Oil price slides after Goldman Sachs slashes forecasts – business live
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Version 0 of 1. 5.45pm GMT17:45 European markets steady but Wall Street falls after oil slump A decline on Wall Street as crude prices hit new five year lows took some of the shine off European shares, with energy companies under particular pressure thanks to the weakness in oil, writes. The FTSE 100 ended virtually unchanged after a bright start, but European markets managed to hold on to most of their early gains. The final scores showed: On Wall Street, the Dow Jones Industrial Average is currently down 48 points or 0.27%. As for oil, Brent crude is down 5% at $47.57 a barrel. On that note, it’s time to close up for the evening. Thanks for all your comments, and we’ll be back again tomorrow. 5.43pm GMT17:43 Federal Reserve member Dennis Lockhart said the strength of the US economy meant the central bank would probably be justified in raising interest rates by the middle of the year. In a rotary club speech, the Atlanta Fed president said the recovery that began in 2009 was well-advanced, and the rate rise, although likely to be small, would be “momentous” when it came. He said the major risks would be outside the US, with weak global growth and the fall in oil prices complicating the outlook. He said low oil prices would ultimately benefit the US economy but at the moment they left the Fed with “considerable ambiguity” over meeting its inflation goals. 4.48pm GMT16:48 Bank of France governor Christian Noyer called on Europe to consider easing Greece’s debt burden again, in an interview with German newspaper Handelsblatt ahead of Greek elections on 29 January. He also said the current Greek situation should not stop the European Central Bank from embarking on a quantitative easing programme. The full report is here. 3.41pm GMT15:41 Oil prices continue to fall, with Brent crude now down 4.95% to $47.63 a barrel. I'm running out of adjectives to describe the plunge in oil prices, so this graph of Brent crude will have to do pic.twitter.com/6bx38Vw8KG 2.40pm GMT14:40 Across the Atlantic, and Wall Street has dropped back in early trading, ahead of the start of the latest quarterly reporting season, which will give a snapshot of the state of the US corporate world and overall economy. Alcoa is due to start the ball rolling after the US market closes, with the likes of Goldman Sachs, Citigroup and Intel reporting later in the week. US markets have come under pressure recently after 2014’s record breaking run, with a sharp decline on Friday after the non-farm payroll figures gave a mixed picture of the economy. The Dow Jones Industrial Average is currently around 70 points or 0.4% lower, helping to push the FTSE 100 into negative territory. Most European markets, however, are managing to hold on to their early gains. Updated at 2.42pm GMT 2.12pm GMT14:12 I mentioned earlier that Greece’s general election might fail to deliver a clear winner, with the prime minister now offering the prospect of tax cuts if he can close the gap with his left-wing opposition From Athens, Helena Smith writes that Greece’s future depends, in part, on citizens maintaining confidence in its banking sector: Analysts saying that to great degree a repeat of the back-to-back elections seen in 2012 will depend on the state of the banking system - and the extent to which Greeks fear for their deposits. Almost no banker, economist, or political analyst I have spoken to in recent weeks believes that there is a serious chance of Greece being ejected from the euro despite reports that lenders are “stress-testing their internal systems and dusting off two-year-old contingency plans for [that] possibility,” according to the WSJ today. A possible bank run is #Greece's Achilles' heel. Deposits have already fallen in Nov. http://t.co/IhSVJlkeLv pic.twitter.com/q1PiM82rwc Helena continues: But they have not ruled out an accident, nor do they exclude fears of a run on banks, if an inconclusive election result intensifies the political uncertainty. All parties, not least the radical left Syriza, know that a Cypriot-style ‘bail-in’ of depositors’ accounts would be the trigger that would spark the revolt that, miraculously, has been averted so far. Greeks are not phlegmatic Greek Cypriots – and five years down the line they are in many ways much worse off. “Neither a Grexit nor a bail-in is on the cards,” the economy professor Theodore Pelagidis tells me. “Creditors know that a bail-in would have a devastating effect on the ability of Greeks to pay their taxes. The whole system would collapse.” All of which explains why Alexis Tsipras has, as of today, begun intensifying his charm offensive abroad with an op-ed in Germany’s Die Welte emphasising that Athens will not be making any unilateral move, or risking its membership in the euro zone, if Syriza assumes power. 