About U.S. Oil Production ...

Economic

Summary:

U.S. oil production continues to climb, the U.S. Energy Information Administration reports, reaching a record 13.3 million barrels per day (Mbd) in December – compared to 12.1 Mbd produced a year earlier.

Big Question: How did we get here?

Background: In 1970, American crude oil production reached 9.6 Mbd and then fell as the resources available and the technologies to extract them both hit their limits and natural declines took over. The next two decades were marked by falling production and rising foreign crude imports. Production sank to 5 Mbd in 2008 before the shale revolution – using modern hydraulic fracturing (“fracking”) and horizontal drilling technologies – drove production to 12.3 Mbd in 2019. After the pandemic slowed global economies and slashed demand, U.S. production dropped to 11.2 mbd in 2021. Recovering economies and restored demand pushed production to 12.9 Mbd in 2023.

Key Factors Drive Production: American oil and natural gas production is the result of many factors, including: demand that drives new development, access to resources (public and private), technology and innovation, and the policy environment. It does not happen with the flip of a switch. For example, offshore production can take more than a decade of planning, engineering and developing to come online.

Credit Where Credit’s Due: Today’s record oil production is largely due to investment decisions made under previous government policy as well as industry’s focus on innovation, such as fracking. API’s Mason Hamilton noted earlier this year that offshore lease sales under President Clinton (1993-2001) account for the largest share of current offshore production. Lease sales under President Reagan (1980-88) still account for about 19% of U.S. offshore production. Producing crude oil onshore takes less time but still requires clarity on policies, access to resources in the future, demand, and market stability. Clear, stable policies now and into the future enable investment decisions to be made with confidence.

Continuing America’s Energy Advantage: Because the U.S. leads the world in producing oil and natural gas – the world’s top energy sources – America enjoys a significant energy advantage over much of the rest of the world. But the advantage will not be sustained without government policies and new investment to replace naturally declining wells while keeping up with projected increased demand.

Washington Uncertainty: While production has grown significantly on state and private lands, in recent years Washington has hindered development on federal lands and waters, pausing new onshore permitting, and not providing consistent quarterly onshore leasing opportunities, as required by law. The current federal offshore leasing program is the smallest in program history, providing a maximum of just three lease sales through 2029. Meanwhile, the U.S. Energy Department has implemented a pause on permits for new liquefied natural gas export (LNG) facilities, creating uncertainty for American allies that rely on U.S. natural gas.

Voters See Value in U.S. Energy Leadership: Recent polling shows that U.S. voters in seven key battleground states recognize the value of American production – for the economy and the nation’s energy security. In each state, eight in 10 voters said they support increasing domestic oil and natural gas production to help limit U.S. reliance on other countries.

Policy Changes Needed: Americans deserve better – better policies and better strategies. Federal lands and waters account for 25% of U.S. oil production (see here and here) and about 11% of natural gas production. Without more robust leasing strategy – and recognition of the role of U.S. LNG exports in maintaining American energy leadership around the world – the U.S. could squander its energy advantage. API’s Five-Point Policy Roadmap lays out a bipartisan path to strengthen American production and help with inflation.

Two key points from API President and CEO Mike Sommers on Fox News:

“We know for a fact that we're going to have to produce more oil and gas in this country, because energy demand is going up in the United States and throughout the world, not down.”

“As a country, we're the No. 1 one producer of oil and gas in the world right now. If we lose that posture, if we lose that energy leadership that we have fought so hard for, for decades and decades, what does that mean for our posture in the world from an energy-security perspective?”

Bottom line: Given geopolitical uncertainty in the world, there has never been a better time for strong U.S. energy production today and policies that support it in the future. Americans must be able to count on affordable, reliable energy that comes from U.S. oil and natural gas.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Kevin Du

Cryptocurrency

Although Bitcoin's price is yet to reclaim its March all-time high, an analyst claims that the bull market remains strong and steady with no signs of a deep correction, based on two key metrics.

In an Aug. 18 report, CryptoQuant researcher Axel Adler looked to two key metrics — the Bubble vs. Crush Market Structure and the MVRV Z-score — as signals that Bitcoin's current price action is tracking a healthy path forward.

"We can see that the current bull cycle is developing quite steadily without significant anomalies or sharp jumps," Adler added.

Bitcoin's Bubble vs Crush Market Structure score indicates no bubble

Adler highlighted that the Bubble vs. Crush Market Structure has dropped to a score of 1.02, which he considers "the baseline," suggesting that Bitcoin is not currently experiencing a bubble.

Bubbles form in the market when Bitcoin's market capitalization "grows faster" than its realized capitalization. When Bitcoin hit its all-time high of $73,679, the indicator was signaling a bubble, with a score of around 1.5.

Less than a week later, the price plummeted 16% to $61,930, according to CoinMarketCap data.

2 Key Bitcoin Metrics Signal Steady Bull Cycle — 'No Bubble' In Sight_1

Bitcoin is still struggling to hold onto the key $60,000 level that traders have been looking to as a pivotal point in recent times. Since July 22, Bitcoin has been trading in a 40% range, oscillating between a low of $49,842 and a high of $69,799.

At the time of publication, Bitcoin is trading at $59,236.

Adler also noted that Bitcoin's 30-day Moving Average (DMA) MVRV Z-Score is at 1.8, slightly over BTC's annual average of 1.6, which suggests "minimal overvaluation."

When the 30DMA MVRV Z-Score surges, it can be an indicator to traders that the asset is overvalued and a price correction may be coming.

In March 2021, Bitcoin's 30DMA MVRV Z-Score reached above 5, just before Bitcoin reached a high of $60,701, just three months later the asset declined 45% to $32,827 by July.

Both Bubble vs. Crush and the MVRV-Z score are metrics used to gauge whether or not Bitcoin could be considered "overvalued."

"As long as the metric does not reach extreme levels that could signal a significant risk of correction, the market can be considered bullish," Adler added.

Several traders have been commenting on Bitcoin's extended consolidation in recent times.

"We are in the boring phase. This phase happens before and after the halving," pseudonymous crypto trader Ash Crypto wrote in an Aug. 20 X post.

Meanwhile, pseudonymous crypto trader Rekt Capital added that Bitcoin is "on the cusp of reclaiming its Post-Halving ReAccumulation Range," suggesting that Bitcoin could move higher in the coming months.

Source: Cointelegraph

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NAR

Finances

Housing affordability is a struggle, with current high home prices and elevated mortgage interest rates. In nearly half of metro areas, home buyers need a family income of at least $100,000 to purchase a home with a 10% down payment. Since first-time buyers do not have housing equity to rely on, they are making financial sacrifices to enter homeownership. First-time buyers today are older, with a median age of 35 and a household income of nearly $25,000 more than the past year. They have had time to be demure and mindful of their home purchase.

Prior living situation

First-time buyers may also be demure and mindful before even entering homeownership. Nearly one-quarter of first-time buyers purchased their home after moving directly from a family or friend's home. Living at a family home to save for a down payment epitomizes being demure and mindful of one's finances.

Buyer offers

While more inventory is trickling into the housing market, there is still limited inventory. First-time buyers have to be patient when there are multiple offers. The typical seller receives more than one offer, and the typical home sells in under a month, which indicates a fast-paced housing market. First-time buyers typically have a smaller down payment and less room to negotiate on home price. They must be demure and mindful that they may have to place offers on more than one home before a contract is accepted.

Working with a real estate agent

Eighty-nine percent of home buyers use a real estate agent or broker to purchase their home. Buyers want a real estate agent or broker who is not only able to help them find the right home but is going to help them negotiate and to help them explain and understand the real estate market. These factors are especially true for first-time home buyers. This is the biggest financial purchase of one's life, and real estate agents are helping buyers achieve the American dream. Certainly, one can consider helping a home buyer achieve part of the American dream as being demure and mindful.

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ING

Economic

Stocks

Supply, elections and rate cuts remain the three pillars underpinning spread developments in the coming months. We expect spreads will remain in a narrow trading range for the remainder of the year and volatility will be emphasised by these three pillars.

A combination of recession fears in the US, concerns over a wider conflict in the Middle East, the unwinding of the Japanese carry trade due to the outperforming yen, and the markets now pricing in a more aggressive Federal Reserve rate cut have all contributed to the recent weakness in credit. We expect there could also be some volatility around the US elections in November. In our opinion, these periods of widening create an opportunity for pick-up, as spreads will stay mostly contained and retrace promptly on strong technicals.

Six Reasons Credit Spreads Are Set to Stay Tight_1

Six Reasons Credit Spreads Are Set to Stay Tight_2

Six reasons spreads will stay tight

Technical strength – demand is plentiful

Technicals have been keeping credit markets rather compressed and rangebound over the past six months. Strong inflows on the back of the very attractive yield are still present in the credit space. Demand remains high for credit, with yields still marginally in excess of dividend yields.

Six Reasons Credit Spreads Are Set to Stay Tight_3

We have also seen strong inflows from mutual funds and ETFs, with EUR investment grade inflows amounting to 6% of assets under management (AuM) on a year-to-date basis, and nearly 8% on a 52-week basis. EUR high yield remains positive but to a lesser extent with just 3.3% of AuM inflowing on a YTD basis. The same high demand for credit is also seen in USD credit on a YTD basis, with over 6% of AuM flowing into USD IG and just under 6% of AuM into USD HY.

EIR IG mutual fund flows have been very concentrated in the short end of credit over the past several months. On a YTD basis, the 0-4yr area has seen 6.5% of AuM inflowing, and the 4-6yr area has seen 5.2% of AuM inflowing. Meanwhile, the 6yr+ bucket has only seen 2.6% of AuM flowing in YTD.

Six Reasons Credit Spreads Are Set to Stay Tight_4

We have already seen some steepening of credit curves over the past few months, but we expect more to come. The long end is not attractive enough to position there (apart from in the primary market, when some new issue premium is being offered). The value area is still in the short to the belly of the curve from both a spread and yield angle (as yield curves still look flat). For corporates, there is a 20bp spread steepness level, we expect that will continue towards 30bp. Similarly for financial spreads, the current steepness is 30bp, which we expect will reach 40bp (using the differential between 7-10yr index and 3-5yr index).

Lastly, the European Central Bank is still holding a rather significant amount of the EUR corporate credit market. As it stands, the ECB holds €303bn under the Corporate Sector Purchase Programme and €46bn under the Pandemic Emergency Purchase Programme. This is a significant 20% of the EUR IG Corporate credit market, which totals c.€1.7tr. This reduces volatility in the market in times of weakness and acts as a backstop for spreads.

Technical strength – slowdown in supply

Supply so far this year has been strong with corporate YTD supply already sitting at €257bn, running ahead of previous years, and financial supply sitting at €351bn. The surprise to the upside has been met with very strong demand, as subscription levels have been at record-breaking levels (an average of nearly four times versus the normal average of three times) while new issue premiums have been very low (as low as 0-4bp on average).

As suspected, supply has been significant in the first half of the year with front loading to take advantage of the large demand, relatively tight spreads and uncertainty on the horizon for the second half of the year with growing geopolitical concerns and multiple elections taking place.

Normally, we would see a 60-40 split between the first half of the year versus the second. This year, we expect the split could be closer to 70-30. The primary market has already opened back up rather early and many deals have been priced. Naturally, the end of August and September will still be plentiful with supply, but a slowdown in the fourth quarter will be more dramatic.

