Monday, January 23, 2017

Monday, January 23, Night Wall Street Roundup: Wall St. Dips On Trump Protectionism, Qualcomm Drag

By Chuck Mikolajczak
Reuters
January 23, 2017

U.S. stocks edged lower on Monday as early moves by President Donald Trump highlighting a protectionist stance on trade gave investors cause to rethink the post-election rally.

In his latest executive order, Trump signed to formally withdraw the United States from the 12-nation Trans-Pacific partnership trade deal.

Trump has also vowed to renegotiate the North American Free Trade Agreement (NAFTA) with leaders of Canada and Mexico.

"Investors are really trying to gauge what the potential fallout or impact of Trump’s approach to trade, economics, taxes and regulation looks like," said Peter Kenny, senior market strategist at Global Markets Advisory Group, in New York.

Earlier in the day, Trump met with a dozen prominent American manufacturers at the White House and said he would slash regulations and cut corporate taxes to boost the economy. Trump also plans to meet with leaders of construction and sheet metal unions on Monday and automotive executives Tuesday.

The post-election rally led Wall Street to repeated highs since the election but has stalled recently, with the S&P 500 having registered modest declines in consecutive weeks, as investors have become wary about the potential impact of an isolationist stance on world trade.

"This is more or less a reversion to the mean. What surprises me is we haven’t seen a sharper pullback," said Kenny.

The Dow Jones Industrial Average .DJI fell 27.4 points, or 0.14 percent, to 19,799.85, the S&P 500 .SPX lost 6.11 points, or 0.27 percent, to 2,265.2 and the Nasdaq Composite .IXIC dropped 2.39 points, or 0.04 percent, to 5,552.94.

The dollar .DXY touched a seven-week low of 100.18 against a basket of major currencies, while prices of safe-haven gold hit a two-month high.

Energy stocks .SPNY, down 1.1 percent, were the worst performing of the 11 major S&P sectors, as oil prices eased on signs of a strong recovery in U.S. drilling. Halliburton (HAL.N) also weighed on the sector, down 2.9 percent after the world's No. 2 oilfield services provider reported a bigger loss in the latest quarter.

Qualcomm (QCOM.O) tumbled 12.7 percent to $54.88 after Apple (AAPL.O) filed a $1-billion lawsuit against the chip supplier on Friday. The stock suffered its worst day since November 2015 and was the biggest drag on the S&P and the Nasdaq.

Advancing issues outnumbered declining ones on the NYSE by a 1.19-to-1 ratio; on Nasdaq, a 1.42-to-1 ratio favored decliners.

The S&P 500 posted 16 new 52-week highs and 6 new lows; the Nasdaq Composite recorded 79 new highs and 41 new lows.

About 6.15 billion shares changed hands in U.S. exchanges, matching the daily average over the last 20 sessions.


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Most Oil Majors Participating In OPEC Cuts

Reuters
January 23, 2017

Iraq's oil minister said on Monday that most oil majors working on its territory were participating in oil output reductions agreed as part of the deal between OPEC and non-OPEC producers to help to balance the market.

OPEC and several independent producers agreed last year to cut supply, the first such deal in 15 years, as of Jan. 1, 2017 to remove a glut. The effort has helped oil prices LCOc1 to rise to $55 a barrel, from a 12-year low near $27 a year ago.

Iraqi oil minister Jabar al-Luaibi said that to deliver Iraq's share of the reduction, the country had cut output from its "national fields" and those of international oil companies (IOCs) working in Iraq were also participating.

"We are in collaboration with IOCs to cut from their part," he told Reuters on the sidelines of a conference. "We are in agreement with most IOCs, not all of them, that they will be in line with us. This is going well."

Iraq agreed to lower its production by 210,000 barrels per day (bpd) under the deal and Luaibi said earlier on Monday Iraq was abiding by the accord.

