Wednesday, 27 April 2016

Commodity Chaos.

Baltic Dry Index. 704 +14      Brent Crude 46.24

LIR Gold Target in 2019: $30,000.  Revised due to QE programs.

Brexit odds checker.

Brexit Joke of the Day.
Pythagoras's theorem - 24 words.
The Lord's Prayer - 66 words.
Archimedes's Principle - 67 words.
The 10 Commandments - 179 words.
The Gettysburg address - 286 words.
U.S. Declaration of Independence - 1,300 words.
U.S. Constitution with all 27 Amendments - 7,818 words.
EU regulations on the sale of cabbage - 26,911 words.

Today we focus on commodities, where all the central banks easy money, but especially the People’s Bank of China one trillion dollar credit bubble in Q1 16, has set off a mini commodity bubble again. With credit rushing back into China’s housing markets again, even the recently closed steel plants are racing to reopen once again, global steel glut or not. But it’s China filling its strategic petroleum reserve at a record pace that really has everyone guessing. Is it  China merely taking advantage of the markets drastically lower crude oil price, or something more sinister? Is China preparing for a clash with the US Navy next year in the South China Sea? The USN could relatively easily impose an oil blockade on China at the choke point of either end of the Strait of Malacca, which China knows only too well. Russia and the central Asian “Stans” could only replace part of any blockaded crude oil.
We open today pondering on oil. Stay long fully paid up physical precious metals.
"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."

Antony C. Sutton

Oil hits 2016 high after U.S. crude draw report, gasoline rally

Tue Apr 26, 2016 7:26pm EDT
Crude oil prices hit 2016 highs on Tuesday on the back of a rally in the gasoline market and after an industry group reported a surprise draw in U.S. crude stockpiles.

Brent and U.S. crude's West Texas Intermediate (WTI) futures finished regular trading about 3 percent higher, riding on the coattails of a gasoline rally that hit August highs after a series of refinery hikes.

In post-settlement trade, both benchmarks rose more than 4 percent after the American Petroleum Institute reported a drawdown of nearly 1.1 million barrels in U.S. crude inventories last week versus a 2.4 million-barrel build expected by analysts in a Reuters poll.

The API report is a precursor to official inventory data due on Wednesday from the U.S. Energy Information Administration.

"There's a possibility we could see newer highs from here, notwithstanding the EIA data, as the market is really fired up on the idea of tightening supplies," said John Kilduff, partner at New York energy hedge fund Again Capital.

Brent crude futures finished up $1.26 at $45.74 a barrel. In post-settlement trade, it rose as much as $2.01 to a 2016 high of $46.49.

U.S. crude futures settled up $1.40 at $44.04. It gained $2.19 in after-hours trade to reach a year-to-date peak of $44.83.

Crude markets got off to a rousing start in the New York session as gasoline futures and gasoline refinery margins both surged from refinery outages, Venezuela buying and a reported drop in New York inventories.

"I think the market has become more optimistic on oil products," said Scott Shelton, broker and commodities specialist with ICAP in Durham, North California. "If refining margins stay strong, crude runs will be quite high and that will make the odds of a crude stock draws increase significantly."

Oil prices are headed for a fourth straight week of gains, with Brent on track to finish April 17 percent higher for its best monthly gain in a year, despite aborted plans by major producers to agree on an output freeze at a meeting in Qatar earlier this month.

Tuesday's oil rally was also underpinned by a weaker dollar, which fell on expectations that the U.S. Federal Reserve's Federal Open Market Committee (FOMC) will keep interest rates at existing levels. The dollar rallied earlier this year, weighing on oil, as investors braced for higher rates.

Oil prices jump on weak dollar, strong investor appetite

Tue Apr 26, 2016 8:35pm EDT
Crude oil futures rose half a dollar in early Asian trading on Wednesday and remained near 2016 highs on the back of strong investor sentiment and a weak dollar, although analysts warned this month's bull-run could soon run out of steam.

International Brent crude futures were trading at $46.26 per barrel at 0023 GMT, up 52 cents, or 1.1 percent, from their last settlement.

U.S. West Texas Intermediate (WTI) crude was also up 52 cents, or 1.2 percent, at $44.56 a barrel.
WTI was further lifted after the American Petroleum Institute (API) reported a drawdown of nearly 1.1 million barrels in U.S. crude inventories last week versus a 2.4 million-barrel build expected by analysts in a Reuters poll.

