zeitung. Shares in the bank were up 0.9 per cent at €12.18 in afternoon trading.
Deutsche said last September that it would close its onshore investment banking business in Russia as part of an effort to reduce complexity and risks. It has also conducted its own investigation — dubbed Project Square — into the alleged mirror trades, and handed its conclusions over to the authorities in Germany, Russia, the UK and the US. It has taken disciplinary measures “with regards to certain individuals in this matter” and said that it will take steps against others “as warranted”.
BaFin’s stance provides some respite for Deutsche, which has endured a tough few days after news of the DoJ’s $14bn settlement request prompted investor fears that the bank could be forced into raising capital or even require a government rescue. Deutsche has insisted that neither is on its agenda, and that it has no intention of settling for anywhere near $14bn.
However, the bigger question in relation to its Russian activities is the outcome of the probes by US and UK regulators, given their ability to levy higher penalties than their German counterparts.
Deutsche has made a provision for potential costs arising from the various investigations into its Russian business, but has not disclosed how much it has set aside. In total, it had €5.5bn of provisions for legal risks at the end of June.
The German bank said separately on Thursday said that it had reached an agreement with staff representatives to lay off a further 1,000 employees in Germany as part of a plan announced last autumn to shed 9,000 staff.

>>> US Gapping Down

Gapping down
In reaction to disappointing earnings/guidance:
  • RECN -6.5%, (also Anthony Cherbak announces his retirement as President and Chief Executive Officer due to health considerations)
  • LXU -3.6%, (LSB Industries lowers Product sales volume outlook for 2016 in some areas including UAN, Ammonia, Nitric Acid, LDAN/HDAN; reports unplanned downtime at its three primary chemical facilities in Q3),
  • YUM -2.8%
  • WMT -1.9% (reaffirms FY17 EPS, sees FY18 EPS flat, below estimates)
M&A news:
  • TWTR -16.2% (reports that Disney and Google won't bid for the company -- Salesforce (CRM) is seemingly the last interested party)
Select metals/mining stocks trading lower: HMY -4.1%, GFI -3.8%, AG -2.4%, HL -2.3%, ABX -1.9%, GDX -1.8%, NEM-1.7%, SLW -1.6%, AEM -1.6%

Other news:
  • ALNY -44.6% (to discontinue Revusiran development, says decision does not impact Patisiran or any other RNAi therapeutic program in development )
  • IDRA -11.9% (commences $50 mln common stock offering)
  • MDCO -9.1% (updates on the ongoing ORION-1 study of PCSK9si; anticipates that top-line data from Day 180 follow-up for up to 200 patients will be presented at the Late-Breaking Clinical Trial Session)
  • ARWR -3.6% (ALNY sympathy)
  • RYAAY -2.3% (down in sympathy w/ peer Easy Jet which posted dissapointing earnings)
  • IONS -0.7% (ALNY sympathy)
Analyst comments:
  • AXP -1.3% (downgraded to Reduce from Neutral at Nomura)
  • LOW -1.7% (downgraded to Neutral from Buy at Cleveland Research)
  • TSLA -2.8% (downgraded to Neutral from Buy at Goldman; tgt lowered to $185 from $240)
  • SWHC -3.4% (downgraded to Hold at Wunderlich)
  • SNN -3.5% (downgraded to Hold from Buy at Berenberg)