US crude oil extended the rally from late last week, with prices climbing above the $48 mark. The sharp advance was largely attributed to recent comments from the Organization of the Petroleum Exporting Countries (OPEC), with the group ready for talks with other global producers to ensure ‘fair prices’. Moreover, a report out of the U.S. Energy Information Administration (EIA) showed outputs were lower than previously expected, with the figures for June showing a 100K b/d drop to 9.3M b/d.
In light of the historical relationship, the pop in oil was accompanied by a near-term decline in USD/CAD, with the pair dipping back below the 1.3200 handle.
San Francisco-based Twitter promises it will do slightly better by the close of 2016 when it comes to gender and ethnic diversity.
“We considered simply setting company-wide hiring goals, but we don’t want to stop at that,” Janet Van Huysse, Twitter’s vice president of diversity and inclusion, wrote in a blog post Friday. “If our aim is to build a company we can really be proud of — one that’s more inclusive and diverse — we need to make sure it’s a great place for both new and…
A few weeks ago, The New York Times published an in-depth look at some arguably brutal work practices at Amazon, including intense competition between coworkers.
For example, the “Anytime Feedback Tool” is an internal platform that allows workers to submit reviews of their colleagues’ performance to their managers. Employees who spoke to The Times said the tool had been used to undermine coworkers.
The Association for Psychological Science recently drew a connection between a recent psychological study and the potentially problematic culture at Amazon.
According to the study, led by University of Calgary psychology researcher Thomas O’Neill, certain kinds of team conflict, like sharing different opinions, can be beneficial. But other types of conflict, like interpersonal discord, can be destructive.
In other words, APS suggests, businesses like Amazon may be hampering innovation and productivity by causing employees to fear each other. (The study itself doesn’t specifically mention Amazon.)
In one of two experiments included in the study, researchers looked at 577 engineering students at a large Canadian university. The students were organized into 195 design teams consisting of three, four, or five members. Each team was tasked with constructing a sailboat, a race car, a biomimetic design, and a video game.
Two weeks before the last day of class, the researchers asked students to complete surveys that measured different types of conflict. Specifically, the researchers were interested in task conflict (differences in opinions and views about the task); relationship conflict (friction and personality clashes); and process conflict (disagreement about plans for execution).
Researchers also evaluated the quality of the students’ design proposals and how confident the students felt in their team’s ability to succeed.
Results showed that there were four distinct types of teams, on a scale from healthy debate to dysfunctional interpersonal discord. Teams with high levels of task conflict and low levels of relationship and process conflict were the most successful. The researchers call this type of team — in which team members get along personally but are nonetheless able to disagree — the “ideal.”
On the other hand, teams that had higher levels of relationship and process conflict were less successful. Moreover, the researchers found that the more interpersonal drama and quibbling over execution occurred in a specific team, the less likely that team was to engage in constructive debate.
That’s likely because members of these teams were afraid of starting an argument by expressing a different idea — even if sharing their distinct perspective could be helpful.
One major takeaway from this research is that conflict isn’t inherently harmful to team dynamics. In fact, the ability to talk over different ideas is crucial to a team’s success.
“The whole point of having a team is to share different points of view and debate different ideas,” O’Neill told Business Insider.
But when that conflict turns personal, or when team members disagree over the best way to complete assignments, performance can take a turn for the worse. And if this kind of personal discord is common at Amazon — The Times article noted that colleague feedback “can be blunt to the point of painful” — it could be problematic for the retailer.
The study authors suggest that managers assess levels of different types of conflict within their teams and provide feedback accordingly. Bringing a team’s attention to its conflict styles may be the first step to getting it back on track toward success.
While some investors see dead unicorns in their dreams, famed VC Marc Andreessen remains optimistic—cautiously optimistic anyway—about high-growth tech startups.
“Our general attitude is be measured, be cautious, be careful, but also invest in growth. When we have companies that are growing fast we don’t tell them to pull back because the stock market blips. In fact, if anything we tell them to push forward,” the co-founder of Andreessen Horowitz tells Emily Chang of Bloomberg TV.
Cisco’s new CEO Chuck Robbins is starting his term with a big partnership: Cisco has struck a surprise deal with Apple to make iOS devices — iPhones and iPads — work better on networks powered by Cisco gear.