1.56pm GMT13:56 The oil price is falling further, as traders in America arrive for work to hear that Goldman has slashed its forecasts (see here for details) Brent crude is now down 3.7% at $48.25 per barrel, while US crude (or NYMEX) has hit $46.62/barrel. Surprise! Oil is getting clobbered again today. pic.twitter.com/Kr7RMA4UbQ Updated at 2.00pm GMT 1.51pm GMT13:51 Some quote from Citigroup’s chief economist, Willem Buiter, have popped up on the wires. Buiter has predicted that Greece will get another debt structuring deal, and avoid quitting the euro. BUITER SAYS GREECE WON’T LEAVE EURO-ZONE VOLUNTARILY Buiter Says Not Clear If Greek Reforms Would Satisfy Germany, Could See Unilateral Greek Debt Restructuring, Greece Will Get Debt Reduction Buiter invented the term ‘Grexit’ during the height of the eurozone debt crisis, when he believes Greece was very likely to leave the single currency. This time, though, he believes Europe will muddle through: #fudgit RT @FerroTV: BUITER SAYS `ANOTHER EURO FUDGE' MOST LIKELY GREEK OUTCOME 1.42pm GMT13:42 One key message from Goldman’s report is that the industry must cut its costs, by at least a fifth. And uneconomic projects need to be abandoned, while cash-strapped firms may need to sell their better projects onto rivals with a stronger balance sheet. Marketwatch has a good take; here’s a flavour: Cost-cutting: They estimated that costs across the industry need to be slashed by 20%-30%. For the world’s largest oil companies, referred to as big Big Oil, this calls for a 30% cut to capital expenditures, just to get the free cash-flow generation back to an acceptable level. Goldman identifies cash-flow generation as one of the key concerns in the world of sluggish oil prices. Consolidation: With oil prices around $70, some unprofitable projects will have to be scrapped in a bigger mix-and-match exercise, according to the report. Essentially, there are several high-quality developments that are in lack of funding, while some poor-quality projects are owned by companies with strong balance sheets. The assets need to be redistributed, so the firms with solid balance sheets get rid of the uneconomic ventures and instead upgrade their portfolio with more promising projects, the analysts said. 2 things the oil industry needs to do now: Goldman http://t.co/SrqTZ5ZUHt via @sarasjolin pic.twitter.com/JHHqBpjhKR 12.56pm GMT12:56 Global growth concerns just pushed the copper price down to a new five-year low: THERE, IT, GOES. 3mth LME Copper below $6,000 for the first time since the financial crisis pic.twitter.com/zDIt5O0RyQ 12.37pm GMT12:37 UK supermarkets in fuel price war Britain’s big four supermarkets are all cutting the price of their fuel, meaning motorists will feel some benefit from the tumbling oil price. Asda, Morrisons, Sainsbury’s and Tesco are all knocking a further 2p off their petrol and diesel. However, that doesn’t take any of them below the £1/litre mark, which is now available from at least one forecourt in Birmingham (as covered earlier) Press Association has the details: The Tesco cut takes effect from this afternoon, while the reductions by the other three companies will kick in tomorrow. For Asda customers, the latest reduction means they will pay no more than 103.7p a litre on petrol, with diesel at 110.7p a litre. The reductions have come after it was revealed that a Birmingham service station had cut the price of its petrol to 99.7p a litre. The RAC, which has been forecasting that petrol prices would dip below the 1-a-litre mark, welcomed the news of the Birmingham service station price cut. But the AA said that, although welcome, the Birmingham reduction “appears to be a publicity stunt rather than a reflection of general pump prices”. AA president Edmund King said: “There remains a postcode lottery out there when it comes to fuel prices. Drivers in rural areas are still paying much more than the 1.09 average price and in some places 1.18. “It will still take some time to get down to an average of £1 per litre, particularly as 70% of the pump price is tax (57.95p duty and 18.3p VAT).” 