Mark Latham Commodity Equity Intelligence Service

Tuesday 8th December 2015
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    Chinese trade data signal weaker demand

    Investors are concerned about the lack of Chinese demand which is acting as a millstone around the neck of risky assets and most investors will stay away until they see a clearer direction on rates,” said Cliff Tan, east Asian head of global markets at Bank of Tokyo-Mitsubishi UFJ in Hong Kong.

    Data showed on Tuesday that China’s exports fell by a more-than-expected 6.8% in November from a year earlier, their fifth straight month of decline. Imports fell 8.7%, which was not as much as expected but enough to signal continued weak demand from the world’s second biggest economy.

    Analysts were unsure if the numbers signalled a possible improvement in Chinese domestic demand, which has been a key factor in driving world commodity prices to multi-year lows.

    “The big picture hasn’t really changed that much. The US is doing okay, but the problems with emerging markets are really quite big,” said Kevin Lai, chief economist Asia Ex-Japan at Daiwa Capital Markets in Hong Kong.

    “Imports have been slumping for more than a year now, so the year-on-year figures are benefiting from a much lower base, which statistically we should expect. But I’m not so sure the number today reflects a real fundamental change for the better in import demand.”

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    China: On strike!

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    Enter the NYT which overnight reported that "China Arrests at Least 3 Workers’ Rights Leaders Amid Rising Unrest" in which it says that "police in southern China have arrested at least three workers’ rights leaders in recent days, labor groups and activists said on Saturday. The detentions come amid rising labor unrest in southern China, one of the world’s most important manufacturing centers, and are prompting concern that the Communist Party is extending its latest crackdown on civil society to a new arena."

    Precisely as we said would happen, the rising labor discontent is forcing the government to retaliate. Only this time the Chinese government is hopeless: if and when the angry workers, several hundred million of them, decide to take their anger out on their communist rulers, not all the arrests in the world, not even the full mobilization of the PLA, will do anything to stem this unprecedented tide of bodies which, simply due to its vast numbers, is practically unstoppable.

    The rest of the story is self-explanatory: during the good times, everyone was happy. But now that wages are sliding, and jobs are suddenly hard to come by, workers (many of whom recently fired), do what they do everywhere around the world: they get angry, go on strike, protest, and break or burn things down.

    When the economy in Guangdong, China’s richest and most populous province, was booming, the authorities apparently did not see labor activism as a threat. After strikes by workers at Honda auto parts plants in the province in 2010, for example, many workers won higher wages and benefits.


    But now, with many factories moving to regions where lower wages prevail — or to other countries, like Vietnam — labor unrest is rising, said Geoffrey Crothall, a spokesman for the China Labor Bulletin, which promotes independent labor unions in China and tracks strikes and other labor protests nationwide. Local governments in Guangdong are often the focus of workers’ demands after factory bosses leave town, sometimes with wages and pension benefits in arrears, he said.

    Not surprisingly, the NYT used precisely the same source as we did a month ago, to reach the same conclusion:

    According to figures from the group, the number of strikes and protests in Guangdong has more than doubled in recent months, rising to 56 in November from 23 in July.

    Clearly the rise in the number of protests and increase in labor activism has got the authorities worried,” Mr. Crothall said in a telephone interview. “They don’t know how to respond. And the only solution they can come up with is by cracking down on the people who are actually trying to help.”

    Which, as we warned a month ago, is a huge problem for not only China's government but its economy.

    One Chinese researcher on labor issues, who asked not to be identified in order to speak freely about the arrests, said that at least 16 activists had been detained or questioned and released in the crackdown on the Panyu Workers’ Center, or had disappeared with no information about their whereabouts. He said the detention of Mr. Zeng might have been a signal to workers not to get involved in labor movements outside the Communist Party-controlled All-China Federation of Trade Unions.


    “They want to make an example of them for worker rights’ defense in the future — don’t get involved with these labor organizations,” the researcher said. “They realize that the economic slowdown and decline of industry is creating widespread bankruptcies and unemployment, and labor incidents will increase.”

    Did we say the "biggest, most underreproted risk facing China"? Why yes we did. At least it is now being reported.

    “There have been arrests and crackdowns before on grass-roots labor organizations here,” one activist, He Shan, said in a telephone interview from Shenzhen, a mainland city that abuts Hong Kong. “But this is the most concentrated, the most serious. For us, this is unprecedented.”

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    Anglo American to sell more assets and suspend dividends

    Anglo American will sell more assets, suspend dividends until the end of 2016 and whittle down its business divisions to three from six in the face of severe commodity price falls, the mining company said on Tuesday.

    Anglo said it would cut its assets by 60 percent, reduce its workforce to 50,000 from 135,000 and form three divisions: De Beers for diamonds, Industrial Metals for platinum and base metals and Bulk Commodities for coal and iron ore.

    The London-listed company aims to raise $4 billion through assets sales, up from an earlier target of $3 billion, and said it would press ahead with the sale of its Phosphates and Niobium businesses in 2016.

    "While we have continued to deliver our business restructuring and performance objectives across the board, the severity of commodity price deterioration requires bolder action," Chief Executive Officer Mark Cutifani said.

