LONDON (Reuters) – Clouds are gathering over the outlook for the oil market, as trade tensions and rising crude supply threaten to swamp demand growth, but some of the world’s most prominent energy investors are convinced the price will return to record highs.

The escalating trade war between the United States and China threatens global growth. The physical markets are already showing signs of strain as unwanted crude builds on ships and crushes prices for cargoes of oil. [CRU/E] [CRU/WAF] [CRU/MED]

Aside from that, interest rates around the world are rising and the dollar is strengthening, which means emerging market oil buyers are seeing their import bill growing almost daily.

Both OPEC and the International Energy Agency have warned about the risk of trade disputes to global demand growth in their most recent monthly market outlooks. [IEA/M] [OPEC/M]

Funds have cut their bullish bets on Brent and U.S. crude futures and options to their lowest in almost a year. [CFTC/] [O/ICE]

Despite all this, prominent hedge funds such as Andurand Capital and Westbeck Capital are betting oil could skyrocket to $150 a barrel from around $75 now LCOc1.

The main driver is expected to be upcoming U.S. sanctions on Iran’s energy sector, which kick in November.

“Our view is that by November 4, we will have lost between 1.3 and 1.4 million barrels (of output) a day. It is a very big number. That’s based on the view that the U.S. will allow a few temporary exception waivers …. Ultimately, we could see losses from Iran exceed 2 million barrels a day,” Jean-Louis Le Mee, chief executive officer of London-based Westbeck, said.

(GRAPHIC: Major forecasters’ estimates of oil demand growth in 2018 – reut.rs/2vIs2Xp)

U.S. President Donald Trump in May walked away from a 2015 nuclear deal between world powers and Tehran that he said was one-sided in Iran’s favour.

Trump has also blamed OPEC for the 45-percent rise in oil prices over the last 12 months and, in June, exchanged sharp words with Iran on the subject.

Pierre Andurand, who runs the $1.2-billion Andurand Commodities Fund and predicted the rise and subsequent crash in the oil price in 2008, responded on Twitter by pointing out OPEC’s spare capacity was at its lowest ever. “There is going to be a real issue,” he wrote, predicting prices above $150 per barrel within two years.

“We don’t sense a great deal of engagement yet from generalist investors. A few of them are starting to look at it now,” Will Smith, Westbeck chief investment officer said.

“This is going to catch everybody by surprise. Some of the specialists are bullish – including Pierre (Andurand), ourselves and Energy Aspects,” he said.

Aside from the risk to Iranian supply, Venezuela’s crude production, which has already collapsed as a result of economic crisis, could fall below 1 million barrels per day (bpd) by the end of the year, compared with 2 million bpd in mid-2017, Smith said.

Andurand Capital declined to comment.

Taking a contrarian view can be costly. Even Andurand took a hit in 2017 when he expected the oil price to rally sharply and, instead, it wallowed around the $50 mark.

And he wasn’t alone. A number of long-time oil investors such as U.S. commodity fund manager Andy Hall were reportedly so badly burned they shut up shop and bowed out.

Westbeck’s Energy Opportunity Fund is up 4.1 percent in the year to July 13, showed an investor presentation shared with Reuters. Andurand’s commodities fund is up 12 percent in the first six months of 2018, according to data compiled by HSBC.

The oil options market shows that, for contracts from October 2018 to December 2020, traders and investors are holding more contracts to buy crude futures – or calls – at $100 a barrel than any other.

However, in line with Westbeck’s view that $150 oil is not one that is widely shared in the investment community, that position has barely changed in the last month, having dropped by a mere 1,500 lots to just over 107,000 lots, equivalent to 100 million barrels of oil.

(GRAPHIC: Brent crude oil investors bulk up on bearish sell options – reut.rs/2P9dAQA)

By contrast, in the last month, the largest change in holdings, or open interest, has materialised in contracts to sell oil – or puts – at $60 to $65 a barrel between October 2018 and December 2020. This position has grown by nearly 45,000 lots to 140,000 lots, or 140 million barrels of oil.

