Private Sector Jobs Off By 146K While Oil Industry Enters Bear Market (#GotBitcoin?)
Fears about an international slowdown, coupled with swelling supplies, send crude on a 6-week skid. Private Sector Jobs Off By 146K While Oil Industry Enters Bear Market (#GotBitcoin?)
The recent drop in U.S. crude-oil has the commodity on track for its third bear market in as many years.
The U.S. oil price was on track to sink into a bear market on Wednesday, falling more than 20% below its April peak, as the global-growth worries gripping financial markets were compounded by fears of a supply glut.
U.S. crude futures were recently down about 3.5% at $51.60 a barrel Wednesday, falling well below the $53.04 level needed to push oil into another bear market after government data showed a surge in domestic stockpiles. The declines highlight investors’ fears that trade tensions will further undermine economic expansion around the world.
If Wednesday’s drop holds, this would be the third bear market for U.S. oil prices since the start of 2017.
Brent crude, the global price gauge, declined 2.3% to $60.52 midday Wednesday, bringing it 19% below its 2019 highs. A close at or below $59.65 would put Brent in a bear market.
Investors track oil prices to gauge both supply and demand in energy markets as well as momentum in the world economy. Because crude is critical to the transportation and shipping industries, expectations for global growth often swing prices.
Oil’s swift fall comes just weeks after prices crested above $66 a barrel on April 23, when economic data were generally mixed and many expected a U.S.-China trade deal to spur growth later in the year. Since then, escalating tariffs have also sent stocks around the world sliding along with bond yields, with analysts worrying that further protectionism would make longer-term economic damage inevitable.
“The biggest risk would be the negative feedback loop that risk assets create for consumer sentiment and investor sentiment,” said John Kolovos, chief technical strategist at Macro Risk Advisors. “The markets are going to be telling us something sooner rather than later.”
The decline came after U.S. inventory data showing stockpiles rose more than expected during the week ended May 31 and data showing the U.S. private-sector added 27,000 jobs in May, well below expectations for 173,000 jobs. The figures were the latest causing angst for analysts bracing for a slowdown in U.S. growth and oil demand.
Although lower energy prices could benefit U.S. consumers at the gasoline pump this summer driving season, analysts caution that the prospect of a far-reaching economic slowdown could offset some of those benefits. Weaker-than-expected oil demand from fuel makers has also contributed to the recent rise in crude inventories, pushing stockpiles to their highest level in almost two years.
Higher stockpiles have led some market watchers to wonder whether the inventory buildup could also signal waning consumer consumption moving forward.
“There’s a lot of disappointment in U.S. gasoline demand,” said Donald Morton, senior vice president of Herbert J. Sims & Co. Mr. Morton oversees an energy trading desk.
While many measures of U.S. consumer spending have stayed steady, investors say fears about a future slowdown have prompted momentum to reverse after bullish sentiment helped push oil up more than 40% in the first four months of the year.
Downbeat U.S. retail sales and manufacturing figures so far in the second quarter have also raised worries that a growth slowdown overseas is spreading as tariffs escalate. The IHS Markit U.S. Manufacturing Purchasing Managers’ Index fell in May to its lowest level in nearly a decade, and similar gauges around the world have also slipped. But despite recent falls, measures of U.S. and China factory output have remained above 50, the level that separates contraction from expansion.
Gauges of manufacturing activity around the world have fallen consistently in recent months.
However, PMI figures for several countries including Germany and Japan fell below 50 last month, adding to worries that a growth slowdown could be worsening.
“You’ve suddenly got all sorts of countries around the world seeing their manufacturing indexes fall into contraction territory. That’s going to be bad for demand,” said Bill O’Grady, chief market strategist at Confluence Investment Management.
“The U.S. economy isn’t that bad. The global economy is a whole different animal, and Europe is extraordinarily sluggish,” Mr. O’Grady added.