    The rout in commodity prices is putting pressure on credit ratings and dividends across the mining sector, prompting reductions in capital expenditure, operational costs and jobs.

    The fifth-biggest diversified global mining group by market value, Anglo is grappling with sliding commodity prices including iron ore, platinum and diamonds.

    Anglo's share price has fallen 70 percent so far this year as investors worry about the slow pace of turnaround efforts launched by Cutifani in 2013.

    So far, Anglo said it had secured $2 billion in assets sales.

    Anglo also suspended dividends for the remainder of 2015 and in 2016.

    "Upon resumption, (our dividend) policy will change to pay-out ratio to provide flexibility through the cycle and clarity for shareholders," Cutifani said, abandoning the company's progressive dividend policy under which the payout rises, or is at least maintained.

    Mining and trading giant Glencore has also suspended dividends and is selling assets to cut its debt and regain the trust of investors after its shares hit record lows.

    Read more at Reuters
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    Oil and Gas

    A bunch of OPEC members are 'at risk for a significant crisis in 2016'

    The group remained divided over its production ceiling, and failed to reach an agreement.

    And that's pretty grim news for about half of the cartel's members, who are already struggling with low prices amid a supply glut.

    "[The] OPEC meeting ended without a decision, putting on full display the vast divide between OPEC members," wrote RBC Capital Markets global head of commodity strategy Helima Croft. "We believe that the current OPEC strategy — or non-strategy — leaves a significant portion of the cartel at risk for a significant crisis in 2016."

    Notably, there are two camps within OPEC: one that definitely can't handle the stress of lower oil for longer and one that says it can. The crisis-prone, high-risk "fragile five" — Libya, Iraq, Nigeria, Algeria, and Venezuela — want higher prices ASAP as they risk plunging into deeper economic and political chaos, while the relatively better-off Gulf Cooperation Council (GCC) members — Saudi Arabia, Qatar, Kuwait, and the UAE — can sort of weather the lower prices for now.

    "This chasm ... was on fully display at the initial morning press conference. Qatar's energy minister ... stated that the non-interference strategy is working [and] predicted the market would balance in 2016," noted Croft. While on the flip side, "Venezuela's energy minister ... warned that the price situation was extremely critical and that prices would drop to $20/bbl without OPEC action."

    "The interests of member countries have perhaps never been so far apart," Croft wrote in another note ahead of the meeting.
    RBC Capital Markets

    However, this wasn't the only major stress-point for OPEC last Friday.

    While de facto OPEC leader Saudi Arabia adopted a more conciliatory posture in the days leading up to Friday's meeting, Iran decided to play hardball.

    "If anything, it was the Iranians who were publicly displaying a lack of flexibility in the runup to the meeting," wrote Croft. "The Iranian energy minister, Bijan Namdar Zangeneh, ruled out Iran accepting any output restrictions until the country's exports returned to pre-sanctions levels."

    That's not exactly surprising, as Iran is on the cusp of reaping serious economic benefits if/when sanctions will be suspended. Still, its "refusal to abide by any output restrictions likely contributed to the lack of any real decision from the cartel," noted Croft.

    And, although Croft doesn't mention this point exactly, it's also worth reiterating that Iran and the Saudis vie for regional hegemony — and it's interesting to see the reversal of fortunes. The former, which is poised to win big after years of incapacitating sanctions, took a tougher stance, while the latter, struggling with budget pressures and rumored internal divisions, took the more "conciliatory" route.

    In short, OPEC's lack of real decision betrays the deep divide within the cartel, and that could mean pain for some of its members going in the upcoming year.
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    China's Nov crude oil imports up 7.6 pct on yr -customs

    China's November crude oil imports rose 7.6 percent from the same month a year ago, data showed on Tuesday, as state energy firms extended the strategy of maintaining strong buying on low crude prices and exporting surplus refined fuel.

    China brought in 27.34 million tonnes, or 6.65 million barrels per day (bpd) last month, preliminary data from the General Administration of Customs showed, about 440,000 bpd or 7.1 percent above the October level.

    For the first 11 months, China's crude oil imports rose 8.7 percent to 302.3 million tonnes, or 6.61 million bpd, supported by strong demand for gasoline and aviation fuel even as demand for diesel eased in line with a cooling economy.

    "The main trend is on track - as long as storage space allows, China will continue to seize low oil and build stocks," said Barclays analyst Zhang Chi.

    "The low oil (price) also helps refineries maintain relatively high operations to cover firm gasoline demand and then export surplus diesel which has been hit by the weaker economy."

    China, which imports roughly 60 percent of the crude oil it processes, has been taking advantage of oil prices that have more than halved from last year's peak to fill strategic reserves.

    The country could double strategic oil purchases next year as more tanks become available, according to a Reuters' survey of analysts, challenging the United States as the world's largest crude buyer.

    The entry of new crude importers, independent refineries Beijing allowed in for the first time to boost private sector investment, also helped prop up crude shipments.

    Reflecting a surge in net fuel exports, customs data showed China's oil product imports fell 21 percent in November versus a year ago to 1.88 million tonnes, while exports jumped 68 percent year-on-year to 4.1 million tonnes.

