Tuesday, 27 December 2016

Crude Gets Ready to Cut.

Baltic Dry Index. 961 +33   Brent Crude 55.09

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

"It is always the best policy to speak the truth, unless of course, you are an exceptionally good liar."

Jerome K. Jerome. Novelist.

We open today with oil. We are just days away from the cartel of liars and cheats having to back up their words with deeds. But with Iran and Libya exempt, and Algeria planning to expand gas and oil production in 2017, to say nothing of US oil frackers already boosting production now, it’s hard to see crude oil prices surging for long, if they can surge at all.

Oil prices steady as investors wait for production cuts to roll out

By Jenny W. Hsu Published: Dec 27, 2016 1:18 a.m. ET
Crude futures traded between small gains and losses on Tuesday, with the market sticking to an optimistic view ahead of a landmark effort by oil producers to reduce global supply.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG7, +0.08%  traded at $53.05 a barrel, up 3 cents in the Globex electronic session. February Brent crude LCOG7, -0.16%  on London’s ICE Futures exchange slipped rose 10 cents to $55.06 a barrel. Oil markets were closed on Monday for the Christmas holiday.
Starting January, most members of the Organization of the Petroleum Exporting Countries and 11 other non-cartel producers will start scaling back their production as part of a deal they made in the end of November. The reduction goal of roughly 1.8 million barrels will be carried out in phases.
Oil prices have enjoyed a steady rise throughout December and analysts believe prices will breach the $60-a-barrel threshold in the first half of 2017.
At this point, most market watchers are optimistic that participating nations will comply [with] the production quotas in the first few months,” said Gao Jian, a commodities analyst at SCI International.
However, it remains to be seen if the compliance will hold up once prices edge higher, he added, saying an important indicator would be inventory levels of these countries.
According to the pact, the agreed parties are obligated to cut production, but exports remained untouched. This means these producers will have to rely on their existing inventories to sell their barrels.
A key development would be production growth by Libya, an OPEC nation that was exempt from the round of cuts as its output has been stunted by yearslong militant attacks. A Reuters report says the African nation’s production last stood at 622,000 barrels a day, more than double the 300,000-barrel level seen at some points this year. During its peak, Libya’s production registered more than 1.6 million barrels a day.
Last week, Libya said that recently revived pipelines could add 270,000 barrels a day to production. If confirmed, the additional production would cancel out almost a quarter of OPEC’s promised cut.

Shale Specter Haunts OPEC as Oil Seen Rallying Into 2017

by Grant Smith and Alex Longley
After pulling off the biggest oil-market deal in a decade, OPEC faces a new balancing act in 2017: boosting prices without igniting shale.

The first shale boom spurred a global supply glut that started prices sliding in mid-2014, and was amplified that November by a pump-at-will OPEC strategy aimed at market dominance. During the ensuing rout, prices in New York fell from more than $100 a barrel to $26.05 in February, straining the budgets of companies and countries alike.

Now, the Organization of Petroleum Exporting Countries has a new plan for 2017: Trim output, boost prices and better exploit the world’s most significant natural resource. With the cuts, prices could average $58 a barrel, according to the median of 24 analyst estimates compiled by Bloomberg. While that 29 percent gain on this year’s average will aid OPEC members, it could also spur U.S. drillers to add rigs.

“OPEC is aiming for a much-needed lift to the oil price, given the stretched fiscal balance sheets of every producing nation,” said Ed Morse, head of commodities research at Citigroup. “The question really should be what happens afterwards -- how fast is U.S. shale going to come back?”

At 8.8 million barrels a day, the U.S. is already pumping almost as much crude as two years ago, with just a third of the rigs it operated at the peak, data from Baker Hughes Inc. and the Energy Information Administration show. Since May, drillers have added about 200 rigs, taking advantage of rising prices as talk of an OPEC supply cut circulated.

In longer term bad news for oil producers, after a false start the age of the electric vehicle seems to be at hand.

Electric Vehicles Recall Dawn of Auto Age

Jon Markman | Tuesday, December 20, 2016 at 7:30 am
The car business is about to take us all on a wild ride. Autonomous vehicles will challenge industry business models. Electric propulsion will challenge the global economy.

I talked last week about how the current investment and political environment is starting to resemble the Gilded Age of the 1880s-1910s. There is so much innovation going on, and fortunes being made, that it’s like the dawn of mass transportation and information all over again.

This move to electric powertrains in cars, buses and trucks is going to be unstoppable as it makes so much sense, just like the development of the first automobiles. Electric vehicles (EVs) are better for the environment, safer, better for the U.S. trade deficit and EVs are a blast to drive.