Cisco announced the deal at its huge conference for its 20,000-plus salespeople in Las Vegas this week, and included a surprise visit by Apple CEO Tim Cook.
As Cisco put it in the press release, the company “create a fast lane for iOS business users by optimizing Cisco networks for iOS devices and apps, integrating iPhone with Cisco enterprise environments and providing unique collaboration on iPhone and iPad.”
Cisco is the big kahuna in the computer network world, both in supplying gear for the internet and to private networks that companies build for their own employees. It’s networking gear is used by 95% of the Fortune 500. And nearly all of them have employees using iPhones and iPads.
The agreement has three parts. The two companies are going to make it easier for iOS devices to connect to the network and for their apps to work flawlessly. And Cisco is also going to tie its collaboration tools more tightly with iOS devices.
For instance, it will let iPhones work better with Cisco desk phones and telepresence equipment (for video conferencing), as well as Cisco tools like Spark (group conferencing/chat) and WebEx (online meetings).
Apple has now made two huge partnerships to help it sell more iOS devices (particularly iPads) to the business world. Last year it teamed up with IBM to help develop apps for the iPad, and that deal is going strong. Now it’s added Cisco.
Several years ago, Cisco tried to build an Android tablet called Cius specifically for work, but it didn’t sell well and Cisco soon killed the product. The tablet was supposed to help Cisco grow its collaboration business. Right now, the bulk of Cisco’s revenues come from its networking equipment and Cisco’s’ new CEO is tasked with diversifying.
To celebrate the new partnership, Tim Cook came to Las Vegas and made an appearance on stage, as did recently retired Cisco CEO John Chambers.
— Jose Alfredo (JA) (@josealfredosouz) August 31, 2015
— Jose Alfredo (JA) (@josealfredosouz) August 31, 2015
Funding Circle, the UK peer-to-peer small business lender, is on track to do over £35 million ($53.8 million) in revenues this year, Business Insider can reveal.
Funding Circle’s online platform lets savers lend directly to small businesses at more favourable interest rates than offered by traditional bank savings accounts.
Accounts filed with Companies House in the UK show Funding Circle Holdings, the parent company of both Funding Circle’s UK and US businesses, did revenues of £13.1 million ($20.1 million) in the year to December 31, 2014. That was up from £5.3 million ($8.1 million) in 2013.
But CEO and cofounder Samir Desai says the business is already well on its way to totally eclipsing this figure in 2015. He told Business Insider: “With businesses like ours where we’re growing so fast, the numbers become quite quickly out of date. We’re now actually run rating just shy of treble the revenue we achieved for all of last year.”
That would put revenues for the year somewhere slightly above £35 million ($53.8 million).
Desai says the business is currently lending around $100 million (£64.8 million) a month over its platform, with around $28 million (£18.2 million) of that coming from the US.
Since launch around $1.3 billion (£840 million) worth of loans have been made on the platform — a total the platform set to near enough match in lending this year, showing the crazy level of growth Funding Circle is seeing.
The 5-year-old company is one of a number of “alternative finance” businesses that have risen to prominence since the financial crisis. Their popularity has been driven by savers looking for better returns with interest rates at record lows, and both small businesses and consumers facing a drying up of credit from banks.
Zopa, a UK peer-to-peer lender in the consumer loans space, reported similar explosive growth recently. The company said it passed the £1 billion ($1.5 billion) lending mark but added it expected to do its 2nd £1 billion in just 18 month, mirroring Funding Circle’s growth.
But as well as surging revenues, Funding Circle’s 2014 accounts show mounting losses, rising from £5.3 million ($8.1 million) in 2013 to £19.4 million ($29.8 million) in 2014. Staffing costs jumped from £4 million ($6.1 million) to £11.1 million ($17 million).
Desai put this down expansion in the US, a market it entered at the end of 2013, and investment in technology.
He says: “If you actually look at the core business of doing loans in the UK — strip away the technology investment and all the other extra stuff we’re doing — the business is already profitable in the UK and is moving that way in the US as well. A lot of the investment we’re doing is investing in creating a global business.”
Funding Circle raised $150 million (£97 million) in April but, incredibly, Desai says the company hasn’t touched the money yet.