A month ago, the amount of open interest in calls maturing in this time period outnumbered that of puts by nearly three to one. This ratio is now down to two to one.

“If we are right about oil going from $75 to $150 over the next 12 to 18 months, out-of-the-money oil options, further down the curve … look very exciting. The pay back there is just fantastic if we are right,” Westbeck’s Smith said.

ROME (Reuters) – The economic spokesman of Italy’s ruling League party warned on Monday that unless the European Central Bank offers a guarantee to cap yield spreads in the euro zone, the euro will collapse.

“The situation can’t be resolved, and it is going to explode,” Claudio Borghi told Reuters after Italian, Spanish and Portuguese government bond yields rose in the wake of the financial turmoil in Turkish markets.

Borghi said the ECB should guarantee that yield spreads between euro zone government bonds not exceed a certain level, suggesting 150 basis points between the yields of any two sovereign bonds as a reasonable maximum.

The extra yield that investors demand for holding Italian bonds over top-rated German ones rose to its highest since late May earlier on Monday, briefly rising above 280 basis points before easing back to around 275.

A former trader and managing director at Deutsche Bank, Borghi said he expected those now selling peripheral euro zone debt would “end up losing out” because sooner or later the ECB would be forced to issue the guarantee he is calling for.

He said the fact that contagion from Turkey was pushing up yields in several euro zone countries showed that Italy’s domestic political and economic situation was not the main reason for market pressure on its stocks and bonds in recent days.

Safe-haven German Bund yields fell to a one-month low, but Spanish and Portuguese bond yields were dragged higher by their Italian peers and the broader sentiment going against market assets seen as carrying greater risk.

Italy’s 10-year yield at one point reached a two-month high at 3.109 percent, heading towards levels seen in late May when a political crisis triggered a huge sell-off in Italian debt.

The right-wing League has governed since June with the anti-establishment 5-Star Movement, eventually forming a coalition among former rivals following an inconclusive March election.

Ahead of the election, the League had called for Italy to exit the euro, but since forging its alliance with 5-Star it has repeatedly denied any suggestion that it is planning to orchestrate Italy’s exit from the single currency.

Bloomberg New York General Electric Co is working with bankers on a possible sale of its power-conversion business, people familiar with the matter said, as the fallen manufacturer attempts to regain its footing by slimming down. The unit formerly known as Converteam could fetch about $1.5bn, below the $3.2bn GE paid for the assets in 2011, said the people, who asked not to be identified as the matter isn’t public. Credit Suisse Group AG is working with GE on the sale process, which could begin as soon as next month and isn’t guaranteed to lead to a transaction, the people said. The advisers are likely to approach private equity firms and companies such as Caterpillar Inc, Schneider Electric SE and ABB Ltd, the people said. GE will consider all options and could opt to keep the business, which is known for making oil-rig motors. Representatives of GE, Credit Suisse, Schneider and ABB declined to comment. Representatives for Caterpillar didn’t respond to requests for comment. A deal would deepen GE chief executive off icer John Flannery’s eff orts to streamline the conglomerate, which is reeling from cash-flow challenges and a power-market slump. He has already agreed to unload the century-old locomotive business, while also promising to spin off the health unit and sell GE’s majority stake in oilfield-equipment maker Baker Hughes. GE fell 26% this year through Thursday, following a 45% plunge in 2017. The slump, which has wiped out $167bn in investor wealth since the beginning of last year, prompted GE’s recent expulsion from the Dow Jones Industrial Average. The power-conversion unit builds motors, generators and automation controls for industries such as marine transportation and oil and gas. A sale would further unwind the sprawling version of GE pushed by former CEO Jeff rey Immelt, who stepped down last year. During his 16-year tenure, Immelt built a sizeable oil equipment business, started a digital division, expanded the health unit and bought power assets such as Converteam — all of which are being divested or shrunk under Flannery. While GE is keeping its power, renewable energy and aviation divisions under Flannery’s recovery plan, the CEO is still looking to prune unwanted pieces. The company agreed in June to sell its industrial gas- engine business to Advent International for $3.25bn.

