FT : Progress in Iran talks puts oil traders on edge

Progress in Iran talks puts oil traders on edge

Talk of progress in the nuclear negotiations between Iran and the world powers has had oil traders on edge.
With large amounts of Iranian oil already in storage, an injection of hundreds of thousands of barrels a day into the oil market already struggling with a crude overhang could depress prices further.

The prospect of a wave of Iranian crude exports has already hit internationally traded Brent: after rebounding to $60 a barrel last month, it now hovers around $55 a barrel amid expectations of a deal by March 31.
“There is nothing that cannot be resolved,” Hassan Rouhani, Iran’s president, said on Saturday, according to the Iranian state news agency.
But as negotiators from Iran and the US, UK, France, Russia, China and Germany, the so-called P5+1 group, reconvene this week, questions remain around what any deal, full or partial, could mean for the oil market.
Sanctions damage
Western sanctions aimed at reining in Tehran’s nuclear activities have reduced crude output to about 2.8m b/d, from 3.6m b/d at the end of 2011. After foreign investment fled, the country’s oilfields, which hold 10 per cent of the world’s crude reserves, have been shut down while others are running at low levels.
Exports from the Opec producer stand at about 1.1m barrels a day, half of their pre-sanctions level. Aside from a handful of countries to which Iran is able to sell crude at a discount, restrictions on shipping, insurance, infrastructure, banking, repatriation of funds and other aspects of the oil trade have hindered foreign sales and severely strained the economy.
Complex negotiations
It is difficult to determine the extent of progress. But Richard Mallinson, geopolitical analyst at consultancy Energy Aspects, says Iran and the P5+1 are closer to settling on two points: the duration of any deal and enrichment capacity. But “differences remain over the pace and sequence of sanctions relief”.

While Iran wants an immediate lifting, the P5+1 group is holding out for a gradual untangling of the complex layers of sanctions, over several years, that depend on Tehran honouring the terms of any agreement.
President Barack Obama can make temporary suspensions, but only Congress can lift them permanently. Ayatollah Ali Khamenei, Iran’s supreme leader, could also reject any draft agreement.
If early relief is on the table, the weeks or months after technical details are ironed out could see the easing of sanctions on EU shipping and insurance, banking, asset freezes and oil imports, says Mr Mallinson.
He adds: “A partial deal is much more likely . . . We expect official statements to describe this as the first stage in an agreement, but not spell out a clear path to all sanctions eventually being lifted.”
Flood of Iranian crude
It is not just Mr Rouhani who is optimistic.
“In case the international sanctions against Iran are lifted, 1m barrels a day will be added to the country’s crude oil production and exports in several months,” Bijan Zanganeh, Iran’s oil minister and a veteran technocrat, said last week.

Iran is already manoeuvring to recapture its lost market share in Asia and is engaging with European refiners about crude sales, people familiar with the matter said.
The International Energy Agency said in its five-year outlook that Iran “may be in a position to increase production and exports rapidly” if an agreement is reached. In preparation, “much of last year was spent making sure wells and processing units were up to scratch and pipeline systems were tested”.
While Iran is capable of accelerating production and exports by about 800,000 b/d within six to 12 months of any sanctions being lifted, it is unlikely to achieve pre-sanctions levels, says Robin Mills of Manaar Energy Consulting. “They’ll get the initial boost, but they will be back on the treadmill,” he says.
Attracting investment
Substantial investment from foreign companies would be needed for further output increases. “If sanctions are lifted in the middle of this year, it’s not like they are going to turn up on July 2,” Mr Mills says. Without a comprehensive agreement Iran is unlikely to lure international energy companies.
Iran plans to produce about 5m b/d, including condensate, by 2020, which oil experts say is an ambitious plan as many fields are deteriorating.
Mr Mills estimates it would cost about $30bn — excluding investments in the gas sector, the downstream business and any additional cash flows needed to sustain underlying production — to the end of the decade to achieve such a target.
Although Mr Zanganeh has met oil groups such as BP, Shell and Total in the past year, challenges await.
“Sanctions have starved Iran’s oil and gas sectors of much needed capital,” says Mahdi Kazemzadeh at Afraz Advisers, an advisory company specialising in Iran. “While the draft contracts are attractive for companies, they are still a draft. They have to be finalised, approved and then implemented. Clarification on all of this is needed to avoid disappointment.”
The Opec conundrum
Iraqi production is trundling higher, while other Opec members are showing no signs of restraint. With the oil market already struggling to place hundreds of thousands of barrels, the arrival of more Iranian crude is not welcomed by many. The cartel has a production ceiling of 30m b/d a day.
Elham Hassanzadeh, a research fellow at the Oxford Institute of Energy Studies, says: “Iran has always argued there has to be room for Iran. Saudi Arabia and others have been producing more. Iran will fight for its market share.”

WSJ : Ex-Federal Reserve Governor Jeremy Stein Heads for Hedge Fund

A former Federal Reserve governor who expressed concern that central bank policies could spark financial instability is headed for the world of hedge funds.

