Mark Latham Commodity Equity Intelligence Service

Monday 14th November 2016
Background Stories on

News and Views:

Attached Files


    Trump Transition Team

    #1 Climate Change.
    President-elect Donald Trump is reportedly looking at ways for the U.S. to back out of a landmark climate pact, which would defy an agreement to cut carbon emissions across the globe.

    #2 Federal Reserve
    In almost three years as the Fed’s chairwoman, Janet L. Yellen has led an aggressive campaign to stimulate economic growth. Donald J. Trump, the president-elect, has embraced criticism that the Fed is causing more problems than it is solving, and he has surrounded himself with advisers who would like to rein in the institution that has the greatest influence over the direction of the nation’s economy.

    #3 Trade
    A deeper look into the results of the election that propelled him to the presidency, however, suggests the real fuel behind his victory may have come more from his stand against traditional free-trade agreements, and in his overall call for “change.”

    #4 Tax

    Image titleNever Forget issue #1:
    Image title
    Politics has finally recognised the depression trifecta: too much labour, too much stuff, too much capital!

    Attached Files
    Back to Top

    Trump, China's Xi establish sense of mutual respect - Trump statement

    Trump, China's Xi establish sense of mutual respect - Trump statement

    U.S. President-elect Donald Trump and Chinese President Xi Jinping established a "clear sense of mutual respect" in a telephone call on Sunday night, Trump's presidential transition office said early on Monday.

    In a statement, the office said Trump thanked Xi for his congratulations after winning Tuesday's presidential election over Democrat Hillary Clinton.

    "During the call, the leaders established a clear sense of mutual respect for one another, and President-elect Trump stated that he believes the two leaders will have one of the strongest relationships for both countries moving forward," it said.
    Back to Top

    Could Trump be OPECs new best friend

    Last week, I wrote that OPEC needs friends and a miracle to re-balance the oil market. Could President Trump be that unwitting buddy, providing the miracle by tearing up the nuclear agreement with Iran and removing almost a million barrels a day of supply at a stroke?

    Trump's number one priority is to dismantle the "disastrous" deal -- although his to-do list might have changed since saying that back in March. As luck would have it, that daily million barrels is about the same size as the cut OPEC needs to make, as I calculated last week.

    Can he do it? Yes, despite assertions to the contrary from Iran's President Rouhani and a slew of analysts. Here's how:

    The Joint Comprehensive Plan of Action, as the deal is snappily titled, wasn't ratified by Congress, but brought into force by President Obama via executive order. Trump could rescind that. The fall-out would be messy, but it could be done (in theory).

    There's another way too, enshrined within the agreement itself. The dispute resolution mechanism allows any signatory to refer a perceived breach of the deal's terms to the joint commission created to oversee the accord. If the complaining party isn't satisfied with the outcome and believes the breach constitutes "significant non-compliance", it can refer it to the U.N. Security Council. The Security Council would then vote -- and here's the killer blow -- - not on whether to re-impose sanctions, but on whether to "continue the sanctions lifting."

    That might not sound like a big difference, but it's critical. By framing the vote this way, the U.S. could, in theory, veto the resolution. All the U.N. sanctions on Iran would then be re-imposed. Simples.

    That just leaves EU sanctions, which prohibited -- among other things -- the importing of Iranian oil into EU countries. We might expect some sort of European backlash against unwinding the deal, but it might not be very effective.

    The tortuous process of re-establishing Iran's oil trade with Europe shows that only too clearly. Although there were willing buyers and a very willing seller, the difficulty came in finding insurers who would underwrite the transactions, or shippers to carry the crude. All the big re-insurers had at least some U.S. involvement and they were extremely hesitant to pick up the business -- even with the apparent backing of the Obama administration. They would drop the business like a scalding hot potato if the new president killed the deal. End of Iranian oil flows to Europe.

    Elsewhere, important Asian buyers were threatened in the past with the loss of access to the U.S. banking system to persuade them to cut their purchases of Iranian. This tactic would probably work again.

    Of course, Iran would treat the move as grounds to abandon its own commitments. Coming shortly before Iran's presidential election in May, it would be a huge boost to Tehran's hardliners. You'd expect life to become more difficult for the Americans in Iraq, where it's engaged alongside Iranian-backed militias in ousting Islamic State from its last stronghold in the country -- another Trump priority.

    But at least the crude price would recover, which would be great for U.S. oil, if not so good for motorists. I guess the new president will have to choose who to please.

    Attached Files
    Back to Top

    India court ruling means firms have to pay up state tax worth billions of rupees

    The Indian Supreme Court on Friday rejected a petition by major firms seeking the withdrawal of a tax on the movement of goods through the states, a decision that would force them to pay an estimated $4.5 billion in back taxes and interest.

    Some 2,000 companies including the Jindal group, Vedanta, Steel Authority of India and Tata Steel had contended that entry tax on goods as they moved from one state to another was against free trade.

    But the top court led by Chief Justice T.S. Thakur said India's federal constitution gave the states the right to impose such a tax, Rakesh Dwivedi, a lawyer representing the state of Uttar Pradesh said.

    "It is a very good judgment that will help the states to collect more revenue," Dwivedi said.

    States have said that companies would have to pay over 300 billion rupees ($4.47 billion) in back taxes along with interest.

    "The industry as a whole will be adversely affected by the judgment," said Ashok Kumar, director finance and marketing, Jindal Stainless Ltd.

    India has a messy plethora of indirect taxes, duties and surcharges, imposed by the federal government as well as the states. But in the biggest single tax reform cleared by parliament in August, all such taxes will be subsumed into a single goods and services tax.

    But that might not become effective until April 2017, and firms would have to comply with the Supreme Court order, experts said.

    "The liabilities would arise on various businesses and could affect their working capital needs," said Prashant Deshpande, partner, Deloitte Haskin & Sells LLP.

    Attached Files
    Back to Top

    World CO2 emissions stay flat for third year, helped by China falls: study

    World greenhouse gas emissions stayed flat for the third year in a row in 2016, thanks to falls in China, even as the pro-coal policies of U.S. President-elect Donald Trump mean uncertainty for the future, an international study said on Monday.

