Baltic Dry Index. 863 -24 Brent Crude 62.52
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
True, governments can reduce the rate of interest
in the short run, issue additional paper currency, open the way to credit
expansion by the banks. They can thus create an artificial boom and the
appearance of prosperity. But such a boom is bound to collapse soon or late and
to bring about a depression.
Ludwig von Mises.
If last week was all about crude oil prices, this week is even more so
all about the oil price. This week either the oil price stabilises, setting off
a short covering rally, or it doesn’t setting off capitulation by the
speculative longs who gambled last week on Brent crude at 65 as being the
floor. We open the week with the longs busy talking up a storm. I have my
doubts that we are in for anything more than the usual high commodity volatility
associated with large commodity price moves. A glut of 2 million barrels a day,
if that is what it is, isn’t easily stemmed. Hedged producers will produce to fulfil
the hedges, unhedged producers are still likely to continue producing to service
their debt and maintain at least some level of income.
We open with the bulls getting some mild relief from Libya. An early
morning bounce is already underway.
Oil Slump Blindsides Bulls That Wagered on Rout Ending: Energy
Dec 15, 2014 3:59 AM GMT
Speculators added to wagers that the slump in oil futures, the worst since
the global recession, is ending. Prices kept falling anyway.Money managers raised their net-long position in U.S. crude to the highest in two months in the week ended Dec. 9, U.S. government data show. Most of the change came from short holdings contracting to the lowest level since August.
----“A
number of investors think we’re close to the bottom,” Michael Lynch, president
of Strategic Energy and Economic Research in Winchester, Massachusetts,
said by phone Dec. 12. “It’s always difficult to get the timing right.”
----Shares outstanding of the four biggest U.S. exchange-traded funds that follow oil prices, including the United States Oil Fund (USO) and ProShares Ultra Bloomberg Crude Oil, increased to 96 million on Dec. 11, the most since January 2013, according to data compiled by Bloomberg.
Investors added $264.5 million into the four funds so far this month, following a $559.85 million inflow in November that was the most since June 2012.
“This shows that there’s a lot of skepticism about the selloff and a feeling that prices should soon rebound,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone Dec. 12. “We’re seeing bargain hunting by investors of all stripes.”
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Libya Imposes Force Majeure on 2 Oil Ports After Clashes
Dec 14, 2014 8:30 AM GMT
Libya’s National Oil Corp.
declared force majeure on the oil ports of Es Sider and Ras Lanuf, and is
taking measures to halt output at some oil fields because of armed clashes in
the politically-divided North African country. Fighting factions should spare energy infrastructure in Libya, the state-run National Oil Corp. said in a statement yesterday on its website. Force majeure is in place at Es Sider and Ras Lanuf, Libya’s largest and third-largest oil ports with a combined capacity of 560,000 barrels a day. The measure is a legal step that protects a company from liability when it can’t fulfill a contract for reasons beyond its control.
National Oil, known as NOC, didn’t say which oil fields are being halted. NOC is adopting measures to protect wells, pumps and pipelines.
“Force majeure has been declared at the oil ports of Es Sider and Ras Lanuf because of the ongoing armed clashes in the area,” it said. NOC “is determined to protect the oil resources of the country in a way that protects the rights of the country and the partners in line with terms of the partnership agreements.”
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U.S. Oil Rigs Drop Most in Two Years, Baker Hughes Says
Dec
13, 2014 1:01 AM GMT
U.S. oil drillers idled the most rigs in almost two years as they face oil
trading below $60 a barrel and escalating competition from suppliers abroad. Rigs targeting oil dropped by 29 this week to 1,546, the lowest level since June and the biggest decline since December 2012, Houston-based field services company Baker Hughes Inc. (BHI) said on its website yesterday.
----“It’s starting,” Robert Mackenzie, oilfield services analyst at Iberia Capital Partners LLC, said by telephone from New Orleans. “We knew this day was going to come. It was only a matter of time before the rig count was going to respond. The holiday is upon us and oil prices are falling through the floor.”
More
Up next the case for the bears. This is becoming a take no prisoners, old fashioned, classic 1970s style commodities clash. If the bears win this week’s fight, up to half a trillion of US junk debt derivatives will become seriously impaired.
Oil Trades Near 5-Year Low as OPEC Seen Resisting Cuts
Dec 15,
2014 5:14 AM GMT
Oil traded near a five-year low as the United
Arab Emirates said the Organization of Petroleum Exporting Countries
will refrain from cutting output even if prices slumped to $40 a barrel. Brent futures fluctuated in London after falling 2.9 percent on Dec. 12 to cap a third weekly drop. The market will stabilize itself and OPEC will wait at least three months before considering an emergency meeting, U.A.E. Energy Minister Suhail Al-Mazrouei said. The International Energy Agency lowered its 2015 demand forecast for the fourth time in five months amid rising supply from non-OPEC countries.
