Saturday, 20 May 2017

Weekend Update 20/05/2017 Commodities, Massive Change Coming.

“What me worry?”

Mad Magazine.

This weekend, we open with massive change coming to the world’s commodity markets, though the media were overly preoccupied with Soap Opera Trump. If China follows through on its commodity plans, over time commodity pricing will pass from London, New York and Chicago, to China and the far east. Quite how fast that massive change happens, depends on China’s implementation of its plans, and in the detail, but if China were to put in English mercantile law, rather than local law, that massive change will probably take less than a decade. While China thinks it will get lower commodity pricing, I think it will bring in just the opposite. A massive bout of commodity inflation.

Below, China stakes out its claim on commodities trading.

"Let's make sure that there is certainty during uncertain times in our economy."

President George W. Bush

China Plans to Open Up Commodity Trading to Foreigners to Bring Down Prices

Bloomberg News
18 May 2017, 23:00 GMT+1 19 May 2017, 10:47 GMT+1
China buys more raw materials than any nation, but that doesn’t mean it always gets the best prices. So the government is altering domestic commodity exchanges to bring in more foreign investors and expand the country’s influence on global markets.

Two decades of rapid economic growth has left the world’s biggest population consuming more food, energy and metals than it can produce, turning the country into a powerhouse importer. Still, the value of many purchased commodities, from crude oil to soybeans, is set by global benchmarks priced in dollars on exchanges in other countries, where markets are more open.

After years of building up locals-only markets for key products like grains in Dalian and metals in Shanghai, China wants to expand the kinds of investments permitted for foreigners. Exchange operators also plan to add futures contracts for key raw materials including hogs, apples, cotton yarn, pulp and urea fertilizer, as well as options on copper, corn and cotton. Despite bullish comments by officials, however, some question whether authorities have the appetite to truly open up.

“Internationalizing its futures market can boost China’s sway on global prices and help it eventually become a price-setter instead of a price-taker,” said Han Qian, associate professor of finance at Wang Yanan Institute for Studies in Economics at Xiamen University. “It not only fits into China’s strategy to promote global use of the yuan, but also frees domestic producers from foreign exchange risks.”

----Even the big futures exchanges in Dalian and Shanghai, where trading has surged over the past decade, tend to be organized around small contracts geared to individual investors. A single corn contract in Dalian is for 10 metric tons, compared with the global benchmark contract on the Chicago Board of Trade, which is for 5,000 bushels, or 127 tons.

The government considers making its markets more open an important step in negotiating better deals on
imports, especially after the economy expanded to become second largest in the world. China now imports more oil than the U.S. and it’s the biggest buyer of all sorts of items, including iron ore, copper, soybeans, hay and pork. Total imports of raw materials were $366 billion in 2015, up from $116 billion a decade earlier, according to the World Bank.

Corn futures in Dalian have climbed 8.2 percent this year and traded at 1,643 yuan ($238) a ton on Friday. Iron ore has fallen 11 percent in 2017 to 489 yuan a ton.

In oil news, will OPEC and friends, or the US frackers win the production war? To this old dinosaur commodities trader, all OPEC and friends are doing is passing away market share to US frackers. To really beat US frackers, OPEC and friends need really low prices to drain the swamp of US production. That probably means crude prices in the low 20s for over a year.  But OPEC and friends can’t handle that pain. So as OPEC and friends extend their production cuts, expect US frackers to keep stepping up production.

Remember that there is nothing stable in human affairs; therefore avoid undue elation in prosperity, or undue depression in adversity.


U.S. Shale Roars Back at OPEC

by Christopher Sell
19 May 2017, 12:30 GMT+1
OPEC may get its members to agree to continue to tamp down oil production, but it will be a Pyrrhic victory.
The biggest threat to the 13-member group’s dominance has been U.S. shale.

In November 2014, the Organization of Petroleum Exporting Countries decided to keep production levels high in the hope it could maintain market share. But that was a difficult task to begin with, and since then, U.S. shale producers have become even more efficient.

By the time OPEC reversed course in November 2016, sending oil prices up as much as 10 percent, shale had already gained ground.

There are areas in the enormous Permian and Eagle Ford shale fields in Texas where producers can break even at prices as low as $34 a barrel, according to Bloomberg Intelligence.

And analysts now say U.S. shale production will grow even faster than expected. Macquarie Group now thinks production will increase 1.4 million barrels a day through December, up from a previous growth estimate of 0.9 million barrels a day. JPMorgan Chase & Co. doubled its forecast to an increase of 800,000 barrels a day for the same period.

As OPEC and non-OPEC producers (namely Russia) cut back on production, U.S. shale producers are moving to quickly fill the gap. Their output increase is equal to about half of the OPEC cuts and twice that of Russia’s cuts, according to a report out this week by Eugen Weinberg, head of commodity research at Commerzbank.

“If the production cuts were to be extended, the participating countries would lose further market shares, which they are hardly likely to accept for any length of time,” the report said.

It isn’t going to get a lot better for OPEC in 2018, either. JPMorgan is forecasting U.S. shale to grow by 1.05 million barrels a day next year, while Bank of America Merrill Lynch has a figure of 950,000 barrels a day.

Fri May 19, 2017 | 6:03am EDT

Full tanks and tankers: a stubborn oil glut despite OPEC cuts

After the first OPEC oil production cut in eight years took effect in January, oil traders from Houston to Singapore started emptying millions of barrels of crude from storage tanks.