    Carbon dioxide emissions from fossil fuels and industry were set to rise a tiny 0.2 percent in 2016 from 2015 levels to 36.4 billion tonnes, the third consecutive year with negligible change and down from three percent growth rates in the 2000s, it said.

    The Global Carbon Project, grouping climate researchers, welcomed the flatlining of emissions amid global economic growth. But it cautioned that the world was not yet firmly on track for a greener economy.

    "It's far too early to say we've reached a peak in emissions," co-author Glen Peters, of the Center for International Climate and Environmental Research in Oslo, told Reuters, referring to the findings issued at U.N. talks on climate change in Marrakesh, Morocco.

    "So far the slowdown has been driven by China," Peters said, adding Beijing's climate change policies would also be the dominant force in future since it accounts for almost 30 percent of global emissions.

    Chinese emissions were on track to dip 0.5 percent this year, depressed by slower economic growth and coal consumption.

    U.S. emissions were projected to fall by 1.7 percent in 2016, also driven by declines in coal consumption, according to the study published in the journal Earth System Science Data.

    By contrast, emissions in many emerging economies are still rising. Carbon dioxide is the main man-made greenhouse gas blamed for trapping heat, stoking disruptions to world water and food supplies with heat waves, floods, storms and droughts.

    The Marrakesh talks among almost 200 governments, between Nov. 7-18, have been dominated by uncertainties about future U.S. policy after Republican Trump's victory on Tuesday.

    Trump has called global warming a hoax and wants to pull out of the Paris Agreement for limiting emissions, reached last year after two decades of negotiations, and instead bolster jobs in the U.S. coal and oil industries.

    Still, Peters said natural gas, wind and solar were likely to continue displacing coal in U.S. electricity production, thanks to new technologies and lower prices.

    Other scientists welcomed Monday's findings.

    "This could be the turning point we have hoped for," David Reay, Professor of Carbon Management at the University of Edinburgh, said in a statement. He added: "The real Houdini work of freeing our economies from carbon has only just begun."
    Back to Top

    China power output increases by 8% Y on Y

    Total electricity generated increased to 487.6 TWH in October 8% from a year ago but down 0.75% from the previous month.

    Themal power rose 11.9% on the year whilst hydroelectric fell 7.6%. Nuclear wind ond solar all saw double digit increases over the year.

    Over January to Octiber power output rose 3.9%
    Back to Top

    Oil and Gas

    Large buildup of tankers around Singapore


    Back to Top

    Oil Tankers Used to Store Millions of Barrels as Land Sites Fill

    Oil companies booked tankers to store as many as 9 million barrels of crude in northwest Europe amid signs that space in on-land depots is filling up, a ship-operator said. The glut could get bigger still, given the region is scheduled to load the most cargoes in 4 1/2 years next month.

    There are 14 to 16 Aframax-class tankers now storing crude in the region, Jonathan Lee, chief executive officer of Tankers International, operator of the world’s biggest pool of supertankers, said by phone Friday. Standard cargoes are normally almost 600,000 barrels. Lack of on-land capacity to hold the oil is the most likely cause of the buildup, he said.

    North Sea producers are among a long list of suppliers adding barrels just as OPEC prepares to try and eliminate a surplus. Pressure on the exporter club is piling up because its own members are pumping like never before while nations outside the group including Brazil, Kazakhstan, Canada and Russia are producing more than ever or pumping from new fields.

    Traders began looking for profit at sea again earlier this month, according to a Bloomberg survey, with Tankers International saying at the time that between five and 10 ships had been chartered to hold oil near Singapore, most likely to profit from weak crude prices.

    Doing the Contango

    Those ships are the industry’s biggest supertankers, holding 2 million barrels a piece. The vessels in the North Sea would normally carry about 70 percent less oil.

    Oversupply in the oil market has caused a key oil-price spread that denotes the scale of any surplus to balloon. The difference in the price of January and February Brent contracts rose to $1.18 a barrel this week, the widest since April 2015, excluding days when the price expires.

    When the month-on-month discount gets deep enough -- something called contango -- it sometimes rewards traders to hire ships, keep hold of the oil, and sell it at the later price, because the gap more than covers the cost of booking a vessel. Other times, there just isn’t space to unload, forcing vessels to wait. Inventories in Amsterdam, Rotterdam and Antwerp are the highest for the time of year since at least 2013, according to data from Genscape Inc.

    “The big question is whether it’s contango or whether it’s a lack of physical land-based storage” that’s caused the storage buildup in Northwest Europe, London-based Lee said. “It seems to be the latter at the moment.”

    The Brent price spreads collapsed because supplies are being pushed onto the market that were previously unavailable.

    Libya shipped the most oil since late 2014 in October, while Nigeria’s petroleum minister said the nation is now pumping more than 2 million barrels a day for the first time since the start of the year. That is in addition to new supply from Kazakhstan’s Kashagan oil field and Russian output at a post-Soviet record.

    Attached Files
    Back to Top

    OPEC points to even bigger 2017 oil surplus as its output jumps

    OPEC reported an increase in its oil production in October to a record high led by members hoping to be exempt from the producer group's attempt to curb supply, weighing on prices and pointing to a larger global surplus next year.

    The Organization of the Petroleum Exporting Countries pumped 33.64 million barrels per day (bpd) last month, according to figures OPEC collects from secondary sources, up 240,000 bpd from September, OPEC said in a monthly report.

    The OPEC figures point to a bigger surplus than those of the International Energy Agency and underline OPEC's challenge in restraining supplies. Oil LCOc1 fell below $45 a barrel after the report was released, having reached a 2016 high near $54 after OPEC's deal was announced in September.

    OPEC made little mention of the surprise election of Donald Trump as the next U.S. president, beyond noting that currency markets had seen "significant" volatility. It left unchanged its 2017 forecasts for U.S. and world economic growth.

    "More data over the coming months will provide further insight to allow a more detailed review of the U.S. economic situation, particularly after the most recent elections," OPEC said in the report.

    To speed up a rebalancing of the market, OPEC agreed at a meeting in Algeria on Sept. 28 to cut supply to between 32.50 million bpd and 33.0 million bpd. The group hopes to finalize further details at a meeting on Nov. 30.

