Mark Latham Commodity Equity Intelligence Service

Monday 30th January 2017
Background Stories on www.commodityintelligence.com

News and Views:







Macro

Commodity Intelligence Quarterly: BOOM?

In which the Deplorable White Van Brigade show their animal spirits, and the natural economic surplus is diverted from chocolate onions to productive investment.  A very contrarian scenario.

Attached Files
Commodity Intelligence Q1 2017 (1).pdf
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Republicans Warn No Trump Tax Reform Until Spring 2018


The worst news for Trump's Wall Street supporters is neither the Obamacare delay, nor infrastructure spending hiatus, but his tax reform, arguably the single biggest driver behind the powerful market rally. Alas, as Reuters reports, things here too may be about to get indefinitely delayed into the future, to the point where the market may finally start asking itself if it has gone up too high, too fast.

The reason for this was revealed last week in Philadelphia, when the reality of Trump's aggressive fiscal spending agenda hit the brick wall of Congressional Republicans. According to Reuters, "as congressional Republicans gathered for an annual policy retreat in Philadelphia on Wednesday, the 100-day goal morphed into 200 days. As the week wore on, leaders were saying it could take until the end of 2017 - or possibly longer - for passage of final legislation."

And while Trump had a different idea when he spoke to lawmakers in Philadelphia, "telling them: Enough talk. Time to deliver", he may have no recourse when dealing with the bitterly polarized and fragmented House of representatives:

barely visible in Philadelphia, there are potential flashpoints of disagreement within the Republican rank-and-file in Congress as well as between Republican lawmakers and the unorthodox new president.

These include how and when to replace Obamacare if Republicans succeed in their quest to repeal it; how to revamp the multi-layered tax code, whether to build a wall on the U.S. border with Mexico and the nature of the U.S. relationship with Russia.

But the most troubling revelations was the following: "When it comes to tax reform, senior congressional aides said the spring of 2018 might be a more likely time than this year for the passage of legislation."

http://www.zerohedge.com/news/2017-01-29/first-big-shock-wall-street-republicans-warn-no-trump-tax-reform-until-spring-2018
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GOP's clever tax plan managed to baffle everyone


House Republicans, led by Paul Ryan, have been trying to give President Donald Trump an outlet for his protectionist impulses while avoiding any increase in tariffs. They hit on a clever plan — but on Thursday a series of remarks by Trump spokesman Sean Spicer and reports by journalists showed that it might have been too clever.

The House Republican idea is to cut the corporate-income tax to 20 percent and modify it. Crucially, the new corporate tax would have a feature in common with most of the value-added taxes (VATs) that other countries use: It would apply to imports but not exports. The idea is to tax all domestically consumed goods, whether those goods are produced here or abroad.

This "border adjusted" tax wouldn't be a tariff, because it wouldn't discriminate between imports and goods produced in America for Americans. It therefore wouldn't bias a consumer's choice between a domestically produced good and a competing import.

Some Republicans think that other countries' VATs help to reduce their trade deficits and that we could reduce ours by adopting a border-adjusted tax. They are probably wrong about that: Most economists believe that when countries adopt such taxes, their currencies appreciate and their total imports and exports end up roughly unchanged. (How fast this happens is an open question.)

But since we import more than we export, applying taxes to imports but not to exports also raises money for the federal government. The economist Martin Feldstein estimates that border adjustment could raise $120 billion a year. That's another reason House Republicans like it: They could use the revenue to offset some of the tax cuts they want to enact.

The best argument for border adjustment is that it is a way for free traders to tell Trump that they are going to discourage imports and encourage exports, while at the same time they avoid outright protectionism. That rationale depends on Trump's not quite grasping what's going on.

Problem No. 1 with this plan is that Trump's understanding of it is a little too poor. He recently said that border adjustment was "too complicated" and sounded as if it could be a "bad deal" — sounding as if he thought it had something to do with international trade negotiations, when it is actually something Congress could simply legislate. But later he said it would be an option.

On Thursday, Trump spokesman Sean Spicer introduced more confusion. He told reporters that it was possible to make Mexico pay for the border wall by "using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico." He said, "That's really going to provide the funding."

Spicer didn't describe the plan correctly. The reform in question would tax all imports, not just imports from countries with which we have a trade deficit. And reporters garbled things further. The New York Times, for example, erred early on in reporting that the tax would apply to all countries but that "initially" it would apply just to Mexico. Spicer had mentioned Mexico because he was making a point about the border wall, not because it would be singled out by the tax.

And then Spicer explained that the administration wasn't, after all, endorsing the border-adjustment idea, which he said was just one of several options under consideration. In making this clarification, he repeated his misleading assertion that border adjustment would tax imports from countries with which we have a trade deficit.

Meanwhile, Rep. Chris Collins, R-New York, a critic of free trade, went on MSNBC to defend border adjustment. He called it a "surcharge" on imports that would improve our competitiveness.

It's not a surcharge on imports, since it's the same tax that would be applied to American companies selling to Americans. It probably wouldn't change the trade balance, either, because it would cause the dollar to appreciate. Supporters of free trade, meanwhile, were aghast at what they took to be another sign of protectionism coming from the Trump administration.

Border adjustment may be a good idea. It has some very smart supporters. But the list of people who do not understand it currently includes congressional advocates of it, critics of it, some journalists reporting on it, the president who would have to sign it into law and his spokesman. Some of this misunderstanding is the result of the special chaos that policy formation in this administration involves.

But maybe Trump was right the first time, and this idea is indeed too complicated for our political system to handle.

http://magicvalley.com/news/opinion/columns/other-view-gop-s-clever-tax-plan-managed-to-baffle/article_7ae68aad-e19d-5f6a-ae8d-7c3fb28a1d67.html
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U.S. GDP Grew 1.9% in Fourth Quarter


The U.S. economy decelerated in the final three months of 2016, returning to the familiar pace of growth that has marked the long but lackluster postrecession expansion.

Gross domestic product, a broad measure of the goods and services produced across the economy, expanded at an inflation and seasonally adjusted annual rate of 1.9% in the fourth quarter, the Commerce Department said Friday. That was a slowdown from the third quarter’s 3.5% growth rate, which had been the strongest reading in two years.

Economists surveyed by The Wall Street Journal had expected a 2.2% growth rate in the final three months of 2016.

The economy’s expansion last quarter reflected decent consumer spending, a rebound for home-building and stronger business investment in both new equipment and research-and-development projects.

Two volatile categories buffeted the headline growth figure: Private inventories contributed a full percentage point to the fourth quarter’s growth rate, but a wider trade deficit subtracted 1.7 percentage points.

Economic output also rose 1.9% in the fourth quarter compared with a year earlier, matching its growth during 2015 and close to the 2.1% average annual growth rate since the recession ended in mid-2009. The current expansion has lasted longer than the historical average, but its average rate has been the weakest since at least 1949.

That unspectacular trend may continue in the coming years. The nonpartisan Congressional Budget Office this week projected GDP would grow 2.3% in 2017 and 1.9% in 2018. The agency said structural trends, including baby-boomer retirements, are driving a slowdown in economic growth compared with past decades.

Nick Fanandakis, DuPont Co.’s chief financial officer, told analysts Tuesday that the chemicals company expects stronger U.S. growth in the coming year, “but we remain cautious amid economic uncertainty and the stronger dollar.” A strong dollar can hurt manufacturers by making U.S. exports more expensive for foreign customers.

President Donald Trump, who took office this month, has set a goal of generating 4% annual growth by overhauling the tax code and rolling back federal regulations, among other measures. Some forecasters have raised their projections for U.S. growth this year and in 2018 in anticipation of tax cuts and infrastructure spending.

“We look at the talk of stimulus with some anticipation of a positive boost to the economy,” Texas Instruments Inc. CFO Kevin March told analysts this week. “But frankly we think it’s probably too early to figure out what that might be and how it might manifest itself.”

Economists have warned it will be difficult to significantly boost the economy’s sustainable growth rate due to projected slow growth in the size of the workforce and the recent sluggish trend for labor productivity.

Economic growth “has been restrained in recent years by a variety of forces depressing both supply and demand, including slow labor force and productivity growth, weak growth abroad and lingering headwinds from the financial crisis,” Federal Reserve Chairwoman Janet Yellen said last week. “Although I am cautiously optimistic that some of these forces will abate over time, I anticipate that they will continue to restrain overall growth over the medium term.”

But in the short term, GDP growth fluctuates from quarter to quarter due to changes in household outlays, government spending, trade patterns and other factors.

Friday’s report showed consumer spending, which accounts for more than two-thirds of overall economic activity, rose at a 2.5% annual rate in the fourth quarter compared with 3.0% growth in the third quarter. Outlays were led last quarter by a 10.9% growth rate for spending on durable goods such as automobiles, the third straight quarter of strong growth in the category.

Business investment continued to pick up in late 2016. Fixed nonresidential investment increased at a 2.4% annual pace in the final three months of the year, the third consecutive quarter of growth. Companies pulled back last quarter on structures spending, but ramped up expenditures on equipment and intellectual property products like software and R&D.