Back at the turn of the last century, the growth of the automobile market — against the entrenched interests of the horse and buggy industry — was also front and center. Looking back, we can see that General Motors (GM) and Ford (F) were ultimately big winners due in part to their innovation of new factory, business and financing practices. But there were originally more than 50 competing auto manufacturers who presented propulsion schemes ranging from steam and electricity to gasoline and diesel. None were a lock. And now electric is coming back, and I suspect the transition will deliver gains now similar to what industrialists and investors in the Gilded Age enjoyed.

Toyota this month joined Daimler, Volkswagen, General Motors (GM) and Ford (F) in making a major longer-term commitment to electric vehicles. Big automakers are being pushed toward EVs faster than the public realizes. Business-model dynamics and clean energy regulators demand the course change. An unknown is the unintended consequences of removing even a small portion of energy demand from a crude oil market in equilibrium.

Right now, EVs represent just 1% of the market. Even in China where demand is growing fastest, EVs account for just 337,000 units in a market of 22 million. And despite the bevy of shiny Teslas roaming Silicon Valley streets, EVs make up just a tiny fraction of the 17.5 million-unit U.S market.

We close for a quite Tuesday with when innovation goes wrong but money’s no object. It’s only fiat money after all, and everyone knows that there’s plenty more where that comes from.

How the Navy’s Zumwalt-Class Destroyers Ran Aground
by Mike Fredenburg December 19, 2016 4:00 AM

Billed as the Navy’s stealth wonder-ship of the future, the USS Zumwalt destroyer has turned into a procurement boondoggle.

On November 22, while the world watched, the U.S. Navy’s newest, most complex warship ground to a stop in the middle of the Panama Canal, both propellers seized, leaving the ship dead in the water. The warship, the USS Zumwalt, DDG-1000, had to be towed out of the canal. While not as embarrassing as watching our sailors being taken hostage by Iran and then publicly humiliated, nonetheless it was pretty embarrassing. Yes, all new classes of ships have teething problems, but this is at least the third major “engineering casualty” that the USS Zumwalt has experienced over the last few months, and it is emblematic of a defense-procurement system that is rapidly losing its ability to meet our national-security needs.

The Zumwalt was going to be the United States’ 21st-century, cruiser-sized, super destroyer that would allow us to dominate the world’s oceans and littorals for the next 50 years. The Navy made big promises: The two overarching goals for the program were that the ship would be very stealthy and that it would set new standards in reducing crew size. Another major element of its raison d’être, was that it would be able to supply the Naval Surface Fire Support (NSFS) capability the Navy has been promising the Marines since it retired the last of the modernized Iowa-class battleships in 1992. This really big warship was going to anchor the Navy’s ability to project power into the littorals. Its 15,000 to 16,000 tons of displacement would be crammed full of new and revolutionary technologies such as the Integrated Power System, the Linux-powered Total Ship Computing Environment Infrastructure (TSCEI), and, of course, the Advanced Gun System. Its massive generating capacity would allow it to power the energy-hungry lasers and railguns of the future. Its defining glory, its stealth, would allow the Zumwalt to undertake missions that other less stealthy ships could not.

Based on the Navy’s 1999 assurances that each ship would cost just $1.34 billion and that the whole 32-ship program would come in at $46 billion, Congress committed to fund the program. But by 2001, cost growth prompted the Navy to lower the projected class size to only 16 ships. And by 2005, with the Congressional Budget Office (CBO) estimating costs of well over $3 billion per ship, the Navy decided to drop the number of ships to be built to just seven. Flash-forward to today and the Navy has capped production at just three ships, with each costing over $4.2 billion in construction costs alone. Toss in over $10 billion for development costs, and you end up at more than $7 billion per ship. Amazingly, this is actually more than the $6.2 billion we paid for our last Nimitz-class aircraft carrier.

More. Much, much more.

At the Comex silver depositories Friday final figures were: Registered 36.15 Moz, Eligible 147.43 Moz, Total 183.58 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, lax China uncovers yet more financial fraud.

China Bank Says Bond Guarantee Forged as Market Mood Worsens

Bloomberg News 26 December 2016, 04:21 GMT 26 December 2016, 05:14 GMT
China Guangfa Bank Co. said Monday that documents and seals for a letter claiming to guarantee bond payments by the lender were forged, in the second such incident in the nation this month, raising concern about transparency in the world’s third-biggest bond market.

The revelation by the bank based in the southern province of Guangdong comes after Zheshang Property & Casualty Insurance Co. said on Dec. 23 it’s in touch with Guangfa Bank over payments on Cosun Group’s private bonds guaranteed by a unit of the lender after the notes defaulted on Dec. 20.