The Iraqi minister also told Reuters he was "very happy" with the progress of the output cutting agreement, and expressed hope that oil prices would increase further.

"It is heading toward $60 now. We hope it will get to the level of $60 and $60-$65 will be reachable."

He said it was too early to say if the supply-limiting deal needed to be extended beyond the first half of 2017.

"We'll see. We think the market will balance."

Iraq is now OPEC's second-largest oil producer having rapidly boosted output in recent years, and is aiming to increase supply further in future once the OPEC deal has ended.

"So far, we are on the level of 6-7 (million bpd)," the minister said, asked where he saw the ideal level for Iraqi production in the longer term.


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Trump Pulls U.S. Out Of Pacific Trade Deal, Loosening Asia Ties

By Steve Holland and Ayesha Rascoe
Reuters
January 23, 2017

U.S. President Donald Trump formally withdrew the United States from the Trans-Pacific Partnership trade deal on Monday, distancing America from its Asian allies, as China's influence in the region rises.

Fulfilling a campaign pledge to end American involvement in the 2015 pact, Trump signed an executive order in the Oval Office pulling the United States out of the 12-nation TPP.

Trump, who wants to boost U.S. manufacturing, said he would seek one-on-one trade deals with countries that would allow the United States to quickly terminate them in 30 days "if somebody misbehaves."

“We're going to stop the ridiculous trade deals that have taken everybody out of our country and taken companies out of our country," the Republican president said as he met with union leaders in the White House's Roosevelt Room.

The TPP accord, backed heavily by U.S. business, was negotiated by former Democratic President Barack Obama's administration but never approved by Congress. It had been the main economic pillar of the Obama administration's "pivot" to the Asia-Pacific region to counter China.

Trump has sparked worries in Japan and elsewhere in the Asia-Pacific with his opposition to the TPP and his campaign demands for U.S. allies to pay more for their security.

But his trade stance mirrors a growing feeling among Americans that international trade deals have hurt the U.S. job market. Republicans have long held the view that free trade is a must, but that mood has been changing.

"It's going to be very difficult to fight that fight," said Lanhee Chen, a Hoover Institution fellow who was domestic policy adviser to 2012 Republican presidential nominee Mitt Romney. "Trump is reflecting a trend that has been apparent for many years."

Harry Kazianis, Director of Defense Studies at the Center for the National Interest think tank in Washington, said Trump must now find an alternative way to reassure allies in Asia.

"This could include multiple bilateral trade agreements. Japan, Taiwan and Vietnam should be approached first as they are key to any new Asia strategy that President Trump will enact,” he said.

Trump is also working to renegotiate the North American Free Trade Agreement to provide more favorable terms to the United States, telling reporters he would meet leaders of NAFTA partners Mexico and Canada to get the process started.

Business Leaders

The new president also met with a dozen American manufacturers at the White House on Monday, pledging to slash regulations and cut corporate taxes - but warning them he would take action on trade deals he felt were unfair.

Trump, who took office on Friday, has promised to bring factories back to the United States - an issue he said helped him win the Nov. 8 election. He has not hesitated to call out by name companies that he thinks should bring outsourced production back home.

He said those businesses that choose to move plants outside the country would pay a price. "We are going to be imposing a very major border tax on the product when it comes in," Trump said.

He asked the group of chief executives from companies including Ford Motor Co , Dell Technologies Inc , Tesla Motors Inc and others to make recommendations in 30 days to stimulate manufacturing, Dow Chemical Co Chief Executive Officer Andrew Liveris told reporters.

Liveris said the CEOs discussed the border tax "quite a bit" with Trump, explaining "the sorts of industry that might be helped or hurt by that."

"Look: I would take the president at his word here. He's not going to do anything to harm competitiveness," Liveris said. "He's going to actually make us all more competitive."

At part of the meeting observed by reporters, Trump provided no details on how the border tax would work.