Net exports subtracted 1.7 percentage points from the fourth quarter’s GDP growth rate, reflecting a drop in exports and a large rise in imports. It was the largest trade-related drag on overall growth since the second quarter of 2010. A temporary surge in soybean exports during the third quarter had helped narrow the overall trade gap, and net exports boosted the headline GDP growth rate that quarter by 0.85 percentage point.

The housing sector rebounded last quarter, with residential investment growing at a 10.2% annual pace following two straight quarters of decline. Mortgage rates remain low but have risen in recent months, posing a potential headwind for buyer demand in 2017.

Government spending supported growth in late 2016, rising at a 1.2% pace in the fourth quarter. The federal government reduced military spending compared with the third quarter, but state and local governments ramped up their investment spending.

Private inventories added 1.0 percentage point to last quarter’s GDP growth rate, after contributing 0.49 percentage point to the third quarter’s growth rate. Previously, inventories had been a drag on growth for five consecutive quarters.

Inflation picked up in the fourth quarter, partly reflecting the recent rise in gasoline prices. The Fed’s preferred price gauge, the personal consumption expenditures price index, rose an annualized 2.2% in the fourth quarter. Excluding the often volatile categories of food and energy, so-called core prices rose at a more modest 1.3% pace.

The Fed has set a goal of 2% annual inflation, and the U.S. central bank said in mid-December it expected long-subdued U.S. price growth would firm to that level “over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.”

http://www.wsj.com/articles/u-s-gdp-grew-1-9-in-fourth-quarter-1485524015?mod=e2twcb
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Beijing smog inspectors on frontlines of war on pollution


Tougher law enforcement has reduced the number of environmental offenders in Beijing in recent years, but more companies need to adapt to the emissions standards in China's capital, its environmental inspection squad says.

    Beijing has been on the frontlines of a "war against pollution" declared by Premier Li Keqiang in 2014, as part of a central government promise to reverse damage done by decades of growth, and strengthen powers to shut down and punish polluters.

    With more than 500 environmental inspectors working to identify offenders, thousands of companies have been investigated and punished in the past four years.        

    But beyond simply enforcing standards, the squad faces the critical task of persuading more firms of the value of protecting the environment, said Wang Yankui, the chief of Beijing's central environmental inspection squad.

"The difficulty we face now is how to influence more companies to actively make improvements for the sake of environmental protection," Wang added. "Some companies have this intention, but they don't know how to do it."

    Besides dealing with violators, the inspectors also keep tabs on "model" companies that have already adopted city standards.

The squad runs a hotline for city residents to report potential polluters, who could eventually join its network of identified offenders.

    "If we don't obey the rules, then we might be penalized, or shut down," said Li Qiang, an official of a car finishing factory on the outskirts of Beijing, which has managed to keep pace with changing environmental standards for several years.

"As a business, survival needs profits, and profits are made under the pre-condition that we abide by the provisions or requirements of the government."

    Cars, not industries, are Beijing's primary polluters, the national environmental protection bureau said this month, blaming vehicles for more than 31 percent of harmful emissions.

Authorities have responded by clamping down on the number of vehicles on the road when smog alerts are issued.

    But most of the smog originates from polluting industries in surrounding provinces that must be convinced of the need to obey the law, said Greenpeace campaigner Dong Liansai.

    "If we only rely on the basic law enforcement authorities and polluting companies to play some sort of cat-and-mouse game, then there may be no way of solving the current pollution problems," he added.

    While many of Beijing's polluting industries have moved to other provinces, Wang said local authorities have jurisdiction and enforcement is up to them.

    Some Beijing residents fear the government's environmental policies will fail if they ignore polluters in surrounding areas.

    "I think (Beijing's) current policies are to treat the symptoms but not the cause," said Zhou Gesun, a technician working in the information technology industry.

There is only minor payoff from efforts such as odd and even license-number curbs on vehicle use, and halting work on construction sites, he added.

"The big factors are the areas surrounding Beijing, for instance, heavy industrial factories in Hebei. I think they should bring these factories under their control."

    Besides the squads, Beijing will set up a police force to specifically target environmental offences and polluting activities including open-air barbecues and garbage and biomass burning, the capital's acting mayor, Cai Qi, said this month.

http://www.reuters.com/article/us-china-pollution-inspection-idUSKBN15B0IB

Attached Files
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Oil and Gas

OPEC Convinces Investors That Its Oil Output Cuts Are Real


OPEC appears to have persuaded investors that it’s making good on promised production cuts.

Money managers are the most optimistic on West Texas Intermediate oil prices in at least a decade as the Organization of Petroleum Exporting Countries and other producers reduce crude output. Saudi Arabia has said more than 80 percent of the targeted reduction of 1.8 million barrels has been implemented. Oil shipments from OPEC are plunging this month, according to tanker-tracker Petro-Logistics SA.

“All the signs are pointing to a pretty significant OPEC cut,” Mike Wittner, head of commodities research at Societe Generale SA in New York, said by telephone. “Until this week we were only getting data from the producers, now the tanker traffic seems to be supporting this view.”

OPEC will reduce supply by 900,000 barrels a day in January, the first month of the accord’s implementation, said the Geneva-based Petro-Logistics. That’s about 75 percent of the cut that the producer group agreed to make. Eleven non-members led by Russia are to curb their output in support.

Hedge funds boosted their net-long position, or the difference between bets on a price increase and wagers on a decline, by 6.1 percent in the week ended Jan. 24, U.S. Commodity Futures Trading Commission data show. WTI rose 1.3 percent to $53.18 a barrel in the report week. The U.S. benchmark lost 0.5 percent to $52.93 at 12:21 p.m. Singapore time on Monday.

OPEC members Saudi Arabia, Kuwait and Algeria have said they’ve cut output this month by even more than was required, while Russia said it’s curbing production faster than was agreed. Saudi Arabia Energy Minister Khalid Al-Falih said on Jan. 22 that adherence has been so good that OPEC probably won’t need to extend the accord when it expires in the middle of the year.

Shale Headwind

The OPEC-engineered price rally has spurred a surge in drilling in the U.S. shale patch. Rigs targeting crude in the U.S. rose by 15 to 566 last week, the highest since November 2015, according to Baker Hughes Inc.

“There’s one headwind in the oil market: increased U.S. shale production,” Jay Hatfield, a New York-based portfolio manager of the InfraCap MLP exchange-traded fund with $175 million in assets, said by telephone. “U.S. output in 2017 will be 1 million barrels a day higher than last year.”

U.S. crude production climbed to 8.96 million in the week ended Jan. 20, the highest since April, according to the Energy Information Administration. That’s already closing in on the EIA’s latest 2017 output forecast of 9 million barrels a day that was issued Jan. 10.

The net-long position in WTI rose by 21,429 futures and options to 370,939, the most in data going back to 2006. Longs rose 3.7 percent to a record high, while shorts slipped 11 percent.

Shale Threat

In fuel markets, net-bullish bets on gasoline fell 3.4 percent to 61,511 contracts as futures decreased 1.5 percent in the report week. Money managers increased wagers on higher ultra low sulfur diesel prices by 1.3 percent to 34,978 contracts, while futures slipped 0.4 percent.

“For the time being the market is more focused on the OPEC cuts than about how fast U.S. shale drillers are returning,” Wittner said. “There may come a point soon when the support provided by OPEC will be outweighed by the prospect of rising U.S. production. When that happens there will be a big shift in investor sentiment.”

https://www.bloomberg.com/news/articles/2017-01-30/opec-convinces-investors-that-its-oil-production-cuts-are-real
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Opec Cuts

OPEC Convinces Investors That Its Oil Output Cuts Are Real (2)

OPEC appears to have persuaded investors that it’s making good on promised production cuts.
Money managers are the most optimistic on West Texas Intermediate oil prices in at least a decade as the Organization
of Petroleum Exporting Countries and other producers reducecrude output. Saudi Arabia has said more than 80 percent of the
targeted reduction of 1.8 million barrels a day has been implemented. Oil shipments from OPEC are plunging this month,
according to tanker-tracker Petro-Logistics SA.

“All the signs are pointing to a pretty significant OPEC cut,” Mike Wittner, head of commodities research at Societe
Generale SA in New York, said by telephone. “Until this week we were only getting data from the producers, now the tanker
traffic seems to be supporting this view.”

OPEC will reduce supply by 900,000 barrels a day in January, the first month of the accord’s implementation, said
the Geneva-based Petro-Logistics. That’s about 75 percent of the cut that the producer group agreed to make. Eleven non-members
led by Russia are to curb their output in support.Hedge funds boosted their net-long position, or the difference between bets on a price increase and wagers on a decline, by 6.1 percent in the week ended Jan. 24, U.S. Commodity Futures Trading Commission data show. WTI rose 1.3 percent to $53.18 a barrel in the report week. The U.S. benchmark slipped 0.3 percent to $53.01 at 9:18 a.m. London time on Monday.

OPEC members Saudi Arabia, Kuwait and Algeria have said they’ve cut output this month by even more than was required,
while Russia said it’s also curbing production faster than was agreed. Saudi Energy Minister Khalid Al-Falih said Jan. 22 that
adherence has been so good that OPEC probably won’t need to extend the accord when it expires in the middle of the year.