German Economy Minister Peter Altmaier has sharply criticised US President Donald Trump’s tariffs and sanctions policies, saying such measures were destroying jobs and growth and that Europe would not bow to US pressure regarding Iran.
The United States has triggered a bitter tit-for-tat trade dispute with import tariffs meant to protect American jobs against what Trump calls unfair trade practices from China, Europe and other countries.
Trump’s determination to push ahead with sanctions on Tehran which also target European companies doing business with Iran has opened another battle front.
“This trade war is slowing down and destroying economic growth — and it creates new uncertainties,” Altmaier told Bild am Sonntag newspaper, adding that consumers suffered the most because higher tariffs were driving up prices.
Altmaier lauded the agreement reached by European Commission President Jean-Claude Juncker during negotiations with Trump last month, saying the interim deal had saved hundreds of thousands of jobs in Europe.
The US and the European Union are embroiled in a spat after Trump imposed tariffs on aluminium and steel imports and Brussels responded with retaliatory tariffs on some US goods.
Trump had also threatened to impose tariffs on EU auto imports but reached an agreement to hold off on taking action after meeting with Juncker at the White House last month.
“The agreement between the EU and US can only be a first step. Our goal is a global trade order with lower tariffs, less protectionism and open markets,” Altmaier said.
Turning to the US sanctions against Iran, the minister said Germany and its EU allies would continue to support companies doing business with Iran despite US pressure.
“We won’t let Washington dictate us with whom we can do business and we therefore stick to the Vienna Nuclear Agreement so that Iran cannot build atomic weapons,” Altmaier said.
German companies should be allowed to continue to invest in Iran as much as they want and the German government is looking for ways together with its European allies to ensure that financial transactions could still take place, he added.
Several European companies have suspended plans to invest in Iran in light of the US sanctions, including oil major Total as well as carmakers PSA, Renault and Daimler.
German business associations have warned that companies are increasingly suffering from Trump’s sanctions policies — including those against Iran — as well as the tariffs he is imposing in the escalating trade conflict with China.
The trade and sanctions disputes are clouding the growth outlook for Germany, Europe’s largest economy, but Altmaier said he nonetheless expected strong growth this year due to vibrant domestic demand, record-high employment and rising wages.
The Federal Statistics Office will publish preliminary gross domestic product figures for the second quarter on Tuesday, with analysts expecting the quarterly growth rate to pick up to 0.4% after 0.3% in the first quarter.

La banque investit également lourdement en Asie pour accélérer sa croissance.

President Donald Trump ordered the doubling of steel and aluminium tariffs against Turkey, roiling global markets as relations between the Nato allies hit a new low.
Trump announced the decision in a tweet yesterday morning following a defiantly nationalist speech yesterday by Turkish President Recep Tayyip Erdogan in which he vowed that his country wouldn’t bow to “economic warfare.” Tensions have intensified in recent weeks over Turkey’s detention of an American evangelical pastor.
“I have just authorised a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!” Trump said on Twitter.
Heightening the tension of the day, Erdogan conferred by phone yesterday with US adversary Russian President Vladimir Putin on economic ties, Turkish and Russian media reported.
A US deadline for Turkey to release Pastor Andrew Brunson lapsed less than two days ago, according to an administration official with knowledge of the ultimatum.
The deadline — which had been set for 6 p.m. on August 8 — came just hours after Turkish officials met with counterparts at the State Department and Treasury Department in Washington to try to resolve the dispute.
The clash reverberated across global markets as Turkey’s economic crisis threatened to spread. The S&P 500 Index erased a weekly advance, European and emerging-market equities slid more than 1% and the 10-year Treasury yield slid to 2.90%. The euro sank as much as 1% to the weakest in more than a year, extending a drop triggered earlier by a Financial Times report that the European Central Bank raised concerns about banks’ exposure to Turkey.
Turkey is seeking to stanch an economic meltdown amid fallout from US sanctions imposed last week over the continued detention of Brunson, who was jailed on espionage and terrorism allegations more than two years ago and recently released to house arrest.
The US was Turkey’s fourth largest trading partner last year with $21bn in commerce, behind Germany, China and Russia.
Shares of Turkish steelmakers Kardemir Karabuk Demir Celik Sanayi ve Ticaret AS and Eregli Demir ve Celik Fabrikalari TAS plunged as much as 8% and 9.9%, respectively, after Trump’s tweet. Shares of the bank Turkiye Is Bankasi AS fell 8.7%, more than any full-day drop since 2013.
Steel was Turkey’s fourth-largest export last year, valued at $11.5bn and accounting for about 7% of total exports, according to the country’s Steel Exporters’ Association. Turkey ranks as the world’s sixth-biggest steel producer.
While the US was the top destination for Turkish steel exports last year, it tumbled to third place in the first half of this year as earlier tariffs diminished the trade.
The move against Erdogan’s government also highlights the disconnect between Turkey and the US as they fail to negotiate their way out of an array of conflicts.
Relations used to be based on strategic interests, but more recently they’ve been dominated by discord over alliances in Syria’s civil war, Ankara’s strengthening ties with Moscow, and its uneasy position within Nato. Turkey has been a key ally in the fight against Islamist terrorism in Iraq and Syria, and the US base in Incirlik is an important staging area.
Trump is working “diligently” to bring home Brunson, the president’s lawyer Jay Sekulow said earlier on Fox News. Vice-President Mike Pence and Secretary of State Mike Pompeo are also involved in that effort, he said.
When Turkey moved Brunson from prison to house arrest last month, Pompeo said it was a welcome decision but not enough.

Greek lenders face higher financing costs after the European Central Bank said it will stop accepting the country’s government debt as collateral from August 21, the day after the nation’s bailout programme ends.
The ECB will remove a waiver exempting Greek bonds from a rule that all collateral must be investment grade. The exemption was conditional on Greece being compliant with an aid programme.
With Greek debt rated below investment grade by all rating companies, banks will have to replace as much as €3.5bn ($4bn) of their liquidity with more expensive facilities, according to a person familiar with the matter.
The expectation is that lenders will turn to the interbank market and to the Greek central bank’s Emergency Liquidity Assistance, the person said, asking not to be named because the information is confidential. Greek ELA carries an interest rate 1.5 percentage points higher than the ECB’s main refinancing rate, which is currently at zero.
“The Governing Council has decided that from 21 August 2018, the Eurosystem’s standard criteria and credit quality thresholds should apply in respect of marketable debt instruments issued or fully guaranteed by the Hellenic Republic,” an ECB statement said.
Greece is trying to stand on its own feet again after a decade of financial crises, more than €300bn in aid commitments from the euro area and International Monetary Fund. It remains Europe’s most indebted country though, and the economy is still struggling to recover from losing more than a quarter of its output.
Yields on Greek bonds are rising again, with the 10-year note at about 4.2%, the highest since June 21 when euro-area finance ministers agreed on further debt-relief measures.
The ECB’s waiver had been in place since June 2016. An earlier exemption was suspended in February 2015 when the newly elected government said it wouldn’t meet the terms of the bailout program it inherited. The political wrangling that year almost saw Greece forced out of the currency bloc.
Bank of Greece governor Yannis Stournaras had repeatedly called for the government to apply for a precautionary credit line after the bailout. That could have allowed the waiver to be extended, and may have helped Greece gain access to the ECB’s quantitative-easing programme.

GENEVA (Reuters) – Russia largely failed in its bid to overturn the European Union’s gas market rules in a World Trade Organization ruling published on Friday.