Both Brent and WTI were near 2016 highs of $46.49 and $44.83, respectively reached the previous session.

Beyond strong investment appetite from financial traders, analysts said crude was receiving support from a falling dollar, which has shed 5 percent in value against a basket of other leading currencies since the beginning of the year.

A weak dollar, in which crude is traded, makes fuel imports cheaper for countries using other currencies at home, potentially spurring demand.

Oil's Magic Number Becomes $50 a Barrel for Promise of Recovery

April 26, 2016 — 11:14 PM BST Updated on April 27, 2016 — 5:01 AM BST
The new magic number in the oil industry is $50.

BP Plc, rig-owner Nabors Industries Ltd. and explorer Pioneer Natural Resources Co. all said in the past 24 hours that prices above $50 will encourage more drilling or provide the needed boost to cash flow. With oil bouncing close to $45 a barrel, an industry that has been shaving costs to stay competitive is ready for signs of stability at a price level less than half of 2014’s average.

At an average price of $53 per barrel of oil means the world’s 50 biggest publicly traded companies in the industry can stop bleeding cash, according to oilfield consultant Wood Mackenzie Ltd. Nabors, which owns the world’s largest fleet of onshore drilling rigs, said it has already been talking with several large customers about plans to boost work in the second half of the year if prices rise "comfortably" above $50.

"It’s not just about touching $50," Fraser McKay, vice president of corporate analysis at Wood Mackenzie in Houston, said Tuesday in a phone interview. "It’s about touching, maintaining and having the perception of future prices above $50 a barrel before you start sanctioning projects that are economic at $50 a barrel."

The global oil industry slashed more than $100 billion in spending last year and is in the midst of further cuts this year to survive what Schlumberger Ltd. has called the industry’s worst-ever financial crisis. In North America alone, spending is expected to drop by half from last year.

Prices have rebounded by about two-thirds from a 12-year low, with Brent, the international crude benchmark, trading above $45 a barrel Tuesday. The rally has explorers from BP to Pioneer looking ahead to an eventual recovery as they release first quarter earnings this week.

Next year, BP will be able to balance cash flow with shareholder payouts and capital spending at an oil price of $50 to $55 a barrel, down from a previous estimate of $60, the London-based explorer said. Pioneer expects to add as many as 10 horizontal drilling rigs when oil reaches $50 and the outlook for supply and demand of crude is positive, the company said Monday in its earnings statement.

For every $5 that oil prices climb, above a baseline of $37, Continental Resources Inc. adds another roughly $200 million in revenue, Chief Operating Officer Jack Stark said last month in an interview in New Orleans. By the time oil prices reach $52, the Oklahoma City-based explorer would probably look at adding more rigs, he said.

Another Twist In The Oil Slump—-Even Bankrupt Shale Companies Keep Pumping

by Business Insider • 
A central tenet in the thesis by analysts about the oil markets rebalancing has been that as prices declined, oil companies would be forced into bankruptcy. That in turn would lead to declining production, and eventually a rebalancing of supply and demand in the market, followed by higher prices. That process is already taking longer than many expected, and it looks like more time is needed. That additional time to balance the market is being driven by an unexpected factor; bankrupt oil companies are still pumping.

As oil prices have declined, the number of bankruptcies and distressed oil majors has quickly risen into the dozens. In fact, a recent Reuters analysis suggests little effect on production from when companies enter bankruptcy. Reuters cited Magnum Hunter as a primary example of this reality.

While Magnum Hunter filed for bankruptcy in December 2014, the firm has scrambled even in Chapter 11 to keep its oil flowing, resulting in O&G production rising by roughly one-third between mid-2014 and late 2015. The firm has used the protection bankruptcy courts to help stave off creditors while keeping the pumps flowing full tilt. Nearly all of Magnum Hunter’s 3000 wells are still producing crude, and that makes sense for several reasons.

First, daily costs for operating wells remain well below current spot prices. While drilling new wells is not economical, it is perfectly logical to keep exploiting existing wells. Fracked wells usually start to see a significant decline in production after about two years of operations. So eventually Magnum Hunter and other companies will see their production fall, but two years can be a very long time to pump.