Oil has lost more than 20 percent since Saudi Arabia led OPEC’s decision to maintain its production target at a Nov. 27 meeting, resisting calls from members including Venezuela to reduce supply. Drillers in the U.S., pumping crude at the fastest pace in more than three decades, idled the most rigs in two years, according to Baker Hughes Inc.
“Some in the market may see an opportunity to buy so the market is stabilizing,” Victor Shum, a Singapore-based vice president at IHS Inc., an industry consultant, said by phone today. “Given the concerns over the oversupply situation, oil futures could go down further before an adjustment upwards would take place. We’re in for a long period of volatility.”
More
http://www.bloomberg.com/news/2014-12-14/oil-drops-near-60-a-barrel-as-opec-seen-resisting-cuts.html
Asia Stocks Slump as Oil Rout Spurs Growth Concern
Dec 15,
2014 4:25 AM GMT
Asian
stocks and commodity currencies retreated as oil’s plunge to
five-year lows spurred concern that the global economic outlook is worsening,
pushing credit risk higher and driving Japanese bond yields to a 20-month low. The MSCI Asia Pacific Index retreated 1 percent by 1:20 p.m. in Tokyo, as a gauge of emerging-market stocks slid to a 10-month low. West Texas Intermediate oil traded at $57.94 a barrel, having lost about 45 percent since a June 20 high. Australia’s dollar weakened 0.3 percent, while Indonesia’s rupiah tumbled to a six-year low. U.S. equity-index futures climbed after the rout in crude drove the Dow Jones Industrial Average (INDU) to its biggest weekly loss since 2011. Gold dropped 0.5 percent.
Benchmark oil prices have plunged as increasing U.S. production coincides with signs of slowing economic growth from Europe to China, and a recession in Japan. The United Arab Emirates said OPEC will resist output cuts even if prices slump as low as $40. Australia’s treasurer said the government deficit will widen on lower commodity prices, while investors await a U.S. Federal Reserve meeting this week for signs as to the timing of potential interest-rate increases.
“The oil price collapse is symptomatic of a lack of global demand,” said Stewart Richardson, who helps oversee $180 million at RMG Wealth Management LLP in London. “Developed equity markets have become more jittery. We don’t see central banks as being in a position to appease markets at the moment.”
More
Oil Seen Dropping to $55 Next Week as Price Rout Deepens
Dec 12, 2014 9:38 PM GMT
Benchmark U.S. oil prices are poised to test $55 a barrel after a six-month
rout pushed crude to the lowest in five years. West Texas Intermediate crude ended below $58 today for the first time since May 2009 after the International Energy Agency cut its global demand forecast for the fourth time in five months. Prices are down 46 percent from this year’s highest close of $107.26 on June 20.
“By taking out $58, oil is moving towards the next target $55,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s such an emotional selloff, and the even numbers are going to be the magic numbers.”
----Skip York, a Houston-based vice president of energy research at Wood Mackenzie Ltd., said the next price target is $45.
“The market hasn’t seen the
response they’re looking for on the supply side yet,” York said. “We’re now in
this environment where I think prices are going to keep drifting down until the
market is convinced, until the signal that production growth needs to slow has
been received and acted on by operators.”
More
Oil Rot Spreading in Credit
Dec 12, 2014 5:14 PM GMT
Credit investors are preparing for the worst. They’re cleaning up their portfolios, selling riskier debt that’s harder to trade in bad times and hoarding longer-term government bonds that do best in souring markets. While investors have pruned energy-related holdings in particular as oil prices plunge, they’re also getting rid of other types of corporate bonds, causing yields to surge to the highest in more than a year.
“We believe the pervasive nature of the sell-off is more reflective of overall liquidity concerns in the cash market than of fundamental deterioration,” Barclays Plc (BARC) analysts Jeffrey Meli and Bradley Rogoff wrote in a report today. “The weakness, while certainly most pronounced in the energy sector, has been broad based.”
Rather than waiting around for a trigger to escalate this month’s selloff, investors are pulling out of dollar-denominated corporate debt now, causing a 0.8 percent decline in the notes this month, according to a Bank of America Merrill Lynch index that includes investment-grade and junk-rated securities. This would be the first month of losses since September.
Yields on the debt have surged to 2.21 percentage points more than benchmark rates, the highest premium in 14 months.
While the biggest driver of the selling is plummeting oil prices, the selling extends beyond just energy. Bonds of wireless provider Verizon Communications Inc. (VZ) have fallen 1 percent this month and debt of HCA Holdings Inc. (HCA), a hospital operator, has dropped 1.2 percent, Bank of America Merrill Lynch index data show.