The U.S. dollar fell to a seven-week low against a basket of other major world currencies on Monday, and global stock markets were shaky amid investor concerns about Trump's protectionist rhetoric.

"A company that wants to fire all of its people in the United States, and build some factory someplace else, and then thinks that that product is going to just flow across the border into the United States - that’s not going to happen," he said.

Cut Taxes And Regulations


The president told the CEOs he would like to cut corporate taxes to the 15 percent to 20 percent range, down from current statutory levels of 35 percent - a pledge that will require cooperation from the Republican-led U.S. Congress.

But he said business leaders have told him that reducing regulations is even more important.

"We think we can cut regulations by 75 percent. Maybe more," Trump told business leaders.

"When you want to expand your plant, or when Mark wants to come in and build a big massive plant, or when Dell wants to come in and do something monstrous and special – you're going to have your approvals really fast,” Trump said, referring to Mark Fields, CEO of Ford, who sat around the boardroom-style table in the Roosevelt Room.

Fields said he was encouraged by the tone of the meeting.

"I know I come out with a lot of confidence that the president is very, very serious on making sure that the United States economy is going to be strong and have policies - tax, regulatory or trade - to drive that," he said.

Trump told the executives that companies were welcome to negotiate with governors to move production between states.

Trump was scheduled to hold a meeting later on Monday with labor leaders and U.S. workers, the White House said.


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Yahoo Beats Wall Street View, Sees Verizon Deal Closing In Second Quarter

By Anya George Tharakan
Reuters
January 23, 2017

Yahoo Inc on Monday reported better-than-expected quarterly profit and revenue, and said the sale of its core internet business to Verizon Communications Inc should be completed in the second quarter, allaying some investor concerns that the deal might collapse.

The $4.8 billion Verizon transaction had originally been expected to close in the first quarter but was delayed by the disclosure of two major cyber breaches that exposed information from more than a billion Yahoo accounts.

The Securities and Exchange Commission has opened a probe into whether Yahoo's data breaches should have been disclosed sooner to investors, the Wall Street Journal reported on Monday. (on.wsj.com/2kjNMFd).

Yahoo said Monday that it has spent approximately $10 million related to a 2014 security breach announced in September and a 2013 breach announced in December.

Operating results for the fourth quarter, featuring a 15 percent gain in revenue from a year ago, appeared to provide some belated vindication of embattled Yahoo CEO Marissa Mayer's strategy. The company's shares rose 1.2 percent to $42.90 in heavy after-market trading.

Revenue from Mavens - the mobile, video, native and social advertising units that Mayer has long touted as key emerging businesses - rose 25 percent to $590 million.

Gross search revenue fell 6 percent to $821 million as Yahoo struggled to win back market share from bigger rivals such as Alphabet Inc's Google.

Cantor Fitzgerald Analyst Youssef Squali said the report shows Yahoo is capable of increasing efficiency but cautioned that search was on the decline and display would be in decline if the numbers were crunched differently.

"You have to remember, this business is still a melting ice cube," said Squali.

Emarketer analyst Martin Utreras said Verizon would likely be reassured by positive user engagement trends revealed in the report.

"The concern was really with the user engagement, whether those data breaches would have a material impact," he said. "But basically, from what they released today, it looks like the engagement hasn't changed that much from what they said the previous year."

The Verizon deal would transform Yahoo into a holding company called Altaba, whose primary assets would include its 15 percent stake in Chinese e-commerce company Alibaba Group Holding Ltd and a 35.5 percent interest in Yahoo Japan Corp.

Net income attributable to Yahoo was $162 million, or 17 cents per share in the fourth quarter ended Dec. 31, compared with a loss of $4.43 billion, or $4.70 per share, a year earlier.

The year-ago quarter included a $4.46 billion write-down to account for the lower value of some units.

Yahoo's revenue rose 15.4 percent to $1.47 billion, above analysts' average estimate of $1.38 billion, according to Thomson Reuters I/B/E/S.

