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Oil Climbs As Fears Of Negative Prices Fade – OilPrice.com

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Oil Climbs As Fears Of Negative Prices Fade | OilPrice.com

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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    Trader anxiety has earned a reprieve, with oil markets dodging one of many bullets after a key U.S. benchmark oil futures contract avoided a repeat of the April fiasco that saw oil futures land in negative territory.

    West Texas Intermediate (WTI) crude prices settled higher on Tuesday, finishing the day in backwardation and allaying fears that oil prices could slip into negative territory once again.

    The June WTI Nymex contract finished higher than the front-month July contract, marking the first time in months that the market shifted from contango to backwardation. 

    The WTI June contract, which expired at the end of the session, was settled at $32.50/barrel vs. $31.96 for the July contract after gaining 8.1% on Monday and another 2.1% on Tuesday. 

    Meanwhile, the July contract, which is the most actively traded, rallied 7.2% on Monday and 1% on Tuesday.

    The developments are a welcome bullish signal that the formidable headwinds of a massive supply glut, lackluster demand, and limited storage facing the crude oil markets could be easing.

    Tyler Richey, co-editor at Sevens Report Research, has told MarketWatch that the move to backwardation shows that “… there’s strong demand for physical crude as well as available storage to take delivery”.

    Source: CME Group

    Market Rebound

    The CFTC recently fired a warning at traders, clearinghouses, and brokers that oil prices could slip into negative territory again. The historical event that happened in April was triggered mainly due to a lack of storage at Cushing, Oklahoma, where U.S. Commodity Funds, LLC (USCF), provider of the United States Oil Fund LP (NYSEARCA: USO) fund, was supposed to take physical delivery of crude. 

    new report by the International Energy Agency (IEA) indicates that global demand for crude in April fell a staggering 29 mb/d, the biggest one-month drop in the history of the market. Related: Natural Gas Drillers Face Price Meltdown As Storage Fills Fast

    Thankfully, the considerable production cuts by OPEC+ and independent producers in the U.S. and other nations appear to be working to help return the situation to normal.

    The agreed cuts of 9.7 mb/d by OPEC and Russia kicked in in May while IOCs in the U.S. have been cutting production much faster than expected, remaining on course to cut ~1.7 mb/d by the end of June. Crude production from the United States’ seven major shale formations is expected to fall by a record 197K bbl/day in June to 7.82M bbl/day, marking the lowest level since August 2018. 

    On Monday, the American Petroleum Institute (API) reported a draw of 4.84M barrels of crude for the week ending May 15, effectively snapping a 6-week streak of consecutive builds.

    The natural gas situation is also steadily improving, with the EIA forecasting that U.S. natural gas output is set to fall for a 7th straight month to 81.5B cf/day in June, or nearly 800M cf/day below the May forecast. Meanwhile, there’s a slow but steady rebound in energy and fuel demand across the globe as economies gradually ease their Covid-19 restrictions.

    And it all seems to be paying off.

    The energy sector has topped the U.S. market leaderboard with energy equities gaining 61% since their March 23 lows thanks to crude prices posting two months of continuous gains.

    According to Phil Flynn at Price Futures via MarketWatch, “Pent up demand, stimulus and a historic production cutback is unleashing economic optimism and real oil demand.”

    Source: CNN Money

    Out of Danger?

    Does all this mean the oil market is now out of danger? Yes, and no.

    First off, negative oil prices do not appear to be an immediate danger. That’s the case because USO, the world’s largest oil fund, recently changed its modus operandi by moving most of its allocations from the front month to other months. 

    For instance, instead of having all its funds in the July 2020 contract, USO has now allocated only 15% of its money to the July contract; 15% for August, 15% for September and 15% for the October contract while allocating 5%, 25% and 10% for the November, December, and January 2021 contracts, respectively. 

    This rebranding removes a lot of the short-term risks, which is important when the markets are as volatile as they are right now.

    That said, the overall market trajectory will continue to be dictated by the forces of supply and demand.

    It’s quite worrying that some U.S. shale producers could be about to undo the good work, with Bloomberg reporting that as much as 25% of oil volumes that feed Energy Transfer’s pipe network in the Permian Basin’s Midland region that had been shut have been turned right back on. As Bloomberg’s oil strategist, Julian Lee, cautioned, easing the production cuts too soon could trigger a second oil price collapse.