Jeremy Stein signed up as a paid consultant to BlueMountain Capital Management, the more than $20 billion New York hedge-fund firm, the firm confirmed.

Mr. Stein, 54, made a quick impact in his two years as a Fed governor, warning of potential asset bubbles from the central banks’ sustained post-crisis stimulus programs. That set him apart from his colleagues who felt that financial stability concerns were far from the top priority in a sluggish economic environment. He resigned in May 2014.

More recently, he has said he is bullish on the U.S. economy, and relatively unsure on whether the Fed will raise rates in June.

At BlueMountain, Mr. Stein will advise on macro policies, financial regulation and risk management, among other issues.

Hedge funds, and so-called alternative investment firms more generally, have been attractive destinations for exiting government officials in recent years. Former Obama administration chief of staff William Daley joined Swiss hedge fund Argentiere Capital, while former Treasury Secretary Timothy Geithner and former Central Intelligence Agency chief David Petraeus took posts at private-equity firms Warburg Pincus LLC and KKR & Co., respectively.

Credit-focused BlueMountain was founded in 2003 by former J.P. Morgan trader Andrew Feldstein and ex-McKinsey & Co. consultant Stephen Siderow. Both earned law degrees from Harvard, where Mr. Stein remains an economics professor.

WSJ : U.S. Fed Reserve Official Warns of Risk of Market Disruption

LONDON–A top Federal Reserve official said Tuesday that interest-rate expectations in financial markets need to be better aligned with those of Fed officials, warning that reconciling those views could cause “potentially violent” market disruption.

James Bullard, president of the Federal Reserve Bank of St. Louis, told reporters in London that investors are penciling in a later move in interest rates than he expects and a slower pace of tightening in the months and years ahead.

His remarks underscore the potential pitfalls that await Fed and other central bank officials as they tiptoe towards calling time on years of ultra-loose monetary policy.

Mr. Bullard said investors have misread recent changes to the Fed’s interest-rate forecasts as a signal that members of the Federal Open Market Committee, which sets monetary policy, have become more pessimistic about the economic outlook.

“I’m not anymore dovish than I was,” Mr. Bullard said. He explained he had wanted the Fed to raise rates in March but once that date passed he simply switched his preference to June. That doesn’t mean he’s gloomier about the outlook, he said.

“People have to be careful when interpreting these dot movements,” he said, referring to Fed charts that show officials’ interest-rate forecasts as dots on a grid.

Mr. Bullard said investors’ rate expectations need to be better aligned with what the Fed’s policy-setting panel is expecting, adding he’s hopeful that markets and the committee “can come to a meeting of minds” over what the future path of interest rates should look like.

But he added there’s a risk that achieving that may involve a repeat of the summer 2013 “taper tantrum,” when financial markets swung wildly in response to Fed signals about winding down its bond-buying program.

“There’s going to be a reconciliation and that could be violent,” he said.

Earlier, in a speech to London’s City Week conference, Mr. Bullard said he expects the economy to recover in the second quarter following a soft start to the year as low gasoline prices fuel consumer spending. He said the strength of the dollar doesn’t pose a major impediment to growth.

He added the European Central Bank’s decision to begin buying government bonds is driving down bond yields in the U.S. too, keeping a lid on corporate and household borrowing costs.

“These facts put us in a position for normalization of U.S. monetary policy in 2015,” Mr. Bullard said.

He added raising rates soon will help ensure the Fed doesn’t have to raise them faster in future years to contain inflation.

“If we don’t start normalizing policy now we might be in a position where we are badly behind the curve two years from now,” he said.

Mr. Bullard isn’t currently a voting member of the Fed’s policy-setting Federal Open Market Committee.

Fed officials earlier this month signaled they are open to raising interest rates later this year by dropping their assurance that they will be “patient” on tightening policy, a move Mr. Bullard hailed Tuesday as an excellent decision.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: SONS -32.4%, CCM -19%, JRJC -18.4%, IDN -7.2%

M&A news: WLL -19% (Co announced it is not however pursuing any significant strategic transaction at this time; offering of 35 mln shares of common stock; also anounces private offerings of $1 bln of convertible senior notes due 2020 and $750 mln of senior notes due 2023)

Other news: RICE -14.5% (co announced pricing of $400 mln of 7.25% senior notes due 2023 at 99.233%, for a yield to maturity of 7.375%), OCN -6.3% (announces notice of noncompliance with NYSE continued listing standards; also announces intention to sell additional $25 bln portfolio of mortgage servicing rights to Nationstar (NSM)), GLP -5.8% (announced that the owners of AE Holdings Corp. are selling 1,956,234 common units in an underwritten secondary public offering), LQ -3.9% (announced a secondary offering of 17.5 mln shares of common stock, by selling stockholders affiliated with The Blackstone Group), SAAS -3.3% (announced intention to offer $100 mln of Convertible Senior Notes due 2022), GLOB -3.3% (announced that certain of its shareholders have commenced a secondary public offering of 2,906,266 common shares), HTGC -3% (announced that it is offering 6.6 mln shares of common stock pursuant to an effective shelf registration statement in an underwritten public offering), TTM -2.6% (related to Econ Times report discussing the move ahead of Board mtg and determination of rights offering terms), DPLO -2.3% (announced that it has commenced its follow-on public offering of 7.4 mln shares of its common stock; 3.0 mln shares will be sold by selling shareholders), KW -2.3% (announced plans to sell 7.5 mln shares of its common stock; discloses business update pertaining to certain activities), CHSP -2.2% (upsizes and prices 4,000,000 common shares; price not disclosed), FCX -2% (cuts quarterly dividend to $0.05/share from previous $0.3125/share)