Shale Headwind

The OPEC-engineered price rally has spurred a surge in drilling in the U.S. shale patch. Rigs targeting crude in the
U.S. rose by 15 to 566 last week, the highest since November 2015, according to Baker Hughes Inc.
“There’s one headwind in the oil market: increased U.S. shale production,” Jay Hatfield, a New York-based portfolio
manager of the InfraCap MLP exchange-traded fund with $175 million in assets, said by telephone. “U.S. output in 2017 will
be 1 million barrels a day higher than last year.”

U.S. crude production climbed to 8.96 million barrels a day in the week ended Jan. 20, the highest since April, according to
the Energy Information Administration. That’s already closing in on the EIA’s latest 2017 output forecast of 9 million barrels a
day that was issued Jan. 10. The net-long position in WTI rose by 21,429 futures and options to 370,939, the most in data going back to 2006. Longs rose 3.7 percent to a record high, while shorts slipped 11
percent.

In fuel markets, net-bullish bets on gasoline fell 3.4 percent to 61,511 contracts as futures decreased 1.5 percent in
the report week. Money managers increased wagers on higher ultra low sulfur diesel prices by 1.3 percent to 34,978 contracts,
while futures slid 0.4 percent.  “For the time being the market is more focused on the OPEC cuts than about how fast U.S. shale drillers are returning,” Wittner said. “There may come a point soon when the support provided by OPEC will be outweighed by the prospect of rising U.S. production. When that happens there will be a big shift in investor sentiment.”



Attached Files
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Millions of barrels of Venezuelan oil stuck at sea in dirty tankers


More than 4 million barrels of Venezuelan crude and fuels are sitting in tankers anchored in the Caribbean sea, unable to reach their final destination because state-run PDVSA cannot pay for hull cleaning, inspections, and other port services, according to internal documents and Reuters data.

About a dozen tankers are being held back because the hulls have been soiled by crude, stemming from several oil leaks in the last year at key ports of Bajo Grande and Jose, which has resulted in delayed operations for loading and discharging.

Since debt-laden PDVSA cannot afford to have the ships cleaned, they have to wait for weeks to navigate international waters, delaying shipments.

Dirty tankers are the latest of a litany of problems weighing on PDVSA, the source of most of Venezuela's export revenue and critical to the government's budget.

Oil production and exports are currently at lows not seen in more than two decades. PDVSA's difficulty with paying creditors and service providers makes pulling itself out of that hole more onerous. That has contributed to a deep, years-long recession in the OPEC country.

As of Jan. 25, vessels carrying some 1.4 million barrels of crude, diesel, gasoline, fuel oil and liquefied petroleum gas were anchored in Venezuelan and Caribbean waters waiting for cleaning, according to PDVSA's trade documents, verified by Reuters shipping data. The company did not respond to a request for comment.

"PDVSA almost solved this situation in Bajo Grande in early December because it needed to drain inventories, but it is now taking at least three weeks to complete the cleaning," said an inspector at Lake Maracaibo, who was not authorized to speak to the press.

The dozen or so tankers that have not been cleaned are mostly from PDVSA's fleet of owned and leased vessels, according to a series of PDVSA's internal operational reports confirmed by Reuters vessel tracking data.

In addition, another 11 tankers in early January are being held up for "financial retention," a classification used by PDVSA in its internal reports to identify loaded vessels that have been embargoed or temporarily retained by port authorities, inspection firms or maritime agencies due to unpaid bills.

Those tankers, along with several smaller ones retained for other operational delays, are holding a combined 2.9 million barrels, according to the data.

The list includes the Aframax Hero, loaded in September with 520,000 barrels of fuel oil bound for China. The cargo is moored in Curacao, delayed by more than 100 days, until a payment to inspection firm Saybolt is made.

PDVSA's crude exports fell to 1.59 million barrels per day (bpd) in the last quarter of 2016 from 1.82 million bpd in the first quarter, a 13 percent decline, according to Thomson Reuters trade flows data. [tmsnrt.rs/2baTeGm]

DIRTY BUSINESS

Vessels started to become soiled by crude in PDVSA's ports last year amid intermittent oil leaks at Bajo Grande terminal in Venezuela's Lake Maracaibo, according to sources close to that operation.

Maritime laws prohibit stained tankers from navigating international waters until hull cleaning is performed. While PDVSA's debts to cleaning firms grow, the leaks have not been repaired, so dozens of vessels have traveled within the country in recent months, spreading the problem to other terminals, including Puerto la Cruz, La Salina, Cardon and Amuay, the documents state.

Cleaning, which is performed at the Guaranao Port, located close to Venezuela's largest refinery, has taken as much as two months in some cases, an inspector said.

A crude spill at Jose in January stained more tankers, this time affecting vessels waiting to load crude for exports.

PDVSA last week said the affected dock at Jose resumed operations, but there is a logjam of ships needing cleaning, affecting regular foreign buyers of Venezuelan crude, the inspector and a trader from a firm buying Venezuelan oil said.

Some of PDVSA's joint venture partners in projects in the Orinoco belt have proposed picking up part of the bill, paying cleaning companies in dollars to amortize debts faster and ease the bottleneck, but the state-run firm has refused due to its cash flow constraints, the trader said.

http://www.reuters.com/article/us-venezuela-pdvsa-tankers-idUSKBN15A0JA

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Iran lifts crude oil output to 3.9 mil b/d, supporting rising exports


Iran is currently producing 3.9 million b/d of crude, oil ministry news agency Shana reported late Wednesday, citing the country's petroleum minister.

Speaking on the sidelines of a government cabinet meeting Wednesday, Bijan Zanganeh indicated that Iran was closing in on its target of restoring output to the level of 4 million b/d the country produced before the 2012 imposition of international nuclear sanctions specifically targeting Iran's petroleum and financial sectors, while exceeding its deemed OPEC production ceiling of just under 3.8 million b/d following the group's decision in November to cut output by about 1.2 million b/d.

Zanganeh's latest estimate of Iranian crude production closely follows news Tuesday that two Iranian VLCCs were heading towards Rotterdam for the first time in five years to offload 4 million barrels of crude next month at the Dutch port.

Trading sources said the 317,367 dwt VLCC Huge (2008-built) and 318,021 dwt VLCC Snow (2012-built) would be arriving around February 7 and February 11 respectively to unload a mix of Iranian heavy and light crude grades at Rotterdam.

Currently, both the Panama-flagged Iranian VLCCs are located in the South Atlantic, after passing through the Cape of Good Hope, according to S&P Global Platts trade flow software cFlow.

In 2012, the EU banned imports of Iranian crude by its member countries and also the provision of EU-linked insurance, including protection and indemnity cover for any shipments of Iranian crude, regardless of destination.

RISING EXPORTS

However, Iranian crude exports are now on the rise.

In September, Iranian VLCC departures hit their highest level since sanctions were lifted a year ago, according to cFlow.

Iran is targeting oil production of 4 million b/d by the end of this Iranian year (March 20, 2017), supported by plans to launch in October its first bid round for oil and gas development contracts using a newly revised upstream contract. The Iranian oil ministry had said that in September 2016 the the country's oil production had reached 3.85 million b/d.

Zanganeh's statement Wednesday indicated a further 500,000 b/d rise in production even other major oil producers from within and outside OPEC make cuts after 24 producers, including Iran, agreed in December to cut around 1.8 million b/d of total crude output from January for six months.

The output cuts largely revolve around medium to heavy sour crude grades, with a number of OPEC producers, especially Saudi Arabia, informing their customers that they would potentially affect term loadings.

Iran, while a member of OPEC, is allowed as part of the related OPEC deal to increase its production slightly to 3.797 million b/d, after producing 3.72 million b/d in December, secondary sources said

OIL DEVELOPMENT FRAMEWORK DEALS CONFIRMED

Zanganeh confirmed Wednesday that an international consortium comprising France's Total, China National Petroleum Corp. and Iran's Petropars had signed a heads of agreement for developing Phase 11 of the huge South Pars offshore gas field, Shana reported.

Another heads of agreement had been signed with a local company, Persian Oil and Gas Co., for developing the major Yaran, Maroon and Koupal onshore oil fields in Iran's Wes Karoun region, he added.

All four fields fall in the category of "shared fields," due to their extension across international borders, to which the ministry has assigned top priority for development.

South Pars, containing large volumes of condensate in addition to an estimated 500 Tcf of gas reserves, or about half Iran's total proved gas reserves, straddles the country's Persian Gulf maritime border with Qatar and is part of the world's largest conventional gas reservoir.

Qatar calls its side of the deposit North Field.

Gas production from South Pars stood at around 500 million cu m/d in early January, up from 285 million cu m/d at the end of 2013, and Iran has announced plans to add another 45 million cu m/day before the end of March.

Much of the condensate produced from the field is blended with heavy Iranian crudes for export.

The three oil fields mentioned Wednesday by Zanganeh are located in Iran's West Karoun region and straddle the country's land border with Iraq.

In 2016, about 225,000 b/d of crude was being produced from West Karoun fields, which also include the giant South and North Azadegan and Yadavaran fields. The ministry is seeking to raise that to 315,000 b/d by March.

