If Malaysians are still hoping for their Ringgit to rebound significantly, they will be frustrated and disappointed for quite a while.
For years the Malaysian federal governments have been too dependent on oil to fuel the country’s economy.
Now that world oil prices have dipped from three-digit US$ to well under US$60, Petronas is no more the cash cow for 1Malaysia Development Berhad (1MDB) Prime Minister Najib Razak’s Umno-led Barisan Nasional (BN) government.
With rising federal debts at more than RM800 billion (perhaps even surpassing RM1 trillion), any hope of the Ringgit to strengthen is grossly slim.
Even world commodity prices are equally depressed.
How then is the Ringgit going to appreciate in the world forex market?
No News Is Bad News is reproducing two reports from oilprice.com and a Singapore Straits Times report on why the Ringgit is Asia’s worst currency for visitors and regular readers to digest:
“
Near Term Oil Prices Can’t Go Much Higher
By Martin Tillier - Oct 14, 2016, 5:41 PM
Looking back at the last couple of weeks’ price action in WTI one thing stands out. OPEC or no OPEC, the benchmark U.S. oil futures contract attracts plenty of sellers above $51. I remain skeptical of the chances of any meaningful action from the oil cartel as a result of their “agreement to agree” on action on production to support the price of oil, and it seems that others are coming into that camp, but if some reports I have heard from traders are to be believed that is not what put such a firm top on WTI above that level. Those reports indicate that the selling came from producers hedging at prices over $51, and if that is the case the path to further gains looks like a seriously uphill battle.
If we look back even further to when WTI was declining rapidly last year, though, that should not come as any major surprise. Many, including, I will freely admit, me, said at that time that the price declines would quickly lead to a reduction in the rig count and reduced supply, which would in turn cause a fairly rapid rally. However, that didn’t happen until oil was trading substantially below $50, which gave an indication that at around that level even relatively expensive projects were still profitable. Given that history the fact that the low $50s are providing such determined resistance points is only logical. It is just the market working exactly how it should do in theory…higher prices encourage production, which in turn drags the price back down again.
If those stories are true, though, and the selling for hedging purposes is enough to stop what was a strong news driven rally, then that clearly has implications for the future. The $60 or $70 per barrel WTI that some saw as the logical result of a revitalized OPEC is clearly not on the cards any time soon. Even if the Saudis and Iranians do reach an agreement, and even if the Russians tag along, there are still some serious barriers to further significant gains.
What the hedging reinforces is that there is still a huge untapped reserve of oil in the U.S. and that much of that production is viable at around $50, which in turn means that any action by OPEC will have a limited effect. Such action would make another complete collapse in price highly unlikely, but it would probably not cause a spike much above what we have already seen in anticipation.
Related: The Truth About Permian Shale Break-Even Prices
The futures curve as it stands also supports that view. Futures are still in contango (meaning that longer dated contracts are higher), but the curve is not abnormally steep. If we look at the January 2017 contract that expires well after OPEC’s scheduled meeting at the end of November, it is trading as I write at $51.32, and we have to go all the way out to December of 2018 to see prices above $55. That does not suggest any confidence in OPEC’s ability to push oil, or at least WTI, much higher.
It seems the that we are entering into a period when two conflicting influences, the possibility of an OPEC agreement to at least freeze production and U.S. producers’ readiness to increase production at prices above $50, are effectively cancelling each other out. That suggests that if the cartel does reach an agreement that members actually stick to we could be in a range of around $40-$55, or quite probably even narrower, say $43-$53 for quite some time to come.
By Martin Tillier for Oilprice.com"
"OPEC Can Only Push Oil Prices So High
By Nick Cunningham - Oct 14, 2016, 5:34 PM
With oil prices back up above $50 per barrel, more and more shale companies could find it profitable to resume drilling. But the improved prospects for shale companies, and the subsequent uptick in drilling and production, could once again put pressure on prices.
Improved drilling techniques, efficiencies, and the ability to extract more oil and gas per drilled well has allowed for cost savings across the industry. That could ultimately put a ceiling on oil prices not just in 2016 but over the long-term, investment bank Credit Suisse recently said. Higher oil prices will lift all boats, but “shale may ultimately be too productive as WTI approaches $70/bbl. As a result, we have taken our long-term WTI forecast from $67.50/bbl to $62.50,” Credit Suisse analyst wrote.
The result could be a shale band, in which supply falls when prices dip below roughly $40 per barrel, but production rebounds above, say, $50 per barrel. But if prices get too high – closer to $60 per barrel and higher – then enough supply comes back online to push prices back down again. This theory has been offered from various outlets over the past year or two, but it hasn’t truly been tested yet.
There have been a few instances in which oil rallied but eventually ran out of steam – in the summer of 2015 and to a lesser extent in the summer of 2016 – which provides some evidence for the shale band theory, but the real test will come when shale production starts to rise again and at what price level. If the shale band theory ultimately plays out, and the market is restricted by a floor and ceiling, the upshot is that oil prices could remain low for years to come.