    The latest figures could complicate OPEC talks on how to share out the cuts. OPEC experts meet to discuss this on Nov. 25 and on Nov. 28 will meet officials from non-OPEC countries, OPEC Secretary General Mohammed Barkindo said on Monday.

    According to OPEC's report, October's supply boost mostly came from Libya, Nigeria and Iraq - members that have sought to be exempt from cuts due to conflict. Iran, seeking an exemption as output was held back by Western sanctions, also pumped more.

    OPEC uses two sets of figures to monitor its output - figures provided by each country, and secondary sources which include industry media. This is a legacy of old disputes over how much countries were really pumping.

    Iran told OPEC it produced 3.92 million bpd in October, while the secondary sources put output at 3.69 million bpd. From Iran's point of view, joining the OPEC supply cut deal from the higher figure would be more favorable.

    OPEC issued a revised report on Friday to add Iraq's figure. Baghdad, which has questioned the accuracy of the secondary-source numbers, told OPEC its October output was steady at 4.77 million bpd - 210,000 million bpd more than the secondary sources estimate.

    That aside, OPEC's report is the latest to show output is hitting new peaks. The October figure is the highest since at least 2008, according to a Reuters review of past OPEC reports.

    In the report, OPEC trimmed its forecast of non-OPEC supply this year, although supply growth in 2017 is put at 230,000 bpd, little changed from last month.

    With demand for OPEC crude in 2017 expected to average 32.69 million bpd, the report indicates there will now be an average surplus of 950,000 bpd if OPEC keeps output steady. Last month's report pointed to an 800,000 bpd surplus.

    The 2017 surplus implied by the IEA in its latest report on Thursday is closer to 500,000 bpd.

    Attached Files
    Back to Top

    Iran raises oil price


    Back to Top

    Iran Tells OPEC It Raised Supply by Most Since Sanctions

    Iran, which wants an exemption from OPEC’s accord to cut production, told the group it raised output by the most since international sanctions were lifted, while Iraq -- also insisting it should be spared -- gave no reading at all.

    Freed from curbs on its oil trade in January, Iran said it increased output by 210,000 barrels a day to 3.92 million a day in October from the previous month, according to a report from the Organization of Petroleum Exporting Countries. That’s 230,000 barrels a day more than estimated by OPEC itself, whose members are due to finalize how much each will cut when they gather on Nov. 30. Production from Saudi Arabia, which typically declines at this time of year, remained near record levels.

    Oil prices climbed about 16 percent in the weeks after OPEC’s Sept. 28 meeting in Algiers, where the group ended a two-year policy of pumping without limits to agree a production cut aimed at clearing a global surplus. Yet prices have since retreated on doubts the deal can succeed when key members Iran and Iraq argue they shouldn’t need to cut while recovering from losses to war and sanctions.

    “Estimating a higher domestic number is clearly part of the game they were all very well versed with,” said Abhishek Deshpande, an analyst at Natixis SA in London. “They will either cut back based on these higher numbers, or for some countries like Iran and Iraq, they would like to freeze at those levels.”

    OPEC’s monthly report contains two sets of production data: one submitted by individual members, known as “direct communication,” and another compiled from external sources such as news agencies and intergovernmental institutions, referred to as “secondary sources.”

    Iraq, Iran and Venezuela have said these externally compiled numbers, which will be used when allocating production cuts, underestimate their output, and that their own government data should be used instead.

    Trump Wildcard

    Iran’s reported production increase of 210,000 barrels in October exceeds the combined gains of the previous five months, OPEC’s data show. Secondary sources showed a more modest addition of 27,500 barrels a day for October.

    Still, the country may be more willing to agree to a deal following this week’s U.S. election victory by Donald Trump, who has threatened to scrap the nuclear agreement that brought sanctions relief, according to RBC Capital Markets LLC.

    Saudi Arabia, which has said it wants other nations to cooperate in the production rollback, reported its production was little changed in October at 10.625 million barrels a day, even though supplies typically ease at this time of year as seasonal domestic demand slackens.

    The secondary sources show that OPEC output increased by 236,700 barrels a day to 33.64 million a day in October, as Nigeria and Libya recovered output lost to sabotage, militant attacks and political conflict.

    That means the group would need to cut by 640,000 to 1.1 million barrels a day to comply with the range it set out in Algiers. The organization estimates an average of 32.7 million barrels a day will be needed from OPEC next year, about 100,000 more than it forecast last month due to a slightly weaker outlook for non-OPEC supply.

    For the IEA’s forecast for non-OPEC output growth, click here.

    The organization has sought help in lowering output from non-members such as Russia, which has indicated it may at least freeze if not cut supplies.

    “Adjustments in both OPEC and non-OPEC supply will accelerate the drawdown of the existing substantial overhang in global oil stocks and help bring forward the re-balancing of the market,” the report said. Inventories remained more than 300 million barrels above their five-year average in September, it said.

    Attached Files
    Back to Top

    India’s fuel demand rose 8.1 percent year-on-year in October

    India’s fuel demand rose 8.1 percent in October compared with the same month last year.

    Consumption of fuel, a proxy for oil demand, totaled 16.49 million tonnes, data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry showed.

    Sales of gasoline, or petrol, were 13.8 percent higher from a year earlier at 2.11 million tonnes.

    Cooking gas or liquefied petroleum gas (LPG) sales increased 10.3 percent to 1.86 million tonnes, while naphtha sales surged 4.8 percent to 1.11 million tonnes.

    Sales of bitumen, used for making roads, were 6.9 percent lower, while fuel oil use edged up 8.3 percent in October.
    Back to Top

    Tax rebate signals China's growing confidence in secure oil supplies

    After more than a decade, China has decided to restore tax rebates on exports of gasoline, gasoil and jet fuel, a sign that Beijing is more than comfortable with the domestic supply situation for oil products.

    China's Ministry of Finance and the State Administration of Taxation announced late last week that the entire VAT of 17% would be refunded when those products are exported, effective November 1.

    This implies that products processed from domestic crudes can join the export bandwagon, in addition to those produced from imported crudes.