National Iranian Oil Co. managing director Ali Kardor said Tuesday that NIOC would issue a tender for the development of South Azadegan in the "near future."

http://www.platts.com/latest-news/oil/dubai/iran-lifts-crude-oil-output-to-39-mil-bd-supporting-26649047
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Asia gasoline refiners set to recover after glut


Many Asian gasoline refiners have started to recover from one of the sector's worst-ever gluts, with profit margins climbing as consumption grows and as stricter fuel specifications in top consumers force some inefficient producers to cut supply.

A series of refinery fires and maintenance outages are also boosting demand for gasoline from facilities that are still operating.

The profit margin for refining gasoline, known in the industry as the 'crack', averaged $11.10 a barrel from Jan. 1-27, lower than $15.80 for the same period last year but higher than any other year on record. GL92-SIN-CRK

"The rally in Singapore margins since the beginning of the year was extended this week, and Singapore margins are up by 24 percent since the beginning of the year on a 4-week rolling average," investment bank Jefferies said in a note on Friday.

The juicy margins early last year were self-destructive as refiners ramped up gasoline production in a race for profit, prompting a crash in margins as so much fuel flooded the market that it had to be stored on chartered tankers.

But, a similar plunge in margins is not expected this year as facility outages will hold back some supply. They include an extended refinery outage in Abu Dhabi and two upcoming maintenance closures in Indonesia, Asia's top gasoline importer.

Further supporting gasoline margins have been several fires and other unplanned outages in places such as India, Japan, Singapore and the United Arab Emirates.

"Gasoline supplies will be tighter in 2017 versus 2016," said Nevyn Nah of consultancy Energy Aspects, adding that Asia's supply would exceed demand by 176,000 barrels per day (bpd) in 2017, versus 206,000 bpd in 2016.

A big longer-term driver for higher cracks are new regulations in the world's biggest car markets curbing the sulphur content of fuel.

Churning out that cleaner fuel requires efficient refineries, with energy consultancy Energy Aspects saying the rules could force some operators to shut older units instead of spending cash to upgrade them, crimping gasoline supplies.

China capped sulphur content in gasoline at 10 parts per million (ppm) from the start of the year, down from 50 ppm, with the United States expected to take similar steps.

"Changes in fuel specifications this year in the U.S., China and India are not trivial. Supplies will be impacted," said Nah.

Healthier returns for making other fuels like diesel could also prevent refiners from overproducing gasoline as they did in 2016.

Analysts said that gasoline markets were currently well balanced overall.

"We expect the gasoline market to be finely balanced through summer this year, which is quite supportive of cracks. Demand growth continues to be strong," said Sri Paravaikkarasu of energy advisory FGE.

http://www.reuters.com/article/asia-gasoline-demand-idUSL4N1FE2B0

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Shell set to sell $3 billion North Sea assets to Chrysaor


Royal Dutch Shell is nearing the sale of a large part of its North Sea oil and gas assets to private equity-backed Chrysaor for $3 billion, banking sources said, marking a milestone in its drive to reduce debt after buying BG Group.

Chrysaor, a North Sea-focused oil company backed by private equity fund EIG Partners, will acquire from Shell a mix of older fields, new developments and infrastructure in a move analysts say could breathe new life into one of the world's oldest offshore basins where production has been in a steady decline since the late 1990s.

The anticipated deal in what is a relatively high-cost region has been seen by the industry as a litmus test for the sector's appetite for buying and selling oil and gas fields, known as upstream, as it slowly emerges from a brutal two-and-a-half year downturn. It could now unlock other deals in the North Sea and other regions.

The deal is expected to be announced in the coming days to coincide with Shell's full-year results on Feb. 2, several sources said.

Chrysaor will take charge of hundreds of Shell and former BG employees that work on the platforms.

It will also become operator of several fields, highlighting the changing landscape in the North Sea where oil majors such as Shell and BP are finding it harder to make profits.

In November, Austrian oil and gas group OMV agreed to sell its UK unit to private-equity backed Siccar Point Energy for $1 billion.

Chrysaor has been given the green light by Britain's Oil and Gas Authority regulator to operate fields in the North Sea. The deal also includes an "innovative" structure to tackle the expensive and complex decommissioning of platforms and infrastructure once production in fields is ended, sources said.

For the Anglo-Dutch company, the deal could kick start a string of other upstream sales that have struggled to attract interest throughout the downturn to help it meet its $30 billion disposal target by around 2018 following the $54 billion acquisition of BG Group in February 2016.

Several companies have looked at Shell's North Sea portfolio in recent months including A.P. Moller-Maersk, petrochemical giant Ineos and private equity fund Carlyle Group, according to banking sources.

Shell's asset bundle includes a non-operating stake in Buzzard north of Aberdeen, a relatively new field that feeds into the global Brent oil benchmark and a share in Shell's 55 percent holding in the BP-operated Schiehallion oilfield some 110 miles (180 km) west of the Shetland Islands.

Other assets include the Nelson, Armada, Everest, Lomond and J Block fields, and Shell's stake in the Statoil-led Bressay development, according to banking sources.

Shell has sold or agreed to sell around $7.8 billion of assets since announcing the deal in April 2015, though the majority of them were in the refining sector and infrastructure.

http://www.reuters.com/article/shell-ma-northsea-idUSL5N1FH354
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Nigeria Tells Shell, Eni to Temporarily Cede Oil Field Control


A Nigerian court has ordered Royal Dutch Shell Plc and Eni SpA to cede control of a jointly owned oil license to the government amid an investigation into how they purchased the asset.

The companies’ control of Oil Prospecting License 245 is suspended pending "investigation and prosecution of suspects" including companies and individuals accused of possible "acts of conspiracy, bribery, official corruption and money laundering," according to documents from the Federal High Court in Abuja.

“We are aware of media reports but we have not received any notification,” Eni said in an e-mailed statement. “Eni denies any wrongdoing in respect of its acquisition of a participation interest in the block OPL from the Nigerian government."

Nigeria’s Economic and Financial Crimes Commission, which has been investigating the sale of the license, requested the suspension, spokesman Wilson Uwujaren said by phone. He couldn’t say when the agency would complete the probe.

In 2011, Shell and Eni paid $1.1 billion for OPL 245 to Malabu Oil & Gas Ltd., a company controlled by Dan Etete, a former oil minister. Located in the deep offshore waters of the Gulf of Guinea, it is estimated to hold at least 9 billion barrels of crude reserves worth $1 trillion, according to a report by a House of Representatives committee. Nigerian lawmakers said in 2013 that the sale should be revoked because the sale process was flawed.

Nigeria is Africa’s largest oil producer, with Shell, Exxon Mobil Corp., Chevron Corp., Total SA and Eni running joint ventures with state-owned Nigerian National Petroleum Corp. that pump more than 90 percent of the country’s oil. The West African nation produced 1.45 million barrels a day of oil in December, according to data compiled by Bloomberg.

https://www.bloomberg.com/news/articles/2017-01-27/nigeria-tells-shell-eni-to-temporarily-cede-oil-field-control

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Fires Spark a Double Bonanza for Oil Refiners


Oil refiners from Japan to the U.S. are benefiting from being forced by fires to make less fuel.

A slew of blazes at plants across the globe is shrinking supplies and boosting profits from turning crude into products such as gasoline and diesel. At least 13 refineries, including in Ruwais in Abu Dhabi, Deer Park in Texas and Tuapse in Russia with a combined capacity of about 1.8 million barrels a day, were struck by fire this month, according to data compiled by Bloomberg. That’s more than double the five plants affected last month.

Bloomberg data

The unexpected incidents are offering refiners a double windfall as it coincides with declining global fuel inventories amid solid demand. Total oil-product stockpiles in developed countries fell in November for a fourth month, with a “hefty” drop in middle distillates such as diesel in Europe, according to the International Energy Agency. If such outages continue, unusual intercontinental flows of fuels may occur this year, according to industry consultant FGE.

“These fires were certainly not expected, and when they happen, they help cracks,” said FGE analyst Sri Paravaikkarasu from Singapore. The incidents “definitely boosted overall market sentiment. Demand growth is still strong. Any small outage is helping to boost margins,” she said.

Processing profits in Singapore, a regional benchmark, averaged $7.25 per barrel in January, up from $6.70 a barrel in December, Paravaikkarasu estimates. If it had not been for fires, margins would have been 60 cents to $1 a barrel lower this month, she said. Average returns in Europe jumped to $2.68 a barrel from 78 cents a barrel, with U.S. rates 3.7 percent higher to $11.28, according to Bloomberg data.

Unexpected Disruption

An event like a blaze -- an unexpected disruption to supply -- is affecting margins to a greater extent this time around than two years earlier as global stockpiles have shrunk and the pace of additions to refining capacity has slowed, according to Paravaikkarasu.

Diesel inventories in China, the world’s biggest energy user, slipped to 5.81 million metric tons in December, the least on record, according to data from Xinhua’s China Oil, Gas and Petrochemicals newsletter. Fuel oil stockpiles in Singapore, a regional hub of oil trading, dropped to a two-year low earlier this month, official data show.

Global fuel demand will rise by 1.4 million barrels per day in the first quarter from a year earlier, exceeding a “modest ” gain of 310,000 barrels per day in refinery processing rates, the IEA estimates.

The fires can prompt fuel to travel to more unusual, distant customers, offering a money-making opportunity for traders seeking to take advantage of price differentials between the East and the West.