Even though the global speculative-grade default rate is less than half its historical average at 2.2 percent, investors are getting ready for sentiment to turn. When that happens, it may be all the more difficult to get out as hoards of other investors try to sell in a market where trading hasn’t kept pace with the growth of outstanding debt.
There’s “very little liquidity” in corporate bonds, especially in lower-rated debt, Bill Gross, who joined Janus Capital Group Inc. (JNS) in September, said today in a Bloomberg Surveillance interview with Tom Keene. “Everyone is trying to squeeze through a very small door.”
"In
economics, hope and faith coexist with great scientific pretension."
J. K.
Galbraith.
At the Comex silver
depositories Friday final figures were: Registered 64.59 Moz, Eligible 111.85
Moz, Total 176.44 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
In other bad news for the oil bulls, iron ore
prices are signalling deep trouble in China’s economy. On Friday the PBOC
forecast the 2015 GDP to slow to just 7.1 percent. Some western private
economists think that China has already slowed to GDP growth of just 4
percent. With Japan’s Prime Minister
just scoring a landslide victory in yesterday’s general election, the
beggar-thy-neighbour currency war is about to heat up again. In our new lawless
form of casino capitalism, where everything is rigged until it isn’t, The Great
Nixonian Error of Fiat Money is heading for it’s anarchic end.
“The boom can last only as long as the
credit expansion progresses at an ever-accelerated pace. The boom comes to an
end as soon as additional quantities of fiduciary media are no longer thrown
upon the loan market.”
Ludwig von Mises.
Australia Sees Iron-Ore at $60 as Commodities Hit Budget
Dec 14, 2014 4:03 AM GMT
Australia estimates iron ore will trade at about
$60 a metric ton as the biggest slump in the nation’s terms of trade since
records began more than 50 years ago deepens the budget deficit. The price of the material used to make steel has almost halved this year and slumped to a five-year low of $68.49 a ton last month, according to data compiled by Metal Bulletin Ltd. That compares with a $92 projection for the budget, Treasurer Joe Hockey said in a televised press conference today.
“We are forecasting that it’ll remain around $60 a ton for the foreseeable future,” Hockey said in Sydney. The decline in the price of iron ore “has had a big impact on the budget, as had a 15 percent fall in thermal coal and 20 percent fall in wheat prices,” he said.
Australia will deepen cuts to the civil service as agencies are axed in search of savings after Hockey said Dec. 12 that the mid-year economic and fiscal outlook tomorrow will show a wider budget deficit than initially projected. Iron ore accounts for about 20 percent of the nations export income, according to Finance Minister Mathias Cormann.
Iron ore may fall to less than $60 a ton next year as the largest mining companies press on with expanding supply, deepening a glut just as demand growth in China falters, according to Roubini Global Economics LLC.
Ore with 62 percent content delivered to Qingdao, China, dropped 3.9 percent to $68.99 a dry metric ton last week, data compiled by Metal Bulletin Ltd. showed. The Australian dollar has fallen more than 10 percent since the start of September as the price of the steel-making material declined.
Australia announced reductions for foreign aid, welfare and the public service in May when it forecast a A$29.8 billion ($24.6 billion) deficit for the 12 months through June 2015. That will widen to A$37 billion, according to the median estimate of 13 economists surveyed by Bloomberg News.
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China PBOC Economist Says 2015 GDP Growth to Slow to 7.1 Percent
Dec 14, 2014 7:34 AM GMT
China is likely to see
economic expansion next year decelerate to 7.1 percent as a slowdown in real
estate investment continues. While growth may slow, the outlook for employment and inflation remains stable, and labor-market conditions won’t be a major concern, Ma Jun, chief economist of the People’s Bank of China’s research center, wrote in a working paper dated Dec. 12. The growth projection compares with the monetary authority’s forecast for 7.4 percent expansion this year, the slowest pace since 1990.
“The downward pressure caused by the slowdown in real estate investment” will drag on any gains to growth from an acceleration in exports, Ma wrote.
The world’s second-largest economy showed further signs of weakness last month with factory shutdowns exacerbating sluggish demand. Bloomberg’s gross domestic product tracker came in at 6.78 percent year-on-year in November, down from 6.91 percent in October and the fourth month below 7 percent, according to a preliminary reading.
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"We need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something-for-nothing, but has led to all sorts of undesirable consequences. Indeed, many are just beginning to realize that we are moving towards disaster even though we have been on a wrong heading for decades."
Leonard Read
The monthly Coppock Indicators finished November.
DJIA: +136 Down. NASDAQ: +262 Down. SP500: +204 Down.
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