Second, creditors want to extract maximum value from the company and the best way to do that in the current environment is to keep the oil flowing. Bid-ask spreads on oil assets for sale are simply too wide for most companies to be interested in selling assets while in Chapter 11. Instead, creditors maximize the present value of their assets by continuing to pump oil. This oil can either be stored leading to a large risk free profit, or it can be sold on the spot market. Either way, Magnum Hunter and other bankrupt producers are acting in the best interests of their creditors by continuing to pump. Unfortunately, those actions are not in the best interests of the broader industry or energy sector stock investors.

China’s Latest Mini-Boom Nears Peak Just As Amateurs Pile In

Elite global banks have begun to warn clients that China’s latest credit-driven boom is nearing its peak and will lose momentum by late summer, dashing hopes for a genuine cycle of fresh economic growth and commodity demand.

Morgan Stanley, Nomura, and Societe Generale have all issued cautionary notes just as amateur investors belatedly turn bullish again on China and start to pile into both commodities and emerging market equities.

“While the mini-recovery is likely to last another 3-4 months, our economists expect a renewed slowdown in the second half of the year, as stimulus efforts fade,” said Morgan Stanley.

The US bank said record credit growth over the last quarter will keep growth humming for a little longer but the fiscal blitz is already ebbing and the government is imposing property curbs in the Eastern cities to prevent a speculative bubble.

China’s reflation drive has been explosive. New home sales jumped 64pc in March from a year earlier. House prices have risen 28pc in Beijing, 30pc in Shanghai, and 63pc in the commercial hub of Shenzhen. The rush to buy has spread to the Tier 2 cities such as Hefei – up 9pc in a single month.

“The housing market is on fire,” said Wei Yao, from Societe Generale. “In the first quarter, increases in total credit exploded to 7.5 trilion yuan, up 58pc year-on-year. There is no bigger policy lever than this kind of credit injection.”

“This looks like an old-styled credit-backed investment-driven recovery, which bears an uncanny resemblance to the beginning of the“four trillion stimulus” package in 2009. The consequence of that stimulus was inflation, asset bubbles and excess capacity. We still think that this recovery will not last very long,” she said.

China – the great disrupter of commodities markets (and not in a good way)

Another China drama is unfolding (on top of their $30 trillion corporate debt time-bomb, that is). This time it’s wild speculation in commodities that has driven up prices of several metals.

So we get one more example of incoherent Chinese economic “policy”. As I write this on a day when news has come that Australia is now in deflation and its dollar has taken a bath, we can only look at this latest headache in relation to China with growing concern, as any commodity-producing country and company should also be viewing it. If it were the Congo, no one would worry (much); but so much in the technology metals world revolves around the health (or otherwise) of Chinese demand and production.

Various analysts, including Goldman Sachs, became alarmed recently when iron ore suddenly went from under $40/tonne to over $70.

As Peter Strachan at Perth-based StockAnalysis writes today, “news out of China supports the idea that futures trading is distorting the market”. He quotes a Shanghai-based analyst at Tebon Securities Co saying that “the great ball of China money” was moving away from bonds and equities and into commodities.

Is it ever? Iron ore contract trading volumes at the Dalian Commodities Exchange have soared by 400%. As the Goldman analysts wrote, “there have been two days in the past month where futures volumes have been greater than the total amount of iron ore that China actually imported for the whole of 2015 (which was 950 million tonnes)”. Goldman is forecasting that iron ore will be at $35/tonne by the end of the year.

But it’s not just iron ore. Last week futures trading at the commodities exchanges in Shanghai, Dalian and Zhengzhou soared for things like hot-rolled steel coils, sugar, cotton, coal and polyvinyl chloride. Deutsche Bank noted that onshore Chinese commodities markets last week traded daily futures deals worth 17 times what the daily value had been on February 1.

Today Vivek Dhar, commodity analyst at Australia’s Commonwealth Bank, noted that “the average tenure of an iron ore futures contract on the Dalian Commodity Exchange is under four hours”. To put that in perspective, the average tenure for a West Texas Intermediate crude oil contract on Comex is about 40 hours; for copper it is around 60 hours and natural gas 70 hours.
See more at:

“But it [the boom] could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system.”

Ludwig von Mises.