He says: “All of that money, plus a lot of the money from previous rounds, is still on our balance sheet.
“We didn’t really need the money but we thought it was prudent to take it. Obviously some of the investors we did bring on — BlackRock, Temasek, DST Global, Baillie Gifford, Sands Capital — don’t come along everyday. And as a financial services business, even though we don’t lend any money ourselves, we felt it was important to show the market we’re here to stay and we’re always going to have a very healthy cash balance.”
Funding Circle does plan to spend some of the money though. Desai says the company is looking at expanding into Europe and is planning to launch new small business funding products.
NEXTEV TCR driver Nelson Piquet of Brazil competes in the Formula E Championship race in central Moscow, Russia, June 6, 2015.
FRANKFURT/DETROIT A group of deep-pocketed China-based internet entrepreneurs and financial investors, including Tencent (0700.HK) and Hillhouse Capital, is backing an effort to create NextEV, a new rival to U.S. electric car maker Tesla Motors Inc (TSLA.O).
Hillhouse is also an investor in Uber, the U.S. ride sharing service.The backers have hired ex-Ford Motor Co (F.N) executive Martin Leach to build a global automaker, a NextEV spokeswoman said on Monday. The backers have also recruited experts with previous experience at Tesla, BMW AG (BMWG.DE), Volkswagen AG (VOWG_p.DE) and other major car companies.
The NextEV investors are among several Chinese technology entrepreneurs with little or no automotive background who are hoping to create new electric car companies. The effort is supported by the Chinese government, which recently changed rules to encourage investment by non-automotive companies.
Among the Chinese tech companies that have announced or are considering investments in electric car ventures are Alibaba (BABA.N), Xiaomi Technology [XTC.UL] and Leshi 300104.SZ.
Tesla spokesman Ricardo Reyes said on Monday: “We’re happy to see other people use the Model S sedan and our business model as benchmarks, whether they are large companies or well-funded startups.”
The creation of Shanghai-based NextEV, which has established offices in Europe and the United States, is a sign that a gradual shift toward electric vehicles, which are simpler to design than conventional cars, has lowered the barriers to entry into the auto industry. The Chinese government has also provided generous incentives to encourage production and sale of EVs.
“The first model launched by NextEV will be an electric supercar,” NextEV spokeswoman Jili Liu told Reuters. “This EV supercar is expected to outperform all combustion (engine) supercars in the world.”
The sportscar is expected to debut in 2016. It will be designed to produce more than 1,000 horsepower and accelerate from 0 to 100 kilometers an hour (62 miles per hour) within 3 seconds, Liu said. A range of high-performance family cars will follow.
NextEV Co is being backed by Chinese internet company Tencent; William Li, the founder of internet content provider Bitauto.com; Xiang Li, the founder of automotive website autohome.com.cn, and Richard Liu, the founder of e-commerce site JD.com. Hillhouse Capital, which was started with seed money from Yale University, is also a backer, NextEV said.
Leach, the former chief operating officer at Ford of Europe, is currently spearheading efforts to recruit hundreds of staff to work in San Jose, California, Shanghai, Munich, Beijing, Hong Kong and London, Liu said.
Leach’s role is co-president, Liu said, declining to elaborate further on the leadership structure of the new car maker.
Among NextEV’s hires are Danilo Teobaldi, the former chief of vehicle concepts at Italdesign Giugiaro; Juho Suh, a former senior designer at BMW, and John Thomas, a former senior program director at Tesla, according to their Linkedin profiles.
Thomas, who also worked as an engineer at Ford and General Motors Co (GM.N), helped lead the development in 2006-2008 of the Tesla Model S.
NextEV did not want to disclose the extent of its financial backing, saying it preferred to keep such details confidential. The company will initially target China as a market and move beyond that at a later stage, Liu said.
(Reporting by Edward Taylor in Frankfurt and Paul Lienert in Detroit; Editing by Andrew Hay)
YouTube and Vine celebrities are known for the wacky ways they entertain their viewers, so we decided to put their creative minds to the test. We asked a crew of popular YouTuber and Vine stars (like Us the Duo and Brittany Furlan) to answer the …
The recent market volatility didn’t spare tech companies, but there may be more near-term pain ahead for software companies, warns UBS.
Analyst Brent Thill and his team have a new note out today, warning that they see volatility continuing in the near term, with many investors unwilling to recommit to pricey software names. “With many investors on the side-lines, we believe that the risk/reward profile for our sector in the near term has shifted unfavourably and that there may be further downside to be realized in software.”
Thill has three main reasons for this. First, with big swings in the market, investors are more nervous, and thus less likely to tolerate expensive, risky names like software. Secondly, software itself is a higher beta, volatile sector, making it more likely to keep feeling the market’s moods more than most. Finally, the sector isn’t known for its defensive characteristics either, which may be keeping investors away.
Thus, with multiples compressing, they see a downwards bias in most names:
We don’t expect the unpredictable market conditions to clear in the near term and believe that investors are less willing to bear portfolio risk associated with overextended company valuations. Although we are in the seasonally strong 2H, our valuation analysis suggests a near term downwards bias toward most software stocks.
Thill still has top picks “through the turmoil” however. In large cap names he suggests Intuit (INTU), Salesforce.com (CRM), Microsoft (MSFT) and Red Hat (RHT).In the small and mid-cap space he likes Cornerstone OnDemand (CSOD), Fortinet (FTNT), and Qlik Technologies (QLIK), “We believe these companies will display durable price performance with strong fundamentals, more upside than downside, and resilient business models.”
Looking farther out, he sees M&A activity helping to support software multiples going forward:
The historic strategic takeout multiples in our sector have been between 5.0-8.0x+. While valuations in software have been falling as a result of the market volatility, we believe that the history of transactions within this multiple range should support compressing valuations. We also note that public market multiple compression could spill into the private markets, and also help bolster public market M&A.
Many advertisers and publishers hope to meld native-ad units with programmatic buying tools, and this may finally be possible thanks to a new specification from the Interactive Advertising Bureau.
The IAB’s OpenRTB 2.3 spec could underpin a programmatic-native ecosystem if it’s adopted in the ad-tech world.
In simplistic terms, the key to the new spec is the ability to serve up sponsored content that matches the look and feel of a publisher site in real time through automated processes.
In this in-depth research from BI Intelligence that updates our popular July 2014 report on programmatic, we find that the US digital-ad market will reach a programmatic “tipping-point”: For the first time this year, programmatic transactions will be a majority (52%) of non-search digital-ad spend. We estimate 30.6% of total digital-ad spend will go to programmatic real-time bidding (RTB) platforms, and 21.7% will go to non-RTB programmatic.
Here are some of the key takeaways:
To access the full report from BI Intelligence, sign up for a 14-day full-access trial here. Full-access members also gain access to new in-depth reports, hundreds of charts and datasets, as well as daily newsletters on the digital industry.
The major index ETFs downshifted further Monday, as China and the Federal Reserve have continued to weigh on the stock market. On the last trading day of August, exchange traded funds tracking the S&P 500, Dow Jones Industrial Average and Nasdaq 100 were poised for their largest monthly losses since 2012. Last week, turbulence in the stock market whipsawed investors even as it intensified worries about a global slowdown and raised doubts about the wisdom of a Fed rate hike next month.
The ETF holds 30 blue-chip industrial leaders.
Intraday, DIA was headed towards a 6% decline for the month.
SPY fell 0.5% intraday, with virtually every sector besides energy in the red.
Among QQQ’s top 25 holdings, biotech stocks Gilead Sciences (NASDAQ:GILD), Amgen (NASDAQ:AMGN), Celgene (NASDAQ:CELG) and Regeneron Pharmaceutical (NASDAQ:REGN) were among the hardest hit in midday trade.
The so-called “death cross” on SPY’s daily chart is its first appearance in four years. The pattern occurs when a short-term moving average, like the 10-week moving average, slips below a long-term line like the 40-week moving average. It’s seen as a bearish signal, warning of loss of momentum and more losses ahead.
According to market watchers interviewed by CNBC, crosses on the daily chart may be less relevant than longer-term crosses.
It may be more worrisome, therefore, that the weekly charts for SPY and DIA also show this pattern.
Here’s a look at how benchmark exchange traded funds tracking various asset classes are performing today.
Following daily ETF market action can be key to successful investing:
10 Bellwether ETFs:
• IShares Core US Aggregate Bond (ARCA:AGG), +0.1%, RS 70
• PowerShares DB US$ Bullish (ARCA:UUP), 0%, RS 80
• IShares Russell 2000 (ARCA:IWM), 0%, RS 61
• IShares Core S&P Mid-Cap (ARCA:IJH), -0.2%, RS 61
• SPDR Gold Shares (ARCA:GLD), -0.3%, RS 54
• PowerShares QQQ (NASDAQ:QQQ), -0.4%, RS 70
• SPDR S&P 500 (ARCA:SPY), -0.5%, RS 61
• SPDR Dow Jones Industrial Average (ARCA:DIA), -0.5%, RS 51
• Vanguard FTSE Emerging Markets (ARCA:VWO), -0.5%, RS 25
• IShares MSCI EAFE (ARCA:EFA), -0.7%, RS 47
Follow Aparna Narayanan on Twitter: @IBD_ANarayanan.
In May, when the Register last polled, 27 percent of likely Iowa GOP caucus-goers viewed Trump favorably while 63 percent regarded him unfavorably.
In the new poll, which was released Saturday night, Trump’s favorable number is at 61 percent and his unfavorable at 35 percent.
“In the almost 20 years I have spent following politics closer than
close, I’ve never seen anything like the total reversal in how Trump is
perceived by Republican voters. It is, quite literally, unprecedented.“
The Trump candidacy has rewritten – or at least smudged – lots of the rules of conventional politics. He says things that would derail other peoples’ candidacies. His shyness about specifics on, well, anything would be seen as a lightness bordering on cluelessness in other candidates. His pick-a-fight-a-day mentality would be seen as overly aggressive and tonally off if anyone else in the field did it.
But, of all the amazing things that Trump is doing – whether he realizes what it is he is actually doing – his ability to totally turn around his image is the most remarkable. It’s not something we’ve seen before.
* * *
It’s different this time…
Your rating: None Average: 4.2 (13 votes)
Amazon and Microsoft are quickly becoming the king and queen of cloud computing.
Here’s another case in point: the two of them just won a huge contract with the FAA, led by IT consultant CSC. This contract will consolidate the FCC’s data centers, moving data to both Amazon’s cloud Amazon Web Services (AWS) and Microsoft’s cloud, Azure.
CSC says the contract is worth $108 million out of the gate, and because its a long-term contract, could be worth as much as $1 billion over the next 10 years.
The FAA isn’t getting rid of its data centers altogether to run on AWS and Azure (although that is increasingly becoming a thing that huge companies like Netflix and Yahama of America are doing — both of whom are using AWS).
The FAA is just trying to shrink its data centers and use the two clouds as much as it can — a type of cloud computing known as “hybrid” computing. A lot of big organizations are moving towards hybrid computing these days, rather than ditching their own data centers altogether.
The most interesting thing about this announcement: IBM was left out in the cold.
IBM and the FAA have a long and storied relationship, stretching back for decades. That’s not to say that the FAA is dropping its relationship with IBM completely. But it’s interesting that of the two clouds FAA chose for this huge consolidation project, IBM didn’t make the cut.
IBM is battling big time for its share of the huge-and-growing cloud computing market and is currently placed third, according to Synergy Research.
But Amazon is killing it when it comes to winning business from government agencies with extreme security needs. A couple of years ago, it famously won a contract to build a new cloud for the CIA out from IBM.
That cloud has become a big winner, not just for Amazon and the CIA, but all the intelligence agencies are reportedly loving this new cloud, Fortune’s Barb Darrow reported.
And, as we predicted back in 2013, that win meant that Amazon would be in good standing with other government agencies, not to IBM’s benefit.
We reached out to IBM for comment and will update when we hear back.
NOW WATCH: Maybe working at Amazon is hard for a reason
Susan Sarandon has spoken openly about her love of Burning Man and it appears the 68-year-old actress is back for another round of the festival this year.
A photo posted by Susan Sarandon (@susansarandon) on Aug 31, 2015 at 8:24am PDT on Aug 31, 2015 at 8:24am PDT
“These boots were made for Burning Man,” she captioned the above photo.
Sarandon has already survived a dust storm:
A photo posted by Susan Sarandon (@susansarandon) on Aug 30, 2015 at 12:25pm PDT on Aug 30, 2015 at 12:25pm PDT
And tech writer Nellie Bowles even spotted the Oscar winner helping out on the playa during the first day of the week-long festival:
News alert: Susan Sarandon is here. With a hammer! Working on some art like you do
— Nellie Bowles (@NellieBowles) August 30, 2015
But Sarandon is no stranger to Burning Man.
The actress first went to the festival two years ago. After the experience, she spoke to The Daily Beast about why she loved it:
It’s fabulous. I went all around on a Segway and a bicycle, which was great, and even though people sometimes recognized me and said, ‘Oh, it’s so cool you’re here!’ it wasn’t like walking the streets of New York. The art was amazing. You’ll find fantastical stuff like four-story women, and when the light comes up, a half-naked woman with a parasol. Despite the fact that there was more of a police presence there, it was a lot of fun and I’d definitely go back.
Sarandon had to opt out of the festival last year because her daughter was due to give birth at any moment. “I don’t think I’d feel very free to indulge if I was waiting for a message to see if she’s gone into labor,” she explained.
But when Sarandon is free of responsibility, she told the Beast she definitely lets loose and experiments with drugs:
Well, it’s pretty psychedelic to begin with. But, yeah, I’m not new to the idea of mushrooms. I don’t really like chemical things, really… But I’ve done Ayahuasca [psychedelic tea] and I’ve done mushrooms and things like that. But I like those drugs in the outdoors — I’m not a city-tripper. My attitude about marijuana or anything is, ‘Don’t be stoned if you have to pretend you’re not,’ so I’d never do drugs if I was taking care of my kids. I like doing it in the Grand Canyon, or in the woods. It does remind you of your space in the universe—your place in the universe—and reframe things for you. I think you can have some very profound experiences.
Sarandon isn’t the only Hollywood celebrity to attend Burning Man. Last year, Will Smith was spotted performing a choreographed dance on a Segway in the middle of the desert.
Seriously, what the f##k is going on over there?
This is the second explosion in Shandong, which both follow the huge and deadly explosion in Tianjin.
We’ll await the details which we imagine will suggest that, as was the case in Tianjin, many more tonnes of something terribly toxic were stored than is allowed under China’s regulatory regime which apparently only applies to those who are not somehow connected to the Politburo.
After the last Shandong explosion, The People’s Daily reported that the plant contained adiponitrile, which the CDC says can cause “irritation eyes, skin, respiratory system; headache, dizziness, lassitude (weakness, exhaustion), confusion, convulsions; blurred vision; dyspnea (breathing difficulty); abdominal pain, nausea, [and] vomiting.”
This clip has just been posted to a Weibo account – reportedly showing tonight’s explosion (we are unable to confirm this is not the previous Shandong explosion though that was more twlight than dead of night)…
Your rating: None Average: 5 (10 votes)
Apple is expected to launch its next-generation set-top box next week, and we’re getting a good idea exactly what to expect.
A new report from the usually accurate Mark Gurman of 9to5Mac says the new Apple TV will focus on two major areas: gaming and Siri incorporation.
With its new Apple TV, the company will “actively compete” with gaming consoles from the likes of Microsoft and Sony, the report says.
Updated hardware, software, and supported peripherals are expected to make the Apple TV more appealing to gamers. For example, you’ll be able to use console-style controllers that have been previously released for iPhones and iPads with the Apple TV.
That combined with the idea that you’ll be able to download games directly on the set-top box through the new App Store that’s rumored to come with the next Apple TV could make it an interesting gaming device for casual players.
Amazon made a similar move when it launched the Fire TV back in April 2014, which is compatible with an Amazon-made gaming controller and can run certain mobile games.
This is just one of several rumors we’ve heard about Apple’s new TV so far. Previous reports have indicated that Siri will be one of the marquee features to debut on the new streaming box. Gurman reports that a “near-universal” Siri control could be coming, which sounds as if you’ll be able to execute most commands without even using the Apple TV’s remote control.
That being said, Apple is also believed to be working on a revamped Bluetooth remote control for its next-generation TV box. It’s said to include both tactile physical buttons and a touch pad. These physical buttons could include a home button and a button for activating Siri.