    Market participants said that while the re-introduction of the rebate, which was removed when China faced a domestic supply shortage a decade ago, would help encourage exports, Beijing could still keep an indirect control on it through the allocation of export quotas and regulate as and when needed.

    "For refiners and exporters, the priority will still be on securing export quotas for gasoline, jet fuel, and diesel with third-party processing deals," Facts Global Energy said in a research note on the latest policy move. Chinese producers can export oil products in two ways -- under normal trade or under processing trade.

    Under processing trade, export quotas are needed and exports are required to be processed from imported feedstocks.

    This is the preferred route for domestic refineries as they are free of taxes.

    Currently 36 refineries, comprising independent and state-owned ones, have been granted export quotas for processing trades.

    Around 85-90% of China's gasoline and gasoil exports as well as 40% of jet fuel exports are under processing trades.

    Under normal trade, there is no feedstock use restriction for oil product exports, but they are subject to taxes including VAT and consumption tariff.

    The latest tax rebate is only applicable to product exports under normal trade.

    With a rebate of 17%, exporters will move a step closer to making exports under normal trades competitive.

    In addition, they will try to find ways to source the most competitive supplies from the market and will no longer be restricted to export products processed only from imported crudes, market participants said.

    "With the latest move, China's oil product exports will become more competitive and will be more in line with the international market, helping to earn better trading profits," a trader with a state-owned company said.


    Over the first nine months of 2016, China exported 26.78 million mt of gasoline, gasoil and jet fuel, surging 58.7% from 16.87 million mt in the same period of last year.

    Most of the exports were products processed from imported crudes. For normal trades, 17% VAT is imposed on the product price over and above consumption tax.

    Gasoline, gasoil and jet fuel are subject to consumption taxes of Yuan 2,110/mt, Yuan 1,411/mt and Yuan 1,496/mt, respectively.

    The government's move to give a VAT rebate is seen by traders and analysts as a step towards the government's long-term plan to completely abolish consumption taxes on exports of the three oil products as the domestic market faces an oversupply situation.

    "The aim to restrict exports so far has been to keep the oil product barrels in the country to ensure domestic supplies. But because of the current oversupply situation, it is not that necessary to keep the barrels," a market observer said.

    The VAT rebate was suspended in September 2005 as the government stepped up efforts to limit oil product exports, although it was once reinstated briefly over January-March 2006.

    "We expect to take less than six months to resume exports under normal trades as no one has done any deals in the last 10 years due to the tax issue," said a Singapore-based trader from a state-owned company, referring to exports without any feedstock use restrictions.

    Traders said the first batch of quota holders for normal trades are widely expected to be those from the trading arms of the five state-owned oil companies -- Sinopec, CNPC, CNOOC, Sinochem and Zhuhai Zhenrong.

    "I don't think it will be a problem for the government to issue normal export quotas to qualified applicants. There is no such quota awarded in the last 10 years and that is only because no company has applied for it due to the tax issue," said another trader.

    Attached Files
    Back to Top

    China’s Hony Capital buys stake in Santos

    Chinese private equity firm Hony Capital has bought a 2.25 percent stake in Australian LNG player Santos.

    Santos said in a statement on Friday that Hony Capital bought 40 million shares worth A$159.2 million ($121.2 million) after market close on Thursday.

    The Chinese group now owns about 3.2 percent in Santos.

    Hony paid A$3.98 a share, an 11 percent premium to Santos’ closing price on Thursday.

    This acquisition comes just 8 months after Hony Capital sold its 11.7 percent share in Santos for $750 million to China’s ENN Group. Under that deal, Hony Capital also acquired a stake in ENN.
    Back to Top

    Gorgon LNG temporarily shuts down

    According to Reuters, the Gorgon LNG project in Australia is currently undergoing restart activities, following a temporary shutdown.

    Reportedly, the facility was shut down as part of a brief and unplanned outage, and led to the delay, but not the cancellation of, a small number of shipments.

    Cam Van Ast, a spokesman for Chevron, said: “Production on Gorgon LNG Train 1 was temporarily halted for minor maintenance.

    “Train 2 production is unaffected and continues to ramp up.”

    The Gorgon project is located on Barrow Island, located approximately 60 km off of the northwest coast of Western Australia. The LNG facility features three processing units designed to produce 15.6 million tpy of LNG.
    Back to Top

    Gazprom says Japanese lender JBIC may help finance Sakhalin-2 LNG expansion

    Gazprom said on Thursday that it has discussed possible financing with the Japan Bank for International Cooperation for the expansion of the Sakhalin-2 liquefied natural gas plant.

    It also said that it discussed with JBIC financing for the Amur gas processing plant in Russia.

    Gazprom plans to add a third LNG production train at the Sakhalin-2 plant in 2021, possibly fed by a newly drilled gas field, as Russian companies seek to boost their share of the global LNG market.

    Attached Files
    Back to Top

    U.S. rig count down one this week, first decline in two months

    The number of oil rigs in U.S. fields fell by one this week, the first overall decline in two months, the Houston oilfield services company Baker Hughes reported Friday.

    At the same time, U.S. oil drillers collectively sent two more rigs into the patch.

    The total rig count dipped to 568, up from a low of 404 in May. Totals still lag the same period last year, when 767 drilling rigs were operating in U.S. oil and gas fields.

    The number of active oil rigs rose to 452 this week. Gas rigs slipped two to 115. Uncategorized rigs fell one. The number of offshore rigs stagnated at 21, down 12 year over year.

    Rig counts fell by two in Alaska, two in North Dakota and one in New Mexico, Oklahoma, Pennsylvania and Utah.

    Texas almost made up the difference, adding six rigs — including three in the Eagle Ford, which watched drillers flee after the oil price crash two years ago.

    U.S. drilling activity has followed the modest rebound in prices, from February’s low of $26 a barrel to more than $50 in recent weeks.

    Prices slipped again this week, however, dropping to just over $43 a barrel in trading around noon on Friday.
    Back to Top

    U.S. shale firms go back to work buoyed by OPEC deal, Trump victory

    U.S. shale producers are redeploying cash, rigs and workers, cautiously confident the energy sector has turned a corner after Donald Trump's election victory and OPEC's recent signal that it plans to curb production.