    China's commercial crude oil stocks at the end of October fell 4.4 percent from the previous month in their biggest drop since at least 2010, and refined fuel also recorded a steep draw, the official Xinhua News Agency has reported, allowing for inventory replenishment.

    Nov oil product exports rise 68% on year to 4.1 mil mt, record high since Jan 2005 when Platts started compiling the data

    Read more at Reuters

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    Investors brace for oil price 'lower for even longer' after OPEC

    Investors are betting on the oil price staying lower for even longer after OPEC's decision to ditch a formal production ceiling, pushing U.S. crude futures for delivery nearly 10 years away below $60 a barrel.

    This could possibly harm the ability of U.S. shale producers, among the casualties of OPEC's strategy of pumping hard to retain market share, to lock in profitable prices for future deliveries.

    U.S. crude futures for front-month delivery fell below $40 per barrel on Monday after the Organization of the Petroleum Exporting Countries failed last week to agree on an output target to reduce a bulging oil glut that has cut prices by over 60 percent since 2014.

    In the run-up to the OPEC decision, oil derivatives showed investors had, unusually, been willing to pay more to protect against a surprise rally in the price, than a surprise fall.

    That bet has now been unwound, meaning they are once again expecting a higher likelihood of further declines than that of a bounce back. The most popular options contract is one that gives the holder the right to sell crude oil futures at just $35 a barrel.

    "Oil is going to make lower lows and lower highs for the foreseeable future and, in terms of market reaction post-OPEC, I'm not surprised, but it does leave the door open for prices to fall," Gain Capital analyst Fawad Razaqzada said.

    Bearishness has been brewing in the derivatives market for some time. Options data shows holdings of December 2016 put options at $25, $30 and $35 a barrel have risen 41 percent in the last two months and open interest in those three contracts now equates to nearly 90 million barrels of oil. <0#CLZ6+>

    "Price levels just aren't high enough for many shale producers to hedge," said Mark Keenan of Societe Generale.

    "In addition, due to the short production timelines associated with many shale wells because of their steep well depletion rates, there is little need to hedge five years or more into the future."

    Read more at Reuters
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    RasGas foresees decade of 5 pct yearly LNG demand growth

    LNG business environment is still strong with an expected continuous demand growth ahead, according to Khalid Sultan R. Al Kuwari, chief marketing & shipping officer of RasGas.

    Speaking at an LNG summit in Rome last week, Al Kuwari anticipated a five percent growth rate per year from 2015 to 2025, with LNG demand outpacing expected growth in natural gas demand.

    He noted that the Asian premium has been challenged due to the increase in supply and a lower demand for LNG in Asia mixed with the drop in oil prices put new LNG projects under pressure, questioning economics.

    However, Al Kuwari said that new markets are emerging rapidly and LNG still requires capital investments in production, liquefaction and transportation.
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    Toil ahead for oil, but expect double trouble for LNG

    The LNG market is facing oversupply for years, experts agree. Photo: Robert Shakespeare

    The crude oil market is seen as being in dire straits, but liquefied natural gas is much worse, according to experts.

    Hanging as a dark cloud over the market for the next several years are large volumes of LNG from committed US export projects that have firm sales contracts but have yet to be sold to end users.

    Consultancy FGE says between 25 million and 35 million tonnes of the 65 million tonnes a year of US LNG export capacity under construction has been sold to "middlemen", traders or portfolio LNG players such as BG Group or Mitsubishi, which still need to sell the gas on.

    "Portfolio sellers and traders are not end users: they must find buyers," FGE founder Fereidun Fesharaki says.

    In addition, about one-third of Qatar's export LNG volumes are unsold, while the three big Chinese national oil companies and one Indian national oil company have switched from buying to selling as they seek to resell LNG they have committed to buying, according to FGE.

    An example is Sinopec, the dominant buyer for Origin Energy's Australia Pacific LNG venture, which is on the cusp of starting production. It is reported to be offering to resell cargoes it has signed up to buy from the Queensland plant.

    That means about 70 million tonnes a year of LNG still needs a buyer, which will weigh on the oversupplied Asian market potentially through to the mid-2020s, the consultancy says. Dr Fesharaki describes those holding the contracts as "desperate sellers" that will provide stiff competition for producers seeking customers for new projects.

    LNG oversupply

    FGE's outlook points to bleak prospects for Woodside Petroleum's ambitions to give the green light in late 2016 for the construction of the Browse floating LNG venture, given it is still seeking customers for the gas.

    Dr Fesharaki names potentially only three new projects that could move forward in the next few years: Anadarko's Mozambique venture; expansion in Papua New Guinea; and Petronas' western Canadian venture.

    Australia's wave of new LNG projects, including three in Queensland, Chevron's two monster Western Australian projects, Inpex's Ichthys and Shell's Prelude floating project, are all starting production within the next couple of years.

    They make up a large chunk of the 90 million tonnes a year of new LNG capacity that Bernstein Research estimates will start up by late 2017, amounting to 35 per cent of current worldwide demand.