“If there are refinery glitches in the East, refiners in the West have to make up for the loss in Asia, which results in higher profits in Europe,” said Ehsan Ul-Haq, principal consultant at KBC Advanced Technologies.

Abu Dhabi National Oil Co. has sold a cargo of straight-run residual fuel oil to Cargill Inc. after a blaze at its Ruwais refinery earlier this month forced the company to export excess fuel that was to be processed at halted units. The shipment is going to a Chinese independent refiner, according to traders with knowledge of the matter.

“Internationally such reshuffling is much easier as fuel specifications are simpler and there are many grades consumed in various places,” John Vautrain, head of consultant Vautrain & Co., said of intercontinental flows known as arbitrage trades.

Margins may weaken in the second and third quarters before recovering in the final period to levels seen in the first quarter, according to KBC.

FGE’s Paravaikkarasu sees Singapore margins in the range of $6 to $7 a barrel at least until the third quarter. “We’re a little bit higher currently because of the fires,” she said.

https://www.bloomberg.com/news/articles/2017-01-26/fire-sparks-double-bonanza-for-oil-refiners-as-fuel-profits-jump

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European natural gas storage facilities face closure on weak economics: industry


A number of European gas storage facilities could face closure in the coming years given the weak economics for operating sites across the continent, industry leaders said.

At the European Gas Conference in Vienna, officials from storage operators in Germany and Austria said the summer-winter spread -- historically wide to incentivize injections in the summer and withdrawals in the winter -- has narrowed considerably in recent years.

"I'm surprised we haven't seen more closures," managing director of gas storage at Austria's OMV, Erich Holzer, said.

"There will be more closures in the future -- summer-winter margins are too low to keep these storage facilities [operational]," Holzer said.

Head of energy storage Austria at Germany's Uniper Michael Schmoltzer echoed his view.

"The economics say that you have to close your storage sites that do not cover their costs," Schmoltzer said.

"The summer-winter spread is putting us under pressure," he said.

The current spread between TTF day-ahead prices and summer 2017 is just over Eur3/MWh, according to Platts assessed prices on Wednesday, but has been as low as Eur1/MWh in recent months.

The bleak outlook has been somewhat tempered by a strong use of storage across Europe so far this winter.

Commercial Managing Director of Innogy Gas Storage Michael Kohl said Europe was on track for its gas storage levels to drop to record lows by the end of the winter having started the season at record highs.

"Very low prices in summer 2016 drove the filling," he said, adding that levels were now around 50%.

Asked whether there was a risk of European gas storage levels running dangerously low in the event of a continued cold winter, Kohl said it remained to be seen.

"It is too early to say if there will be an issue, and depends on the type of storage," he said, pointing to a more reliable withdrawal performance for salt-cavern storage facilities.

But OMV's Holzer said storages could go to their lowest ever by the end of the winter of under 11% full.

STRONG WITHDRAWALS

Holzer said that in the past few weeks there had been extremely high withdrawals to counter the prolonged cold snap across much of Eastern and Southern Europe.

The spread between the Austrian and Italian hubs has blown out in recent weeks making the withdrawal of gas in Austrian storages to supply Italy more lucrative.

"Customers of our storage are looking to make money now," Holzer said.

Uniper's Schmoltzer said some 100 Bcm of gas was stored in Europe ahead of the winter, an all-time high.

Competition between storage operators in Europe is also high, adding to the economic threat to individual companies.

Closures would, of course, benefit those left behind.

Some 3 Bcm of gas storage capacity in Europe has been closed over the past five years, but some 12 Bcm has been added, meaning a net 9 Bcm gain, Kohl said.

He added that increased pipeline capacity from Russia and Norway, as well as LNG supplies, were also a threat to gas storage economics in Europe.

However, he said, gas storage facilities were still better placed to respond to an immediate supply shortage as withdrawals could take place quickly.

LNG, on the other hand, would always be slower to respond as the vessels would have to be diverted to Europe, which takes time.

http://www.platts.com/latest-news/natural-gas/vienna/european-natural-gas-storage-facilities-face-26648216

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Asia spot LNG: Feb Platts JKM drops 17.5 cents on unsold March cargoes


Platts JKM for spot deliveries into Northeast Asia for March ended the Asian trading week at $7.75/MMBtu Friday, down 17.5 cents from last Friday, as extra March supply continued to be marketed in the region, and recent March deals were heard done below $8/MMBtu.

At the start of the week, Papua New Guinea was heard to have awarded its sell tender for a mid-March and early April delivery cargo. The mid-March cargo was heard awarded close to, or even above, $8/MMBtu.

Near the middle of the week, firmer demand for prompt cargoes delivered to Europe due to cold temperatures and pipeline supply issues in that region provided some support to the prompt market.

The most recent cargo from Angola LNG for late January delivery to Europe was heard sold to Gas Natural Fenosa, at above $9/MMBtu.

At the same time, demand from end-users in North Asia remained lackluster for March. By Friday, various traders were reporting deals done recently for H1 March, one of which was done at mid- to high-$7s/MMBtu, although this was not widely reported.

Additional supply was about to hit the market, sources said, with PNG likely to offer another cargo.

Meanwhile, Petronas was also heard to be marketing a first-half March cargo out of its portfolio, which would include both Bintulu and its floating LNG facility, PFLNG, but this could not be confirmed with the company.

China's Sinopec was offering cargoes for February and March delivery from the Australia Pacific LNG project, multiple sources said. Similarly, some other end-users in Japan were also heard to be looking to sell some cargoes.

In Southeast Asia, Thailand's PTT issued a buy tender Wednesday for an early March delivery cargo. The tender is scheduled to close on January 27. Thai PTT's buy tender was expected to draw a number of sellers given the lack of demand across the rest of Asia, sources said.

In shipping, CNOOC's terminal in Tianjin had successfully replaced its FSRU, the GDF Suez Cape Ann, with the Neo Energy on January 20, and subsequently received its first cargo of the year aboard the Solaris, which docked at the terminal January 21, according to S&P Global Platts shiptracking software cFlow.

http://www.platts.com/latest-news/natural-gas/singapore/asia-spot-lng-feb-platts-jkm-drops-175-cents-26648979
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Algeria's Skikda LNG export plant restarted Thursday: Sonatrach CEO


Sonatrach Thursday restarted operations at its Skikda LNG export facility, ahead of schedule, Sonatrach CEO Amine Mazouzi said.

The shutdown was scheduled to last until February, Mazouzi said in a company statement. The 4.7 million mt/year plant went down at the end of December due to a heat exchanger issue, according to a company source. Since the outage, Sonatrach has been meeting its contractual supply obligations by sending LNG from the smaller Arzew export plant.

Mazouzi strongly criticized alleged comments that the break in LNG supplies from Algeria, due to the work at Skikda, to southwestern France added to a natural gas shortage in France.

"Algeria is a reliable supplier of gas," Mazouzi said. "We have fulfilled all our commitments and responded to all requests agreed upon between [Sonatrach and French customer Engie], particularly in January and even during the technical shutdown of the liquefaction unit at Skikda."

Mazouzi also cited the unexpected cold spell accompanied by a very high demand.

"Everyone then fetched gas, and Algeria was a very reliable supplier and helped export some of this European demand," he said.

http://www.platts.com/latest-news/natural-gas/algiers/algerias-skikda-lng-export-plant-restarted-thursday-26648980
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Deep dive in the Permian

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Looking at these shares, there are a couple highlights as we enter 2016. American Energy Partners, representing less than 10% of the permit market throughout 2014 and most of 2015, increased their share to about 15% in November, December, and January. Parsley Energy, regularly held about 6% of the market in 2014 and 2015 before increasing their share to 14% in October, 12% in December, and 10% in January. In January, Apache Corporation and Fasken Oil and Ranch also experienced significant increases in their permit approval market, which were out of ordinary compared to their recent months.

Unfortunately, looking at the market share for smaller operators (grouped into the others category), in Jan-14 they represented just over half of the market compared to Jan-16 where they represent slightly more than 10% as smaller companies struggle to remain in business.

The top 20 market for completions have seen more gradual changes. Occidental, representing about 7% of the market on average throughout 2014 and 2015, increased their completion share to 13% in Dec-15. Anadarko Petroleum Corporation represented 1% of Permian completions through Aug-15 before increasing their share month over month through Dec-15. Matching their increase in permits, Parsley Energy represented ~2% of the market but in Nov and Dec, they increased their share and currently represent 6% of the Dec-15 completion market. On the other hand, Pioneer Natural Resources experienced an increase in market share in Oct-15 and Nov-15 but has not reported any completions in Dec-15 as of today. Fasken Oil and Ranch experienced a decreasing share of completions in Nov-15 and Dec-15, but still hold a larger share than they did throughout 2014 and 2015. Their elevated completion market share, combined with their increasing permit approvals in Jan-16 suggests they may likely be completing more Permian wells over the next couple of months. 

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Recruiting Picking Up in January 2017?

I have talked to several friends in the O&G recruiting industry. More than one has signed master service agreements in January. This seems like a good sign for a hiring pickup. Is hiring picking up for agencies relative to 4Q 2016?