    The downturn produced a leaner, more efficient U.S. shale industry that was forced to develop and quickly adapt new technology to compete with conventional oil supplies during a two-year period of depressed prices.

    "You're starting to see a little bit of light at the end of the tunnel," Ryan Lance, chief executive of ConocoPhillips, the largest independent U.S. oil producer, said in an interview last week. "We're beginning to put capital back to work, but we're being cautious."

    Specifics of the deal by the Organization of the Petroleum Exporting Countries - especially what it means for each member - need to be finalized at a meeting later this month in Austria. But the tentative agreement indicated OPEC kingpin Saudi Arabia is keen to end a damaging two-year oil price war. That prodded U.S. producers to action. [nL8N1C42M9]

    The U.S. oil drilling rig count has grown 6 percent since OPEC's September accord, according to oilfield analytics firm NavPort, with additions across the country's top shale fields including the Permian (7 percent) and the Bakken (17 percent).

    Also, Trump's victory is expected to bring to the White House an advocate for oil and gas drilling, who will slash regulations and encourage new energy industry development. [nL1N1DA35B]

    Occidental Petroleum Corp, Chevron Corp, Pioneer Natural Resources Co and ConocoPhillips are among those adding rigs or preparing to do so.

    Oasis Petroleum Inc, a major North Dakota producer, bought 55,000 acres last month from SM Energy Co for $785 million, a bullish bet on the future of oil prices. The company also plans to add rigs. [nFWN1D90K9] [nL4N1CO3K9]

    "This all reflects more of a confidence around our business plan in a lower oil price environment," Oasis Chief Executive Tommy Nusz said in an interview last week.

    "We feel like we can hold our own now in a $40 (per barrel oil) world and grow in a $45 to $50 world."

    Citing its technology and other improvements, EOG Resources Inc raised its growth projections and now expects to boost output 15 to 25 percent each year through the end of the decade if oil prices stabilize near $50 per barrel.

    "After two years of this down cycle, we are more than ready to resume higher-return oil growth," EOG CEO Bill Thomas told investors in early November.

    All that activity will have an effect once things ramp up.

    U.S. unconventional shale oil production is expected to dip 13 percent this year from 2015 levels and continue to slip into 2017 before rebounding 11 percent in 2018, according to data from the U.S. Energy Information Administration.


    Investors in the oil sector are also bullish, eager to see returns grow after lagging for several years.

    "We fundamentally feel that where energy prices are at now are below where they are going to be at some point, and below their long-term equilibrium level," Tony James, president of private equity investor Blackstone Group LP, told reporters in late October.

    James' outlook reflects a broader perception among shale oil producers and their financiers that the industry has turned a corner for the better, analysts said.

    U.S. oil producers have launched initial public offerings, with Extraction Oil & Gas Inc and WildHorse Resource Development Corp filing this fall alone.[nL4N1CH4JV] [nL4N1DB6QR]

    That is good news not only for the oil industry but also for its largest lenders, including Wells Fargo & Co and Bank of America Corp.

    Oil "companies are now entrepreneurial and they've cut costs to become viable at these prices," a senior executive at one of the top private equity firms in New York said last month. The executive declined to be named as he is not authorized to speak to the media. "Those people are going to start producing again."

    To be sure, a resurgence in the U.S. oil industry must still contend with market fundamentals, including a large oversupply and sluggish demand that neither Saudi Arabia nor President-elect Trump can fully control.


    Oil steady near multi-month lows on OPEC output record, U.S. rig count
    China October crude oil output drops to lowest since May 2009

    America's oil inventories rose by more than 14 million barrels in late October, the largest one-week increase on record and one linked to large production of shale oil and natural gas.[nL1N1D30QB]

    If American oil companies continue to increase production, they run the risk of abrogating any OPEC output cuts later this month and pushing down prices on their own accord.

    "Obviously if we pull back to $25 per barrel, that will have an impact upon our investing," said Al Walker, CEO of Anadarko Petroleum Corp.

    Yet demand for the light, sweet oil produced across American shale fields continues to rise globally. U.S. crude oil exports hit an all-time high in September, according to U.S. Census data.

    And many companies have hedged for 2017 at least, taking advantage of the oil price rise this year. That emboldens executives to boost budgets.

    Pioneer, considered by Wall Street analysts one of the best-run U.S. shale oil producers, has hedged 75 percent of its 2017 output at an average price around $50 per barrel.

    "The industry is looking forward to a tepid recovery in early 2017," said John Chisholm, CEO of Flotek Industries Inc, which supplies chemicals used in fracking and other oilfield products.

    Demand for Flotek's CnF, a nontoxic fracking fluid, during the first nine months of 2016 has already eclipsed 2015 sales volumes, with projections higher for 2017.

    "These oil producers have reconstructed their business so they can make money at these low oil price levels. They're pressing forward."

    Attached Files
    Back to Top

    From bust to boom: oilfield firm can't get enough staff to cover rising activity

    An oilfield services company that laid off almost two-thirds of its workers over the past two years is now warning it can't find enough new staff to take full advantage of a recent increase in activity.

    Calgary-based Essential Energy Services (TSX:ESN) says it cut more than 400 workers in 2015 and almost 250 in the first three months of this year, dropping its staff count from almost 1,000 to a low point of 343 last March.

    The cuts came as customers in Western Canada reduced spending and their appetite for Essential's well completion and production services.

    Essential says demand has been rising this fall as producers react to modest improvements in commodity prices but it warns that it could be "constrained" in its ability to accept work because it needs to hire another 40 to 50 workers.

    Mark Salkeld, president of the Petroleum Services Association of Canada, said in an interview last week that the length and depth of the current energy industry downturn means many laid-off oilfield workers have abandoned the profession.

    Essential reported Wednesday, after markets closed, that it had a net loss of $3.8 million in the three months ended Sept. 30 on revenue of $30 million, versus net income of $2.9 million on revenue of $48 million in the same period of 2015.

    Attached Files
    Back to Top

    Alternative Energy

    Germany lowers CO2 reduction targets for industry: document

    The German government has lowered the CO2 reduction targets for industry and utilities in the final version of its climate action plan, according a document seen by Reuters on Friday.