    Bernstein sees oversupply of 20 million to 30 million tonnes, or 10 per cent of demand, persisting through to 2018 as global LNG demand struggles to grow.

    Chinese demand growth has "collapsed" this year, with LNG imports likely to decline in 2015 for the first time since they began in 2006, Bernstein says. Yet it considers the chances of China defaulting on its LNG purchasing contracts, as suggested by some commentators, as "highly unlikely".

    The experts agree that the situation will create huge downward pressures on spot LNG prices, with FGE forecasting that prices will sink to just $US5 per million British thermal units in Asia, and could even plunge temporarily to $US3 or $US4. That compares with December prices of about $US7.28, which are already 42 per cent down from a year ago, according to pricing service Platts.

    FGE is expecting a decoupling of spot and contract LNG prices, which FGE expects to remain in the $US8 to $US9 range through to 2017, based on its forecast for crude oil to which Asian contract LNG prices are linked.

    "The oil market is not so bad," Dr Fesharaki says. "LNG is far worse."

    Yet existing Australian LNG producers should be mostly insulated from the worst of the effects, says Adelaide-based consultancy EnergyQuest.

    It points out that the new Australian projects coming into production are all largely covered by contracted sales to buyers that respect the sanctity of contracts and value the long-term relationships that underpin the Asian LNG industry.

    "In our view, the major factors affecting Australian LNG production are likely to be technical ones like completion timing, ramp-up and gas supply, rather than the state of the market," EnergyQuest said.

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    Woodside scraps $8 bln Oil Search tilt as oil price tanks

    Australia's Woodside Petroleum on Tuesday formally scrapped its $8 billion all-share proposal to take over Oil Search Ltd, which was rebuffed in September, and said it was not chasing any other deal to merge with its target.

    The statement came after speculation Woodside was looking to snare the Papua New Guinea government's 9.8 percent stake in Oil Search to get a foot in the door of the PNG oil and gas producer, coveted for its liquefied natural gas (LNG) assets.

    "Woodside is not pursuing any alternative transactions to combine the businesses," it said in a statement to the Australian stock exchange.

    Oil Search shares, which have sharply outperformed rivals this year, slumped nearly 18 percent to their lowest since August, with the takeover premium evaporating.

    Woodside's shares fell more than 4 percent to a seven-year low, but held up better than other energy producers on a day when oil prices hit their lowest since February 2009.

    "Clearly investors will see this as a positive, the fact that they're not going to raise the bid," said Neil Beveridge, an analyst with Bernstein in Hong Kong. "You're in an environment where cash is king, and balance-sheet strength is everything."

    Cashed up but forced to defer its own expensive growth plans due to weak LNG prices, Woodside had been chasing Oil Search for its 29 percent stake in the PNG LNG project, considered one of the world's lowest cost, expandable LNG projects.

    Analysts said the decision to walk away probably reflected the fact that Woodside was unable to win support from Oil Search's top shareholders, Abu Dhabi's International Petroleum Investment Corp and the PNG government, without sweetening its offer, which would not make sense in a depressed oil market.

    "If you think the oil price is going to go lower, there might be better opportunities," said Andrew Forster, senior investment officer at Argo Investments, which owns shares in Woodside.

    Oil Search rejected the one-for-four takeover plan, worth A$11.6 billion when it was announced in September, calling it too cheap. Its shares last traded at A$6.34, valuing the company at A$9.7 billion.

    It reiterated on Tuesday it was focused on its low-cost operations in PNG, where its output could double in the early 2020s, working with giants ExxonMobil Corp and France's Total SA on two "world class" LNG projects.

    Read more at Reuters
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    Oil Firms Dropped From EU Probe Into Fuel-Price Manipulation

    Oil companies, including Royal Dutch Shell Plc, BP Plc and Statoil ASA, no longer face a European Union investigation into potential manipulation of crude oil benchmarks.

    The European Commission “is currently not investigating further behaviors in price benchmarks for the crude oil sector," Ricardo Cardoso, a spokesman for regulator said in an e-mail. He said the EU’s current probe focuses “on price benchmarks for the ethanol sector.”

    Raids on Shell, BP, Statoil and price publisher Platts in May 2013 over suspected benchmark-rigging echoed probes into banks for trying to fix the London Interbank Offered Rate and foreign exchange markets. EU antitrust regulators levied 1.7 billion euros ($1.8 billion) in fines later that year over Libor manipulation.

    The EU is now focusing on ethanol benchmarks, opening a formal investigation on Monday into suspicions Abengoa SA colluded with Alcogroup and Lantmaennen. The trio may have agreed to submit or support bids to push benchmarks up and increase ethanol prices as a result, the commission said in a statement.

    Closing the crude oil part of the case removes the risk of possible fines for companies involved.
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    Europe's diesel market hits crunch month of over supply

    Europe's new status as the dumping ground for the world's excess diesel comes to a head this month as mild weather, strong refinery runs and months of building stocks combine.

    The glut has been building for months as margins fattened by cheap crude have prompted European refiners to boost output and as exports from new refineries in the Middle East have headed to Europe.

    "Europe is not performing. There is lots and lots coming from the Middle East and more tenders for exports from the Middle East and India," one trader said.