Despite falling supply from Iran, Libya and Venezuela amid geopolitical issues in all three countries, bets on relatively steady output from the U.S. and the Organization of the Petroleum Exporting Countries have also contributed to worries about a building crude glut. OPEC is expected to decide whether to extend production cuts in place for the first half of the year later this month.
Its meeting in Vienna will come with oil prices now below levels analysts say are needed for OPEC members to sustain their economies. Profits at many large energy companies around the world could also suffer after they generally reported tepid results in the first quarter.
With uncertainty about the world economy building, traders say hedge funds and other speculative investors have largely been forced to pare back positions in riskier assets, adding to the pressure on oil. That unwind has contributed to recent volatility—and prices dropping below closely watched technical levels has added to the wave of negative momentum.
U.S. crude has fallen below closely watched trend lines recently, after eclipsing them earlier in 2019.
Speculators have cut net bets on higher U.S. crude-oil prices in five consecutive weeks through May 28, pushing them to their lowest level since the week ended March 12, Commodity Futures Trading Commission data show. Bullish bets outnumber bearish wagers by nearly 5-to-1, down from a late April peak of 14-to-1.
“The anxiety in the bear market is here and it’s real,” Mr. Morton said.
Oil Prices Stumble on Fears of Falling Demand
U.S. Energy Information Administration has lowered its monthly oil-demand forecast.
Oil prices dropped sharply Wednesday as investors signaled their worries over sagging demand and a burgeoning U.S. supply glut.
Brent crude, the global benchmark, was down 1.9% at $60.10 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures fell 2.2% to $52.10 a barrel.
The U.S. Energy Information Administration on Tuesday lowered its forecast for global oil-demand growth in 2019 to 1.2 million barrels a day, a 14% cut from the prior month’s forecast, playing into persistent worries about the health of global economic growth.
Those concerns have been partly driven by the trade conflict between the U.S. and China—and fears about its impact on oil demand—and have stung commodities and equities markets in recent months. Brent crude has sold off around 13% in the past month, while WTI futures are down roughly 15%.
Weakening economic figures out of China have prompted its government to issue waves of stimulus measures, with the latest coming this week. Still, oil markets have shrugged off Beijing’s attempts to support the economy.
“I’m puzzled the stimulus measures didn’t cause the usual positive and it’s that growth pessimism that continues to pressure oil,” said Norbert Rücker, head of commodities research at Julius Baer.
Sagging demand has prompted unseasonable builds in inventories. The American Petroleum Institute, an industry group, reported Tuesday that U.S. crude supplies climbed by roughly 4.9 million barrels for the week ended June 7, according to sources.
Wednesday’s price drop was partly “a reaction to those pretty bearish numbers from the API,” said Warren Patterson, commodities strategist at ING. “The market was expecting a million barrel drawdown but instead got a more-than-four-million-barrel build.”
While steep declines have calmed in recent sessions, Wednesday’s drop brought oil prices back to the bottom of their recent price range.
After Tuesday’s API figures, the U.S. Energy Information Administration’s weekly inventory report, due Wednesday, will be closely watched. Supply data have been bearish in recent weeks, prompting swings in oil prices and confusion among traders.
“Knowing this market, I wouldn’t be surprised to see the [Energy Department] data come out bullish,” said Edward Marshall, commodities trader at Global Risk Management.
A larger-than-expected build in EIA inventories would likely accelerate oil’s selloff, though.
“It’s just noise at the moment, but if Brent broke down toward $57 a barrel, it would be significant,” Mr. Marshall said.
Oil prices could receive a further jolt in the coming weeks, with signals out of major producing nations increasingly divergent ahead of a summit between the Organization of the Petroleum Exporting Countries and its allies in Vienna due at the end of June.
Comments from Saudi officials this week have suggested participants were close to agreeing on an extension to the continuing OPEC+ production cuts, but remarks from individuals in the Russian oil market have contradicted that.
With question marks hanging over the date of the conference, “when they do have the meeting, we could see some pretty tough negotiations,” said ING’s Mr. Patterson.
“A scenario when they don’t extend cuts is not going to be pretty,” he added.