    The German climate plan now calls for the industrial sector to cut its CO2 emissions by only 20 pct by 2030 compared to 2014, according to the document.

    The reduction targets for power plants were also lowered slightly compared to earlier drafts, it showed.

    The document also did not include a call for the introduction of a minimum price for pollution certificates in the European Union's carbon trading scheme.

    Instead, the plan only calls for more efficacy in the EU's carbon trading scheme.
    Back to Top

    Precious Metals

    Kirkland rejects C$1.44 billion Gold Fields, Silver Standard offer

    Canada's Kirkland Lake Gold Inc said on Friday it rejected a previously unreported takeover offer from South Africa's Gold Fields Ltd and Silver Standard Resources valuing the business at C$1.44 billion ($1 billion).

    Gold Fields and Silver Standard had made three joint, unsolicited bids for Kirkland and recently sweetened their offer to about C$1.4 billion. The names of the bidders had not been previously disclosed.

    Kirkland said that after advice from its legal advisers and three separate financial advisers, it concluded the proposal was "not financially superior" to its own plan to acquire Newmarket Gold Inc for about C$1 billion in stock.

    "As a result Kirkland Lake Gold is precluded by the terms of the arrangement agreement with Newmarket from engaging in any discussions with Gold Fields or Silver Standard concerning the revised proposal or providing any due diligence access to them," Kirkland said in a statement.

    It also "strongly recommended" shareholders vote in favor of the Newmarket deal.

    However, Harry Dobson, the former chairman of Kirkland who remains a shareholder, said he would be voting against the Newmarket deal.

    "It's no secret that I don't like it. I'm not happy with the deal for the same reason the market wasn't happy," Dobson said in an interview, citing a drop in Kirkland's share price since the deal was announced.

    The latest offer for Kirkland Lake represented a premium of more than 50 percent of its value on Thursday. Its shares, which were trading at C$7.42 just ahead of the news, jumped as much as 8 percent to hit C$8.17 before being halted on the Toronto Stock Exchange. The stock closed at C$8.04 on Friday.

    Shares of Silver Standard closed down 13.3 percent at C$12.71. Newmarket fell 1.2 percent to C$3.36.

    In an Oct. 28 shareholders circular filing to discuss that merger, Kirkland said it received two bids without naming the bidders. Shareholders have a Nov. 23 deadline to vote on Kirkland's bid to buy Newmarket.

    Kirkland is a midsized producer operating four gold mines and two mills in a bullion-rich belt of northeastern Ontario.

    With its high-grade production and reserves located in a safe, mining-friendly jurisdiction, Kirkland Lake's appeal is bolstered by a scarcity of growth opportunities in the gold sector. It also has more than C$200 million of cash and equivalents on hand. The company was valued at about C$922 million at close of trade on Thursday.

    Three sources familiar with the bidding process said it is possible new bidders may enter the fray, noting companies such as Yamana Gold Inc and Hecla Mining Co have assets in the area where Kirkland Lake operates.

    Investor advisory firms ISS and Glass Lewis have recommended to shareholders of Kirkland Lake and Newmarket that they vote for the deal.

    Luxor, Newmarket's third-biggest shareholder, said it also supports the deal with Kirkland.

    Kirkland Lake ran a strategic review in 2014 that did not result in partnerships or acquisitions.
    Back to Top

    Lonmin buys Amplats stake in Pandora platinum mine

    Platinum mining company Lonmin Plc said on Friday it would buy Anglo American Platinum's (Amplats) stake in their joint venture Pandora mine for between 400 million rand ($28 million) and 1 billion rand.

    The acquisition of Amplat's 42.5 percent stake, which is subject to regulatory approval, will give London-based Lonmin a 92.5 percent stake in the mine, leaving Northam Platinum Ltd  with 7.5 percent.

    "If you take out Anglo Platinum from the decision making process, it can be easier to progress things for the asset," Peel Hunt analyst Peter Mallin-Jones said.

    The acquisition will be paid for with 20 percent of free cash flow from the Pandora mine over the next six years, with the final price dependant on platinum prices.

    For Amplats, the transaction brings it closer to its goal of offloading its labor intensive mines to focus on mechanized mines. The company completed the sale of the Rustenburg mines to Sibanye Gold last week, with just one mine left unsold.

    "Amplats was not going to go for the development plans for the asset because it had alternate assets to focus on," Mallin-Jones said.

    A recovery in platinum prices XPT= and cost cuts helped Lonmin, which was hit hard by a five-month wage strike in 2014, to post a narrowed annual loss in May.

    Lonmin shares, which have climbed 150 percent this year, fell 10 percent in London. Amplats shares were down 3.16 pct on the Johannesburg Stock Exchange.
    Back to Top

    Steel, Iron Ore and Coal

    Shenhua, China Coal inks term contracts with top five utilities

    China's Shenhua Group and China National Coal Group have signed mid- and long-term thermal coal supply contracts with the nation's top five power generators, in response to the government's call to strength cooperation between miners and utilities.

    The two coal giants reached agreements with China Huaneng Group, China Guodian Corporation and China Datang Corporation on November 11, three days after they signed contracts China Huadian Corp and State Power Investment Corp.

    The contract base price was agreed at 535 yuan/t ($79/t) FOB for 5,500 Kcal/kg NAR coal, and the price would be adjusted monthly based on the market conditions.

    The volume of coal to be supplied in 2017 will be based on actual supply and demand over 2014-2016, according to a document.

    Coal consumption of the top five utilities accounts for about 44% of China's total.
    Back to Top

    China Oct coke output up 7.3pct on year

    China produced 39.93 million tonnes of coke in October, up 1.63% from September and 7.3% year on year, showed data from the National Bureau of Statistics on November 14.

    Total coke output over January-October dipped 0.8% on year to 371.76 million tonnes, data showed.

    In October, China's coke exports rose 13% on year and up 40.3% on month to 0.87 million tonnes, with value increasing 21.4% on year and up 48.1% from September to $136.63 million, showed data from the General Administration of Customs.