    Vessels that took a longer trip around the southern tip of Africa to delay their landing are now arriving, and lingering at ports.

    At least four 90,000-tonne tankers filled with distillates, which includes diesel and heating oil, are floating outside Europe's Amsterdam-Rotterdam-Antwerp import hub.

    Storage tanks there are nearly 70 percent full, according to industry monitor Genscape, while German household heating oil stocks, at 63 percent of tank capacity, are above their five-year average.

    The surplus is forcing some storage to move offshore where traders such as Vitol have already leased ships to serve as floating storage.

    But the window to make money that way is narrow. The premium of current distillate prices over those next month - known as contango - stood at just $7 per tonne on Friday.

    Ship brokers said that with current freight costs

    , traders need $15 per tonne per month to cover the vessel costs alone.

    "If there is no belief in forward prices, then a steep contango can't develop," another trader said. "Each time the prompt goes down, so does the back end of the curve."

    Profits for diesel versus crude oil stood near five-month lows and threatened to drop further - bad news for oil refineries but potentially the opposite for many drivers.

    "I am not surprised by the accumulating diesel surplus," said Stephen George, chief economist with KBC Advanced Technologies.

    "A contributing factor has to be strength in gasoline, which is supporting refining runs and the overproduction of distillates."

    Refineries in Europe and Asia have been running at full steam to capture unusually strong profits for gasoline and naphtha, light ends in industry terminology. Refineries in the United States are also just starting up again after maintenance,

    Demand for gasoline has soared as low prices encouraged motorists in China, India and the United States to clock up more miles well past the traditional summer driving season.

    On Monday, data showed that investor bets on falling diesel prices hit their highest level in at least four years.

    Distillate stocks on the U.S. East Coast are 33 percent above the five-year average, according to BNP Paribas. All this is expected to force these regions to export - adding to Europe's glut.

    "If light ends go back to more seasonally normal levels, things might not be so bad," another trader said. "But as long as they are strong, you keep building distillate stocks and that's when things can get really bad."

    Read more at Reuters

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    Total to Pay $3.6 Million to Settle U.S. Gas Market Rigging Case

    Total SA, the world’s fifth-largest integrated oil and gas company, has agreed, along with one of its traders, to pay a $3.6 million civil penalty to settle charges of attempted natural gas market manipulation in the U.S.

    Total Gas & Power North America Inc. and the trader, both based in Houston, were charged with trying to rig monthly gas index prices at four major trading hubs in Texas and other markets in the Southwest, the U.S. Commodity Futures Trading Commission said in a statement Monday. The agency imposed sanctions including a two-year trading limit during monthly settlement periods.

    Total was one of the largest players in the fixed-price gas markets at the time that it attempted to manipulate prices, according to the trading commission’s statement. Its penalty comes as U.S. regulators increase efforts to crack down on market manipulation in energy markets. BP Plc’s facing a $28 million penalty after a Federal Energy Regulatory Commission judge ruled that it had artificially lowered gas prices at a Houston hub in 2008. Barclays Plc is fighting $488 million worth of fines after the same energy commission alleged it had manipulated power trades.

    We have no comment beyond the terms of the order other than we are pleased to have resolved this matter with the CFTC,” Katia Mackintosh, a spokeswoman for Total in Houston, said by phone Monday.

    The Federal Energy Regulatory Commission, which in September separately accused Total of manipulating gas markets, said at the time that the company had executed a scheme to manipulate the price of natural gas in the southwestern U.S. between June 2009 and June 2012. Total Gas & Power has traded and marketed natural gas in the U.S. since 1990 and owns 1 billion cubic feet per day of capacity at the Sabine Pass liquefied natural gas terminal in Louisiana, according to the company’s website.
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    EIA again sees oil production dropping in Eagle Ford, Bakken and Niobrara

    The US Energy Information Administration Monday again forecast oil production to fall in the Eagle Ford, Bakken and Niobrara plays in December, marking the 10th straight month of projected declines, but said Permian production would continue to climb.

    In its Drilling Productivity Report, EIA said it expects Eagle Ford oil production to fall by 77,000 b/d in December to just over 1.2 million b/d, while Bakken production will fall by 27,000 b/d to just under 1.1 million b/d and Niobrara production will fall by 24,000 b/d to 344,000 b/d.

    EIA has forecast a month-to-month drop in oil production in each of these three plays every month since February, when it last estimated that production would climb by 17,000 b/d in the Eagle Ford, 13,000 b/d in the Bakken and 3,000 b/d in the Niobrara.

    Permian production is expected to continue to climb by 14,000 b/d to nearly 2.04 million b/d next month, the report estimates. EIA has forecast a jump in Permian production since it began releasing its drilling productivity report in May 2014.

    Overall, EIA sees oil production in these four regions, along with the Haynesville, Marcellus and Utica, falling by 116,000 b/d from December to January. These seven plays, which are forecast to produce about 4.98 million b/d this month, will produce just over 4.86 million in January, EIA estimates.

    In addition, oil production from new wells in these seven plays is expected to remain relatively flat, falling by 3,000 b/d to 492,000 b/d next month.