12.09pm GMT12:09 Lunchtime summary: Goldman pushes oil down to new lows A recap for new readers. The cost of oil has hit new five and three-quarter-year lows today after Goldman Sachs slashed its price forecasts, and predicted major changes in the industry. Brent crude oil fell up to 3% this morning to hit €48.45 per barrel, a level not seen since April 2009. The fall came after Goldman warned that costs in the oil industry need to fall by up 30%, to drive “low-cost” projects into the hands of stronger oil companies. The Wall Street bank predicts that Brent crude will only average $50/barrel this year, and could hit fall to $42 in April-June. It also predicted that Brent would average $70 in 2016-18, down from a previous forecast of $90: Goldman slashed its forecasts after realising that prices will remain low until the market has adjusted to the current unbalance between supply and demand. The search for a new equilibrium in oil markets continued.... We believe this bear market will likely be characterized by more of a U-shaped recovery in which markets take longer to recover and will likely rebound to far lower price levels from where they sold off from. This is because the current industry has far greater storage and tanker capacity and a more aggressive capital structure than it had in the more recent past which diminishes the physical market’s role and increases the capital market’s role. The report suggests that prices might even hit $30/barrel, although this is seen as unlikely. Goldman also published some interesting charts, showing which new oil projects are most uneconomic at current prices: They also highlighted that US suppliers have already reined in production: From Goldman. The collapse of the US oil rig count is off to a very fast start. pic.twitter.com/cl3txdPXNu Updated at 12.58pm GMT 11.38am GMT11:38 Oil isn’t the only thing getting cheaper. Milk prices have slumped in recent weeks, forcing the country’s largest dairy firm to delay payments to around 1,000 farmers. The First Milk has hit its suppliers with a two-week delay, blaming a tumble in milk prices. Wholesale milk prices have fallen by more than 50% over the past 12 months; farming unions say milk is now cheaper than bottled water.... Full story: Dairy farmers go unpaid as ‘milk becomes cheaper than water’ 11.07am GMT11:07 Ireland will be the fastest growing member of the eurozone this year, according to new forecasts from Goodbody Stockbrokers. Goodbody predicted that Irish national output will increase 4% this year, with consumer demand now firing the recovery. That’s good news for the ruling Fine Gael-Labour parties, who are suffering in the opinion polls. A general election is looming, in a year from now, and Goodbody has warned against a budget giveaway in 2015: Ireland correspondent Henry McDonald explains: Goodbody urged the government in Dublin to continue with some measure of austerity.”It is important that sensible fiscal policy is not abandoned, undoing the hard-won gains of recent years,” said chief economist Dermot O’Leary. Meanwhile Irish Finance Minister Michael Noonan said today he hopes the state can recoup some of the billions it pumped into the Republic’s ailing banking system during the crash. Noonan said that the government planned to claw back €18bn invested in three high street banks - Bank of Ireland, Allied Irish Bank and Permanent TSB. Part of the recovered billions could come from the sell off of the now state owned AIB, Noonan said. 11.07am GMT11:07 Antonis Samaras’s promise of future tax cuts may increase the possibility that this general election does not deliver a clear winner, if it helps narrow the gap behind Syriza. And that could mean a repeat of 2012, when Greeks went to the polls twice, as analyst Lorcan Roche Kelly points out: In 2 weeks we will either be talking about the new Greek government, or the date of the next Greek election. @LorcanRK I'm sure its the date of the next Greek Election. 