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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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Lufthansa sets 2024 goal, eyes capital increase

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Germany’s flagship carrier Deutsche Lufthansa said it aims to boost its return on capital employed (ROCE) and laid out plans for a capital increase as it prepares for a business recovery amid an easing coronavirus pandemic.

The largest German airline aims to have an adjusted EBIT margin of at least 8% and an adjusted ROCE of at least 10% in 2024, it said late on Monday.

Adjusted ROCE was –16.7% in 2020 and 6.6% in 2019.

The group added it had mandated banks to prepare a possible capital increase, though size and timing have not yet been determined and the German state, which has bailed out the airline during the pandemic, has not yet given its approval.

 

(Reporting by Ludwig Burger; editing by Jonathan Oatis)

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Virtual Law Firms Are on the Rise in Canada

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Virtual law firms have been on the rise for a while. In a 2019 roundtable discussion conducted by the American Bar Association, several firm leaders met to discuss the growing presence of online legal services. The consensus was clear: virtual is the new reality.

That was 2019. In the intervening two years, the world was gripped by a global pandemic that forced most people to conduct their business indoors. As you might have guessed, demand for contactless, remote legal services has only ballooned since that roundtable discussion.

While the roundtable primarily focused on the legal industry in the US, you can witness similar trends here in Canada. Like the taxi industry and entertainment distribution industry before it, law is increasingly moving toward digital spaces.

This article explores what virtual law firms are, what benefits they present for Canadian clients, and what kind of clients are driving the virtual law boom.

Not a Change but an Addition

At its best, the shift from brick-and-mortar law firms to virtual isn’t an alteration of legal services as much as it is an addition.

The best virtual law firms do not compromise on service – they still offer traditional legal services with the expertise of real lawyers. The only difference is that they have added a new medium: a more accessible, transparent means of communication and billing.

Why Canadians Choose Online Law Firms

For some clients, the traditional brick-and-mortar firm was hard to give up. They viewed their lawyer like they viewed their doctor: a professional whose in-person expertise couldn’t be replicated in a digital space. Then, the pandemic hit. As millions more Canadians acclimatized to working online, they also habituated to the idea of doing business online.

 

Credit: Ketut Subiyanto Via Pexels

The benefits were immediately apparent. Virtual law firms feature streamlined communication, available seven days a week. They eliminate the need to go to a physical office. They offer all the same legal expertise and services as a brick-and-mortar lawyer. And, crucially, they often leverage transparent pricing: flat, predetermined legal fees with no hidden costs. A client looking for affordable legal services in Mississauga or Toronto, for instance, can simply click a few buttons and hire a lawyer on the spot.

Who Is Using These New Services?

You might be wondering: do they wheel a computer into the courtroom when someone avails themselves of a virtual lawyer? No, that isn’t quite the case.

Clients tend to use virtual law firms for everyday legal services – not necessarily courtroom representation. A client looking to create a will or name a power of attorney might choose a virtual lawyer for the sake of simplicity. A homebuyer, looking to keep costs manageable might hire a virtual lawyer for closing since their prices are both more transparent and affordable. A couple seeking to draft a cohabitation agreement may find similar benefits in an online lawyer.

The fact is that virtual legal services are not only here to stay – they are on the rise. Fortunately, the future is friendly; online law firms offer the same legal expertise as their physically housed counterparts, with the added benefits of being accessible and affordable.

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Tourmaline to expand in Montney with C$1.1 billion deal for Black Swan

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Canada‘s Tourmaline Oil Corp said on Friday it would buy privately owned Black Swan Energy Ltd in a C$1.1 billion ($908.79 million) deal, as the oil and gas producer looks to expand in the Montney region, one of North America’s top shale plays.

Canada‘s Montney, which straddles Alberta and British Columbia, has seen a wave of consolidation as companies buckled under collapsing oil prices amid the COVID-19 pandemic.

Tourmaline said the deal represents a key part of its ongoing North Montney consolidation strategy and the company sees the area as a key sub-basin for supplying Canadian liquefied natural gas.

The company in April acquired 50% of Saguaro Resources Ltd’s assets in the Laprise-Conroy North Montney play for $205 million and entered into a joint-venture agreement to develop these assets.

Analysts at brokerage ATB Capital Markets called the Black Swan assets a “hand in glove” fit with its recent acquisitions.

Tourmaline stock rose 4.5% to C$32.1.

The deal value consists of 26 million Tourmaline shares and a net debt of up to $350 million, including deal costs.

Tourmaline will acquire an expected average production capacity of over 50,000 boepd when the deal closes, likely in the second half of July.

The company, which also raised its dividend by 1 Canadian cent per share, expects the Black Swan assets to generate free cash flow of $150 million to $200 million in 2022 and beyond.

The Canadian energy sector has seen a flurry of deals with companies expecting to benefit from the rebound in oil prices as global fuel demand picks up.

ARC Resources Ltd in April bought Seven Generations Energy Ltd for C$2.7 billion to create Montney’s largest oil and gas producer.

($1 = 1.2104 Canadian dollars)

 

(Reporting by Rithika Krishna in Bengaluru; Editing by Vinay Dwivedi)

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