Six Reasons Credit Spreads Are Set to Stay Tight_5

We had forecast an increase, but not record-breaking supply for corporates in 2024. We are certainly on track to see more supply versus last year, despite a slowdown expected in the second half. However, we may see supply surprise slightly more than previously expected. This comes on the back of a soft landing and as such, an increase in M&A activity. We expect supply will continue to be met with strong demand. Already, the deals being priced in the past week have been met with very strong demand with still-low NIPs and large books. The value in the market is still very present at these levels and strengthens our view of a buying-the-dip market.

Total return with falling rates

Total return should increase more as rates fall further in the coming months. The EUR swap rates have already come down substantially, falling by over 100bp compared to this time last year, and falling 50bp in the past few months from the highs of this year. As a result, EUR corporates pencil in a YTD return of 2% and EUR financials have seen a return of 2.7%. This strong total return should increase further in the coming months as our rates strategists expect a further decrease in rates to the tune of 10-20bp, and some steepening of the rate curves as rate cuts continue.

Mostly favourable macro picture

The macro picture still looks to be favourable for the most part. Recession is not our base case with a soft landing more likely, particularly in Europe. Inflation has been kept mostly under control and we don’t foresee a resurgence at this time (although a resurgence of inflation is a risk to our more constructive outlook).

Furthermore, in the event of a Trump presidency in the US – and particularly in a constrained scenario whereby Congress is split with the Democrats winning the Senate and Republicans winning the House – Trump will have more of a focus on the international playing field. This will likely result in a deal with Russia over the Ukraine conflict and, potentially, some reduction in Middle East tensions. These are both credit positives. However, it is still questionable whether a favourable deal with Russia will be made. And on the flip side, any implementation of tariffs is a GDP negative.

Recovering real estate

The real estate state sector has recovered a great deal in the past few months after really feeling the pinch in the higher rates environment. The differential over the overall index has almost recovered to the levels of January 2022, which used to average between a 25-30bp premium for the sector versus around 40bp now. This is down from the significant 190bp differential at the peak real estate wides.

Naturally, there is still some tension and uncertainty in aspects of the sector, but most names are in a comfortable enough spot. There has been some dispersion between names in terms of the performance of quarterly numbers. Broadly speaking, earnings growth remains robust while valuations have shown signs of bottoming out and have decreased in some places – but the recovery will be varied. We have also seen some issuers return to the bond market, a strong positive signal. With rates falling more from here, the sector should continue to feel relief.

Six Reasons Credit Spreads Are Set to Stay Tight_6

Tight CDS and iTraxx Main

CDS levels are trading rather tight. The iTraxx main is trading at just 54bp, close to the tightest levels seen over the past two years, and is trading inside cash spreads. This indicates the low level of risk being priced in and notably low volatility. The implied one-year default rate of the iTraxx main at the moment is just 0.75%. Six Reasons Credit Spreads Are Set to Stay Tight_7

Six Reasons Credit Spreads Are Set to Stay Tight_7

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Alex

Forex

Economic

Korean investors have purchased nearly 1 trillion won ($7.5 million) worth of dividend-focused exchange-traded funds (ETFs) comprised solely of U.S. companies. The figure is more than four times the amount invested in domestic dividend ETFs.

According to data from market tracker FnGuide, Friday, retail investors here purchased a total of 935 billion won worth of ETFs tracking the Dow Jones U.S. Dividend 100 Index from Samsung Asset Management, Mirae Asset Global Investments, Shinhan Asset Management, and Korea Investment Management this year.

These ETFs are the Korean counterparts to the well-known SCHD ETF (Schwab U.S. Dividend Equity ETF).

In contrast, retail investors net purchased only 206.6 billion won worth of 14 domestic dividend ETF products during the same period.

Analysts noted that investors favoring dividend investments are directing substantial funds into U.S. ETFs rather than Korean ones, due to a perception that U.S. shareholder returns are more reliable.

In addition to stable dividends, U.S. dividend stocks offer the potential for capital gains from stock price increases. For instance, the stock price of Lockheed Martin, which has the largest weighting in the U.S. ETFs, has nearly quadrupled over the past decade.

Other factors attracting Korean investors is the fact that, unlike Korea, where high-dividend stocks are mostly concentrated in the financial and securities sectors, U.S. ETFs offer the advantage of diversification across various sectors such as defense, biotechnology and food.

“There is a clear trend of preferring U.S.-centric investments, not only for capital gains, but also for dividend-related ETFs,” an official in the asset management industry said.

“This trend has led to intensifying competition for U.S.-focused ETFs.”

The growing popularity of U.S. ETFs is challenging the Korean government’s Corporate Value-up Program, which aims to encourage local listed firms to enhance their capacities. Launched in late February, this initiative is part of efforts to address the so-called Korea discount, where Korean shares are sold at prices lower than their fundamentals.

The government has urged businesses to increase dividends to improve shareholder returns as part of the value-up initiative, but progress has been slow. Of the approximately 2,500 listed companies in the country, only 17 have announced value-up plans so far.

Source: Koreatimes

To stay updated on all economic events of today, please check out our Economic calendar

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Justin

Economic

There are some strong comments coming through from Chair Powell at his Jackson Hole speech. We get the usual bits and pieces about inflation looking better and the focus is now much more on jobs, but he is as categorical as he can be with the statement "The time has come for policy to adjust. The direction of travel is clear". This follows on from the minutes to the July FOMC meeting, released on Wednesday, that said “the vast majority [of FOMC members] observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting”.

There is no discussion of 25bp or 50bp at the September FOMC meeting – merely that "the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks". Nonetheless, he does allude to the fact that they could cut rates a lot should conditions warrant it – "The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions."

There is currently around 33bp of cuts priced for the 18 September FOMC meeting and 100bp by year-end with a further 125bp of cuts next year. That looks fair given the current situation. between now and the 18 September decision we have the core PCE deflator (30 August), which the market is confident on a 0.2% month-on-month print given the inputs from CPI and PPI. Then it is the jobs report on 6 September and that is the critical one. Note Powell today stated that “we don’t seek or welcome further cooling in labour market conditions”.

If we get a sub 100k on payrolls and the unemployment rate ticking up to 4.4% or even 4.5% then 50bp looks more likely. If payrolls comes in around the 150k mark and unemployment rate stays at 4.3% or dips to 4.2% we can safely say it will be a 25bp. Then on 11 September it is core CPI. 0.2% MoM or lower looks likely there – we are currently leaning in the direction of a possible 0.1% on the potential for the jump in July primary rents to reverse.

Source:ING

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Kevin Du

Energy

Electricity generation from solar farms is growing faster in Central and Eastern Europe than in any other European region, vastly exceeding the growth rates seen in both wealthier and sunnier parts of the continent.

Through the first seven months of 2024, utility-run solar output in the five largest solar producers in Central/Eastern Europe - Austria, Bulgaria, Hungary, Romania and Poland - jumped by 55% from the same months in 2023, data from Ember shows.

That's over twice the growth rate for Europe as a whole, and sharply exceeds the paces posted by the five largest solar generators in Western Europe, Southern Europe and Northern Europe over the same period. Poland and Hungary Become Key New Drivers of Europe's Solar Growth_1

Poland and Hungary Become Key New Drivers of Europe's Solar Growth_1

Central and Eastern Europe's top five solar producers have also expanded solar generation capacity faster than regional peers since 2019, paving the way to continued solar output growth in one of Europe's most heavily industrialized areas.

Driving Forces

Poland and Hungary are by far the most important drivers of utility-scale solar growth in Central/Eastern Europe.

Through the first seven months of the year, solar-powered electricity generation in Poland was 11.3 Terawatt hours (TWh) and was 5.8 TWh in Hungary.

Those output figures were up 33.3% and 47.7%, respectively, from the same periods in 2023, according to Ember, and rank among the fastest growth rates in all of Europe.

In absolute generation terms, those output figures also rank highly among European peers.

Indeed, the five largest solar producers in the Central/Eastern European region boosted collective solar-generated electricity by just 10% less so far this year than the five largest solar producers in Western Europe - Belgium, France, Germany, The Netherlands and Switzerland.

The ability of nations across Central/Eastern Europe to compete with wealthier economies in Western Europe in terms of solar growth underscores how affordable solar installations have become relative to other forms of electricity generation.

Poland and Hungary Become Key New Drivers of Europe's Solar Growth_2

The rapid growth in solar generation in Central/Eastern Europe also reflects supportive clean energy policies across the region, which has historically been one of Europe's heaviest coal-burning regions.

Both Poland and Hungary - the region's two largest solar producers - have targeted net zero carbon emissions in power generation by mid-century, and plan aggressive further expansions in clean energy generation.

Climbing The Generation Ranks

In absolute generation terms, the five largest solar producers in Central/Eastern Europe still rank a distant third in the region behind the five largest solar producers in Western and Southern Europe.

Through the first seven months of 2024, Western Europe's largest solar producers generated 83.53 TWh of electricity, while Southern Europe's five largest solar producers - Greece, Italy, Portugal, Spain and Turkey - generated 76.12 TWh, Ember data shows.

The 25.2 TWh of solar electricity generated by Central and Europe's five largest solar producers looks small comparatively.

However, over the past three years the Central/Eastern European region has boosted solar generation by roughly 49% a year, which dwarfs the 19% annual growth pace for Europe as a whole, the 16% pace of Western Europe, and the 21% for Southern Europe.

If those growth rates were sustained for the rest of this decade, the generation total by the five largest Central and Eastern solar producers would surpass that of their peers in Western Europe in 2029 and those of Southern Europe in 2030.

Further Gains

The largest solar producers in Central/Eastern Europe already produce 76% more solar electricity than their peers in Northern Europe (Denmark, Finland, Lithuania, Sweden and the United Kingdom), and look primed for further aggressive solar growth across the region.

Operations at the 60 megawatt (MW) capacity Tapolca solar farm in western Hungary began in late July, and will supply roughly enough electricity for 30,000 households annually, according to developer Enlight.

And in Poland, a new 40 MW project developed by Lightsource BP commenced operations last month.

The region's largest project, however, is the 400 MW farm in Apriltsi, Bulgaria, which boasts over 800,000 photovoltaic panels and is designed to supply electricity not just to Bulgarian customers but across Eastern Europe.

And beyond being one of the biggest solar parks in Europe, the Apriltsi project is also significant for the height of its panels, which at 2.2 meters (7.2 feet) allow for the land below to be used for agriculture purposes.

Further so-called agrivoltaic projects are being trialled in Turkey and Poland, and look set to yield additional clean electricity generation with only limited impact the region's farmland.

And given the strong local policy support for traditional solar already in place, the successful deployment of more agrisolar projects could help the Central/Eastern Europe region gather even more solar generation momentum in the years ahead.

Source: Reuters

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About U.S. Oil Production ...

Big Question: How did we get here?

Two key points from API President and CEO Mike Sommers on Fox News:

2 Key Bitcoin Metrics Signal Steady Bull Cycle — 'No Bubble' In Sight

Bitcoin's Bubble vs Crush Market Structure score indicates no bubble

Source: Cointelegraph

What Is "Demure and Mindful" to Real Estate? Let's Look at First-time Buyers

Finances

Prior living situation

Buyer offers

Working with a real estate agent

Six Reasons Credit Spreads Are Set to Stay Tight

Six reasons spreads will stay tight

Technical strength – demand is plentiful

Technical strength – slowdown in supply

Total return with falling rates

Mostly favourable macro picture

Recovering real estate

Tight CDS and iTraxx Main

Korean Investors Flock To U.s. Dividend ETFs

Source: Koreatimes

Powell Confirms a September Fed Rate Cut

Source:ING

Poland and Hungary Become Key New Drivers of Europe's Solar Growth

Driving Forces

Source: Reuters

Risk Disclosure