Excluding items, the company earned 25 cents per share, beating the average estimate of 21 cents.

The company has said it would not hold a conference call or webcast after the release of the results, citing the pending deal. This is the second straight quarter that Yahoo is not holding a post-earnings call.

Verizon is reporting fourth-quarter results on Tuesday before markets open.


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U.S. Blocks Aetna's $34 Billion Humana Acquisition

By Diane Bartz
Reuters
January 23, 2017

A U.S. judge blocked on Monday health insurer Aetna Inc's proposed $34 billion acquisition of smaller peer Humana Inc, raising the stakes for rival Anthem Inc as it battles to close a $54 billion deal to buy Cigna Corp.

The ruling is another victory for the U.S. Justice Department, whose antitrust enforcement became much more aggressive during former U.S. President Barack Obama's eight years in office, which ended last week.

Obama's successor, Donald Trump, and a Republican-controlled legislature are seeking to undo much of the Affordable Care Act, better known as Obamacare. The law reshaped the U.S. healthcare industry by mandating health insurance and creating online exchanges where consumers can shop for individual policies and get subsidies.

Aetna, Humana, Anthem and Cigna had cited Obamacare as one of the main reasons their industry needed to consolidate to cope with the costs of expanding coverage. Their shares ended trading on Monday at levels that suggested that investors continued to see little chance that the two mergers would happen.

The U.S. Justice Department filed a lawsuit last July to block Aetna's acquisition of Humana and Anthem's acquisition of Cigna, arguing that the two deals would lead to higher prices.

Anthem and Cigna are still waiting for a judge to rule on whether their merger can proceed. Investors have long been skeptical that this deal can be approved, and Leerink Research analyst Ana Gupte reiterated on Monday that she expected to also see this deal blocked.

In his ruling, Judge John Bates of the U.S. District Court for the District of Columbia said the proposed deal would "substantially lessen competition" in the sale of Medicare Advantage plans in 364 counties in 21 states that the Justice Department had identified in its complaint, and on the Obamacare exchange in three Florida counties.

"We're reviewing the opinion now and giving serious consideration to an appeal after putting forward a compelling case," Aetna spokesman T.J. Crawford said. Humana did not respond to a request for comment.

Humana stands to receive a $1 billion breakup fee from Aetna should the deal be abandoned.

Jeffrey Jacobovitz, a litigator at law firm Arnall Golden Gregory LLP, said that appeals at the D.C. Circuit succeed about one-third of the time and can take a year to resolve. He added that it would be difficult, though not impossible, for Aetna to wait for Trump's new antitrust enforcers to be named and then strike a settlement to save the merger, perhaps by offering to divest more assets.

Bates dismissed Aetna's argument that there was plenty of choice for consumers because Medicare Advantage, which is managed by insurance companies, competes with traditional Medicare for the elderly and disabled, which is managed by the government.

"In that (Medicare Advantage) market, which is the primary focus of this case, the merger is presumptively unlawful - a conclusion that is strongly supported by direct evidence of head-to-head competition as well. The companies’ rebuttal arguments are not persuasive," Bates wrote in a 158-page decision.

Humana shares ended trading up 2.2 percent at $205.02, as investors brushed off the widely expected ruling. Shares of Cigna, the other health insurer to be acquired, were almost flat at $145.31

Several Deals Torpedoed
 

Several big deals were torpedoed by antitrust regulators last year, including the $35 billion merger between oil-field service groups Halliburton Co and Baker Hughes Inc and the $6 billion combination of Staples Inc and Office Depot Inc .

Bill Baer, the former head of the Justice Department's antitrust division who initiated the lawsuit to block the Aetna-Humana deal, called the decision "a strong affirmation of the role that competition plays in health insurance markets."

Doctors and hospitals had urged the Justice Department to block the deal, fearing it would erode their pricing power. Some large employers also opposed the combination.