Analyst comments: CENX -3.5% (downgraded to Underweight from Equal-Weight at Morgan Stanley), ZAGG -1.5% (downgraded to Hold from Buy at Craig Hallum), P -0.8% (cautious commentary at FBR Capital)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: CHRS +24.2%, VCEL +16.1%, DGLY +15.3%, (also files for $25 mln mixed securities shelf offering) EPRS +5.8%, IHS +5.8%, MKC +2.7%, EGL +2.6%, GNVC +1.2%, FLXN +1%, GIII +0.8%

Select EU bell weather names showing strength: ING +1.8%, DB +1.6%, NOK +1.4%, SAP +1.2%, SAN +1.1%, ASML +1%, DEO +0.9%, UN +0.9%

Select oil/gas stocks trading higher: PBR +1.7%, SDRL +1.6%, WTI +1.4%, STO +1.1%, COP +0.8%, CVX +0.7%

Other news: ISR +14.8% (announces it will host a dinner presentation describing the use, procedure and outstanding results in treating gynecologic cancers utilizing Cesium-131), NEPT +12.6% (USPTO issues positive decision that triggers royalty payments to Neptune), GSBD +7.9% (announces closing of IPO, confirms quarterly distribution of $0.45/share), VOXX +7.8% (co's iris authentical product, EyeLock, was mentioned positively on CNBC), ATOS +7.1% (launches the FullCYTE Breast Aspirator in the United States), ABMD +6.2% (confirmed Impella 2.5 received FDA approval for elective and urgent high risk percutaneous coronary intervention procedures), LOGI +5% (product announcement), RADA +4.8% (announces the selection by Lockheed Martin (LMT) Space Systems Company of its Multi-Mission Hemispheric Rada to support internally funded high energy laser weapon system prototype testing), CHK +4.1% (reduced 2015 CapEx budget to $3.5-4.0 bln from $4.0-4.5 bln; Carl Icahn increased stake to 10.98% from 9.98%), LINE +3.9% (announces $1 billion equity commitment from Quantum Energy Partners to form strategic acquisition alliance), ATNM +3.7% (announces that it is moving forward with enrollment and treatment of additional patients in its clinical trial for acute myeloid leukemia in patients over the age of 60), ARIA +3.6% (co and Medison Pharma announce that the Israeli Ministry of Health has granted regulatory approval for Iclusig (ponatinib) in Israel), PSTI +3.5% (announces key strategic objectives for development of PLX-R18 in hematopoietic indications), MCP +3.3% (cont strength), EGL +2.6% (co was awarded an Indefinite Delivery Indefinite Quantity multiple-award contract with a $1 bln ceiling to provide technical advisory services to the U.S. Agency for International Development), NVO +2.2% (Saxenda approved yesterday in Europe for the treatment of obesity), GILT +1.8% (Chairman, Dov Baharav, will assume the position of interim CEO, as Erez Antebi decides to step down )

Analyst comments: HIG +1% (resumed with a Buy at Goldman), XEL +0.9% (upgraded to Overweight from Equal Weight at Barclays), EL +0.8% (upgraded to Outperform from Market Perform at Wells Fargo)

>>> US Early premarket gappers

Early premarket gappers

Gapping up: VCEL +19.9%, DGLY +14.1%, RADA +6.9%, CHRS +6.8%, EPRS +5.8%, LOGI +5.3%, VOXX +4.1%, GILT +3.9%, CHK +3.8%, YNDX +3.1%, EGL +2.6%, EGL +2.6%, NVO +2.5%, GFA +2.5%, OAS +2.4%, ING +1.9%, SDRL +1.9%, GIII +1.9%, ABMD +1.7%, NOK +1.5%, SAP +1.5%, DB +1.4%, RICE +1.2%, ADEO +1.2%, COP +1.2%, GNVC +1.2%, MNGA+1.1%, UN +1.1%, ASML +1%, PBR +1%, PRGO +1%, CVX +1%, FLXN +1%, SAN +0.9%

Gapping down: CCM -19%, JRJC -14.9%, WLL -13%, GLP -10.2%, OCN -8%, HTGC -3.3%, SAAS -3.3%, GLOB -3.3%, TTM -2.6%, LQ -2.3%, DPLO -2.3%, KW -2.1%, NBG -1.4%, RIO -1.3%, MT -0.9%