Private Sector Added 27,000 vs Projected 173,000 Jobs In May
The number was the smallest amount since the economic expansion started.
The nonfarm private sector in the U.S. added 27,000 jobs for the month of May, the latest ADP National Employment Report showed, a number that was significantly lower than what economists were expecting.
The number of jobs added in the sector in May is the smallest amount since the economic expansion started, Ahu Yildirmaz, co-head of the ADP Research Institute, said in prepared remarks. The institute puts out the monthly report with Moody’s Analytics.
Economists polled by The Wall Street Journal were expecting 173,000 new jobs.
Large businesses, or those that have at least 500 employees, added 68,000 new jobs, but those gains were largely wiped out by a decline of 52,000 jobs for small businesses, or those with 49 employees or fewer.
The goods-producing sector saw a drop of 43,000 jobs, driven by declines in the construction industry, which lost 36,000 jobs.
The service-producing sector added 71,000 jobs, with the education and health; professional and business; and leisure and hospitality sectors all adding the most.
“Labor shortages are impeding job growth, particularly at small companies, and layoffs at bricks-and-mortar retailers are hurting,” Moody’s Analytics chief economist Mark Zandi said in prepared remarks.
May’s results contrast to April, when the nonfarm private sector added 271,000 jobs.
This Friday, the U.S. Bureau of Labor Statistics will report the number of nonfarm jobs added in the U.S. in May. Economists polled by the Journal are expecting 180,000 new nonfarm jobs and a 3.6% unemployment rate. Private Sector Jobs Off,
Chevron, Facing Fossil Fuels Glut, Takes $10 Billion Charge
Oil giant cuts the value of its holdings, including shale, citing low prices caused by oversupply.
Chevron Corp. is writing down the value of its assets by more than $10 billion, a concession that in an age of oil and gas overabundance, some will not be profitable anytime soon.
In the largest write-down by an energy producer in years, Chevron said Tuesday that it was cutting the value of a number of properties, notably its U.S. shale holdings in Appalachia, by a combined $10 billion to $11 billion. Chevron is also restructuring its operations to focus on fewer prospects in the face of persistently low natural gas prices, and will explore sales of some assets.
The second-largest U.S. oil company lowered its forecast for future commodity prices, and said that as a result, it was reducing the value of production from one of its offshore oil projects in the Gulf of Mexico, called Big Foot. It also lowered the value of a planned facility to export liquefied natural gas from Canada.
Chevron Chief Executive Mike Wirth said in an interview that the company had performed well in a difficult market but wanted to focus on its most promising future prospects, including an expansion of shale oil drilling in Texas.
“We have to make the tough choices to high-grade our portfolio and invest in the highest-return projects in the world we see ahead of us, and that’s a different world than the one that lies behind us,” Mr. Wirth said.
Chevron’s shares closed up less than a percentage point at $117.90 prior to the announcement Tuesday.
The sobering reappraisal by one of the world’s largest and best-performing oil companies is likely to ripple through the oil-and-gas industry, forcing others to publicly reassess the value of their holdings in the face of a global supply glut and growing investor concerns about the long-term future of fossil fuels.
Particular pressure is falling on shale producers, especially those focused on natural gas in places like Pennsylvania, which are struggling with historically low U.S. prices caused by oversupply.
Chevron’s move follows a $5 billion write-down by Spain’s Repsol SA earlier this month and an impairment of $2.6 billion by the U.K.’s BP PLC in October. Industry executives and analysts anticipate that many more oil-and-gas companies will soon write down billions in value to comply with accounting standards because low commodity prices have undermined the economics of many projects.
Many companies are also expected to substantially reduce the value of their oil and gas reserves, figures once seen as essential measures of their long-term security, under separate reporting requirements governed by the Securities and Exchange Commission amid uncertainty over whether the fossil fuels can be extracted cost-effectively.
Chevron may restate its reserves to the SEC after any asset sales, a company executive said.