"Today's ruling is a decisive victory for jobs, consumers, and healthcare. Mega mergers like the proposed consolidation of Aetna and Humana raise prices, lower health care quality – and kill jobs," said Senator Richard Blumenthal, a Connecticut Democrat.

Aetna had offered to sell a portfolio of about 290,000 Medicare Advantage members in 21 states to smaller peer Molina Healthcare Inc for $117 million, but that deal failed to appease Judge Bates.

"We are disappointed by the court's ruling today. However, whatever the ultimate outcome of that litigation, we remain committed to growing our Medicare Advantage product line," Molina spokeswoman Sunny Yu said.

Humana is the second-largest Medicare Advantage insurer while Aetna is the fourth, and the two compete in more than 600 counties, the government said in its complaint. Despite the adverse regulatory environment, some analysts suggested that an acquisition of Humana by someone other than Aetna was possible.

"We still suggest other potential M&A optionality exists for Humana, since nothing in the verdict seems to preclude it from possible buyers that expressed historic interest and that have less market overlap, namely Cigna and Anthem, JPMorgan Chase & Co analysts wrote in a note.


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Monday, January 23, Morning Global Market Roundup: Dollar Slips, Shares Wobbly After Trump's Protectionist Address

By Hideyuki Sano
Reuters
January 23, 2017

The dollar slid broadly on Monday after U.S. President Donald Trump struck a protectionist tone in his inauguration speech, undermining optimism over the U.S. economy spurred by his promises of tax cuts and other stimulus.

Japan's Nikkei dropped 1.1 percent while shares in Australia dropped 0.8 percent after the Trump administration, on its first day in office, declared its intention to withdraw from the Trans-Pacific Partnership (TPP), a 12-nation trade pact that Japan and Australia also have signed up for.

U.S. stock futures dipped 0.3 percent, erasing gains made on Friday.

European shares were expected to fall, too, with spread-betters looking to a drop of 0.4 percent in Britain's FTSE and 0.3 percent in Germany's DAX.

Other Asian shares were more resilient, however, in part due to the dollar's weakness and a relief that there was no negative surprises, with Trump refraining from labelling China as a currency manipulator for now, an accusation he made while campaigning.

"At least, there was no negative news this weekend, like a border tax or the currency manipulator, even though they could come up in the future," said Yukino Yamada, senior strategist at Daiwa Securities.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, with Taiwan shares leading the gains and coming just shy of 1-1/2-year highs.

In his inaugural address, Trump pledged to end what he called an "American carnage" of rusted factories and vowed to put "America first", laying out two simple rules - buy American and hire American.

Trump also said on Sunday he plans talks soon with the leaders of Canada and Mexico to begin renegotiating the North American Free Trade Agreement (NAFTA).

"The market is getting nervous about the possibility that the world's trade might shrink," said Koichi Yoshikawa, executive director of financial markets at Standard Chartered Bank in Tokyo.

"Many of his policies, including tax cuts and infrastructure spending, need approval from the Senate and that (may not be) easy," he said. "The markets that had been led by expectations on his policy since the election are now the dragged down by the reality."

The dollar had soared late last year on expectations that Trump's pledges to cut taxes and hike infrastructure spending would boost the U.S. economy, spurring inflation and higher interest rates.

But optimism is starting to fade as details of his tax policies remained sketchy. It is not clear if the Congress will agree to any plan that could drastically increase budget deficits.

"If all of Trump's tax proposals would be implemented, that alone would increase the deficit by more than two percentage points of GDP. It's questionable if the Republicans will agree to that. Any fiscal stimulus will be a mild one," said Hiroko Iwaki, senior strategist at Mizuho Securities.

The dollar fell as much as 1.2 percent against the yen to 113.26 yen, edging towards its seven-week low of 112.57 yen touched on Wednesday.

The euro gained 0.5 percent to $1.0754, its highest level since Dec. 8.