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    Devon Energy to buy Anadarko Basin assets for $1.9 billion

    Oil producer Devon Energy Corp said it will buy some assets in the Anadarko Basin from smaller peer Felix Energy LLC for $1.9 billion, the latest deal in the U.S. oil patch amid a global crude price rout.

    As part of the deal with Felix, Devon will acquire 80,000 net acres, with up to 10 prospective zones, in the Anadarko Basin which is spread over Oklahoma and Texas.

    Separately, Devon agreed to acquire 253,000 net acres in the Powder River Basin for $600 million on Monday.

    The Powder River Basin assets are located to the south of Devon's existing position in Wyoming and includes production of 7,000 barrels of oil equivalent per day (boepd), with about 85 percent oil, the company said.

    Devon's pipeline unit EnLink Midstream also agreed to acquire peer Tall Oak Midstream for $1.55 billion.

    Reuters reported last week that Devon is in discussions to buy peer Felix Energy for around $2 billion, including debt, citing sources familiar with the matter.

    The deals will be funded with about $1.35 billion of Devon equity issued to sellers and about $1.15 billion of cash on hand and borrowings.

    Devon said it is also in the process of marketing its Access Pipeline in Canada and planning to monetize various other non-core upstream assets.

    The company has identified 50,000 to 80,000 boepd of production from non-core assets, which it plans to divest throughout 2016.

    A more than 60 percent drop in oil prices, has forced oil producers, including Oklahoma-based Devon, to tighten their budgets and raise cash.

    Devon, which wrote down about $6 billion worth of oil and gas assets in the third quarter, said it expects pipeline and upstream divestitures to generate proceeds of $2 billion to $3 billion.

    Read more at Reuters
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    Utica Shale Production Hits New Highs

    The Ohio Department of Natural Resources (ODNR) just announced Ohio’s third quarter production results, which show an impressive doubling of both oil and natural gas production.

    In the third quarter of 2015, the Utica shale produced 5,696,780 barrels of oil and 245,747,686 Bcf (245 billion cubic feet) of natural gas. This sets new records as unconventional shale production totals have increased by more than 100 percent since the same quarter last year.

    In 2014, Ohio’s wells only produced 15,062,912 barrels of oil and 512,964,465 Mcf of gas for the entire year which means that during the first nine months of 2015, oil and gas production surpassed 2014’s entire production results.  This report also indicates that this trend is continuing as there was an increase of 23.8 Bcf and 118,000 barrels since last quarter.

    Although rig count has been falling in Ohio overall, production continues to soar in its Southeast, where Belmont County and Monroe County are producing record amounts of natural gas.  As for oil, most production in Ohio still remains in Noble, Guernsey, Harrison, and Carroll Counties.  As shown below, Rice Drilling remains the top producer with Ascent Resources (formerly American Energy Utica), Chesapeake, and Antero Resources rounding out the top four.
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    Alternative Energy

    Wind, Solar Projects Find New Buyers, Uncertain Prices

    Prices to buy U.S. renewable energy projects are going down asyieldcos, battered by the market, acquire fewer wind and solar farms.

    Yieldcos, publicly traded holding companies that own and operate power plants, dominated the market through the first half of this year. Now they’ve been effectively sidelined after their shares slumped in recent months.

    “There’s a bit of a moratorium in the buying of assets,” Philip Shen, senior research analyst at Roth Capital Partners LLC, said on a panel on Dec. 3 at the Renewable Energy Yieldco Conference in New York.

    “Yieldcos are not sitting on a lot of free cash,” said Swami Venkataraman, a vice president at Moody’s Investors Service.

    With fewer yieldco deals, utilities, infrastructure funds and sovereign wealth funds are emerging as the main buyers of wind and solar projects, and they’re often paying less.

    “Those are the buyers that are setting the price point,” Jeff Kulik, a managing director at Bank of America Corp., said on a panel at the conference organized by Solarplaza.

    Infrastructure funds typically seek unlevered after-tax internal rates of return of about 8 percent, said Venkataraman of Moody’s.

    Earlier this year, when yieldcos dominated the dealmaking, acquired assets produced an unlevered after-tax IRR of about 6 percent to 7 percent, said Carl Weatherley-White, president of Lightbeam Electric Co., a Sausalito, Calif.-based company that’s looking to buy and operate clean energy power plants. Now, it’s about 8 percent to 9 percent.

    “No question, prices will go down as you eliminate buyers,” he said. “There’s a price discovery going on.”

    This new price range will have a significant effect on developers, which often build their cost projections around the aggressive prices offered by yieldcos.

    “If an asset moves 100 basis points, that affects your development fee considerably,” Weatherley-White said.
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    Advancing Small Modular Reactors

    Nuclear energy continues to be an important part of America’s diverse energy portfolio, and the Energy Department is committed to supporting a domestic nuclear industry.

    While we are supporting the deployment of passively safe large nuclear reactors, both in the United States and around the world, we are also looking to the next generation of nuclear energy technologies.

    Today, the Department announced a new award that supports first-of-its-kind engineering, design certification and licensing for an innovative small modular reactor (SMR) design. Supporting this innovative technology will help advance low-carbon nuclear energy deployment in the United States.  