Fortunately for us, rates for hands and service work has deflated significantly since 2014. Without the reduction in wages and expenses, we would not be hiring. I saw this in another post on Oilpro and I will repeat it here ... it is all about the money.

We have just started hiring at the field level and engaged several of our old field service vendors. Fortunately for us, rates for hands and service work has deflated significantly since 2014. Without the reduction in wages and expenses, we would not be hiring. I saw this in another post on Oilpro and I will repeat it here ... it is all about the money.


Richard Quinn


Between late December to early Jan I have had 3 approaches from three different agents for three separate Snr Completion roles, so I definitely think the answer is yes! (:


Don McGinn




Most of the geology jobs I am applying for in Calgary have over 2000 applicants, which is daunting, but I have seen the number of geologist postings rise from two a month to two every week.


Jon Noad P.Geo.



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Chevron badly misses profit forecasts

Chevron badly misses profit forecasts

The company reported fourth-quarter earnings of $415 million, or 22 cents a share, on revenue of $31.5 billion. Analysts had expected Chevron to earn 64 cents on revenue of $33.3 billion, according to a consensus estimate from Thomson Reuters.

"Our 2016 earnings reflect the low oil and gas prices we saw during the year," Chairman and CEO John Watson said in a statement. "We responded aggressively to those conditions, cutting capital and operating expenses by $14 billion."

In the year-ago period, Chevron reported a loss of $588 million, or 31 cents a share, shortly before oil prices hit 12-year lows.

Low crude oil and gas prices throughout much of 2016 pushed the oil giant to a loss for the year. For 2016, Chevron reported a loss of $497 million, or 27 cents a share.

Cash flow, a key measure of corporate health in the oil and gas industry, was $12.8 billion in 2016, down from $19.5 billion the previous year.

Chevron spent $22.4 billion on capital projects and exploration last year, down from $34 billion in 2015, reflecting the industry trend of reducing expenses to weather the downturn.

Chevron saw results improve from the year-ago period in its upstream business, which includes exploration and production of fossil fuels. The company chalked that up to lower exploration and operating expenses and its oil and gas fetching a higher price.

Oil prices stabilized above $50 a barrel in the fourth quarter after OPEC and other major oil producers agreed to cut production.

In the downstream segment, which includes refining and marketing fuel, Chevron saw fourth-quarter profits slide both in the United States and abroad. The company broke even in its U.S. downstream business, compared with profits of $496 million a year ago.

Integrated oil companies such as Chevron have seen their refining margins shrink on the rising price of crude oil, the raw material for many fuels. Throughout much of the oil price downturn that began in 2014, low crude costs boosted refining margins.

Revenues for the quarter were $30 billion, up 7 percent from sales of $28 billion a year ago.

http://www.cnbc.com/2017/01/27/chevron-reports-earnings-of-22-cents-a-share-vs-estimates-for-64-cents-per-share.html
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US Rig count jumps again


The number of oil and gas rigs in U.S. fields leaped again this week, up 18 on the week or about 160 over the past three months.

This week’s count marks the ninth increase in the last 10 weeks, and a boom of more than 300 rigs since the count fell to its recent low, last spring.

U.S. oil drillers collectively sent 15 more rigs into the patch this week, the Houston oilfield services company Baker Hughes reported Friday. Gas drillers added three.

Texas again led the rise, with 9 more rigs. The Permian Basin, in West Texas and New Mexico, added 10.

The total rig count rose to 712, up from a low of 404 in May, and up 93 rigs year over year.

The number of active oil rigs jumped to 566 this week, gas rigs to 145. The number offshore rigs dipped again, by three to 21, down 7 rigs year over year.

Total rig counts lifted by 9 in Texas, five in Oklahoma, four in New Mexico, two in Louisiana, one in North Dakota and one in Alaska. Colorado lost 3, Arkansas and West Virginia, one.

http://fuelfix.com/blog/2017/01/27/rig-count-jumps-again/
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Range Announces 22% Increase in Proved Reserves; Provides Update on Resource Potential and North Louisiana Extension Wells


RANGE RESOURCES CORPORATION announced today that proved reserves as of December 31, 2016 were 12.1 Tcfe. Reserves

Highlights –  

Proved reserves increased 11%, excluding acquisitions and divestitures
Proved developed reserves increased 14%, excluding acquisitions and divestitures
Drill-bit development cost with revisions is expected to be $0.34 per mcfe
Future development costs for proved undeveloped reserves are estimated to be $0.42 per mcfe; Marcellus costs are estimated to be $0.37 per mcfe
Unhedged recycle ratio improves to over 3x based on future development costs of $0.42 per mcfe

Commenting on Range’s 2016 proved reserves, Jeff Ventura, Range’s CEO, said, “Range had another solid year of reserve growth, replacing 292% of production from drilling activities with drill-bit development costs of $0.34 per mcfe when considering pricing and performance revisions.  Positive performance revisions continued in 2016 as we extended laterals, improved targeting and drove efficiencies throughout our developed leasehold and infrastructure.  The strong reserve additions from drilling activity were driven primarily by our development in the Marcellus, as our acquisition of North Louisiana assets closed in late 2016.  Future development costs for proven undeveloped locations are estimated to be $0.42 per mcfe, which is outstanding and should improve our top tier unhedged recycle ratio to over 3x.  Importantly, Range added 1.65 Tcfe of reserves, excluding acquisitions, reflecting our large inventory of low-risk, high- return projects in the Marcellus shale and in North Louisiana.”

“In North Louisiana, performance in 2016 was in line with our acquisition economics and the properties recorded a slight performance increase, while drilling added 79 Bcfe of reserves post-acquisition.  Looking forward, we see capital efficiencies continuing as we drive down well costs while optimizing targeting.  Our reserve booking philosophy on the newly acquired assets is consistent with our approach in the Marcellus.  As a result, a relatively small portion of the Company’s future development capital, only $2.2 billion over the next five years, is allocated to proven locations, while the remainder of capital delineates our extensive acreage position, still classified as unproven.  In fact, less than 0.5 offset proven undeveloped locations are currently recorded in the Marcellus and North Louisiana for each horizontal producing well.  We believe this will generate consistent SEC reserve growth over time as additional acreage is classified as proven and capital is allocated to offset locations.  As an example, Range has approximately 740 Bcfe of additional reserves in the Terryville area that would be included as SEC proved reserves if included within the five-year development plan.  Our economic resilience is further demonstrated in the year-end SEC PV10reserve value of $9.0 billion using future strip prices and current sales contracts.  With 56% of SEC reserves being proved developed (PD), our PD reserve life and debt per PD reserve ratios remain exceptionally strong.”

Range’s estimate of costs incurred during 2016, excluding acquisition costs is approximately $570 million.  This is on target with Range’s previously announced capital budget of $495 million, prior to the Memorial acquisition.

http://boereport.com/2017/01/27/range-announces-22-increase-in-proved-reserves-provides-update-on-resource-potential-and-north-louisiana-extension-wells/

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Resignation Threatens to Bring Federal Pipeline Rulings to Halt


A U.S. energy regulator filed his letter of resignation on Thursday. And with that letter, he may have just brought federal decisions on multibillion-dollar natural gas pipelines to a halt.

Norman Bay said he’ll leave the Federal Energy Regulatory Commission effective Feb. 3. His announcement followed President Donald Trump’s decision to replace him as the agency’s chairman with his fellow commissioner, Cheryl LaFleur.

With Bay’s departure, the commission will have just two commissioners and will lack the quorum needed to decide on everything from controversial gas pipeline projects to contested utility mergers. His resignation comes just as developers are rushing to build a network of pipelines to accommodate booming gas production from shale reserves in the Northeast, unlocking bottlenecks that have caused prices to plunge.

Among the pipelines waiting for approval are: Energy Transfer Partners LP’s Rover project; the PennEast shale line being built by a group of companies including UGI Corp. and Spectra Energy Corp.; and the Atlantic Sunrise system by Williams Partners LP. Spectra Energy’s Nexus system and National Fuel Gas Co.’s Northern Access expansion may also be affected.

"Basically, if they don’t have a certificate by Feb. 3, they don’t get to start construction in the fall," Christi Tezak, managing director of Washington-based industry consultant ClearView Energy Partners, said in a phone interview.

The pipeline developers didn’t immediately respond to requests for comment left after business hours.

Filling Seats

LaFleur, a Democrat and former utility executive, has been on the commission since 2010. The panel has been running with three Democrats since the resignation of Tony Clark, a Republican, last year. The only other commissioner is Colette Honorable. Bay didn’t immediately respond to a telephone request for comment left after business hours.

Filling the panel’s three vacancies will take time. The U.S. Senate still hasn’t confirmed the bulk of Trump’s chosen cabinet. Even a speedy confirmation process could take 30 to 60 days, according to David Wochner, a partner at the Washington-based law firm K&L Gates. That may lead to costly delays for companies awaiting their pipeline certificates.

"For those guys, a month matters," said ClearView’s Tezak.

One name repeatedly floated as a likely pick by analysts including ClearView to fill the next vacancy is Neil Chatterjee, senior energy adviser to Senate Majority Leader Mitch McConnell and a former lobbyist for National Rural Electric Cooperative Association. His relationships on Capitol Hill may expedite the confirmation process -- but not significantly.