Interestingly, Credit Suisse says this could be beneficial to some drillers. While pretty much every company would like to see oil prices go much higher, shale producers with lower costs that can turn a profit with oil trading below $60 per barrel may thrive in this environment.“Operators at the low end of the cost curve in particular would benefit from crude remaining more range bound as returns at current prices justify development and less activity in higher cost basins would likely push out pending cost inflation,” Credit Suisse says.
Related: U.S. Rig Count Rises To 8 Month High As Permian, Eagle Ford See Decline
In other words, if oil prices rose too high – back to triple-digit territory, for example – then the cost reductions achieved over the past two years would likely go up in smoke. The cost of equipment, drilling services, rigs and personnel would all see inflation along with the oil price. So shale drillers comfortable with $50 oil may not necessarily be desperate to see oil prices spike much higher.
These drillers are increasingly found in the Permian Basin in West Texas, where a land rushcontinues. Multiple layers of shale can be found in the Permian, which allows companies to tap more oil and gas per vertical well. The returns are better, and as a result, breakeven costs are lower. That has companies packing up from the rest of the country and moving to West Texas. RSP Permian Inc. just agreed to pay $2.4 billion to take over Silver Hill Energy Partners. The deal means that RSP is essentially paying about $45,000 per acre to drill in the Permian’s Delaware Basin, which Bloomberg says could be the basin’s highest price per acre ever recorded.
Related: Russia Shifts Focus From Oil To Agriculture
The rush to the Permian has come at the expense of places like the Bakken. North Dakota’s oil production dropped below 1 million barrels per day in August, the first time that the state produced less than 1 mb/d in two years. In August the state produced 981,000 barrels per day, down from a peak of 1.23 mb/d in December 2014. "It does send a signal to the world markets that U.S. producers are serious about reducing activity, reducing costs, reducing production and I think that should help support the recent price increase we saw," Lynn Helms, director of North Dakota’s Department of Mineral Resources, told reporters.
It remains to be seen if the Bakken will rebound with oil prices in the $50s per barrel. But for North Dakota, that may be all they can hope for – if Credit Suisse’s prediction plays out, oil prices may not rise much higher than that for a very long time.
By Nick Cunningham of Oilprice.com"
"No break for the ringgit, Asia's worst currency, as clouds gather over Malaysia
If we look back even further to when WTI was declining rapidly last year, though, that should not come as any major surprise. Many, including, I will freely admit, me, said at that time that the price declines would quickly lead to a reduction in the rig count and reduced supply, which would in turn cause a fairly rapid rally. However, that didn’t happen until oil was trading substantially below $50, which gave an indication that at around that level even relatively expensive projects were still profitable. Given that history the fact that the low $50s are providing such determined resistance points is only logical. It is just the market working exactly how it should do in theory…higher prices encourage production, which in turn drags the price back down again.
If those stories are true, though, and the selling for hedging purposes is enough to stop what was a strong news driven rally, then that clearly has implications for the future. The $60 or $70 per barrel WTI that some saw as the logical result of a revitalized OPEC is clearly not on the cards any time soon. Even if the Saudis and Iranians do reach an agreement, and even if the Russians tag along, there are still some serious barriers to further significant gains.
What the hedging reinforces is that there is still a huge untapped reserve of oil in the U.S. and that much of that production is viable at around $50, which in turn means that any action by OPEC will have a limited effect. Such action would make another complete collapse in price highly unlikely, but it would probably not cause a spike much above what we have already seen in anticipation.
Related: The Truth About Permian Shale Break-Even Prices
The futures curve as it stands also supports that view. Futures are still in contango (meaning that longer dated contracts are higher), but the curve is not abnormally steep. If we look at the January 2017 contract that expires well after OPEC’s scheduled meeting at the end of November, it is trading as I write at $51.32, and we have to go all the way out to December of 2018 to see prices above $55. That does not suggest any confidence in OPEC’s ability to push oil, or at least WTI, much higher.
It seems the that we are entering into a period when two conflicting influences, the possibility of an OPEC agreement to at least freeze production and U.S. producers’ readiness to increase production at prices above $50, are effectively cancelling each other out. That suggests that if the cartel does reach an agreement that members actually stick to we could be in a range of around $40-$55, or quite probably even narrower, say $43-$53 for quite some time to come.
By Martin Tillier for Oilprice.com"
"OPEC Can Only Push Oil Prices So High
By Nick Cunningham - Oct 14, 2016, 5:34 PM
With oil prices back up above $50 per barrel, more and more shale companies could find it profitable to resume drilling. But the improved prospects for shale companies, and the subsequent uptick in drilling and production, could once again put pressure on prices.Improved drilling techniques, efficiencies, and the ability to extract more oil and gas per drilled well has allowed for cost savings across the industry. That could ultimately put a ceiling on oil prices not just in 2016 but over the long-term, investment bank Credit Suisse recently said. Higher oil prices will lift all boats, but “shale may ultimately be too productive as WTI approaches $70/bbl. As a result, we have taken our long-term WTI forecast from $67.50/bbl to $62.50,” Credit Suisse analyst wrote.