10.39am GMT10:39 Greek bonds rally after Samaras's tax cut pledge Greek government bonds are recovering this morning, after the country’s prime minister promised to ease the country’s austerity burden in an attempt to win votes. Antonis Samaras promised to cut taxes if he were returned to power after 25 January’s general election. Faced with the prospect of defeat in two weeks time, Samaras told supporters that: “There won’t be any further pension and wage cuts,” “The next breakthrough in our growth plan includes tax cuts across the board which can happen gradually, step by step.” This pledge follows a string of opinion polls putting Samaras’s New Democracy (ND) party in second place, behind the left-wing Syriza party which is committed to a debt restructuring deal. The yield (or interest rate) on 10-year Greek debt has dropped to around 9.6% this morning, from 10.2% on Friday night. Samaras’s previous warnings that a Syriza government would trigger chaos haven’t woo’d voters, as our Athens correspondent Helena Smith reports: “The strategy of fear that the conservatives have campaigned on clearly hasn’t worked,” said Paschos Mandravelis, a prominent political commentator. “Greeks are not buying the theory that the opposition poses a danger, so now Samaras is altering course.” Full story: Greek PM Samaras forced into U-turn as Syriza closes in on election victory And Athens journalist Efthimia Efthimiou has tweeted the latest poll data: RT @MacroPolis_gr: ProRata for Paron SYRIZA 31 ND 25.5 KKE 5.5 Potami 5.5 G Dawn 4.5 PASOK 3 Ind Grks 2 Papandreou 1.5 Undecided 18 #Greece RT @MacroPolis_gr: Interview poll: SYRIZA 29.5 ND 26 PASOK 5.5 Potami 5.5 G Dawn 5.5 KKE 4.5 Ind Gr 3 GPap 2.5 Other 4 Undec 8.5 #Greece Updated at 10.44am GMT 10.06am GMT10:06 Goldman Sachs even suggests that the oil price could potentially fall towards $30 per barrel, although this isn’t seen as likely (reminder, it expects Brent to average $50 this year) It says: “While history would suggest that a storage blow-out would push spot prices below $35, we believe that by avoiding breaching storage capacity, the market will hover around $40, potentially dipping at times into the high $30s which we see as the likely lows of this cycle.”. 9.55am GMT09:55 This chart shows how drastically Goldman Sachs has cut its oil forecasts: Goldman's 'New Oil Order.' (See what they did there? When's 'Oil Be Back'?) pic.twitter.com/nIG0pxGaTR 9.30am GMT09:30 Lamprell’s profit warning highlights the pressure building on Britain’s energy industry. Chancellor George Osborne has already dropped a strong hint that North Sea producers will get a new tax cut in March’s budget, declaring: “I don’t want to pre-empt the Budget but I can see that it may well involve further reducing the burden of tax on investment in the North Sea.” According to the Daily Telegraph today, the industry is lobbying for a 30% tax cut.... 9.17am GMT09:17 UK oil rig-maker Lamprell issues profits warning British oil rig maker Lamprell has issued a profit warning this morning after being hit by the turmoil in the sector. Lamprell, which makes various equipment including shallow-water drilling jackup rigs and land rigs, told the City it is struggling to win new business since crude prices began tumbling. Shares dropped 15% this morning, after Lamprell predicts its revenues will be be 10% below expectations. CEO Jim Moffat warned that conditions in the oil industry have changed dramatically: “With the recent slump in the oil price, winning work in 2015 is going to be a challenge as the industry adjusts to the new realities. 9.10am GMT09:10 Shares in online electrical retailer AO World have jumped 8% after it rushed out its Christmas trading figures this morning. Online sales surged 38% in the last quarter, partly due to strong demand for Black Friday bargains. And UK technology and outsourcing group Quindell’s shares has surged by 25%, after it appointed an experienced new chairman, Richard Rose. Updated at 9.33am GMT 8.52am GMT08:52 Brent falls to $48.55 per barrel Brent crude has fallen 3% today to $48.55 per barrel as traders digest Goldman Sachs’ new forecasts. That’s its lowest level since May 2009, extending the sharp selloff that began last autumn. Bloomberg has a good take on the Goldman report. Here’s a flavour: Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in the first half of this year to curb shale investments as it gave up on OPEC cutting output to balance the market. The bank cut its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year, according to an e-mailed report. Excess storage and tanker capacity suggests the market can run a surplus far longer than it has in the past, said Goldman analysts including Jeffrey Currie in New York. More here: Goldman Sees Need for $40 Oil as OPEC Cut Forecast Abandoned Updated at 8.52am GMT 8.47am GMT08:47 European stock markets are gaining ground in early trading, with the FTSE 100 up 35 points, or 0.5%. 