“Over the past few years, business growth of financial institutions has outpaced their capability to boost internal controls and also gone beyond the radar of regulators,” said He Xuanlai, a Singapore-based credit analyst at Commerzbank AG. “After the recent incidents, requirements on bolstering compliance and risk management will definitely be tightened.”

A lack of transparency and protection in bond documentation are adding to angst among investors after Sealand Securities Co. said earlier this month a former employee was found to have forged a seal to conduct bond trading. Concern about China’s bond market has been climbing after at least 28 onshore notes defaulted this year amid an economic slowdown, jumping from seven in 2015.

Higher Premium

Investors are demanding a higher reward to park money in the nation’s corporate debt. The yield premium of seven-year AAA corporate bonds over government notes has widened 44 basis points this month, set for the biggest increase since 2007.

“The basics of internal risk controls at many Chinese firms are almost non-existent,” said Oliver Rui, a Shanghai-based professor of finance and accounting at China Europe International Business School. “These incidents also exposed weak regulatory oversight and added to the urgency of setting up a super-regulator which can oversees all financial segments at the same time because financial institutions are evolving.”

Solar  & Related Update.

With events happening fast in the development of solar power and graphene, I’ve added this 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?

Power surge: Chinese electric car battery maker charges for global market

Sun Dec 25, 2016 | 6:27pm EST
A dusty village on the outskirts of Ningde, a third-tier city in China's southeast, seems an unlikely place for the headquarters of a potential global leader in future automotive technology.
Yet China's top-down industrial policy diktats - move up the value chain, clean up polluted urban skies, and shift to plug-in cars - have Contemporary Amperex Technology Ltd (CATL) poised to go from hometown hero to national champion, and beyond.
China's answer to Japan's Panasonic Corp and South Korea's LG Chem Ltd has tripled its production capacity for lithium-ion car batteries in the past year to keep up with a surge in China's sales of electric cars.
After a second major funding round completed in October, the company's value quadrupled to 80 billion yuan ($11.5 billion), CEO Huang Shilin said last week.
CATL, which hopes to list on Beijing's over-the-counter exchange as part of plans to raise at least another 30 billion yuan by 2020, could be a dominant force globally.
It has already overtaken LG Chem in lithium-ion car battery output, and is chasing down Panasonic and Warren Buffett-backed BYD Co Ltd.
CATL plans to grow its battery capacity sixfold by 2020 to 50 gigawatt hours, which could put it ahead of Tesla Motor Inc's gigafactory in Nevada.
"We continue to walk where the country guides us," Huang said. "We hope by 2020 we can achieve performance and price that lead the world."
The company, founded just five years ago, is already pushing beyond China's borders, with offices in Sweden, Germany and France and plans to build a factory in Europe. Company representatives say that because of non-disclosure agreements they can only list BMW as a customer for now.
Despite the ambitious expansion, the emerging segment's dependence on government policy and rapidly evolving technology is not without risk.
A123, a U.S. automotive battery maker, went from IPO to bust in just three years as battery costs remained stubbornly high and orders dried up.
"People think we're a big successful company, but we think we're in jeopardy every day," marketing director Neill Yang said. "The market environment and technology changes so fast that if we don't follow the trend we could die in three months."
To become a Chinese champion, a battery maker must first shed any foreign investment to be eligible for subsidies and other policy support, people in the industry say.
Before he set up CATL, Robin Zeng had started Amperex Technology Ltd (ATL), a company now majority-owned by Japan's TDK.
ATL initially had a 15 percent stake in CATL, but liquidated that holding last year, Yang said, when electric vehicle sales first started to take off. He declined to elaborate on the circumstances of that divestment.
TDK separated from CATL to focus on batteries for mobile consumer electronics, but still collects royalties on some intellectual property used by CATL, a spokesman for the Japanese company said.
"The reason is strategic and confidential. ATL still keeps a close relationship with CATL," said a person familiar with the situation, who was not authorized to speak to the media.
ATL and CATL still share a Ningde campus, although the front gate and main office bear only the ATL name.
---- While government support for electric cars has driven demand for components such as batteries, Beijing is also rolling out other policies that could benefit leading producers like CATL, by forcing smaller firms to consolidate or go out of business.
The Ministry of Industry and Information Technology (MITI) said last month it is considering a rule that would increase minimum production requirements for battery makers by around 40 times to 8 gigawatt hours.
Only BYD and CATL are roughly in line with that minimum, though Chinese media reports suggest Hefei Guoxuan High-Tech Power Energy Co Ltd and Tianjin Lishen Battery Joint-Stock Co Ltd may be close to or above that level by next year.

The monthly Coppock Indicators finished November

DJIA: 19124  +53 Up NASDAQ:  5324 +41 Up. SP500: 2198 +58 Up

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