The big surprise of the oil | Finance times

good morning. Welcome to your first newsletter only for Ethan; Rob is gone. The Nasdaq got into a correction yesterday, although I have no idea whether this makes sense or not. Maybe we'll find out after a free weekend. At the moment we think about $ 88 per barrel and look at El Hodlador, um, Salvador.

Please send complaints to robert.armstrong@ft.com and everyone else to ethan.wu@ft.com.

The oil markets have all surprised

A look at market indicators is okay, but sometimes a survey hits the zeitgeist better. Take a look at this survey under energy market experts from John Kemp, an experienced analyst at Reuters. Since 2018, Kemp has asked the respondents' expectations for the average oil price in 2022. Last year, the group did not predict the current price jump at all and radically revised their views:

The Kemp survey from 2022 showed that the range of predictions has radically expanded compared to previous years, a sign that even expert heads are buzzing. Since June, crude oil has jumped from the low point to the maximum stand and back again and is now at a seven -year high:

The oil supply looked a little short for a long time; This is demand expectations, which has failed the goal so much. Traders, whose memories of the slump in oil were still fresh in March 2020, reacted overreact to Omicron and secured themselves against a negative demand shock. But it never came, and so the price has increased by 29 percent since December. Crude oil worth $ 100 per barrel seems possible.

The offer is caught between a leisurely opec and a gentle US shepherd sector. Despite Joe Biden's pushing, the cartel feels little pressure to increase the offer. At the beginning of this month, another 400,000 barrels were promised per day. But it could even miss this careful goal. David Martin, Head of Commodities Strategy at BNP Paribas, predicts that the Opec will miss its own goal, and points out that the capacity reserves have halved last year.

US slate oil, once the joker on the oil markets, is now setting up a new regime of capital discipline. After years of drilling with full strength, the investors now expect that slate producers overhaul the shareholders with cash and do not put it in new drilling systems.

The change of course was summarized by Scott Sheffield, Chief Executive by Pioneer Natural Resources, the last month at a conference in Houston to Myles McCormick from the FT:

I think [Us Political Officials] are smart enough to understand the contract we have with our investors - it is important to achieve a good return. Under no circumstances will the industry change and grow again overnight.

This new setting among slate managers like Sheffield is a shift that the markets have not yet completely digested, Martin said to me:

markets are. . . Pricing as if there were slate oil in the medium term. Now the slate producers are very disciplined, so I think that the market will increasingly question whether this is the right acceptance.

Brent futures are rated in such a way that oil gradually slides down. We expect further surprises.

The Bitcoin bet from El Salvador does not work

The work of a Latin American government bond is not done in capital letters. It is a serious profession that has to do with numbers and spreadsheets and slowly explains investors and journalists.

unless you are Jaime Reusche at Moody’s. Reusche had the boldness to call a Bloomberg reporter and to tell him sensibly that El Salvador's debt due to all the Bitcoins bought the country are becoming more risky. What led to this outbreak on Monday:

This is indeed the Salvadorian President Nayib Bukele, who tweets that his country is a dirt about a downgrading from Moody’s, which actually happened in July. It is not clear whether Bukele (or the social team from investing.com) knew the schedule.

To summarize the previous story again:

• June 2021-Bukele announces on a crypto convention in Miami that he will make Bitcoin an official currency. Less than a week later, his promise is adopted in Salvadorian law.

• July - Moody’s, the debt of the country downs "high" to "very high" credit risk and names risks for discussions about a debt decree with the IMF. The IMF directors gently warn that it is "not advisable" to make Bitcoin an official currency.

• August-in San Salvador, the country's capital, romps anti-bitcoin protests.

• September-Bukele announces that the state bought the DIP of 400 Bitcoin, which then has a value of around $ 21 million. Statutory Bitcoin payment agent comes into force.

• November-Bukele plans to issue a Bitcoin bond of USD 1 billion to finance a “Bitcoin city” with low taxes that are adjacent to the Conchaagua coastal volcano. The IMF urgently warns of the Bitcoin law.

• December - El Salvador buys his 1,391. Bitcoin according to an estimate. Supposedly this happened on Bukele's phone.

• January 2022-Bukele meets with the Turkish President Recep Tayyip Erdogan, many of which expect him to evangelize Bitcoin in the middle of the Turkish lira crisis.

The episodes quickly came for El Salvador, which has almost lost access to loans. The swap markets will praise a probability of default of 42 percent in the next decade. A picture tells the story in miniature. Here is the return of the earliest bond by El Salvador, which is due in January 2023 since Bukele performed on stage in Miami:

And that is only the 2023 bond. Even if the country pays it off somehow, it stares at high debt repayments for years. From Reusche and his colleagues from Moody’s:

bukeles Bitcoin "Vulkan bond" worth 1 billion USD has not yet been launched, but his marketing presentation spoke of a 10-year bond with a coupon of 6.5 percent. $ 500 million in investor funds will be bound in Bitcoin in the first five years, with profits being taken with them in the past five years. Half of these profits flows back to investors. The whole ordeal presupposes that Bitcoin reaches $ 1 million by 2026.

that sounds far -fetched, but there is a piece that it is certainly not. The bond is divided into $ 100, perfect for your Bitcoin bull or meme bond monkey. Since El Salvador no longer has access to the capital markets, Bukele has come up with a workaround. Successful capital procurement of USD 1 billion is anything but guaranteed, but could give it time until the next bond is due in January 2025. He is due to re -election in 2024.

However, since the interest in the bonds of El Salvador has grown, the data has dried up. A government that once liked to speak to investors has said goodbye. As Reusche told me:

Now they don't seem to be so rapidly. We ourselves can say that our communication channels with the government have deteriorated since the downgrading.

You see that many tax data is no longer as accessible as before. The Finance Ministry's website has become more confusing. It has become more difficult to access tax data. And on the Central Bank website, we are gradually seeing that some data series falls off and are no longer maintained.

In order to do justice to Bukele, he did not promise good news to the Salvadorian creditors. Rather, he promised that Bitcoin would ensure cheaper transfers - which a quarter of the country's gross domestic product produces and which receives the vast majority of Salvadorians. The following graphic shows the value of the transfers by the end of November 2021. You have experienced a boom in addition to the hot US market, but the effects of Bitcoin have been difficult to make out since September:

reusche believes that the unexpected money transfers after pandemic, although they are good for the Salvadorians, may have encouraged Bukele to play. The sudden liquidity boost could have convinced him to snub the IMF and try it alone. Even the transfer costs that have fallen for a decade do not seem to have suddenly become much cheaper.

The few data we have about Bitcoin use in El Salvador come from researchers from Chainalysis who shared their latest figures with Unhedged. Chainalysis pursues crypto trade patterns according to countries and states that Bitcoin payments below $ 1,000-a proxy for transfers-have increased from $ 4.5 million a month after the official introduction of cryptocurrency to $ 7 million:

The clearest sign of all is likely to be the central bank itself, which publishes almost all useful data about El Salvador's economy. Since Bukele doubles Bitcoin, the central bank would have to publish data that shows that the cryptocurrency drives the transfers. It didn't do that.

The defenders of Bukele say that big changes take time. But time is urging - and the creditors will hardly be gracious.

a good reading

hate or dear Team Transitory, you cannot understand your arguments if you don't read Martin Sandbu.