At the Comex silver depositories Tuesday final figures were: Registered 31.96 Moz, Eligible 118.52 Moz, Total 150.48 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, London’s gold mine.
The City With $248 Billion Beneath Its Pavement
By Pádraig Belton 19 April 2016
Under London’s streets lies a hidden gold mine.
It stretches across more than 300,000 square feet under the City, the finance quarter in the heart of Britain’s capital. There, beneath the pavement and commuters of Threadneedle Street, lies a maze of eight Bank of England gold vaults – each stacked with gold bars worth a total sum of around £141 billion ($200 billion).
The bars sit on rows of blue numbered shelves. Every bar weighs precisely 400 troy ounces (about 12kg), making each currently worth some £350,000 ($500,000), comfortably more than the average price of a house in the UK. Each bar looks subtly different depending on where it was refined. Some bars have sloping edges to make them easier to pick up; others look more like a loaf of bread.
There is no smell here: metal has none. There is no noise, either, on account of the vaults’ thick concrete walls.
What there is, however, is one of the world’s most important traded assets. Deals are still done in gold in almost every country in the world. Its price is a crucial barometer for consumer confidence. Prices rise when markets are uncertain, and before US elections – like now.
“Gold is a hedge against uncertainty,” says Jonathan Spall, a long-time gold trader and now managing director of G Cubed Metal.
These vaults lie right at the heart of this volatile, incredibly important market.
About one-fifth of all the gold held by the world’s governments is in London. In total, 6,256 tonnes of gold are stored in vaults in and around London – collectively worth about £172 billion ($248 billion).

The Bank of England vaults alone hold 5,134 tonnes, including the official reserves of the UK Treasury and the vast majority of the physical gold traded in London. Gold owned by 30 other countries is also in these vaults along with the hoards of about 25 banks.

---- The Bank of England vaults were built in the 1930s. During World War II, when Britain’s bullion was secretly moved to Canada to continue the war effort if Britain was overrun, one vault was used as a staff canteen for Bank of England employees. Vintage advertisements for the P&O cruise line, enticing Bank employees away to holiday, are still plastered across the walls. Later, in the 1940s, the vault was used as a bomb shelter.

Brexit Quote of the week.

Freedom is the right to tell people what they do not want to hear.

George Orwell.

Solar  & Related Update.

With events happening fast in the development of solar power and graphene, I’ve added this new section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards? DC? A quantum computer next?

Graphene, 2D Materials and Carbon Nanotubes: Markets, Technologies and Opportunities 2016-2026

Apr 25, 2016, 19:15 ET from ReportBuyer
LONDON, April 25, 2016 /PRNewswire/ -- Granular ten-year market forecasts, data-driven and quantitative application assessment, 40+ interview-based company profiles, revenue/investment/capacity by player, and more

This report provides the most comprehensive and authoritative view of the topic, giving detailed ten-year market forecasts segmented by application and material type. The market forecasts are given in tonnage and value at the material level. Furthermore, this report includes compressive interview-based profiles of all the key players the industry, providing intelligence on the investment levels, expected future revenues, and the production capacity across the industry and by supplier. In addition, this report critically reviews all existing and emerging production process.

This report also gives detailed, fact-based and insightful analysis of all the existing and emerging target applications. For target applications, the report provides an assessment and/or forecast of the addressable markets, key trends and challenges, latest results and prototype/product launches, and the IDTechEx insight on the market potential.

Unrivalled business intelligence and market insight

This report is based upon years of research and close engagement with the community of graphene and CNT producers, investors and users. In the past five years, we have interviewed and profiled almost all the graphene and carbon nanotube suppliers globally (>40), advised many investors and chemical companies on their graphene (and CNT) strategy, and guided many end-users.

In parallel to this, IDTechEx Research has itself organised seven international tradeshows and conferences on Graphene and 2D Materials. These commercial conferences have become the forum in which the latest innovations are announced and the latest products are launched. More importantly, they have become the premier international venue in which suppliers and users directly connect. This has given us an unrivalled access to all the players across the graphene/CNT community.

IDTechEx analysts also travel the world extensively to attend and lecture at all the conferences and tradeshows relevant to graphene and CNTs, giving us further opportunity to get to know the industry well, and hear and interpret the latest developments. We are confident that our knowledge and insight into the technologies, markets and applications of graphene and 2D materials is without parallel the world over.

The graphene market to reach 3, 800 tonnes per year in 2026

The monthly Coppock Indicators finished March

DJIA: 17685.09 -18 Down. NASDAQ:  4869.85 +33 Down. SP500: 2059.74 -22 Down. 

No comments:

Post a Comment