    Over January-October, China's coke exports amounted to 8.29 million tonnes, climbing 12.6% on year, with value dropping 11.6% on year to $1.06 billion.
    Back to Top

    Taiyuan Railway increases rail coal freight rate

    Taiyuan Railway increases rail coal freight rate

    Taiyuan Railway Administration (TRA) raised rail freight rates of coal and some other cargoes, effective 18:00 on November 10, the municipal railway administration said in a statement.

    According to the statement, the freight rate of coal delivered via railways in the charge of TRA remains unchanged; while that from TRA's railways to others (except for Xiaoliu line, Wuzuo line and Qinqin line) increased by 10%.

    The TRA also adjusted up freight rates of coke, metal ore, iron and steel, and cement among others delivered via rail lines in the charge of TRA to others back to the country's base rates.

    The measures came after the implementation of China's new truck overloading limitation, which boosted rail transport and tightened rail transport capacity.

    China Railway Corp. decided to increase rail transport of thermal coal recently, aiming at ensuring power supply.

    Meanwhile, the Hohhot Railway Administration raised freight rates by 10% for coal and coke transported via railways under its charge to other railways.
    Back to Top

    China coal output extends decline despite government call to reopen mines

    China's October coal output fell 12 percent compared with a year earlier, data showed on Monday, even after the government gave operators the go-ahead to ramp up output and reopen mines in a bid to top up power producers' inventories ahead of winter.

    With the restart of shuttered mines taking time to kick in, the drop highlights concerns about tight supplies in the world's top consumer and producer of the fossil fuel, a factor that has fueled a nearly year-long rally in thermal coal prices.

    For the first 10 months of the year, China produced 2.74 billion tonnes of coal, down 11 percent from a year earlier, the National Bureau of Statistics (NBS) data also showed.

    At 281.85 million tonnes, October output was ahead of September's 277 million tonnes, according to NBS data. But on a daily basis, the October level still meant a drop of 1.5 percent with the shorter month of September.

    "As the government rolled out the policy to push for output increases very recently, we shall wait for November and December to see if the measures take effect," said a Beijing-based coal trader.

    "It's unlikely to see production to be on par with year-ago rates, but we may expect to see month-on-month increases in the coming months."

    Coal inventories at Qinhuangdao, the country's largest coal port, rose to more than 6 million tonnes for the first time this year on Monday, according to industry website

    Production has fallen every month since at least July last year as Beijing obliged mines to close or curb production as part of a drive to combat pollution.

    But starting in late September, Beijing began urging coal producers to boost supplies in a slew of emergency meetings, because the efforts to cut overcapacity and curb pollution had depleted supplies to utilities and triggered rising prices.

    Last week the state planner pressed two top miners to sign long-term supply contracts with utilities at a base price that is a quarter below current spot market rates.

    Traders said the market was looking for clarity on the details of the term prices agreed between the top miners and utilities for a better gauge of supply and demand. The government has said the base price agreed was a reference point that could fluctuate depending on market conditions.

    "The market is keenly looking for guidance as to which benchmark prices will be adopted in the execution of the term supply deals, and how serious the term contracts will be carried out," said the Beijing trader.

    Attached Files
    Back to Top

    Illinois Basin thermal coal export window opens to ARA, but margins tight

    Higher seaborne thermal coal prices have opened the export window for Illinois Basin coal producers, but margins remain tight, sources said Friday.

    Producers remain uncommitted to the export market as sending coal overseas could leave them with short supply in the longer term as the number of domestic requests for proposals has increased.

    Utilities must weigh whether to lock in term deals sooner rather than wait, given the volatility of natural gas prices and the possibility that export markets might take coal out of US supply.

    "Most of the sentiment is that you get it while you can," an IB producer said. "Everybody's looking for some positives."

    S&P Global Platts assessed 15-60 day CIF ARA 6,000 kcal/kg NAR thermal coal at $91/mt Friday, giving Illinois Basin producers a slight margin at least in the short term, sources said Friday.

    That delivered price would leave Platts netback prices at US Gulf Coast ports for 11,500 Btu/lb IB thermal coal at $65.07/st FOB Friday.

    Given IB 11,500 Btu/lb thermal barge coal prices for Q1 2017 were heard at $39.75-$40.25/st, that would leave roughly $3 margins for IB producers

    "Most of these operations need barge prices to get over $40 on the river to be even close to making money," the producer said.

    In its Q3 earnings report October 28, IB producer Alliance Natural Resources said it had contracted 3 million st to be exported into Europe from Q4 2016 through Q1 2017.

    Exporters also were able to sign "decent-sized contracts" to move roughly 1.5 million st of IB coal out of New Orleans into Europe in 2017 at a $2-$4 margin, a US coal industry source said.

    "The stuff is flying," the source said. "It's happening as we speak."

    A second IB producer said has been reluctant to sell coal into the IB market due to the sulfur discount that increases as API 2 prices increase.

    "We are not participating," the source said, noting he was "encouraged" by an increased number of coal RFPs in the domestic market. Producers are reluctant to book much of their production into spot export deals, which take away tonnage from the domestic market.

    Increasing production also can be risky because the export markets could go away later, forcing cutbacks.

    For utilities, the improving export market provides contracting challenges for 2017 given the volatility of natural gas prices, a Southeastern utility source said.

    "It's not as easy as it used to be," the source said. "In years past, we could forecast with some level of certainty. Today, the constant fluctuations between gas prices and demand make it a lot tougher to manage."

    Platts assessed IB 11,500 Btu/lb 5 lbs SO2/MMBtu barge coal for prompt quarter (Q1 2017) at $39.75/st, up 75 cents from last week, and assessed Cal 2017 price at $39.40/st, also up 75 cents.

    Attached Files
    Back to Top

    Brazil court rules Vale, BHP, Samarco to deposit $354m after dam burst

    Brazilian iron-ore miningjoint venture Samarco Mineração and its controllers Vale and BHP Billiton have 30 days to make a deposit of 1.2-billion reais ($354-million) to fund preparatory measures after last year's dam disaster, Vale said on Friday.

    According to a securities filing, a Brazilian federal court ruled that the companies have 90 days to prove that the Mariana dam burst has been fully contained. Over the next six months, they will have to present plans to clean up the remaining waste that spewed from the Samarco mine.
    Back to Top

    China rebar mills cut production on coal shortage, costs

    Chinese steelmakers, who usually ramp up output when steel prices rise, are reacting quite to the contrary now, as tight coking coal supply and soaring costs are forcing a number of them to cut production, market participants said Friday.