    By Alex Kimani for Oilprice.com

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      Canada postpones critical 5G spectrum auction by six months – Yahoo Canada Finance

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      Canada's Minister of Innovation, Science and Industry Navdeep Bains speaks during a meeting of the special committee on the COVID-19 outbreak, as efforts continue to help slow the spread of the coronavirus disease (COVID-19), in the House of Commons on Parliament Hill in Ottawa, Ontario, Canada May 20, 2020. REUTERS/Blair Gable
      <p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Due to COVID-19, Innovation, Science, and Economic Development Minister Navdeep Bains has postponed the critical 3500MHz spectrum auction for 5G by six months to June 2021.” data-reactid=”23″>Due to COVID-19, Innovation, Science, and Economic Development Minister Navdeep Bains has postponed the critical 3500MHz spectrum auction for 5G by six months to June 2021.

      A press release from his department indicated that postponing the auction will allow telecom carriers focus on “providing essential services to Canadians” during the pandemic. 

      The new date is set for June 15, 2021. 

      In general, 5G operates over traditional and new cell radio frequency bands that include the low- (sub-1GHz such as 700MHz), mid- (1.6GHz, around 3.5-3.8GHz), and millimetre-wave (mmWave, such as 28GHz) ranges. 

      The 3,500MHz band is critical specifically in cities where thousands of small cells will be deployed in order to be used for applications like self-driving cars and many consumer applications.

      The sum of opening bid prices for the auction is $558 million. Last year’s 600MHz spectrum auction raised $3.57 billion. 

      “Canada’s telecommunications service providers are doing their part in this difficult time, providing essential services to keep Canadians connected as we face the realities of the COVID-19 pandemic together,” Bains said in the release. 

      “A number of providers have raised concerns, and the government is implementing measures to address them. The government will continue to reach out to telecommunications service providers—and to the private sector more broadly—to understand their challenges and support them to ensure that Canadians have access to high-quality networks and broad coverage at low prices.”

      <p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Recently, Telus and Bell announced plans to partner with Nokia and Ericsson as a 5G supplier. Rogers is partnered with Ericsson to provide 5G services.” data-reactid=”31″>Recently, Telus and Bell announced plans to partner with Nokia and Ericsson as a 5G supplier. Rogers is partnered with Ericsson to provide 5G services.

      <p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Additionally, Bains indicated that the first tracking report on the 25 per cent reduction in wireless service prices over the next two years will be available online in July 2020.” data-reactid=”32″>Additionally, Bains indicated that the first tracking report on the 25 per cent reduction in wireless service prices over the next two years will be available online in July 2020.

      <p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Download the Yahoo Finance app, available for&nbsp;Apple&nbsp;and&nbsp;Android&nbsp;and sign up for the&nbsp;Yahoo Finance Canada Weekly Brief.&nbsp;&nbsp;” data-reactid=”33″>Download the Yahoo Finance app, available for Apple and Android and sign up for the Yahoo Finance Canada Weekly Brief.  

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      At midday: North American markets jump on better-than-expected jobs data – The Globe and Mail

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      An unexpected jump in U.S. employment sent world equities and oil surging on hopes that the global economy has started to recover from the coronavirus pandemic, pulling investors out of perceived safe havens like government bonds and gold. Canada’s TSX gained 2.1%, with investors also cheering much better than expected jobs numbers on this side of the border.

      U.S. nonfarm payrolls rose by 2.509 million jobs last month after a record plunge of 20.687 million in April. Economists polled by Reuters had forecast the unemployment rate jumping to 19.8% in May and payrolls falling by 8 million jobs.

      “The numbers are a huge surprise to the upside,” said Michael Arone, chief investment strategist at State Street Global Advisors. “It has confirmed what many folks were suggesting: that the effects on the labor market from the pandemic were temporary and that when the economy reopened and the infection rates started to diminish, that these jobs would come back.”

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      MSCI’s gauge of stocks across the globe gained 2.04%. The index is now down 4.5% for the year to date and trading at its highest level since early March, before the U.S. economy went into lockdown in an effort to slow the spread of the novel coronavirus.

      On Wall Street, the Dow Jones Industrial Average rose 829.16 points, or 3.15%, to 27,110.98, the S&P 500 gained 81.58 points, or 2.62%, to 3,193.93 and the Nasdaq Composite added 198.27 points, or 2.06%, to 9,814.08. The Nasdaq breached its all-time closing high reached in February but pared its gains to end the session a hair’s breadth below it. The broad S&P 500 is now down about 1% for the year to date.

