Search Results for: fracking

By ZeroHedge

Remember that in a beggar thy neighbor world, where currency warfare has once again broken out between the US, Europe and Japan, for every winner there is a loser. In this case, the loser is the one country that has decided that a strong currency is a great thing for its economy (if only for the time being): that would be the US.

Why is this relevant? Because as the chart below shows, US trade excluding Petroleum, just crashed to $43.7 billion, the worst print in the history of the series, suggesting that portrayals of the US as a resurgent export powerhouse are completely erroneous, and that instead the US is as big a net importer of goods and services (and soon to be oil) as ever.

Biggest ever trade deficit (ex Petroleum)

The crucial point here is that with Shale production now expected to decline (if only modestly: after all those junk bond investors are desperate to keep the MotherFracking dream alive), the US will soon have to import more oil which will require more debt issuance to fund the soaring trade deficit which will require more QE to monetize the deficit.

And thus the stage is set for QE4.

One thing is sure – if the trade deficit surge continues, and Q1 GDP tumbles below 0%, the Fed will be right back at the frontlines, CTRL-Ping the US economy right back into “beggar thy global neighbor”competitiveness. Because as we noted, with Q1 GDP now assured a negative print, and with Q2 GDP according to the Atlanta Fed at 0.8% and likely going lower if there are several “unexpected” spring showers, the US may enter a technical recession as soon as June 30.

Hardly the stuff rate hikes are made of...

by ZeroHedge

Following the CEO’s comments that over 100,000 energy jobs will be lost this year, an executive with Weatherford International – the fifth largest US fracker – has warned half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies. “We go by and we see yards are locked up and the doors are closed,” said Rob Fulks, seemingly confirming what Weatherford CEO Duroc-Danner said earlier in the year, “we’re now confronted with an unusually severe market contraction.”

 

As Bloomberg reports, there were 61 fracking service providers in the U.S., the world’s largest market, at the start of last year. Now there are 41… and it’s going to get a lot less…

Half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies, an executive with Weatherford International Plc said.

There could be about 20 companies left that provide hydraulic fracturing services,Rob Fulks, pressure pumping marketing director at Weatherford, said in an interview Wednesday at the IHS CERAWeek conference in Houston. Demand for fracking, a production method that along with horizontal drilling spurred a boom in U.S. oil and natural gas output, has declined as customers leave wells uncompleted because of low prices…

Weatherford, which operates the fifth-largest fracking operation in the U.S., has been forced to cut costs “dramatically” in response to customer demand, Fulks said. The company has been able to negotiate price cuts from the mines that supply sand, which is used to prop open cracks in the rocks that allow hydrocarbons to flow.

Oil companies are cutting more than $100 billion in spending globally after prices fell. Frack pricing is expected to fall as much as 35 percent this year, according to PacWest, a unit of IHS Inc.

“We go by and we see yards are locked up and the doors are closed,” he said. “It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”

*  *  *

While ‘stability’ in oil prices remains the status quo, it appears the industry cannot manage on that alone (and given the pricing of recent resource-related junk bond offerings, they will not have the luxury of cheap financing to enable them to keep running).

Half Of US Frackers Will Be Dead By Year End, Weatherford Warns | Zero Hedge.

By MATT WIRZ and GILLIAN TAN at The Wall Street Journal

Citigroup Inc.,Goldman Sachs Group Inc.,UBS AG and other large banks face tens of millions of dollars in losses on loans they made to energy companies last year, a sign of investor jitters in a sector battered by the oil slump.

The banks intended to sell the loans to investors but have struggled to unload them even after cutting prices, thanks to a nine-month-long plunge that has taken Nymex crude futures to their lowest level since 2009.

The losses mark a setback for Wall Street, after global banks earned $31 billion in fees over the past five years by financing energy-company stock sales, borrowing and mergers-and-acquisition transactions, according to Dealogic.

Wall Street’s losses on the loans could have a chilling effect on some oil companies’ ability to fund their operations as investors take a more cautious view of the sector.

“We’ve been pretty shy about dipping back into the energy names,” said Robert Cohen, a loan-portfolio manager at DoubleLine Capital who passed on some loans Citi was trying to sell. “We’re taking a wait-and-see attitude.”

Energy-sector deals have been a bright spot at a time when once-lucrative businesses, such as fixed-income trading and consumer lending, are flagging thanks to tighter rules, low interest rates and uneven economic growth, analysts said.

Investors say the energy bust doesn’t pose a great risk to the banks akin to 2007-2008, when they held hundreds of billions of dollars of souring mortgages and corporate loans.

“We often go through these periods,” said Sherif Hamid, vice president of high yield at AllianceBernstein LP, who helps oversee $35 billion of investments. “We saw it in Europe during the sovereign crisis where banks needed to sell at prices where buyers were willing to step in, even if it meant taking a loss, but it doesn’t mean the market is closed.”

At the same time, Wall Street hasn’t struggled to place so many corporate loans at once since credit markets seized up in 2007, when banks were stuck with more than $150 billion of so-called leveraged loans to companies with credit ratings below investment grade. Banking regulators have repeatedly sounded alarms about lax lending standards and are proposing to force banks to submit their loan portfolios more frequently for risk exams.

The losses show the danger banks face when unforeseen events, like the sharp drop in oil prices, create a chain reaction across an industry.

Investment banks helped fuel the oil-and-gas exploration boom of the past decade by making loans valued at about $1 trillion to companies in the energy industry, most of which they sold to investors.

The banks sold much of the debt to loan mutual funds, which grew rapidly from 2011 to 2013, but that demand dwindled as individual investors yanked $35 billion from the funds over the last 12 months, according to S&P Capital IQ LCD.

In June, Citigroup committed to a $1.3 billion loan backing an acquisition for Houston-based C&J Energy Services Inc. When Citi tried to sell the loan in November with Bank of America Corp.,… Login or Join Now To Read More

it is actually not correct to speak of a "dollar shortage". The domestic dollar money supply has more than doubled since 2008, and a large additional amount of dollar creation has "escaped" into accounts held abroad. (The dollar money supply outside of the US has also increased greatly). It is not a shortage of dollars, but a growing unwillingness of dollar holders to lend them out that creates a problem for banks in need of dollar funding. Login or Join Now To Read More