8.36am GMT08:36 One of Saudi Arabia’s richest businessmen has warned that oil prices will keep falling unless producers rein in supplies. Prince Alwaleed bin Talal told USA Today that: If supply stays where it is, and demand remains weak, you better believe it is gonna go down more. But if some supply is taken off the market, and there’s some growth in demand, prices may go up. But I’m sure we’re never going to see $100 anymore. I said a year ago, the price of oil above $100 is artificial. It’s not correct. He also dismissed the theory that the West is attacking Russia via the oil price as “baloney and rubbish”: I’m telling you, there’s no way Saudis will do this. Because Saudi Arabia is hurting as much as Russia, period. Now, we don’t show it because of our big reserves. But I’ll tell you Saudi Arabia and Russia are in bed together here. And both are being hurt simultaneously. The interview is online here. 8.20am GMT08:20 The drop in the oil price is hurting the Russian rouble. It has fallen by 2.5% this morning to 62.8 roubles to the US dollar. The rouble is also vulnerable after Fitch downgraded Russia’s credit rating to BBB- on Friday night. 8.13am GMT08:13 99p per litre petrol has arrived Motorists in Birmingham should be celebrating the recent tumble in the oil price. A garage in the Midlands city has become the first to charge less than £1 for a litre of petrol since around 2009. Customers flocked to fill up at the Harvest Energy forecourt in Kings Heath after the price cut, according to the Birmingham Mail. Owner Velautham Sarveswaran told the newspaper that: “My customers have kept asking when we are going to drop the price to under £1 and when I looked at the figures I realised I could do it. “For me, it’s not about being greedy. As long as I make enough money to cover my overheads and give me a little bit of a profit then I am happy. “It’s a great feeling for me to be able to give cheap prices to my customers, I like making them happy.” Full story: Petrol station cuts price of fuel to under £1 a litre Updated at 8.31am GMT 8.02am GMT08:02 Oil price drops after Goldman cuts forecasts Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. We can start the week with a familiar theme – oil, which has just hit a new five and a half-year low. Crude costs are dropping this morning after Goldman Sachs became the latest group to predict that prices will not bounce back soon soon. Goldman slashed its forecasts for the next two years, predicting Brent crude would average just $50 per barrel in 2015 (down from a previous forecast of $83), and $70/barrel in 2016 (down from $90). The Wall Street firm has concluded that the OPEC cartel will not cut output to halt the price slide. Instead, it believes OPEC members are determined to inflict pain on the US shale industry. Or as Goldman puts it: “To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer. “The search for a new equilibrium in oil markets continues.” GOLDMAN SACHS LOWERS 2015 BRENT PRICE FORECAST TO $50.40/BBL FROM $83.75; CUTS 2016 OUTLOOK TO $70/BBL FROM $90 Goldman’s forecast are, to an extend, just catching up with recent events (its clients might wish it had made these forecasts before the oil price started sliding). But they’ve still had an effect on the markets. Brent crude has fallen 2% this morning, to $48.80 per barrel, a level not seen since May 2009. Oil down > 1%. Gonna make for an interesting Monday for the markets pic.twitter.com/io0FHU4XLn Also coming up today...... It looks like a fairly quiet day, with no major events or economic data releases. The markets continue to be dominated by the prospect of a new quantitative easing stimulus package from the European Central Bank. And there’s less than two weeks until Greece holds her general election..... I’ll be tracking all the main events through the day... Updated at 8.04am GMT |