The result could be a shale band, in which supply falls when prices dip below roughly $40 per barrel, but production rebounds above, say, $50 per barrel. But if prices get too high – closer to $60 per barrel and higher – then enough supply comes back online to push prices back down again. This theory has been offered from various outlets over the past year or two, but it hasn’t truly been tested yet.
There have been a few instances in which oil rallied but eventually ran out of steam – in the summer of 2015 and to a lesser extent in the summer of 2016 – which provides some evidence for the shale band theory, but the real test will come when shale production starts to rise again and at what price level. If the shale band theory ultimately plays out, and the market is restricted by a floor and ceiling, the upshot is that oil prices could remain low for years to come.
Interestingly, Credit Suisse says this could be beneficial to some drillers. While pretty much every company would like to see oil prices go much higher, shale producers with lower costs that can turn a profit with oil trading below $60 per barrel may thrive in this environment.“Operators at the low end of the cost curve in particular would benefit from crude remaining more range bound as returns at current prices justify development and less activity in higher cost basins would likely push out pending cost inflation,” Credit Suisse says.
Related: U.S. Rig Count Rises To 8 Month High As Permian, Eagle Ford See Decline
In other words, if oil prices rose too high – back to triple-digit territory, for example – then the cost reductions achieved over the past two years would likely go up in smoke. The cost of equipment, drilling services, rigs and personnel would all see inflation along with the oil price. So shale drillers comfortable with $50 oil may not necessarily be desperate to see oil prices spike much higher.
These drillers are increasingly found in the Permian Basin in West Texas, where a land rushcontinues. Multiple layers of shale can be found in the Permian, which allows companies to tap more oil and gas per vertical well. The returns are better, and as a result, breakeven costs are lower. That has companies packing up from the rest of the country and moving to West Texas. RSP Permian Inc. just agreed to pay $2.4 billion to take over Silver Hill Energy Partners. The deal means that RSP is essentially paying about $45,000 per acre to drill in the Permian’s Delaware Basin, which Bloomberg says could be the basin’s highest price per acre ever recorded.
Related: Russia Shifts Focus From Oil To Agriculture
The rush to the Permian has come at the expense of places like the Bakken. North Dakota’s oil production dropped below 1 million barrels per day in August, the first time that the state produced less than 1 mb/d in two years. In August the state produced 981,000 barrels per day, down from a peak of 1.23 mb/d in December 2014. "It does send a signal to the world markets that U.S. producers are serious about reducing activity, reducing costs, reducing production and I think that should help support the recent price increase we saw," Lynn Helms, director of North Dakota’s Department of Mineral Resources, told reporters.
It remains to be seen if the Bakken will rebound with oil prices in the $50s per barrel. But for North Dakota, that may be all they can hope for – if Credit Suisse’s prediction plays out, oil prices may not rise much higher than that for a very long time.
By Nick Cunningham of Oilprice.com"
"No break for the ringgit, Asia's worst currency, as clouds gather over Malaysia
 |
| A person counting the Malaysian ringgit. PHOTO: ST FILE |
PUBLISHED
AUG 4, 2016, 9:33 AM SGT
KUALA LUMPUR (BLOOMBERG) - The bad news just doesn't stop for Asia's worst-performing currency, the Malaysian ringgit.
Already reeling from a renewed slump in oil prices and a political scandal that just won't go away, the ringgit is now facing the prospect of another cut in interest rates. It's the region's biggest loser in the past three months and analysts still see scope for it to drop more than 2 per cent by year-end.
The currency's slide highlights all is not well as the nation's economy heads for its worst performance this decade. Crude oil's plunge to a four-month low this week undermines the finances of net oil exporter Malaysia. And the appeal of its relatively high bond yields is being tempered by the scandals surrounding a troubled state investment fund. Rabobank Group and UBS Group both predict Bank Negara Malaysia will add to its first rate cut in seven years in coming months. - Straits Times/Bloomberg"
AUG 4, 2016, 9:33 AM SGT
KUALA LUMPUR (BLOOMBERG) - The bad news just doesn't stop for Asia's worst-performing currency, the Malaysian ringgit.
Already reeling from a renewed slump in oil prices and a political scandal that just won't go away, the ringgit is now facing the prospect of another cut in interest rates. It's the region's biggest loser in the past three months and analysts still see scope for it to drop more than 2 per cent by year-end.
The currency's slide highlights all is not well as the nation's economy heads for its worst performance this decade. Crude oil's plunge to a four-month low this week undermines the finances of net oil exporter Malaysia. And the appeal of its relatively high bond yields is being tempered by the scandals surrounding a troubled state investment fund. Rabobank Group and UBS Group both predict Bank Negara Malaysia will add to its first rate cut in seven years in coming months. - Straits Times/Bloomberg"
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