"If President Trump and Senator McConnell tomorrow were to meet and say this is high priority, I still would expect it’s going to be in the 60-day time frame," Wochner said. "The Senate will be occupied with more significant votes. The cabinet will be first priority."

https://www.bloomberg.com/news/articles/2017-01-26/a-resignation-threatens-to-bring-u-s-gas-line-reviews-to-a-halt
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OMVbuys Occidental stake in Libya's Nafoura oil field -Libyan oil officials


Austria's OMV has agreed to buy a 7 percent stake in Libya's Nafoura oil field from U.S. company Occidental Petroleum, two Libyan oil officials told Reuters on Friday.

OMV declined to comment and Occidental did not immediately respond to a request for comment.

http://www.reuters.com/article/libya-oil-idUSL5N1FH4LX?type=companyNews&feedType=RSS&feedName=companyNews
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Agriculture

Phosagro sees global fertiliser market re-balancing


The global fertilisers market is set to re balance as China reduces exports after flooding the market in the past few years, said the head of Phosagro, the Russian fertiliser giant.

"We expect China's inefficient plants to close. And because it will lead to certain shortages, their big enterprises will divert their deliveries towards the domestic market," Andrei Guryev told Reuters.

Fertiliser prices crashed after China abolished a seasonal export duty in 2015, flooding the market with additional volumes.

But Guryev said Chinese exports of phosphate and nitrogen fertilisers have already fallen by 30 percent since 2015 as some enterprises could not cope with low prices.

The decline, which is likely to continue this year, should allow prices for key fertiliser diammonium phosphate (DAP) to stabilise at last year's levels of around $340-$350 a tonne, Guryev said.

Phosagro is one of the world's largest producers of phosphate rock, an essential agricultural nutrient. It also sells compound fertiliser, a blend of processed phosphates, nitrogen, potash and often sulphur.

As one of the lowest-cost producers in the world the company plans to keep increasing output beyond 2017 by 5-10 percent a year.

This year it plans to finish the cycle of large investments, which will allow it to boost production to 8.5 million tonnes of all fertilisers by 2020 from just under 6 million a few years ago.

Phosagro has benefited from Russia's rouble devaluation giving it lower costs and higher export revenues and expects at least stable revenues, core earnings and profits in 2017.

Guryev said he expected the rouble-dollar rate to stabilise and maybe even weaken to 63-64 roubles after a rally in the past few months to 59 roubles on the back of rising oil prices and hopes that the new U.S. administration of President Donald Trump will ease sanctions on Russia.

Guryev said Phosagro would also develop its own distribution and trading in Europe and Latin America to further boost direct sales to clients from the current rate of 70 percent.

Even though Phosagro is predominantly an exporter, he said the Russian market was also looking attractive due to increased crop production which has made the country the world's largest wheat exporter.

"In Russia, we are seeing a real boom. We have increased fertiliser deliveries by 30 percent over the past year and even with the current low wheat prices the Russian market looks quite appealing," he said.

http://www.reuters.com/article/russia-phosagro-idUSL5N1FG6ZY
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New "green" fertilizer could contribute to food revolution - scientists


A new synthetic fertilizer could help farmers to save money, boost food production and reduce planet-warming emissions, scientists have found after trialing it on rice farms in Sri Lanka.

By slowing down the release of nutrients the fertilizer will help farmers to increase crop yields using less chemicals, the scientists from Britain and Sri Lanka said.

Chemical fertilisers such as the nitrogen-rich urea were key to the agricultural boom of the 1960s and 70s known as the "Green Revolution" but their cost remains relatively high for farmers in the developing world.

Agricultural production must rise by about 60 percent to feed a growing global population, expected to reach 9 billion by 2050, according to the United Nation's Food and Agriculture Organisation(FAO).

Urea, commonly used to grow rice, wheat and maize, dissolves quickly when in contact with water and part of its nutrients are washed away before crop roots can absorb them.

As a consequence, more applications are needed, which can prove too expensive for farmers in poor regions, the scientists wrote in the scientific journal ACS Nano this week.

Moreover, unabsorbed urea particles go on to form ammonia that pollutes waterways and eventually causes the release of greenhouse gases into the atmosphere.

The new fertilizer delays the dissolution of urea by binding it with a mineral to slow down the release of nutrients 12 times, the scientists said.

"The plant takes up more of the fertilizer and less is wasted," said Gehan Amaratunga of the University of Cambridge in Britain, co-author of the report.

"This goes a long way to reduce the environmental footprint of agriculture," he told the Thomson Reuters Foundation by telephone late on Thursday.

Initial trials using the new fertilizer on rice farms in Sri Lanka showed production grew up to 20 percent using almost half the amount of fertilizer, Amaratunga said.

Amaratunga said he hoped the innovation could help usher in a new, more eco-friendly Green Revolution.

"It is a Green Revolution...as it's more food and less environmental damage," he said.

http://www.reuters.com/article/us-global-food-fertilizers-idUSKBN15B1SL
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Precious Metals

Gold price: Physical demand from India, China craters

Gold price: Physical demand from India, China craters

Gold ended 2016 with a gain of 8.6% after touching six-year lows at the end of 2015. But bears had the better of it in the second half of the year – the metal declined by more than 16% after hitting an intra-day high of $1,377 on July 6. 2016 was the first annual gain since 2012. For the year the average gold price came in at $1,247 an ounce, compared to 2015's average of $1,160, but nowhere near 2012's $1,689.

Mine supply continued to ebb lower, rounding off the first calendar year of drops since 2008

That the yellow metal advanced at all in 2016 is even more surprising considering a new report by industry trackers GFMS Thomson Reuters showing physical gold demand declined to a seven-year low last year. During the fourth quarter the global surplus of just less than 300 tonnes of metal was the greatest oversupply since late 2005.

That this large a surplus was recorded despite net purchases of physically-backed gold exchange traded funds reaching near record highs over the course of the year is another indication of just how significant the slump in physical demand turned out to be.

A collapse in demand from India, the backbone of the global physical trade for decades, was behind the weakness, but Chinese appetite for gold also waned significantly in 2016. According to the authors of the report the reasons behind the decline are "in a nutshell, India, China and the US dollar":

Global jewellery fabrication in 2016 was at the lowest since 1988 in volume terms

Of all the dramatic twists and turns in 2016, Prime Minister Modi’s announcement that he was set to demonetise large Indian banknotes, which were equivalent to approximately 86% of the currency, was surely the most unexpected of all. While in the long term this may have some positive implications for Indian gold demand in the short term it was yet another hurdle which crimped Indian jewellery fabrication and ensured India lost its crown to China as the largest gold consumer overall in 2016. Indeed Indian jewellery fabrication was at a 20-year low in 2016.

Meanwhile, even though China became the largest gold consumer again, this was not in anyway a reflection of strong demand there. In fact, jewellery demand in China was down 14.8% year-on-year in the final quarter of 2016 with the K-gold and gem-set gaining market share. Indeed global jewellery fabrication in 2016 was at the lowest since 1988 in volume terms.

Given all this, the surplus would have been even larger if it were not for a seasonal boost to jewellery demand and somewhat of a rebound in buying from the of official sector as Russia bought strongly on lower prices. Furthermore, mine supply continued to ebb lower, rounding off the first calendar year of drops since 2008, although this supply fall was almost exactly offset by an increase in hedging.

http://www.mining.com/gold-price-physical-demand-india-china-craters/

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World Bank's a gold price bear


Gold dipped to a two-week low on Monday hurt by a stronger dollar and investors moving money into equities with major US stock markets continuing to trade at record levels.

Upside risks include geopolitical tensions, stronger demand in China and India, delayed rates hikes, and mine supply shortfall

The World Bank this week joined the chorus of gold bears forecasting a drop in the gold price to an average $1,150 an ounce in 2017 in its January Commodities Outlook. That compares to an average gold price of $1,247 an ounce last year, compared to 2015's average of $1,160, but nowhere near 2012's $1,689:

Precious metals prices are projected to fall 7 percent in 2017, mainly due to weak investment demand, prospects of a stronger dollar, and rising real interest rates.

Gold prices are expected to decline 8 percent on weak investment demand, while silver prices are expected to fall 4 percent. Platinum prices are projected to rise marginally on likely tightness in supply. Downside risks to the forecast are stronger economic growth and faster than expected increases in U.S. interest rates.

Upside risks include geopolitical tensions, stronger demand in China and India, delayed rates hikes, and mine supply shortfall.

In contrast, industrial metals producers can look forward to a bullish 2017 with prices projected to increase by 11% in 2017 "due to tightening markets for most metals, especially those facing imminent resource constraints":

The largest gains are expected in zinc (27 percent) and lead (18 percent) due to mine supply constraints brought on by permanent and discretionary closures. Double-digit gains are also expected for copper, nickel, and tin.

Upside risks to prices include stronger global demand, slower ramp-up of new capacity, tighter environmental constraints, and policy action that limits supply. Downside risks include slower demand in China and higher-than-expected production, including the restarting of idled capacity.

http://www.mining.com/world-banks-gold-price-bear/
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Base Metals

Freeport-McMoRan paid Congo's Gecamines $33m to settle Tenke dispute


Freeport-McMoRan paid $33-million to resolve claims brought against it by Congo state miner Gecaminesover the sale of its majority stake in the Tenkecopper mine to China Molybdenum (CMOC), it said in a statement.