Emerging market currencies gained, with South African rand gaining 0.8 percent.

The Mexican peso, which has weakened the most on Trump's protectionist and anti-immigration stance, rose 0.8 percent to a two-week high of 21.415 per dollar.

The rise came after its 1.7 percent gains on Friday, its biggest in two months.

Gold hit a two-month high of $1,219.3 per ounce.

The 10-year U.S. Treasuries yield fell to 2.435 percent, after having risen briefly on Friday to 2.513 percent, its highest since Jan. 3.

The two-year yield, which is more sensitive to the Fed's policy outlook, dropped sharply to 1.180 percent from Thursday's three-week high of 1.250 percent, giving back much of gains made after Wednesday's upbeat comments from Federal Reserve Chair Janet Yellen.

Oil steadied after Friday's gains, as support from statements over the weekend from OPEC and other producers that they have been successfully in implementing output cuts were offset by a surge in U.S. drilling.

International benchmark Brent crude futures stood at $55.47 per barrel, little changed after Friday's 2.5 percent gains.


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Oil Eases After Two-Day Gain, Rising U.S. Production Weighs

By Naveen Thukral 
Reuters
January 23, 2017

Oil ticked lower on Monday, falling for the first time in three sessions as prospects of rising U.S. production weighed on the market.

U.S. energy companies last week added the most rigs drilling for new production in almost four years. Drillers added 29 rigs in the week to Jan. 20, bringing the total count up to 551, the most since November 2015, energy services firm Baker Hughes (BHI.N) said on Friday.

U.S. oil production has risen more than 6 percent since mid-2016, although it remains 7 percent below a historic high in 2015. It is back to levels of late 2014, when strong U.S. crude output contributed to a crash in oil prices.

Brent crude LCOc1, the international benchmark for oil prices, was trading at $55.42 per barrel, down 7 cents from its last close. U.S. West Texas Intermediate (WTI) crude futures CLc1 fell 11 cents to $53.11 a barrel.

Crude oil had traded higher earlier in the session on the back of output cuts by OPEC and other producers.

Production cuts by oil producers and a weaker dollar prevented the market from dropping further.

OPEC and non-OPEC countries have made a strong start to lowering their oil output under the first such pact in more than a decade, energy ministers said on Sunday as producers look to reduce oversupply and support prices.

Ministers said 1.5 million of almost 1.8 million barrels per day (bpd) had already been taken out of the market.

"Oil is trading in a range," said Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore.

"In the medium term it is going to be tough for oil to break out. The more oil goes up, the more these shale drillers are going to hedge by the futures."

On the technical front, Brent may climb up to $56.55 per barrel, as it has cleared resistance at $55.43, according to Wang Tao, Reuters analyst for commodities and energy technicals.

Hedge funds rushed to place bullish wagers on U.S. crude oil last week, data showed on Friday.

The U.S. dollar fell against the euro and yen on Tuesday after a drop in oil prices suggested U.S. inflation would stay low and prevent the Federal Reserve from hiking interest rates at a steady pace this year. Risk aversion also boosted the euro and yen. [USD/]

A weaker dollar makes greenback-priced commodities cheaper for importer holding other currencies.


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SEC Probing Yahoo Over Previously Disclosed Cyber Breach

By Suzanne Barlyn
Reuters
January 23, 2017

The U.S. Securities and Exchange Commission is investigating a previously disclosed data breach at Yahoo Inc, the company said in a filing.

Yahoo said in a November 2016 quarterly filing that it was “cooperating with federal, state and foreign” agencies, including the SEC, that were seeking information and documents about a "security incident and related matters."

The SEC is investigating whether two massive data breaches at Yahoo should have been reported sooner to investors, the Wall Street Journal reported on Sunday, citing people familiar with the matter.

An SEC spokesman declined to comment. A Yahoo spokesman directed Reuters to the company's November filing.

Yahoo has faced pointed questions about exactly when it knew about a 2014 cyber attack it announced in September that exposed the email credentials of half a billion accounts.

In December, Yahoo said it had uncovered yet another massive cyber attack, saying data from more than 1 billion user accounts was compromised in August 2013.

The SEC issued requests for documents in December, as it probes whether the technology company’s disclosures about the cyber attacks complied with civil securities laws, the people said, according to the Journal.

Securities industry rules require companies to disclose cyber breaches to investors. Although the SEC has long-standing guidance on when publicly traded companies should report hacking incidents, companies that have experienced known breaches often omit those details in regulatory filings, according to a 2012 Reuters investigation.(reut.rs/2dblx5S)

Democratic U.S. Senator Mark Warner asked the SEC in September to investigate whether Yahoo and its senior executives fulfilled obligations to inform investors and the public about the 2014 hacking attack.

The disclosures from Yahoo about both breaches came after the company agreed to sell its main business to Verizon Communications Inc in July, triggering questions about whether the deal would still be viable and, if so, at what price.

Other agencies looking into the data breach include the Federal Trade Commission, the U.S. Attorney’s Office in Manhattan and “a number of State Attorneys General,” Yahoo said in the November filing.


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It's Going To Be A Hot Summer For Oil Prices

By Jason Schenker
The Bloomberg View
January 23, 2017

Oil prices have been falling since the New Year. After a bullish announcement from the Organization of Petroleum Exporting Countries and production cuts by non-OPEC nations, the narrative has become bearish, focused on drilling for U.S. shale oil, as well as the failure of some nations to observe calls to cut output.

Yet market participants are missing something fundamental: WTI futures and energy equities have not priced in the potential upside risks to oil prices during the 2017 U.S. summer driving season, which is likely to be record-breaking. And that season -- roughly the period between late May and early September -- is approaching on the New York Mercantile Exchange much more quickly than it is in real time. NYMEX contracts trade ahead of the calendar, so higher prices may be closer than they appear.

While it may be only the third week of January, March crude oil contracts on the NYMEX become the new trading benchmark when February contracts expire on Jan. 20. This shift puts refineries, hedgers and traders one month closer to the high-demand summer, the biggest seasonal driver of global oil prices of the year. Because of the timing of NYMEX contract trading changes, refiners are likely to significantly increase their oil hedging and purchasing when April crude oil contracts on the NYMEX become the trading benchmark on Feb. 21. That means upside surprises to oil prices in 2017 may be only a month away.

This year, the seasonal upside could be even greater than normal. With the lowest U.S. unemployment rate since before the recession of 2008, and two consecutive years of record SUV and light truck sales in 2015 and 2016, the coming summer driving season is likely to show records for miles driven and gasoline demand. In fact, there has been a record number of miles driven every month since December 2014. And a continued trend higher in the 12-month moving total of U.S. miles driven is likely to continue throughout 2017.



Although there are upside price risks to WTI crude oil prices when the NYMEX contract rolls to April on Feb. 21, there are downside risks for oil prices when the summer driving season ends on the NYMEX. Just as the summer starts early on the NYMEX, it has a premature end, too: September WTI crude oil becomes the benchmark after the contract roll on July 20. Significant price declines accompanied similar contract rolls signaling an end to the summer driving season in 2014, 2015 and 2016 -- though some of the downside risks in 2016 were mitigated by anticipated OPEC oil production cuts.

With upside risks to global and U.S. growth in the second half of 2017, the story is likely to be different this year. Oil prices are likely to find more support -- with or without OPEC compliance -- even after the coming driving season ends, with a potential for the smallest post-driving season price declines on the NYMEX since 2013.