Other changes reportedly include a faster processor and a thicker design, as Gurman as reported in the past.
The next Apple TV is also expected to be more expensive at $200 when it reportedly launches in October, according to Gurman. For context, the current Apple TV was priced at $99 when it initially launched and now only costs $69.
Gold futures ended lower on Monday, on investor concerns over the outlook for U.S. interest rates, although the loss was limited with the dollar weakening against a basket of some major currencies.
However, gold prices gained about 3.4 percent for the…
Oil prices crashed last week only to rebound at lightning speed. On August 28, oil prices surged 10 percent, the largest one-day gain in seven years. So, what happens next for oil prices?
On the face of it, the crash and massive rebound makes little sense, with many oil market analysts undoubtedly left shaking their heads.
But there is a logic to what unfolded, just not the logic of the physical market for crude. Oil prices, as if we needed a reminder, are largely driven by speculation. Why else would oil prices plummet by five percent, then spike by 10 percent just a few days later? Not much changed in terms of actual supply and demand of oil in the intervening days.
Sure, Royal Dutch Shell declared force majeure on some oil shipments from Nigeria, as two pipelines had to be shut down. That could interrupt some oil supplies. But other than that, the physical market for crude didn’t see a whole lot of change in just a few days’ time.
In financial markets, however, a lot changed. Last Monday, fears that the meltdown of China’s stock market would lead to global contagion sparked a worldwide sell off. Crude prices suffered a massive one-day fall.
Several days later, on August 26, the EIA reported that oil storage levels declined by 5.4 million barrels for the week, the steepest drop in weeks. That stopped crude prices from sliding further. Then on August 27, the U.S. Department of Commerce reported surprisingly strong GDP figures – the U.S. economy expanded at an annualized rate of 3.7 percent, a huge upward revision from previous estimates. Oil prices shot up by more than 10 percent, the largest gain since 2008.
But it wasn’t just the inventory data and the GDP figures, which are ostensibly linked to physical realities in the market. Lower inventories and higher GDP point to actual demand for oil moving higher.
The rally went beyond those factors, however. In fact, much of the gain was related to speculative movements and the decisions of oil traders moving barrels of oil on paper. Speculators had taken a near-record level of short positions on oil, predicting that oil prices would continue to fall. And they did fall, for about two months between June and August. However, with such a large preponderance of short positions, the timing was right for a correction.
The GDP figures arguably was a spark, but the huge covering of short positions was the real reason that oil prices jumped by 10 percent. Reuters analyst John Kemp has watched this situation closely and had been expecting a correction was coming, although the timing and magnitude were impossible to predict. He noted in an Aug. 17 column that traders were taking more and more short positions through July and August even though prices continued to fall. Short positions totaled the equivalent of 193 million barrels of oil as of mid-August.
Such a phenomenon is counterintuitive because as prices fall, there is less room for them to fall further. If prices are already low, at some point they are theoretically nearing a bottom, so traders should logically start to pull back from their short positions. But short positions continued to mount. Kemp noted that between July 16 and August 11, WTI lost 28 percent, but short positions increased from 83 to 193 million barrels. In other words oil prices tanked, but more and more traders expected them to tank further.
That was an unsustainable trend. At some point it had to reverse. “But remaining so bearish when prices are already low is risky since a short-covering rally could commence at any time and experience suggests it does not require a fundamental trigger, just a shift in the balance of opinion,” Kemp wrote presciently on August 17.
Last week that short-covering rally commenced, and oil prices shot up 10 percent.
The seesaw in prices is a reminder how detached price movements are from the fundamentals. Prices do rise and fall based off of some vague notion of what’s going on in the physical market. For example, if it appears that supply is exceeding demand, oil prices will drop. But they could drop way beyond what is justified, as traders push prices lower. Then, once speculators realize the market has oversold, prices whipsaw back in the other direction, even if the surplus in the physical market remains.
“It’s all very similar to blackjack,” Thomas Rollinger, the chief investment officer of Chicago-based Red Rock Capital, told Reuters, referring to the risk of oil speculation. “Basically you’re not going to win at every hand.”
Your rating: None Average: 3.5 (2 votes)