    In northern China, rebar makers Fushun New Steel and Jinxi Iron & Steel are idling blast furnaces this month for "maintenance," often a euphemism for unscheduled production shutdowns, said one of their customers in eastern China.

    Mills that have less steel to sell are either keeping offers high or have stopped quoting altogether, a mill source in northeastern China said.

    The climb in coking coal prices, which have risen 275% since the start of the year to $306/mt CFR China Thursday, according to S&P Global Platts data, has seen producers of long and flat steel cope differently, as producers of the latter have seen greater success at passing the higher costs down.

    For instance, while Jiangsu Shagang Group, China's biggest private steelmaker, will idle a rebar production line due to shortage of hot metal, according to one of its customers, no such plans have been heard on their hot strip mills.

    Also in eastern China, Zenith Iron & Steel and Yonggang Iron & Steel said they have plans to conduct maintenance on their rebar lines this month, although they insisted that the outages were routine and conducted annually, and will have little impact on overall output.

    Any production cut will likely have a limited impact on domestic markets, as rebar demand in China typically eases from November due to a slowdown in construction activity during winter.

    Overseas buyers, however, are citing added difficulty in securing material, as the mills that are conducting maintenance are also active exporters, said stockists in Hong Kong and Singapore. With Chinese rebar export offers having risen above $420/mt FOB China actual weight, offers from Taiwan, at similar levels, have suddenly become viable, after four years of being out of the market, a Hong Kong stockist said.

    Attached Files
    Back to Top

    China Oct crude steel output edges up on mth

    China produced 68.51 million tonnes of crude steel in October, rising 4.0% year on year and edging up 0.5% month on month, showed data from the National Bureau of Statistics (NBS) on November 14.

    Over January-October, the country's crude steel output rose slightly by 0.7% from the year-ago level to 672.96 million tonnes.

    Meanwhile, production of steel products edged down 0.4% on month but up 4.1% on year to 97.68 million tonnes in October; and pig iron output stood at 58.76 million tonnes, down 0.9% from September but up 3.6% on year, the NBS data showed.

    In the first ten months this year, China produced 948.29 million tonnes of steel products, up 2.4% on year; and pig iron output increased slightly by 0.1% on year to 586.35 million tonnes.
    Back to Top

    China resists EU steel tariffs

    'Concrete actions' must protect interests of Chinese firms

    China expressed great concerns over the European Union's protectionist measures against Chinese steel products on Saturday, a sign of growing impatience with EU disputes on trade measures and China's market economy status at the WTO, experts said.

    The Ministry of Commerce (MOFCOM) on Saturday said China has expressed great concern and worries over the protectionist tendency the EU has showed in the steel sector.

    "The EU has ignored Chinese companies' positive cooperation and pleas, and continues to use the unfair, unreasonable 'surrogate country' [price and cost reference mechanism] to impose higher tariffs [on Chinese products] and seriously harm Chinese companies' interests," the ministry said in a statement releasing on its official website on Saturday.

    MOFCOM urged the EU to strictly follow relevant World Trade Organization rules, avoid abusing remedy measures and protect the rights of Chinese companies.

    The statement came on the heels of a decision from the European Commission (EC), the governing body of the EU on Saturday, announcing temporary anti-dumping measures against seamless steel products from China for six months.

    This is the latest move the EU has taken against Chinese steel products, amid growing disputes between the world's two largest steel producers which stretch back to 2006, when the global market suffered from a supply glut, according to Wang Guoqing, research director at the Beijing Lange Steel Information Research Center.

    Wang noted that about a dozen disputes between China and the EU over steel have happened since 2006.

    "Steel industries in the EU feel that steel imports from China have hurt their businesses and they claim that China is dumping its steel capacity at a price much lower than the market prices. But it is wrong and unfair for them to blame China for their own problems," Wang told the Global Times on Sunday.

    She pointed out that the EU's claim is based on the "surrogate country" mechanism, under which the price and costs of Chinese steel products are compared to a third-party country.

    "That is unfair because Chinese companies can control cost and price much more effectively than foreign ones because of the scale and progress the industry have achieved, not because they receive subsidies from the government," Wang said.

    Stronger tone

    Experts noted that China has stepped up its opposition against the EU's moves to challenge China not only in the steel industry but on the larger issue of whether the latter is trying to deny China "market economy status" at the WTO and keep the "surrogate country" mechanism.

    On Friday, both MOFCOM and the Ministry of Foreign Affairs voiced strong opposition to a proposal from the EC to scrap a list of "non-market economies," but leave open the option to use the "surrogate country" mechanism in future anti-dumping cases if "market distortion" was found in a third country.

    The two ministries pointed out that the EU's proposal is trying to keep the "surrogate country" mechanism in place with a new regime but not eliminate it at the basics. They urged the EU to execute its obligations under the Article 15 of China's accession to the WTO and eliminate the mechanism.

    "I must stress that China will also maintain its right to take all necessary measures to firmly protect its legal interests," Shen Danyang, a spokesperson for MOFCOM told a briefing on Friday.

    Concrete actions

    Experts also said the EU's "unfair" protectionist measures against Chinese products have caused "great" loss for companies and both the government and companies should focus on taking actions to protect their interests.

    Not just words, but necessary concrete actions should be carried out if the EU and others continue to treat China unfairly, according to He Weiwen, an executive council member at the China Society for the WTO.

    "Addressing the issue through dialogues would be ideal, but if that doesn't work, we must take actions to firmly defend out rights and interests," He told the Global Times on Sunday.

    "They must understand that China has and will strictly comply with WTO rules, and they also must understand China will variously defend itself," He said.

    One action China could take is to start a complaint with the WTO for unfair treatment toward Chinese companies, according to He. "This might take some time, but it is the most reasonable one and there is a high possibility the WTO will rule for China if we provide sufficient evidence."

    Other actions include imposing "some kind of restrictions" on imports from the EU and "temporarily halting" some trade investment cooperation projects with the EU, experts also noted without further elaborating.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP