Tuesday, April 18, 2017

Trump To Seek Changes In Visa Program To Encourage Hiring Americans

By Steve Holland
April 18, 2017

U.S. President Donald Trump on Tuesday will sign an executive order directing federal agencies to recommend changes to a temporary visa program used to bring foreign workers to the United States to fill high-skilled jobs.

Two senior Trump administration officials who briefed reporters at the White House said Trump will also use the "buy American and hire American" order to seek changes in government procurement practices to increase the purchase of American products in federal contracts.

Trump is to sign the order when he visits the world headquarters of Snap-On Inc, a tool manufacturer in Kenosha, Wisconsin.

The order is an attempt by Trump to carry out his "America First" campaign pledges to reform U.S. immigration policies and encourage purchases of American products. As he nears the 100-day benchmark of his presidency, Trump has no major legislative achievements to tout but has used executive orders to seek regulatory changes to help the U.S. economy.

The order he will sign on Tuesday will call for "the strict enforcement of all laws governing entry into the United States of labor from abroad for the stated purpose of creating higher wages and higher employment rates for workers in the United States," one of the senior officials said.

It will call on the departments of Labor, Justice, Homeland Security and State to take action to crack down on what the official called "fraud and abuse" in the U.S. immigration system to protect American workers.

The order will call on those four federal departments to propose reforms to ensure H-1B visas are awarded to the most skilled or highest paid applicant.

H-1B visas are intended for foreign nationals in "specialty" occupations that generally require higher education, which according to U.S. Citizenship and Immigration Services (USCIS) includes, but is not limited to, scientists, engineers or computer programmers. The government uses a lottery to award 65,000 visas every year and randomly distributes another 20,000 to graduate student workers.

The number of applications for H-1B visas fell to 199,000 this year from 236,000 in 2016, according U.S. Citizenship and Immigration Services.

Companies say they use visas to recruit top talent. More than 15 percent of Facebook Inc's U.S. employees in 2016 used a temporary work visa, according to a Reuters analysis of U.S. Labor Department filings.

But a majority of the visas are awarded to outsourcing firms, sparking criticism by skeptics who say those firms use the visas to fill lower-level information technology jobs. Critics also say the lottery system benefits outsourcing firms that flood the system with mass applications.

The senior official said the end result of how the system currently works is that foreign workers are often brought in at less pay to replace American workers, "violating the principle of the program."

Senate Republican leader Mitch McConnell, Democratic Senator Dick Durbin of Illinois, Republican Representative Darrell Issa of California and Democratic Representative Zoe Lofgren of California were not immediately available to comment.

Facebook, Microsoft Corp and Apple Inc were also not immediately available after normal business hours.

The order also asks federal agencies to look at how to get rid of loopholes in the government procurement process.

Specifically, the review will take into account whether waivers in free-trade agreements are leading to unfair trade by allowing foreign companies to undercut American companies in the global government procurement market.

"If it turns out America is a net loser because of those free-trade agreement waivers, which apply to almost 60 countries, these waivers may be promptly renegotiated or revoked," the second official said.

Article Link To Reuters:

Oil Edges Down After Expected Climb In U.S. Output

By Aaron Sheldrick
April 18, 2017

Oil prices fell in thin trade on Tuesday after the Easter holiday break shut many markets for as long as four days and as a U.S. government report indicated rising production.

Benchmark Brent crude futures were down 4 cents at $55.32. They ended a quiet session on Monday down 53 cents at $55.36, after rising the three previous weeks.

U.S. West Texas Intermediate (WTI) crude futures were also down 4 cents at $52.61 a barrel. They settled down 53 cents at $52.65 a barrel.

The benchmark for U.S. oil had also risen for three straight weeks through Thursday, before the Easter break.

"The speculators have been pushing oil up for almost a month," said Jonathan Chan, investment analyst at Phillip Futures in Singapore. "There should some healthy price correction this week."

Chan said he expected Brent to test $54 and WTI $51.70.

U.S. shale production in May is likely to post the biggest monthly gain in more than two years, government data showed on Monday, as producers step up the pace of drilling with oil prices holding above $50 a barrel.

May output is expected to rise by 123,000 barrels per day to 5.19 million bpd, according to the U.S. Energy Information Administration's drilling productivity report.

If that is right, May will have the biggest monthly increase since February 2015 and the highest monthly production level since November 2015.

More barrels could be on their way to market from U.S. shale fields as financial companies are investing billions in production, a Reuters analysis shows.

Any increase in output in the United States, now the world's third-biggest oil producer, will likely put pressure on the Organization of the Petroleum Exporting Countries (OPEC) - which agreed to curb output at the end of last year - to cut production further.

OPEC is due to meet on May 25 to weigh an extension of output cuts beyond June to alleviate a glut that has depressed prices for nearly three years.

Still, Saudi Arabia's energy minister has said it was too early to discuss an extension.

"The market just seems a little frightened," said Matt Stanley, a fuel broker at Freight Investor Services in Dubai.

"In one corner we have high output compliance, seemingly rising demand (apparently) and strong Chinese economic data but, in the other corner, we have the 1 million tonne elephant in the room and that is U.S. production and exports.

Article Link To Reuters:

Citi Sees Oil Surging $10

Mid-$60 oil seen by end-2017 as OPEC cuts offset U.S. shale; Bank sees commodity investment flows rising in second quarter.

By Serene Cheong
April 18, 2017

Citigroup Inc. joined Goldman Sachs Group Inc. in backing commodities, saying it’s the season to have faith in raw materials and oil will probably rally to the mid-$60s by the end of the year.

While U.S. shale output may come “roaring back” amid higher crude prices, production curbs by OPEC and its allies should help offset that increase over the next six to nine months, Citi analysts including Ed Morse and Seth Kleinman wrote in an April 17 report. The producers need to extend their deal to cut supplies through the end of the year amid concerns that Russia is lagging behind on its pledged reductions, the bank said.
While the historic agreement between producers that went into effect Jan. 1 “induced a euphoric and unsustainable surge” in bullish bets by investors, that also set the stage for an inevitable sell-off as record fourth-quarter OPEC output and oil stored at sea moved to onshore sites, according to Citigroup. Goldman Sachs has also made similar comments, saying ample inventories that have undermined the output cuts are set to shrink and calling for more patience from the market.

“With a continuation of the OPEC and non-OPEC producer deal in the second half of 2017 and the expected associated inventory draw-down, we expect oil prices to move above $60 a barrel by the second half of the year,” the analysts wrote in the note. Still, increased supplies from producers in the fourth quarter of 2016 is now “a dark cloud hanging over the market,” and a failure to extend the output agreement would send prices “precipitously lower,” they said.

The bank expects U.S. West Texas Intermediate oil to average $62 a barrel and global benchmark Brent crude to average $65 a barrel in the fourth quarter. WTI was trading 1 cent lower at $52.64 a barrel on the New York Mercantile Exchange at 1:22 p.m. Singapore time on Tuesday. Brent on the London-based ICE Futures Europe exchange was up 3 cents at $55.39 a barrel.

Supply Surge

The production-cut agreement spurred a change in market structure that meant traders had less incentive to store oil at sea, prompting the flow of supplies floating on ships to onshore sites. That set the stage for boosting U.S. inventories to a record in the first quarter of 2017, the bank said.

This gain and a surge in output by the Organization of Petroleum Exporting Countries in the fourth quarter had an effect that would “ultimately obstruct and for a period of time reverse the very rebalancing they were trying to accelerate,” the analysts said. The bank expects U.S. liquids output to grow year-over-year at 1 million barrels per day or more by December.

The drop in oil prices during March led declines across commodities, according to Citigroup. It estimates commodity assets under management grew about $45 billion in the first two months of the year but gave up $35 billion during the selloff in raw materials in March. Investment inflows should increase in the second quarter, the bank predicted.

“Do commodities need a bit of a prayer to rebound in ‘17? Probably not,” the analysts wrote. “Commodities stumbled through the first quarter following what was clearly the healthiest year for the sector since the decade began. In retrospect part of the sell-off toward the end of the last quarter was too much froth in critical subsectors like oil, copper and iron ore. But signs of better performance are increasingly clear, despite major risks.”

Article Link To Bloomberg:

Banned At Sea: Venezuela's Crude-Stained Oil Tankers

By Marianna Parraga and Mircely Guanipa
April 18, 2017

In the scorching heat of the Caribbean Sea, workers in scuba suits scrub crude oil by hand from the hull of the Caspian Galaxy, a tanker so filthy it can't set sail in international waters.

The vessel is among many that are constantly contaminated at two major export terminals where they load crude from Venezuela's state-run oil company, PDVSA. The water here has an oily sheen from leaks in the rusty pipelines under the surface.

That means the tankers have to be cleaned before traveling to many foreign ports, which won't admit crude-stained ships for fear of environmental damage to their harbors, port facilities or other vessels.

The laborious hand-cleaning operation is one of many causes of chronic delays for dozens of tankers that deliver Venezuela's principle export to customers worldwide, according to three executives of the state-run firm, eight employees of maritime firms that contract with PDVSA and Thomson Reuters vessel-tracking data. Other reasons include delayed repairs and impoundments by service providers that are owed money by cash-strapped PDVSA.

Neither PDVSA nor Venezuela's Oil Ministry responded to requests for comment about the firm's maritime operations.

The tankers sidelined for cleaning provide a vivid example of the firm's downward spiral: Lacking the cash to properly maintain ships, refineries and production operations - or to pay business partners on time - PDVSA can't boost exports, which is its only option for raising more cash.

The lagging exports crimp the flow of cash back to the country's crippled socialist economy, as citizens struggle daily amid soaring inflation and shortages of food and medicine. Because Venezuela relies on oil for more than 90 percent of export revenues, the problems of its state-run oil company pose a national crisis.

Venezuela's crude exports declined 8 percent to 1.69 million barrels per day (bpd) in the first quarter versus the same period in 2016, according to Thomson Reuters data.

When oil prices were high, crude and fuel exports almost entirely financed an elaborate system of government price controls and social subsidies that maintained the popularity of late President Hugo Chavez, the socialist firebrand.

Although embattled Venezuelan President Nicolas Maduro insists the government has maintained social programs, he has publicly acknowledged that lower oil prices have left the government with less money to finance them.

Venezuela's Information Ministry did not respond to a request for comment about the nation's social spending.

Thousands Of Brush Strokes

At oil export terminals around the world - where crude leaks like those in Venezuela are relatively rare - an oil-stained tanker would normally be taken out of the water and cleaned with industrial equipment in a dry dock.

But Venezuela has just one small dry dock and lacks the cash or the time to send its soiled tankers there for proper cleaning, according to the PDVSA executives, ship captains and two workers from tanker cleaning companies.

So workers on a small fishing boat clean the giant tanker with thousands of scrub-brush strokes. The work - which involves scouring ships above and below the water line - can take up to ten days per vessel, a worker involved in the cleaning said.

In a scene witnessed by Reuters in April, workers wearing scuba suits baked on the deck of a small boat as they reached out with brushes to scrub the Caspian Galaxy, a tanker leased for one trip by a PDVSA customer.

The workers labored just offshore from Amuay beach, near a tourist hub and PDVSA's largest refinery. The crews here have washed so many vessels in recent months that they have dubbed their operation "the boatwash".

In nearby Maracaibo Lake - where tankers are stained at the export terminals - a scuba diver died in an accident this week while inspecting a leaking pipeline.

Jose Bermudez, a 40-year-old father of two, drowned after the line connected to his air supply got tangled in the propeller on his boat, according to union representatives.

The Professional Union of Scuba Divers and Marine Staff from Zulia state had previously requested that PDVSA replace the propellers with a different propulsion system, the organization said.

A supervisor at PDVSA's Western division on Monday confirmed the accident but declined to answer further questions.

PDVSA's maritime crisis is uniquely dire, said George Los, a senior tanker market analyst at U.S. ship brokerage Charles R. Weber Company.

"I can't think of any situation similar to this anywhere else in the world right now," he said.

Leases At $1 Million Per Month

Eighteen of the 31 oil tankers PDVSA owns were out of commission at the end of March, according to Thomson Reuters vessel-tracking data and six maritime industry employees, who spoke with Reuters on condition of anonymity.

Several needed cleaning, while others need repairs, according to the data.

To keep oil flowing, PDVSA leases more than 50 tankers - each at a cost of between $800,000 to $1 million per month, according to three captains and ship brokers involved in lease contracts with PDVSA and Thomson Reuters vessel tracking data.

That is more than double the number of vessels it typically leases to complement its own fleet of tankers, according to the sources.

It's a short-term fix that is driving up costs and exposing PDVSA to further detentions or seizures of vessels when it does not pay leasing fees on time.

Several ship owners, exasperated by payment delays, have sought court orders to have the oil on board the tankers impounded, according to three sources involved in some of the disputes and a court document seen by Reuters.

Russian shipping conglomerate Sovcomflot in October won a court order to seize a $20 million Venezuelan crude cargo from a Sovcomflot tanker as partial payment on a $30 million debt.

The tanker was carrying crude to the Caribbean island of St. Eustatius. [L2N1HD1MI]

Sovcomflot did not respond to requests for comment.

Six other PDVSA vessels are stuck in yards in Portugal, Turkey and Curacao, either for lack of payment or because PDVSA has not supplied the necessary parts for repairs, according to two shippers and an executive of a firm supplying equipment to PDV Marina, PDVSA's maritime branch.

The 'Venezuela Clause'

Most port owners have to pay fees if they delay tankers from loading or unloading at their docks. But PDVSA, which operates terminals in Venezuela, has traditionally refused to include such penalties - known as demurrage fees - in its contracts with shipping companies that move Venezuelan oil.

At least five major shipping companies, however, are now pushing back on that practice, according to oil traders and contracts signed by PDVSA. The shippers now include a so-called "Venezuela clause" in their contracts.

The penalties can be as much as $23,500 per day, according to recent shipping contracts with PDVSA seen by Reuters.

One contract specifies that PDVSA must pay demurrage for delays resulting from workers strikes, the late arrival of tug boats and even for drug inspections - a nod to international investigations into Venezuela's role in the global drug trade.

Some tanker-leasing companies and service providers also charge PDVSA above-market rates because of the risk of delayed payments, two shipbrokers told Reuters.

Similar operational problems plague PDVSA's oil drilling and refining operations. Once the pride of the country's economy, the state-run firm saw crude production plummet last year to a 23-year low.

The crisis has now reached the point where state-run PDVSA can't buy spare parts to keep oil fields pumping, pay workers enough to feed their families, or keep its tankers on the water, the PDVSA executives and maritime company employees told Reuters.

The rising costs and falling exports, in turn, are depriving the firm - and the country - of the commodity it needs most: dollars.

Article Link To Reuters:

Twice-Bitten Traders Take No Chances With French Election Risk

Goldman, Deutsche Bank recommend selling French debt into vote; Pimco says selling euro versus Swiss franc is ‘logical hedge'

By Stefania Spezzati
April 18, 2017

After last year’s political shocks from the U.K. and the U.S., investors are taking no chances with the risk of a French version.

As France’s most unpredictable presidential vote in a generation looms less than a week away, banks and asset managers are building defenses against a win for anti-euro candidate Marine Le Pen even as polls suggest it’s unlikely. Bracing for a political upset similar to Brexit and Donald Trump’s victory, they are positioning for potential declines in the common currency as well as France’s government bonds.

Goldman Sachs Group Inc., Deutsche Bank AG and Nomura Holdings Inc. have recommended selling French debt into the two-round election, to be held on April 23 and May 7, while Fidelity International has already trimmed holdings. Pacific Investment Management Co. says selling the euro versus the Swiss franc would be a “logical hedge” and Dubai-based hedge fund Ark Capital Management has bought options that allow sales of the single currency should it weaken sharply.

“The question is, can we deal with a third black swan?” Enda Homan, senior foreign-exchange trader at Allied Irish Banks Plc in Dublin, said in an interview, using the metaphor for an unforeseen catastrophe that was popularized by Nassim Nicholas Taleb’s 2007 book with the same title. Homan, who worked overnight for Brexit and the U.S. election, has no similar plans yet for the first round of the French vote. Still, “it could all change if the fear factor spikes as we get closer to the vote,” he said.

National Front leader Le Pen and independent Emmanuel Macron have been leading the first-round polls, followed by Republican Francois Fillon and far-left candidate Jean-Luc Melenchon. Macron is tied with Le Pen with 22 percent support for the first round of the election, according to an Ipsos/Sopra Steria poll for Le Monde. Second-round polls are signaling a victory for Macron.

Euro At Risk

The cost of one-month options to buy the euro against the dollar has plunged, relative to contracts for selling, to the lowest level since the height of Europe’s sovereign-debt crisis in 2011, signaling increased hedging against potential losses. The so-called risk-reversal rate, a gauge of market positioning and sentiment, has slumped to minus 395 basis points, from minus 44 basis points at the end of 2016.

Earlier this month, a survey of analysts predicted that the euro will tumble to a 15-year low if Le Pen becomes President. The yield premium investors demand on France’s 10-year bonds over German bunds has increased to 71 basis points from as low as 27 basis points before Trump’s U.S. election win in November. French debt due in November 2026 yielded 0.92 percent as of the London close on April 13.

Scott Thiel, deputy chief investment officer for global fundamental fixed income at BlackRock Inc., the world’s biggest money manager, favors hedging potential euro losses on a Le Pen victory by buying put options, he said at a press briefing in London on March 29.

Fidelity has cut its exposure to French debt even as its base case is that Macron will win, according to London-based portfolio manager David Simner.

‘Logical Hedge’

Investors may find it more expensive to trade regional assets after the vote. Danish lender Saxo Bank A/S is mulling an increase in the margins it charges retail customers on trades in the euro and European equities indexes to 4 percent after the first-round vote, it said in a memo sent to clients.

“We don’t see a negative surprise from France but there are of course risks,” Thomas Kressin, Munich-based portfolio manager at Pimco, which manages $1.5 trillion of assets, said in emailed comments. “Long Swiss franc and short euro would be a logical hedge trade against the tail-risk scenario of a Le Pen victory. It’s a position with asymmetric risks. If things don’t go wrong in the euro zone, you don’t lose much. If they do, you may gain.”

Pimco declined to comment on the fund’s positions.

Cautious Optimism

Equity strategists and investors are more sanguine, with Bank of America-Merrill Lynch, JPMorgan Chase & Co., Barclays Plc and Jefferies Group favoring European stocks despite French election risks. They cite global asset managers’ low positioning on European shares, the stocks’ cheap relative valuation as well as the region’s brisk earnings recovery as reasons for the optimism.

Still, investors remain cautious ahead of the vote, with the cost of hedging against declines in the Euro Stoxx 50 Index recently rising to its highest level since the Brexit vote.

While most of the banks are still predicting a market-friendly outcome for the vote, the gap between the main candidates is not large enough to exclude a surprise, according to Deutsche Bank, which holds a short position on three-year French bonds.

Ark Capital, which has bought “low-delta” put options on the euro, is also selling the single currency against major peers including the pound and the Canadian dollar, Saed Abukarsh, co-founder and chief portfolio manager, said in an interview.

“Nothing can be taken for granted,” said Nicholas Wall, portfolio manager at Old Mutual Global Investors in London, who is selling French bond futures into the vote. “If there is a shock victory for Le Pen or Melenchon, the yield on French bonds should rise dramatically.”

Article Link To Bloomberg: