Oil Passes $113, airline credit-default swaps
 

Airlines? Credit Risk Increases as Crude Surpasses $113 a Barrel - Bloomberg


Airlines’ Credit Risk Increases as Crude Surpasses $113 a Barrel
By Mary Childs - Apr 8, 2011
The cost to protect airline debt climbed as crude oil rose above $113 for the first time in 30 months.

Credit-default swaps on AMR Corp. (AMR) and Continental Airlines Inc. surged as oil climbed 2.5 percent after Barclays Capital said strikes on Libyan fields by forces loyal to Muammar Qaddafi ended hopes for a prompt export resumption and may send prices toward $130 a barrel.

“The whole margin story’s going to be a big issue this quarter to see how much rising commodity prices have affected the bottom line,” said Adam Richmond, a strategist at Morgan Stanley in New York. “Sectors that are very sensitive to commodity prices from consumer discretionary, retail, travel, sectors like that, this is a big focus.”

Airlines are “all very worried” about crude oil prices, AMR Chief Executive Officer Gerard Arpey said at a conference in Dallas.

Credit-default swaps on AMR soared to 21 percent upfront, according to broker Phoenix Partners Group. That’s in addition to 5 percent a year, meaning it would cost $2.1 million initially and $500,000 annually to protect $10 million of AMR’s debt. Swaps on United Continental Holdings Inc. (UAL), Delta Air Lines Inc. (DAL) and JetBlue Airways Corp. (JBLU) jumped to a mid-price of 8.5 percent upfront, the data show. Swaps on Continental Airlines increased to 7.5 percent upfront.

Expedia Split

Crude oil for May delivery rose $2.77 to $113.07 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 22, 2008. Futures advanced 4.7 percent this week and are 32 percent higher than a year ago. Jet fuel surged 3.4 percent to the highest since September 2008.

The cost to protect debt of Expedia Inc. (EXPE) surged after the biggest online travel agency by revenue said it will split into two businesses. Credit-default swaps jumped 20.1 basis points to 174.8, the highest level since Sept. 23, CMA data show.

The cost of protecting corporate bonds from default in the U.S. was little changed. The Markit CDX North America Investment Grade Index held at a mid-price of 93.7 basis points as of 4:06 p.m. in New York, according to index administrator Markit Group Ltd. Investors use the measure to hedge against losses on corporate debt or to speculate on creditworthiness.

The credit swaps index, which typically falls as investor confidence improves, dropped as much as 1.6 basis points earlier, after yesterday’s 0.9 basis point rise.

‘Rallying Back’

“Yesterday the aftershock in Japan created somewhat of a scare, and because that’s turned out to not have a major negative impact, the market’s rallying back a little bit,” Richmond said.

No unusual conditions were observed at Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear plant after a magnitude-7.1 temblor in Japan killed two people and injured 93 in the biggest aftershock since the day of the March 11 disaster. In Germany, Europe’s largest economy, exports grew more than forecast in February as the global recovery boosted demand, the Federal Statistics Office in Wiesbaden said.

Earnings for members of the Standard & Poor’s 500-stock index are expected to show 7.7 percent growth for the first quarter compared with the similar period of 2010, according to a Bloomberg survey.

The price of Markit’s CDX North America High Yield Index climbed 0.1 percentage point to 102.9 percent of face value. The high-yield index gains as investor confidence improves.

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To contact the reporter on this story: Mary Childs in New York at [email protected]

To contact the editor responsible for this story: Alan Goldstein at [email protected]

®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Precisely why airlines are not good investments. I wonder how much it would cost to protect Republic's debt? In 2010, their interest expense was greater than their operating income. :eek:

GS advises clints to dump oil
 

Long-term commodity bull Goldman Sachs warned clients on Monday to lock-in trading profits before oil and other markets reverse, with the bank's estimates suggesting speculators are boosting crude prices as much as $27 a barrel.http://media.cnbc.com/i/CNBC/Section...lls_ap_200.jpg
Traders said the call from one of the biggest banks in commodities contributed to a near 3 percent slide in U.S. oil futures, on expectations the bank's numerous clients could close out positions with U.S. crude prices up 20 percent for the year so far.
Goldman [GS 160.40 http://media.cnbc.com/i/CNBC/CNBC_Im...hlist_down.gif -1.07 (-0.66%) http://media.cnbc.com/i/CNBC/CNBC_Im...ltime_icon.gif] said investors should close the "CCCP basket" trade it recommended in December, which encompasses bets on rising oil, copper and other commodity prices.
The trade has returned clients 25 percent in four months.
"Although we believe that on a 12-month horizon the CCCP basket still has upside potential, in the near term risk-reward no longer favors being long the basket," Goldman's commodity team, led by Jeffrey Currie in London, said in a note.
"Not only are there now nascent signs of oil demand destruction in the United States, but also record speculative length in the oil market, elections in Nigeria and a potential ceasefire in Libya that has begun to offset some of the upside risk owing to contagion."
Goldman estimated in a research note on March 21 that every million barrels of oil held by speculators contributed to an 8-10 cent rise in the oil price.
As unrest spread in North Africa and the Middle East, investors accumulated the equivalent of almost 100 million barrels of oil between mid-February and late March on top of their existing positions, adding approximately $10 to the 'risk premium', Goldman said.
The U.S. Commodity Futures Trading Commission said that as of last Tuesday, hedge funds and other financial traders held a total net-long positions in U.S. crude contracts equivalent to a near record 267.5 million barrels.
Using Goldman's estimates, that indicates the total speculative premium in U.S. crude oil is currently between $21.40 and $26.75 a barrel, or about a fifth of the price.
Traders and analysts have cautioned that speculative bets can quickly unwind, dragging prices lower.
U.S. crude oil prices hit a 2-1/2 year high of $113.46 a barrel early on Monday, before reversing to post the second biggest daily percentage loss of the year, closing below $110.
Brent crude oil prices hit a post-2008 high of $127.02 a barrel on Monday, before closing more than $3 lower. High prices have started to weigh on demand.
The Department of Energy said gasoline demand in the United States - which accounts for roughly one in 10 barrels of oil consumed globally - is down 1.2 percent year-on-year, with average prices almost a third higher than last April.
In Libya, ceasefire plans were dashed as Muammar Gaddafi's forces shelled the besieged town of Mistrata, and rebel forces said any settlement would require the Libyan leader to stand down.
The Goldman "CCCP basket" trade encompassed a basket of commodities weighted 40 percent toward U.S. crude oil, 20 percent toward copper and 20 percent toward the S&P GSCI platinum index, with 10 percent in both cotton and soybeans.
The 25 percent gain since Goldman published the trade on Dec. 1 is ahead of the 20 percent gain in the same period for the 19-commodity Reuters-Jefferies CRB futures index.
Goldman also recommended clients close separate trades in copper and platinum, but made no changes to recommendations for ICE gas oil, gold or soybeans.
"We...believe that copper and platinum will face near-term headwinds as higher oil prices potentially translate into a negative demand shock for the metals," Goldman said.
The bank first recommended clients go long copper in October, with the trade returning 23 percent since then. In July 2009 the bank recommended the platinum trade, which has returned 36 percent in 21 months.
Goldman said it still sees copper and platinum prices rising in the long-term, and said corrections could be used to establish new long positions.

Oil prices rebound as gasoline supplies fall - Yahoo! Finance



Oil Prices Rebound As Gasoline Supplies Fall
Oil lifts slightly after falling 6 percent in 2 days; gasoline supplies may be tightening



Topics:Commodities

Chris Kahn, AP Energy Writer, On Wednesday April 13, 2011, 9:50 am
NEW YORK (AP) -- Oil is rebounding from a two-day drop as the dollar fell and a report of a hefty draw in U.S. gasoline supplies last week.

Benchmark crude for May delivery gained 54 cents to $106.79 per barrel on the New York Mercantile Exchange. The contract fell 6 percent on Monday and Tuesday.

Oil, which is priced in dollars, tends to rise as the dollar falls and makes crude contracts cheaper for investors holding foreign currency.

The American Petroleum Institute said gasoline supplies dropped last week by 4.6 million barrels -- more than three times what analysts had expected.

Oh trust me they will do whatever they can to keep the price of crude up. I believe they will be successful in that until this fall. Summer will be painful at the pump.

Why would the government do anything to curtail high oil prices? Big OIL is taxed at 35%.. In this time of fiscal economic turmoil, high oil prices is exactly what Uncle Sam wants!! They can't raise taxes without a big stink, but they can allow oil prices to be artificially raised without interference,because it benefits THEIR bottom end!! Hasn't anyone figured this out yet??:mad:

Yes, but they also need to be reelected, and the fact is that Joe Citizen blames the government for high oil. Whether it be though inaction on stopping speculation or because they are ignorant, they get the blame.

Votes matter every two years.

I see nothing in here about Saudi deciding to pump LESS.
There reasoning has to do with Japan and the earthquake.
OPEC strikes again.