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EconMatters - Global Economic and Market Analysis That Matters

EIA Inventory Report Analysis and Key Levels to Watch in the Oil Market (Video)

May 3, 2016 by EconMatters   Comments (0)

By EconMatters

Last week we had a bearish EIA Report and Oil moved up $3 bucks due to Fund Flows getting ahead of the fundamentals.

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Chipotle Mexican Grill Stock Analysis 5-2-2016 (Video)

May 3, 2016 by EconMatters   Comments (0)

By EconMatters

We look at this one time momentum stock from a mini case study perspective regarding some of the issues this company faces in trying to recover from the food safety issues of recent memory, and move forward as a growth stock for the next decade.

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We Have Raised Our Oil Target to $55 by July 4th (Video)

April 23, 2016 by EconMatters   Comments (0)

By EconMatters

Declining U.S. Production, the Massive drop in RIG Counts, and robust Demand Growth for 2016 are all bullish fundamentals for the Oil Market heading into the Seasonally Strong part of the Demand Curve from a consumption standpoint.

Rig Count Overview & Summary Count

Area Last Count Count Change from Prior Count Date of Prior Count Change from Last Year Date of Last Year's Count
22 April 2016
431 -9 15 April 2016 -501 24 April 2015
Canada 22 April 2016 40 0 15 April 2016 -39 24 April 2015
International March 2016 985 -33 February 2016 -266 March 2015

Source: Baker Hughes

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Corporate Gravy Train: Dudley Still Gets 20% Raise After BP Shareholders Reject the Pay Deal

April 17, 2016 by EconMatters   Comments (0)

By EconMatters

We reported last week that BP is facing a revolt from its shareholders over the salary of its CEO Bob Dudley.  What happened was BP's Board approved an executive compensation package including a 20% raise in 2015 to nearly $20 million for its CEO Bob Dudley.  Although we do not have the detail of other executive compensations, they must be pretty generous judging from Dudley's 20% raise. 
The Board Does Not Have to Listen     

On Friday, BBC 
reported that 59% of BP shareholders voted against the company's executive pay policy for 2015 including the proposed 20% raise for CEO Dudley.  BBC also reported that the vote is at or above the fifth-largest in the UK against a boardroom remuneration deal.  

Do you think this vote means anything?  Nope, as BBC said,  

"BP's pay policy is subject to a binding shareholder vote every three years. It was last set in 2014 meaning new proposals are due to be put forward for shareholder approval again in 2017."

The formula that rewarded almost $20 mm for Bob Dudley was approved in 2014 by 96% of shareholders.  

No use crying over the spilled milk now as the rejection vote in 2016 is "non-binding" on BP, and Dudley and executives still get their disproportionate raise regardless.  

Not to be too despair though, BP chairman Carl-Henric Svanberg promised to "review future pay terms" and said  

"Let me be clear. We hear you.....We will sit down with our largest shareholders to make sure we understand their concerns and return to seek your support for a renewed policy."   

Svanberg's statement is totally moronic for a Chairman of a major multi-international corporation.  I mean do you really need to have a sit-down with institutional shareholders to understand their concerns? But again what can you expect?  Svanberg is the one who said “We [BP] care about the small people” during the BP Gulf Oil Spill disaster.  

Dividend Cut, More Layoffs Coming

In the heyday of $100+ oil, a 20% raise for an oil executive was nothing. However, this came right after BP just reported a record loss of $6.4 billion and laid off 5,000 workers in 2015 (7,000 more jobs to be cut in 2016).     

To top it off, WSJ also reported that earlier in the day of the shareholder vote, BP also "signaled in its clearest terms yet that it may have to reduce its dividend, as low oil prices continue to threaten the once-sacrosanct investor payouts across the industry."  

A Raise After the Worst Loss in 20 Years? 

Typically corporation executive compensation is performance-based tied directly to company's performance.  So why are BP executives getting rewarded after BP reported its worst annual loss in 20 years? It is almost like laying off thousands of workers just so the company could give fat raises to executives.  You can see why BP shareholders have a problem with this.  

Shareholder Activism: Europe vs. U.S.   

Many experts argue that Dudley is merely “earning the market rate for international executives” as bosses at Exxon and Chevron got paid even more than Bob Dudley even though the value of their companies fell by more than BP.                 

I think this is just a matter that shareholder activism and rebellion over executive pay is more “robust” in Europe and hasn't yet really spread to the U.S.  Shareholders in U.S. are used to rubber-stamping proposals by the company board including executive compensation plan. 

In contrast, BP’s European rival, Royal Dutch Shell probably has learned its lesson not to "incite" shareholders during an economic downturn.  Back in 2009, Shell suffered a stunning rebuke when investors shot down its executive compensation plan (the voting was broadcast live in London to UK).  Fast forward to 2015, the salary package of Ben van Beurden, chief executive at Shell, fell from €24.2m in 2014 to €5.58m last year.   

Arrogant and Out of Touch

Some experts were also quick to point out that it can be difficult to compare apple-to-apple with regards to exec compensation and incentive package.  Well, regardless of whatever complicated formula is involved, it is very obvious that BP’s board and executives are arrogant and so very out of touch with reality and “small people”. 

The Board Is NOT Responsible for Shareholder’s Interest

People usually have the wrong impression that the Board is supposed to oversea the executives and safe-guard shareholder’s interest.  In most cases, corporate executives are close buddies with board members, so all of them are riding the very same corporate gravy train.        

Attacking the Gravy Train

Governments do have an excuse to act over outrageous executive pay packages, but usually not very effective.  For example, according to the Economist, the U.S. government had two unsuccessful attempts (1984 and 1993) to cap executive severance pay, and imposing a special tax.  But corporate army of legal and tax experts quickly structure executive employment agreements to include other forms of share options and pay outside of the limits set by the government.  

The global downturn from China slowdown and oilprice crash has sparked outrage over executive compensation.  We probably will see more examples of corporate greed to surface in the coming months. 

Unfortunately, within the current existing system, shareholder activists (particularly led by large institutions) are the only ones that can put pressure on the Board to influence executive pay decisions….or until “say on pay” votes by shareholders becomes mandatory at public companies.    


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Kuwait Oil Production Drops 1.7 Million Barrels Per Day Versus Failed Doha Talks (Video)

April 17, 2016 by EconMatters   Comments (0)

By EconMatters

We will have a battle over Sentiment versus the Fundamentals in the Oil Market on Monday. It will be interesting which dynamic moves price once the initial dust of the failed Doha Agreement clears.

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Saudi Arabia is the OPEC Villian (Video)

April 17, 2016 by EconMatters   Comments (0)

By EconMatters

Saudi Arabia really should negotiate a Production Freeze agreement where Iran can get back to producing 4 Million Barrels per day.

Russia and Saudi Arabia both need to start cutting Oil Production and not just freezing oil production at all time production highs. They should be following what the Shale Industry is doing with regard to production cuts in the United States. It is unreasonable to expect Iran after 20 years of sanctions not to be able to ramp up some production as Saudi Arabia (A fellow OPEC Member) has gained much oil market share at Iran`s expense over the last 20 plus years of international sanctions.

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The Saudi Regime Might Want to Put a Muzzle on the 30 Year Old Saudi Prince (Video)

April 16, 2016 by EconMatters   Comments (0)

By EconMatters

Does this 30-year old Saudi Prince represent the entire economic and political interests of the Saudi Government? The more he talks, it illustrates the lack of diplomatic seasoning represented by his elders on the world stage. He seems more and more like the Donald Trump of Saudi Arabia who likes the media spotlight, in short an attention whore. This cannot be going over well with the higher ups in the Saudi regime. Who try to keep a low profile, and operate behind the scenes from a much more strategic, diplomatic standpoint.

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Seasonality, US Production, Rig Counts and Gasoline Demand

April 15, 2016 by EconMatters   Comments (0)

By EconMatters

Citi Research fails to address the Fundamentals side of the equation, the Doha Meeting is Meaningless in the overall scope of the Oil Market.

Pay Attention to the declines in U.S. Production over the next 4 Months. Along with the drop in Rig Counts which are at record lows, and the lag effect between the drop in Rig Counts and U.S. Production Declines.

The Decline in Gasoline Stocks is reflective of the Strong Demand for Gasoline given these low prices relative to the last 10 years of historical prices. Compare Gasoline demand with this time last year, and demand is only going to strengthen into the heart of the Summer Driving Season.

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General Market Wrap 4-14-2016 (Video)

April 14, 2016 by EconMatters   Comments (0)

By EconMatters

China Econ Data out tonight at 10:00 p.m. CST including a look at first quarter GDP.

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EIA Inventory Report Analysis 4-13-2016 (Video)

April 13, 2016 by EconMatters   Comments (0)

By EconMatters

Strong Gasoline Demand and another drop in U.S. Oil Production were both positives in the EIA Summary Report. Overall, for this time of year, a pretty healthy Inventory Report as we are still technically in the building season. If imports came in similar to last week`s report and refineries pushed more Gasoline through the system, we would have had a drawdown in Oil Stocks.

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