“As the data gets more compelling, they have to face it,” said Myron Boots, co-founder of reservoir engineering consulting firm Buckley & Boots LLC, noting that many wells have failed to live up to expectations.
Exxon Mobil Corp. has written down the value of its U.S. natural gas assets by about $2.5 billion over the last several years, though some analysts have said it should further devalue its largest shale asset, XTO Energy Inc., which it bought for more than $30 billion in 2010.
An Exxon spokesman declined to comment on Chevron’s decision Tuesday, noting that it is difficult to compare write-offs across different companies.
Only 20 years ago, the oil-and-gas industry was worried about running out of fossil fuels and scoured the world for reserves. Today, it faces a different problem: too much oil and gas.
An abundance of discoveries over the last decade, particularly the flood of oil and gas unlocked by the U.S. shale boom, has led to consistently low commodity prices and eaten into fossil fuel companies’ profits. The techniques behind the boom, horizontal drilling and hydraulic fracturing, have upended global markets, Mr. Wirth said.
“They have truly transformed the market mind-set from one of scarcity to one of abundance,” he said. “It’s the story of our industry.”
Russia and OPEC have been curtailing oil production for years to put a floor under global prices and agreed last week to further cuts of 500,000 barrels a day until the end of March.
Still, oil companies have struggled to reap the profits of old and are falling out of favor with investors amid fears that electric vehicles and renewable energy, along with government regulations to address a warming planet, will constrain their futures.
Oil-and-gas companies now make up about 4% of the S&P 500 index, down from roughly 10% a decade ago, FactSet data show.
Amid the changing landscape, Chevron has pulled back on its global footprint. It now operates in around 18 countries, according to the company, down from nearly 40 earlier this decade. Mr. Wirth said Chevron must be selective about its investments moving forward, focusing on oil-rich regions like the Permian Basin in West Texas and New Mexico.
The company is also undertaking a restructuring, going from four global production units to three. “Companies that wait until change is forced upon them fail,” Mr. Wirth said in a video sent to employees last week. “We’re not going to let that happen at Chevron.”
Some of the layoffs are likely to come from the company’s unit in Appalachia. The company is exploring a sale or strategic alternatives for those assets and the Kitimat LNG project in Canada, one of the projects included in the write-down.
Chevron made a big bet on natural gas in 2010, when it acquired Atlas Energy Inc. for $3.2 billion and assumed $1.1 billion of the Appalachian producer’s debt. At the time, gas prices had tumbled 21% to about $4.21 per million British thermal units. Chevron upped its wager in 2011 with more acquisitions in the region through private transactions that analysts valued at about $1.6 billion at the time.
Those bets look misguided today. On Tuesday afternoon, prior to Chevron’s announcement, natural gas prices were roughly $2.26 per MMBtu, up about 1.4% on the day.
Over the past decade, frackers helped release a gusher of gas that has driven down costs for consumers. But the amount of natural gas produced in the U.S. has exceeded U.S. consumption since 2017, Energy Information Administration data show. Gas prices are expected to continue falling, to an average of about $2 per MMBtu, next year, according to analytics firm IHS Markit.
The result has been prolonged hardship for U.S. gas drillers and their investors—one that’s expected to last well into the next decade, particularly for companies focused on the Appalachian region, which contains much gas but little oil.
Chevron is one of the largest leaseholders in Appalachia but only the 18th largest producer there, according to energy consulting firm Rystad Energy, and has fared better than many of its competitors.
Mr. Wirth said that while some natural gas projects have become uneconomic, the fuel remains an important part of Chevron’s strategy.
“The world runs on oil and gas today and any energy transition will take time,” Mr. Wirth said. “Our commitment is to be a responsible provider of that oil and gas.” Private Sector Jobs Off,Private Sector Jobs Off,Private Sector Jobs Off,Private Sector Jobs Off,Private Sector Jobs Off,Private Sector Jobs Off,Private Sector Jobs Off,Private Sector Jobs Off,Private Sector Jobs Off,Private Sector Jobs Off,Private Sector Jobs Off,Private Sector Jobs Off,