      The S&P/TSX Composite Index rose 326.20 points to 15,854.07. Gold stocks were lower, but otherwise gains were widespread across sectors, with energy rallying 7.9%. Financials rose just over 3%.

      Canada added 290,000 jobs in May after two months of brutal layoffs, a surprise turn for the job market as provinces have only recently begun to ease lockdown restrictions. Analysts had been expecting half a million job losses during the month. Despite the gain, the unemployment rate rose to 13.7 per cent, the highest since comparable data became available in 1976, as more people started seeking jobs.

      Equity gains were widespread before the surprise jobs reports. MSCI’s broadest index of Asia-Pacific shares outside of Japan rose 0.9%, reversing early losses to stay near a 12-week high.

      The index is up about 7.6% this week, on track for its best weekly showing since December 2011.

      Emerging market stocks were up 0.7% and also on course for their best week since December 2011.

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      Hopes for a swift economic recovery sank U.S. government bonds, which had reached historic highs on fears that the pandemic would erode consumer demand. Benchmark 10-year notes last fell 20/32 in price to yield 0.8851%, from 0.82% late on Thursday.

      “The sell-off in the bond market in the last few weeks seems to be justified,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “This is a tremendously positive step in the right direction, and probably points to a faster recovery, at least in the jobs market, than people had expected.”

      Bond investors will get further insight into the likely direction of the economy when the U.S. Federal Reserve holds its regular two-day policy meeting next week.

      Europe has now clawed back two-thirds of the losses incurred amid the coronavirus pandemic and Bank of America analysts said on Friday they expect European stocks to rise another 10% by the end of September on expectations of a pickup in business activity.

      Set for a third straight week of gains, the euro rose to $1.1380, its highest level since March 10 and was on course for a weekly jump of 2.5%.

      The dollar index made a tepid recovery, rising 0.08% to 96.84, but remained on track for its third consecutive week of losses and close to its lowest in nearly three months.

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      Hopes for an economic recovery sent oil prices surging. U.S. crude recently rose 4.97% to $39.27 per barrel and Brent was at $42.14, up 5.38% on the day.

      Read more: Stocks that saw action Friday – and why

      Reuters

      Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

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      Pattie Lovett-Reid: Why CMHC is tightening lending standards – CTV News

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      TORONTO —
      Concern has been expressed by CMHC that we could see a correction in home prices between 9% and 18% over the next 12 months. This concern has led to the tightening of the rules for offering mortgage insurance effective July 1.

      These rules are intended for riskier borrowers who have less than 20% down payment to access CMHC’s default mortgage insurance.

      But that’s not all — and yet another reason to keep your credit score in good standing — the minimum credit score of 680 is required instead of the current 600 to qualify for CMHC backing. This shift in the credit score says a lot about your ability and willingness to manage the debt you currently are using and have access to. To keep your credit score at the required limit, make your minimum payments on outstanding debt on time and limit the number of credit facilities you have.

      Now to the numbers:

      The gross debt servicing ratio will now be 35% of annual income – this includes – mortgage payments, taxes, heating costs and 50% of condo fees. Simply add them up and divide the total by your annual income. This number can’t exceed 35% and it was 39% before.

      Your gross debt servicing number has gone down, meaning that your mortgages costs will need to be lower and that results in less home being purchased.

      I’ll give you an example:

      According to Ratehub.ca, using the current mortgage qualifying rate of 4.94% and GDS limit of 39, a family with an annual income of $100,000 and a 10% down payment would have qualified for a home valued at $524,980.

      Under the new GDS limit of 35, the same household can now only afford a home of $462,860.

      This represents a decrease in buying power of almost 12%, due to the change in the GDS limit.

      With lower mortgages combine with other outstanding debt you may owe, your total debt service is also reduced to 42% from 44%. That includes your housing expenses plus credit card interest, car payments and loan expenses divided by your annual income.

      Both measurements are key barometers for your financial institution when deciding your qualification for a mortgage.

      Why the changes now?

      The fear is many homeowners may have gotten into the real estate market prematurely with financial vulnerabilities that are now being exposed due to the pandemic.

      The dream of owning a home is a goal for many; however, these rules are intended to protect two parties here – the potential homeowner who doesn’t have the financial maturity to protect themselves in a period of economic hardship and the taxpayer who is on the hook if they can no longer keep their mortgage in good standing. CMHC is a government-backed program.

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