    The basics of small modular reactor technology explained. | Infographic by <a href=Sarah Gerrity, Energy Department. " title="The basics of small modular reactor technology explained. | Infographic by Sarah Gerrity, Energy Department. " width="153" height="425" >

    Small modular reactors are approximately one-third the size of current nuclear power plants or about 300 megawatts -- enough to power almost 230,000 homes each year. These reactors feature simplified, compact designs that are expected to be cost-effective and incredibly safe.
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    Precious Metals

    China adds 21 tonnes to gold reserves in November on price slump

    China's gold reserves rose by nearly 21 tonnes last month, the biggest purchase since it began disclosing monthly data on the stockpile earlier this year, central bank data showed on Tuesday.

    Gold reserves stood at 56.05 million fine troy ounces at the end of November, up from 55.38 million at end-October, according to the People's Bank of China.

    In tonnage terms, reserves totaled 1,743.35 tonnes at the end of last month, an increase of 20.8 tonnes from October.

    The data is close to a Reuters estimate of 20.9 tonnes, calculated on Monday from PBOC data and the spot gold price.

    The PBOC usually announces the dollar value of its gold reserve early in the month, before revealing the volume later.

    Prior to November, the central bank had been adding between 14 tonnes and 19 tonnes of gold, as the country has sought to diversify its foreign exchange reserves.

    Purchases last month accelerated as gold prices slumped to their lowest since February 2010, hurt by a looming U.S. interest rate hike. They lost nearly 7 percent last month, the biggest monthly drop since June 2013.

    China disclosed its gold holdings in June this year for the first time since April 2009, and has been providing monthly updates since then.

    Read more at Reuters
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    Base Metals

    China copper imports surge

    The country's imports of copper rose month-over-month by 9.5 per cent to 460,000 tons, while iron-ore imports rose 8.75 per cent to 82.13 million tons during the same month. Purchases of coal from overseas also showed a surprising increase of around 16 per cent to 16.19 million tons.

    Helen Lau, an analyst with Argonaut Securities, said the stronger monthly imports of some commodities didn't suggest a full-blown demand recovery.

    Higher imports of copper mainly arose as traders saw scope for profiting from arbitrage as local copper prices in China were higher than international prices, while the rise in iron ore came about as international suppliers cut prices to lure Chinese consumers. Ms. Lau said.
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    Rio Tinto cuts capital spending forecast to $5bn next year

    Rio Tinto Group, the second-largest mining company, cut its capital expenditure forecast for 2016 as the producer strives to balance shareholder returns with investing in projects.

    Capital spending will be about $5 billion in 2016, down from the company’s previous estimate of less than $6 billion, Rio said on Tuesday in a statement. Spending this year is seen at $5 billion, from a previous estimate of about $5.5 billion. It was about $8 billion in 2014, according to filings.

    “As we approach the start of 2016, we are well positioned to continue to provide returns for our shareholders and invest in our business,” chief executive officer Sam Walsh said in the statement. Rio last month approved a $1.9 billion investment in a bauxite project in Australia.

    The biggest mining companies, including Rio and BHP Billiton are slashing spending and cutting costs in an attempt to protect profits as commodities prices slide. China’s slowest pace of economic growth in a quarter of a century is weighing on metals to energy prices and eroding profits for producers. Prices this month touched the lowest since 1999 and the Bloomberg Commodity Index is heading for the fifth straight annual loss.
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    Steel, Iron Ore and Coal

    CNCA official: strict output control essential for coal miners to survive

    Strictly controlling coal production to help bring coal prices back to a reasonable level is necessary for survival and development of the coal industry and for social stability in mining communities, said Wang Xianzheng, chairman of China National Coal Association (CNCA) on December 3.

    "The way out for struggling coal miners is to control output, and push coal prices up to a reasonable level, of 0.1 yuan/Kcal or so, said Wang during the national coal fair held in Ordos, Inner Mongolia.

    That means the present coal prices should rise as much as 48%, a level that miners have been longing for. The reality was coal prices were still in the lowest of the past ten years, though thermal coal has recently rebounded on rising winter heating demand.

    The Fenwei CCI 5500 Index for domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port was assessed at 355 yuan/t with VAT on December 7, FOB basis, rising 0.5 yuan/t on day and up 3 yuan/t from a week ago.

    Since the third quarter of the year, China’s coal industry has faced more difficulties, with 80% of the coal firms suffering losses, including large miners.

    This situation may get worse in the fourth quarter, especially in old mining areas and enterprises, and mines are facing more pressure in safe production and social stabilization.

    China has entered a period of zero or lower-level growth in coal consumption, which would last for a long time, said Lian Weiliang, vice director of National Development and Reform Commission.

    Lian said China should further accelerate reorganization in the coal industry, promoting integrative development of upstream and downstream enterprises, and the clean and efficient utilization of coal.

    Enterprises shall improve self-discipline, and arrange output based on the actual demand, said Lian, adding that enterprises shouldn’t commit to price war and sell coal at below production costs.

    Major production provinces should improve mine capacity check system, and establish specific measures for mines to withdraw from the market.

    Attached Files
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    Iron ore price reaches Sam Walsh 'fantasy land'

    Iron ore fell to a record low on a spot price basis on Monday with the Northern China 62% Fe import price including freight and insurance (CFR) dropping 1.3% to $38.90 a tonne.

    After a strong recovery from its July low, the steelmaking raw material has been on a relentless decline since early October and is down 25% since then. Losses so far this year match that of 2014's when the price of the commodity nearly halved. Today's price compare to $190 a tonne hit February 2011 and an average of $135 a tonne in 2013 and $97 last year.

    The big three producers – Vale, Rio Tinto and BHP Billiton – have been following a scorched earth strategy of raising output and slashing costs to weather low prices and push out competitors.

    It's been highly successful, but the strategy is now also catching up with the most cost-effective producers and that includes the majors.

    Monday's price are now in the realm what Rio's chief executive and long-time iron ore division head Sam Walsh called a "fantasy land" in a Bloomberg interview in February when the price was still north of $60 a tonne:

    But even an iron ore price in the $30s may not be a major problem for Rio Tinto. Its high-quality 20 million tonne per year greenfield project in the Pilbara called Silvergrass could be used to replace any of the company's higher-cost production in the region next year.

    A year ago Walsh famously told the Australian Financial Review that his 'amazing' Rio turnaround "will be a Harvard case study" one day.
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    China's iron ore imports surge 22 pct in Nov

    Chinese iron ore imports surged 22 percent in November from a year earlier, customs data showed, as big miners in Australia and Brazil won market share even as steel output cuts push the price of the raw material lower.

    November shipments rose to 82.13 million tonnes, data from the General Administration of Customs showed, also up 8.8 percent from the previous month, although imports for the first 11 months were up just 1.3 percent from a year ago.

    Cooling economic growth in China, the world's top producer of steel, has already hit industrial demand and steel mills are expected to step up production cutbacks as losses deepen.

    "We aren't seeing any restocking activity going on now but certainly the additional growth that we continue to see in capacity in Australia is lending itself to stronger imports and the continued closure of domestic iron ore mines in China is supporting that," said Daniel Hynes, senior commodity strategist with ANZ.

    "There would certainly be a component of opportunistic buying, but considering the weakness in the steel market in China, it's hard to see how that type of support would be sustainable."

    Shanghai steel futures have tumbled 40 percent since the beginning of this year. Slower demand from China and rising supplies from top miners have dragged down spot iron ore prices .IO62-CNI=SI by 45 percent so far this year.

    China's crude steel output will fall for a second straight year in 2016, as a cooling economy hurts demand in the world's top producer, underscoring the bleak outlook for the steel and iron ore sectors.

    Steel product exports slid 1.1 percent to 9.61 million tonnes in November from a year ago, but total exports for the first eleven months jumped 21.7 percent to 101.7 million tonnes from a year ago.

    Weak domestic demand has driven Chinese steel mills to boost sales abroad.

    Read more at Reuters
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    Iron ore shipments to China from Port Hedland rise 3 pct in Nov-port

    Monthly iron ore shipments to China through Australia's Port Hedland rose 3 percent in November amid a sharp weakening in prices for the raw material used in steel production, port data released on Monday showed.

    Shipments to China, the world's biggest importer, reached 31.73 million tonnes last month versus 30.73 million in October, according to the Pilbara Ports Authority.

    The port, the world's largest for exporting

     iron ore, is used by large producers such as BHP Billiton and Fortescue Metals Group, along with smaller miners Atlas Iron and BC Iron

    Total shipments of iron ore through the port in November reached 37.33 million tonnes versus 36.52 million in October, the data showed.

    The record was set in September, when 39.4 million tonnes were shipped through the port.

    South Korea, was the second-biggest destination for ore from the port in November, importing 2.87 million tonnes, followed by Japan with 1.53 million tonnes.

    The price of iron ore deteriorated to fresh lows in late November and continued its decline in the first week of December, standing at $39.40 a tonne on Dec 4.

    Despite the price deterioration, aggravated by mounting global oversupply and waning steel production growth in China, miners continue to run at peak levels. BHP expects to mine 247 million tonnes by next July, while Fortescue is running at an annual rate of around 165 million tonnes, making them the third and fourth highest producers worldwide after Vale and Rio Tinto .

    Read more at Reuters

    Attached Files
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    Brazil's Vale says civil lawsuit seeks $5 billion in damages from dam burst

    A deadly dam burst at a Brazilian iron ore mine has triggered a civil lawsuit seeking 20 billion reais ($5.31 billion) in environmental and property damages from mine operator Samarco and its owners, BHP Billiton Ltd and Vale SA, Vale said in a securities filing on Monday.

    The National Humanitarian Society (Sohumana) has filed the lawsuit before a federal judge in Rio de Janeiro, Vale said. Brazil's federal and state governments have also said they will sue Samarco and its owners for 20 billion reais after a burst tailings dam last month unleashed 60 million cubic meters of mud and mine waste that devastated a village, killed at least 13 people and polluted a major river valley.

    Read more at Reuters
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