Russia launched the dispute in 2014, claiming that the EU’s “Third Energy Package” and the EU’s energy policy overall unfairly restricted and discriminated against Russia’s gas export monopoly Gazprom (GAZP.MM).

Russia argued that the EU broke WTO rules by requiring the “unbundling” of gas transmission assets and production and supply assets, which effectively stopped Gazprom – long the major supplier of gas to Europe – from owning the pipelines through which it sent gas to the European market.

Russia said the EU had unfairly discriminated in favor of liquefied natural gas and upstream pipeline operators by exempting them from those unbundling requirements.

The panel of three WTO adjudicators ruled against Russia on those points.

However, they upheld Russia’s complaint about an unbundling exemption for Germany’s OPAL pipeline, granted on condition that Gazprom supplied no more than 50 percent of the gas in the pipeline.

The 50 percent cap could only be exceeded if 3 billion cubic meters of gas was released annually at a fixed price to competing suppliers on the Czech market.

The WTO panel also agreed that Croatia, Hungary and Lithuania had discriminated against Russia by requiring a security of energy supply assessment for foreign, but not domestic, pipeline operators.

The European Commission called the ruling an important positive outcome that secured the core elements of the Third Energy Package, a 2009 reform that sought to integrate the EU’s energy market while increasing competition.

“The Commission will now analyze the ruling in detail, in particular as regards a limited number of issues on which the WTO-compatibility of EU energy policy has still not been recognized,” it said in a statement.

Russia’s Economy Ministry said the parts of the ruling that went in its favor would help to improve access for Russian gas on the European market, and to level the playing field for pipeline service providers.

“This is a positive precedent that makes it possible to change the norms that created obstacles for Russian suppliers in the EU market, both in EU legislation and in the legislation of its individual member countries,” it said in a statement.

Gazprom said it had always said that European energy policy should take gas suppliers’ interests into account, and therefore it was satisfied with the points where Russia had won.

Either side can appeal within 60 days.

Greek lenders face higher financing costs after the European Central Bank said it will stop accepting the country’s government debt as collateral from Aug. 21, the day after the nation’s bailout program ends.

The ECB will remove a waiver exempting Greek bonds from a rule that all collateral must be investment grade. The exemption was conditional on Greece being compliant with an aid program.

With Greek debt rated below investment grade by all rating companies, banks will have to replace as much as 3.5 billion euros ($4 billion) of their liquidity with more expensive facilities, according to a person familiar with the matter.

The expectation is that lenders will turn to the interbank market and to the Greek central bank’s Emergency Liquidity Assistance, the person said, asking not to be named because the information is confidential. Greek ELA carries an interest rate 1.5 percentage points higher than the ECB’s main refinancing rate, which is currently at zero.

“The Governing Council has decided that from 21 August 2018, the Eurosystem’s standard criteria and credit quality thresholds should apply in respect of marketable debt instruments issued or fully guaranteed by the Hellenic Republic.”
— ECB. To see the full decision, click here

Greece is trying to stand on its own feet again after a decade of financial crises, more than 300 billion euros in aid commitments from the euro area and International Monetary Fund. It remains Europe’s most indebted country though, and the economy is still struggling to recover from losing more than a quarter of its output.

Yields on Greek bonds are rising again, with the 10-year note at about 4.2 percent, the highest since June 21 when euro-area finance ministers agreed on further debt-relief measures.

Greece’s Bailouts Are Over But Its Debt Pile Remains: QuickTake

The ECB’s waiver had been in place since June 2016. An earlier exemption was suspended in February 2015 when the newly elected government said it wouldn’t meet the terms of the bailout program it inherited. The political wrangling that year almost saw Greece forced out of the currency bloc.

Bank of Greece Governor Yannis Stournaras had repeatedly called for the government to apply for a precautionary credit line after the bailout. That could have allowed the waiver to be extended, and may have helped Greece gain access to the ECB’s quantitative-easing program.

— With assistance by Piotr Skolimowski