For the first time ever, Deutsche Bank AG’s share price dipped below 10 euros. Traders are preparing for it to fall even lower.
The most-owned bearish option on the German lender is a put with an exercise price of 8 euros. While investors started piling into the position in June, the fact that it’s so popular shows they’re seeking to hedge for further declines. The stock sank as much as 9 percent to 9.90 euros intraday, before paring its slide.
Trading in Deutsche Bank options has surged this month as the lender fell to a fresh record low on growing concerns about its ability to withstand mounting legal costs. Put volume reached a seven-year high on Monday, while the number of outstanding contracts on the firm has climbed to its highest ever.
“A very psychological barrier has been breached,” said Michael Hewson, an analyst at CMC Markets in London. “For a bank such as Deutsche Bank, whose share price in 2008 was light years away from being a single digit stock, to become a single-digit stock — it changes people’s perceptions. If it can drop through 10 euros, then what’s the next target? For Deutsche Bank’s share price to go towards 8 euros — I think that’s perfectly feasible.”
Since their peak in May 2007, Deutsche Bank shares have tumbled 90 percent. More than 83,000 of the 8-euro put that’s the most owned exist, up from about 32,000 in June. The open interest on the contract, which expires in December of next year, has climbed 14 percent since Sept. 6.
On Friday, Deutsche Bank options were among the most traded on Deutsche Boerse AG’s Eurex exchange. June puts with a 10 euro strike and 7.60 euro puts expiring in March were the bearish contracts on the stock that changed hands the most. A 10,000 block of the March options changed hands at the same time as an equal number of March 12.50 euro calls, data compiled by Bloomberg show.
Deutsche Bank spokesman Don Hunter declined to comment on the stock and options trading.
In the latest turn of events, about 10 hedge funds that do business with Deutsche Bank have moved part of their listed derivatives holdings to other firms. Chief Executive Officer John Cryan’s reassurances that the lender has never had as safe a balance sheet in the past two decades wasn’t enough to stop the decline in shares.
As the stock tumbled and investors piled into options, bond traders also increased hedging. The cost of insuring the company’s subordinated debt reached a record this week, while that of credit-default swaps on its senior hit the highest since February, before paring their advance.
Deutsche Bank’s woes have spilled over to the rest of the industry, with a gauge tracking lenders for the region heading for its lowest level since Aug. 22. Commerzbank AG, which said on Thursday it will cut jobs and suspend dividends, dropped 6.1 percent.
As of 1:05 p.m. in Frankfurt, Deutsche Bank shares traded at 10.37 euros, down 4.6 percent.
“If it doesn’t close back above 10 euros today, I would be concerned that we could fall quite a bit lower,” Hewson said.
Oil Rises as Threat of Immediate Iran Supply Recedes
Oil prices rose on Tuesday, with Brent gaining for a fourth consecutive session, as the prospect of extra supply coming to the market soon from Iran faded with talks dragging on over the United States rejoining a nuclear agreement with Tehran.
Indirect discussions between the United States and Iran, along with other parties to the 2015 deal on Tehran’s nuclear program, resumed on Saturday in Vienna and were described as “intense” by the European Union.
A U.S. return to the deal would pave the way for the lifting of sanctions on Iran that would allow the OPEC member to resume exports of crude.
It is “looking increasingly unlikely that we will see the U.S. rejoin the Iranian nuclear deal before the Iranian Presidential Elections later this week,” ING Economics said in a note.
Other members of the Organization of Petroleum Exporting Countries (OPEC) along with major producers including Russia — a group known as OPEC+ — have been withholding output to support prices amid the pandemic.
“Additional supply from OPEC+ will be needed over the second half of this year, with demand expected to continue its recovery,” ING said.
To meet rising demand, U.S. drillers are also increasing output.
U.S. crude production from seven major shale formations is forecast to rise by about 38,000 barrels per day (bpd) in July to around 7.8 million bpd, the highest since November, the U.S. Energy Information Administration said in its monthly outlook.