The settlement, revealed in the company's fourth quarter 2016 earnings statement, ends actions including a complaint before the International Chamber of Commerce, Freeport-McMoRan said. CMOC purchased the 56% stake in May for $2.65-billion.

Congo's mines minister said on Sunday that Gecamines, which owns a 20% stake in Tenke, had dropped its objections to CMOC's purchase as well as Chinese private equity firm BHR's November purchase of Lundin Mining's 24% stake.

Last week, the Atlanta-based Carter Centre called on the government to publish details about compensation received by Gecamines as part of any settlement.

The mines minister and Gecamines representatives could not be immediately reached for comment on Thursday. CMOCdeclined to comment on whether it had made any payment to Gecamines.

Tenke is one of the world's largest copper mines with proven and probable reserves of 3.8-million tonnes of contained copper.

http://www.miningweekly.com/article/freeport-mcmoran-paid-congos-gecamines-33m-to-settle-tenke-dispute-2017-01-26
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Peru to auction rights to Michiquillay copper project this year


Peru plans to award the rights to develop the Michiquillay copper deposit in a public tender this year, one of 16 public-private projects worth $4-billion that it intends to auction in 2017, the head of the state bidding agency said on Thursday.

In 2018, some fifteen projects that would cost up to $10.35-billion will be tendered, including a new commuter train line in the city of Lima, said Alvaro Quijandria, the new chief of Proinversion.

London-based miner Anglo American Plc returned its contract for operating Michiquillay to Peru in late 2014 due to capital constraints. The company had estimated that it would produce some 200 000 t of copper per year.

Peruvian polymetallic miner Milpo said in 2015 that it would like to develop Michiquillay. Proinversion said several companies have expressed interest in the project.

http://www.miningweekly.com/article/peru-to-auction-rights-to-michiquillay-copper-project-this-year-2017-01-26
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Asia alumina: Australia dips 50 cents/mt on lack of buyers


The Platts Australian alumina daily assessment slipped 50 cents/mt day on day to $339/mt FOB Friday, softened by a lack of buyers on the eve of the Lunar New Year.

A notable number of market participants have said in recent days that they thought there was much uncertainty in China's market outlook post-lunar holiday. The US' complaints about China's aluminium industry and Beijing's tougher stance on environmental standards may have sweeping implications for the Chinese alumina and aluminium markets, sources said.

From the sidelines, a producer said he was anticipating March shipment bids to fall slightly below $339/mt FOB Australia after the LNY holiday, possibly to $337-$338/mt.

A second source reported placing a bid at $335/mt FOB Visakhapatnam, India on January 24, for Nalco's sell tender for a 30,000 mt shipment between February 16 and 20.

From the sidelines, a trader put its buy interest at $335/mt FOB Australia, describing the rate as "conservative" for a buyer.

S&P Global Platts assessed the Handysize freight rate at $14.25/mt on Friday for a 30,000 mt shipment in late February from Western Australia to Lianyungang.

China's financial markets will close January 27 through to February 2 for the LNY.

http://www.platts.com/latest-news/metals/sydney/asia-alumina-australia-dips-50-centsmt-on-lack-26648988
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Steel, Iron Ore and Coal

Australia iron ore ports clearing ahead of cyclone - authority


A tropical low in the Indian Ocean off Australia was forecast on Friday to intensify to cyclone strength within 24 hours, disrupting shipping from the world's biggest iron ore export terminals and threatening offshore production of liquefied natural gas (LNG).

The Pilbara Ports Authority said in a statement it had already cleared vessels from outer anchorages at Port Hedland, and vessels within the inner harbour would depart by 0500 GMT.

Port Hedland is used by major miners BHP Billiton and Fortescue Metals Group for shipping all their ore, and last month accounted for 41.2-million tonnes of exports, mostly bound for China.

The nearby port of Dampier, used by Rio Tinto , Australia's biggest supplier of the steelmaking raw material, as well as the port of Asburton, were expected to be cleared of vessels within four or five hours, according to the authority.

The miners were not immediately available for comment.

At 0230 GMT a tropical low was located 260 kilometres (160 miles) north-northeast of Port Hedland and was likely to reach category 2 cyclone intensity - at the lower end of the 1-5 intensity scale - late on Friday or Saturday, according to Australia's Bureau of meteorology.

Offshore, Woodside Petroleum, Australia's biggest independent oil and gas company, said it was "taking the necessary precautions to safeguard our people and assets".

Its operations in the region include the Pluto and North West Shelf oil and LNG fields.

While category 1 or 2 cyclones are at the lower end of the scale, they still pack enough punch to cause damage and delay port and mining operations.

On January 16, 2016, a category 2 cyclone slammed the west Australian coast and was later blamed by BHP for lower-than-expected iron ore production.

http://www.miningweekly.com/article/australia-iron-ore-ports-clearing-ahead-of-cyclone---authority-2017-01-27
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Prospects brighten for Russian steelmakers as economy improves


Russia's biggest steelmakers are expecting 2017 to be a better year for the industry as the national economy improves, thanks to firmer oil prices, and higher steel prices support profits.

The companies have suffered over the last two years as world steel prices hit 11-year lows and the country's economic crisis sapped domestic demand.

Net profits at the Russia's biggest steel producer, NLMK, fell 6 percent year-on-year in the third quarter of 2016 and analysts expect weaker earnings in the fourth quarter. Profits at Evraz, the country's second-biggest producer, plunged 63 percent in the first half of the year.

But after two years of recession due to a collapse in oil prices and the imposition of Western sanctions over Moscow's actions in Ukraine, Russia's economic prospects are brightening.

Officials now see growth in gross domestic production of up to 2 percent this year.

"We believe that there are grounds for a recovery in the economy and steel demand in 2017," Pavel Vorobyev, head economist for Severstal's corporate strategy department, said.

"In 2015 and 2016 some genuine, deferred demand has built up in the Russian economy, which could now appear in the next year," Vorobyev said, adding that he saw Russian steel demand increasing by around 1.5 percent this year.

Efforts to raise money also point to increased confidence in the sector. NLMK is currently drawing up a new expansion strategy and said in December it could issue Eurobonds this year.

Evraz is also considering a convertible bond issue while TMK, Russia's largest maker of steel pipes for the oil and gas industry, is talking to banks about holding a secondary share offering, according to financial market sources.

"Metal producers will carefully follow the situation in the construction sector and infrastructure, which accounts for about 80 percent of total demand in the country," NLMK said in a statement given to Reuters.

Construction work in Russia is seen increasing by 1 percent quarter-on-quarter in the first three months of 2017, according to state statistics service Rosstat, compared to a 10 percent fall in previous quarter.

Coupled with higher domestic demand, a recovery in steel prices will further support profitability for Russian steelmakers, VTB analysts said.

The Russian rouble is also expected to weaken after the central bank announced it would start buying foreign currency next month, supporting steelmakers' export revenues.

World steel prices fell to their lowest level since 2004 in 2015, due to an oversupply from China, the world's largest producer and consumer of steel, and slack global demand.

But rebar prices in China recovered 63 percent last year, ending a six-year losing streak, spurred on by Beijing's efforts to tackle a chronic glut. The World Steel Association sees global steel demand growing 0.5 percent year-on-year to 1.510 billion tonnes in 2017.

Announcing a 2.5 percent increase in production for 2016 on Thursday, steelmaker MMK said demand would remain under pressure from seasonal weakness in the first quarter of this year but higher prices would be maintained.

"Signs of improvement in a number of sectors mean we can expect the beginning of a recovery in domestic demand and the preservation of price premiums in 2017," the company said in a statement.

http://www.reuters.com/article/us-russia-steel-idUSKBN15B130

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Molybdenum firm as buyers digest price increases


Molybdenum oxide prices continued their push higher Thursday, but with less momentum than earlier in the week.

A deal for 20 mt oxide powder to an end consumer in Northwest Europe was concluded at $7.75/lb DDP while others said sales had been concluded up to $7.70/lb in Asia. In Europe bids at $7.65/lb were being rejected.

One European trader reported declining a bid at $7.65/lb as he was offering 10-15 cents higher. Others said they had received inquiries and traders appeared to be fishing for prices.

"Moly is gently simmering today, it's not as active as the last couple of days," a second European trader said.

A seller source said steel mills had been shocked by the price increase, others agreed it was a surprise.

"You can't explain it because on the fundamentals nothing has really changed," a third European trader said.

In Asia it was quieter as the Lunar New Year holidays had started, but offers were indicated at $7.70-$7.75/lb. A South Koran trader reported a ferromolybdenum deal at $18.10/kg.

European ferromolybdenum was reported sold at $18/kg and $18.30/kg while offers were at $18.50/kg.

Platts daily dealer oxide assessment was $7.55-$7.70/lb from $7.50-$7.68/lb while the daily European ferromolybdenum assessment climbed to $18-$18.30/kg from $17.80-$18.25/kg.

http://www.platts.com/latest-news/metals/london/molybdenum-firm-as-buyers-digest-price-increases-26648990
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