Oil traders watch a number of technical trading indicators, including moving averages, trading volumes and relative strength. These technicals are somewhat mixed for WTI crude oil prices. In addition, fundamentals are being unduly influenced by concerns about higher rig counts and the lack of compliance by OPEC oil production cut compliance. But upside risks to NYMEX WTI prices are increasing with each contract roll that brings the driving season closer. That driving season will dominate the headlines, support price increases engendered by fundamental demand and trigger additional technical buy signals. These factors are likely to send oil prices significantly higher ahead of and during the summer -- even if it is tough to imagine now, in the dead of winter.


Article Link To The Bloomberg View:

OPEC Shrugs Off Threat Of U.S. Cutting Oil Imports

Saudi Arabia, Venezuela stress linkages of world energy trade; New U.S. president aiming for energy independence from OPEC


By Grant Smith and Angelina Rascouet
Bloomberg
January 23, 2017

OPEC’s two biggest suppliers to the U.S. shrugged off a vow by President Donald Trump to end dependence on the group’s oil, saying the world’s biggest economy would continue to need crude from abroad.

The U.S. is “closely integrated in the global energy market,” Saudi Arabia’s Energy and Industry Minister Khalid Al-Falih said, while his Venezuelan counterpart Nelson Martinez said he expects his country’s crude exports to the world’s top consumer to remain stable.

“The positions that the U.S. and Saudi Arabia take in global energy are very important for global economic stability,” Al-Falih said Sunday at a meetingof producing countries in Vienna. He added that Saudi Arabia was looking forward to working with the Trump administration.

Just after his inauguration on Friday, Trump said he was “committed to achieving energy independence from the OPEC cartel and any nations hostile to our interests,” by exploiting “vast untapped domestic energy reserves”, according to a plan posted on the White House website. The U.S. imported about 3 million barrels a day from the organization last year, with Saudi Arabia and Venezuela accounting for 1.81 million, according to data compiled by Bloomberg.



This isn’t the first time a U.S. president promises to end the country’s reliance on supplies from the Organization of Petroleum Exporting Countries. Former President George W. Bush promised to cut imports from the Middle East when he said in 2006 the nation was “addicted to oil.” Shipments from OPEC rose 10 percent during Bush’s time in office. Every U.S. president going back to Richard Nixon has pledged to reduce the country’s reliance on foreign oil.

‘Everyone’s Good’


Venezuela’s Martinez played down any concern that his country’s shipments to the U.S. might dwindle under a Trump administration. “The export volumes will be maintained,” he said. “There is a lot of interdependence in the world of energy. It’s good to maintain it for everyone’s good.”

Saudi Arabia exported an average of 1.08 million barrels a day of crude to the U.S. in 2016, while Venezuela shipped about 733,000 barrels a day and Iraq some 400,000 barrels a day, according to data compiled by Bloomberg.

OPEC is waiting for a new U.S. energy secretary to take office to learn more about Trump’s energy policies, Mohammad Barkindo, the group’s secretary-general, said Sunday in the Austrian capital.

The U.S. is benefiting from the price increase following OPEC’s December agreement with other producers to reduce oil output, according to Algeria, another member of the group. “OPEC is currently helping the U.S.,” Noureddine Boutarfa said Saturday in an interview in Vienna. “The price recovery is helping U.S. companies, the U.S. industry, the U.S. economy.”

Crude prices rose to an 18-month high of more than $58 a barrel after OPEC and several non-members agreed to end two years of unlimited production and instead cut output. Prices have since slipped about 5 percent from that peak as traders await proof that the producers will follow through.

Benchmark Brent crude was down 0.1 percent in London at $55.43 a barrel at 6:59 a.m. local time, after rising 2.9 percent over the previous two sessions.

Even as Trump commits to ending U.S. reliance on OPEC’s oil, the new administration said it would “work with our Gulf allies to develop a positive energy relationship as part of our anti-terrorism strategy.”

Al-Falih suggested Saudi Arabia could always export its oil somewhere else, if the U.S. stopped buying.

“Oil is fungible, so it flows around -- what doesn’t get sold in one market can be sold in another,” he said.



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