Oil Prices Rise as Demand Improves, Supplies Tighten
Oil prices rose on Monday, hitting their highest levels in more than two years supported by economic recovery and the prospect of fuel demand growth as vaccination campaigns in developed countries accelerate.
Brent was up 53 cents, or 0.7%, at $73.22 a barrel by 1050 GMT, its highest since May 2019.
U.S. West Texas Intermediate gained 44 cents, or 0.6%, to $71.35 a barrel, its highest since October 2018.
“The two leading crude markers are trading at (almost) two-and-a-half-year highs amid a potent bullish cocktail of demand optimism and OPEC+ supply cuts,” said Stephen Brennock of oil broker PVM.
“This backdrop of strengthening oil fundamentals have helped underpin heightened levels of trading activity.”
Motor vehicle traffic is returning to pre-pandemic levels in North America and much of Europe, and more planes are in the air as anti-coronavirus lockdowns and other restrictions are being eased, driving three weeks of increases for the oil benchmarks.
The mood was also buoyed by the G7 summit where the world’s wealthiest Western countries sought to project an image of cooperation on key issues such as recovery from the COVID-19 pandemic and the donation of 1 billion vaccine doses to poor nations.
“If the inoculation of the global population accelerates further, that could mean an even faster return of the demand that is still missing to meet pre-Covid levels,” said Rystad Energy analyst Louise Dickson.
The International Energy Agency (IEA) said on Friday that it expected global demand to return to pre-pandemic levels at the end of 2022, more quickly than previously anticipated.
IEA urged the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, to increase output to meet the rising demand.
The OPEC+ group has been restraining production to support prices after the pandemic wiped out demand in 2020, maintaining strong compliance with agreed targets in May.
On the supply side, heavy maintenance seasons in Canada and the North Sea also helped prices stay high, Dickson said.
U.S. oil rigs in operation rose by six to 365, the highest since April 2020, energy services company Baker Hughes Co said in its weekly report.
It was the biggest weekly increase of oil rigs in a month, as drilling companies sought to benefit from rising demand.
FG Spends N197.74 Billion on Subsidy in Q1 2021
The Federal Government has spent a total sum of N197.74 billion on fuel subsidy in the first quarter (Q1) of 2021, according to the Federal Account Allocation Committee (FAAC) report for May.
The report noted that the value of shortfall, the amount the NNPC paid as subsidy, in the March receipts stood at N111.97 billion while N60.40 billion was paid in February.
In the three months ended March, the Federal Government spent N197.74 billion on subsidy.
The increase in subsidy was a result of rising oil prices, Brent crude oil, against which Nigerian oil is priced, rose to $73.13 per barrel on Monday.
The difference in landing price and selling price of a single litre is the subsidy paid by the government.
On May 19, the Nigerian Governors Forum suggested that the Federal Government removed the subsidy completely and pegged the pump price of PMS at N380 per litre.
The governors’ suggestion followed the non-remittance of the NNPC into the April FAAC payments, the money required by most states to meet their expenditure such as salaries and building of infrastructure.
However, experts have said Nigeria is not gaining from the present surge in global oil prices given the huge money spent on subsidy.
Kalu Aja, Abuja-based financial planner and economic expert, said “If Nigeria is importing Premium Motor Spirit and still paying subsidy, then there is no seismic shift.”
“Nigeria needs oil at $130 to meet the deficit. In the short term, however, more dollar cash flow is expected and with depreciated Naira, it will reduce short term deficit.”
Adedayo Bakare, a research analyst, said that the current prices do not really mean much for the country economically.
He said, “The ongoing transition away from fossil fuels and weak oil production from the output cuts by the Organisation of Petroleum Exporting Countries will not make the country benefit much from the rising oil prices.
“Oil production used to be over two million barrels but now around 1.5 million barrels. We need OPEC to relax the output cuts for the naira to gain.”
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