Investors hailed the drawdowns as the beginning of the end of a two-year supply glut - raising hopes for steadily rising per-barrel prices.

It hasn't worked out that way.

Now, many of those same storage tanks are filling back up or draining more slowly than investors and oil firms had expected, according to global inventory estimates and more than a dozen oil traders and shipping sources who told Reuters about storage in facilities that do not make their oil volumes public.

The stalled drawdowns shed light on the broader challenge facing OPEC - the Organization of the Petroleum Exporting Countries - as it struggles to steer the industry out of the downturn caused by oversupply. With U.S. shale oil production surging, inventories remain stubbornly high and prices appear stuck in the low-$50s per-barrel range.

The market has not strengthened enough to drain many major storage facilities around the globe - which OPEC oil ministers had hoped would be a first step toward rebalancing what has been a buyer's market since late 2014.

Estimated inventories in industrialized nations totaled 3.025 billion barrels at the end of March - about 300 million barrels above the five-year average, according to the International Energy Agency’s latest monthly report.

Preliminary April data indicated stocks would rise further, the IEA said. Crude stocks stood at a record 1.235 billion barrels.

We end for the week with more on that infamous hacking attack. Though it seems to have been beaten, others are hard at work trying to restart it.

Hackers Are Trying to Reignite WannaCry With Nonstop Botnet Attacks
 Date of Publication: 05.19.17.

Over the past year, two digital disasters have rocked the internet. The botnet known as Mirai knocked a swath of major sites off the web last September, including Spotify, Reddit, and The New York Times. And over the past week, the WannaCry ransomware outbreak crippled systems ranging from health care to transportation in 150 countries before an unlikely “kill-switch” in its code shut it down.

Now a few devious hackers appear to be trying to combine those two internet plagues: They’re using their own copycats of the Mirai botnet to attack WannaCry’s kill-switch. So far, researchers have managed to fight off the attacks. But in the unlikely event that the hackers succeed, the ransomware could once again start spreading unabated.

Since the WannaCry ransomware worm began to fan out through the internet Friday, security researchers noticed a curious feature. When it infects a computer, it first reaches out to a certain random-looking web address, apparently as part of a check that it’s not running in a “sandbox” environment, which security researchers use to test malware samples safely. If WannaCry connects to a valid server at that specified domain, the ransomware assumes it’s under scrutiny, and goes dormant.

Marcus Hutchins, a 22-year-old cybersecurity analyst for the security firm Kryptos Logic, spotted that trait last week, and immediately registered the web domain in WannaCry’s code. In doing so, he effectively neutered the malware, cutting short what would have otherwise been a far worse epidemic, and instantly becoming a minor celebrity in cybersecurity circles.

Since then, hackers have directed armies of zombie devices—webcams, modems, and other gadgets caught up in the expansive Mirai botnet—to funnel junk traffic to the kill-switch web address, also called a “sinkhole,” a site security researchers direct malware to in order to contain it. The presumed intention? Knock the domain offline, trigger some of WannaCry’s dormant infections to reactivate, and end the epidemic’s nearly week-long lull.

“Pretty much as soon as it went public what had happened, one of the Mirai botnets started on the sinkhole,” says Marcus Hutchins, the British security researcher who registered the WannaCry kill-switch domain. Since then, he says, near-daily attacks from that first botnet and others built with the same Mirai malware have steadily ticked up in size and impact.

If the DDoS assault did succeed, not all WannaCry infections would immediately reignite. The ransomware stops scanning for new victims 24 hours after installing itself on a computer, says Matt Olney, a security researcher with Cisco’s Talos team. But anytime one of those infected machines reboots, it starts scanning again. “The ones that were successfully encrypted are in this zombie state, where they’re waiting to be reactivated if that domain goes away,” says Olney.

What WannaCry Means for Windows

By: R. Scott Raynovich  May 19, 2017
Important details about the origins and propagation of the WannaCry ransomware virus remain unknown, but the damage done by the cyber attack highlights ongoing concerns about security the Windows operating system (OS) and leaves some key takeaways for security professionals. 

WannaCry is "ransomware" that locks down a system and then asks the victim for a ransom payment to unlock the files. The virus exploits vulnerabilities in Windows, primarily Windows 7.  

Once it has infected a victim on a network, it can propagate itself using worm-like techniques of computer viruses, looking for similar exploitable systems where it copy itself. However, many security experts say they still don't know how WannaCry initially infects victims, though it is suspected to use phishing techniques.

Many security experts have concluded that WannaCry used the EternalBlue hacking tool developed by the National Security Agency (NSA) and leaked by Shadow Brokers, a global hacking organization. However, the WannaCry perpetrators appear to have borrowed the code from Shadowbrokers and have proven to be miserable businesspeople -- the ransomware techniques appear "amateurish," according to many experts, explaining why few people have paid the ransom

Most estimates put WannaCry's impact at more than 150 countries and millions of systems. It is estimated to have caused billions of dollars in damage.

WannaCry is targeted at Windows operating systems (OSes) and primarily Windows 7, which has led to some criticism of Microsoft for slow updates and limited support for this older generation OS. Windows 7 accounts for 67 percent of infections, according to data from BitSight, as reported by Reuters. Older operating systems such as Windows XP appear to be playing a smaller role, and Windows 10, Microsoft's latest OS, accounts for only 15 percent of infections. 

Russia will not soon become, if it ever becomes, a second copy of the United States or England - where liberal values have deep historic roots.

Vladimir Putin.

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