Mark Latham Commodity Equity Intelligence Service

Tuesday 7th June 2016
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    Saudis to Keep Crude Capacity Under Plan to Reduce Oil Reliance

    Saudi Arabia will maintain the same level of crude production capacity until 2020 under a new economic reform plan approved by the government on Monday to reduce the kingdom’s reliance on oil.

    The world’s biggest crude exporter will maintain output capacity at 12.5 million barrels a day in 2020, according to a draft of the National Transformation Program distributed to reporters in Jeddah, Saudi Arabia. The program, which was approved by cabinet on Monday according to state television, stipulates a cut in water and electricity subsidies by 200 billion riyals in 2020.

    The kingdom’s refining capacity will rise to 3.3 million barrels a day in 2020, according to the plan. Refining capacity was at 3.1 million barrels a day at the end of last year, the state producer Saudi Arabian Oil Co. said in its annual review last month. The country will produce 4 percent of power from renewable energy sources in 2020, according to the plan.

    Saudi Deputy Crown Prince Mohammed bin Salman, the king’s influential son, announced earlier this year a plan to overhaul the nation’s economy to make it less dependent on oil revenue amid a plunge in prices due to a global glut. The plan includes selling shares in Saudi Aramco by the end of 2018 in an initial public offering that could value the company at about $2 trillion.

    Prince Mohammed’s approach has been forced, in part, by Saudi Arabia’s struggle to deal with oil prices that, at about $50 a barrel this week, are trading at half the average seen from 2010 through 2014. Cuts in government spending and lower subsidies on items like fuel will help trim Saudi Arabia’s budget deficit to 13.5 percent of gross domestic product this year, compared with 16.3 percent last, the International Monetary Fund said April 25.

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    U.S. presses China to reduce barriers for foreign business

    Senior U.S. officials pressed China again on Tuesday to reduce barriers for foreign businesses, saying concerns have grown due to a more complex regulatory environment.

    Foreign business confidence has been impacted by regulatory and protectionist worries, following a series of government investigations targeting foreign companies and the roll-out of a national security law limiting the use of overseas technology.

    U.S. business groups have also complained about new Chinese regulations they say favour local firms and make it more difficult to operate in China, as well as other laws related to national security.

    "Concerns about the business climate have grown in recent years, with foreign businesses confronting a more complex regulatory environment and questioning whether they are welcome in China," U.S. Treasury Secretary Jack Lew told Chinese and American businesses and officials.

    "Our two governments have a responsibility to foster conditions that facilitate continued and increased investment, trade, and commercial cooperation," Lew said, on the second day of high level talks between the two countries in Beijing.

    "This means enacting policies that encourage healthy competition, ensuring predictability and transparency in the policy-making and regulatory process, protecting intellectual property rights, and removing discriminatory investment barriers. These policies are vital as China seeks to build on its economic progress in recent decades."

    Secretary of State John Kerry, speaking at the same event, said that as the two economies become more intertwined in shared prosperity, they have more "skin in the game" to keep their economic relationship on an even keel.

    "So we have to work on intellectual property. We have to work on transparency and accountability, we have to work on certainty and the rules of the road," Kerry said, adding that certainty was critical for business.

    Kerry expressed concern about China's new law on foreign non-governmental organisations, which he said may have a negative impact on non-profit health care groups that want to do business in China.

    Barriers to investment in China should removed as quickly as possible, he added.

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    Effects of China’s supply-side reform take time to be seen

    Even though China has attached great importance to cutting the country's overcapacity, Western countries blame China's overcapacity in the steel industry for slumping steel prices; and seldom do people consider how difficult it is for China to press ahead with supply-side reform at a time when the global economy is recovering slowly.

    But this is unfair. Imbalances, in terms of the value of labor, occur between countries and are particularly apparent when we only focus on a single product category, say, steel products.

    In the past years, China did produce more products than needed in some industries, but that is mainly due to developed countries shifting these industries to developing countries, including China, with the intention of giving up low-end manufacturing and transferring it to less-developed countries.

    At the same time, some developed countries failed to make improvements on the demand side while transferring production to developing countries. For instance, the United States badly needs to upgrade its infrastructure, but any proposal by President Barack Obama about investing in domestic infrastructure projects can hardly gain the approval of Congress. How can the developed countries revive their steel industry if there is little demand for steel?

    What is more, developed countries' demand for steel and other raw materials might increase if the global economy recovers. Any trade protectionism measures would be short-sighted. Supply side reform is not only China's economic restructuring, but also rebalancing its supply to better meet the changing demand in the global market.

    The steel industry, which is not profitable now, flourished because of China's massive infrastructure projects and housing boom in past years. While the Chinese government is determined to push supply-side reform and cut overcapacity, it will take time for the effects to be seen.

    The developed countries should avoid trade protectionism. It doesn't help if they politicize China's steel overcapacity and even deny China's market economy status.
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    Mexico ruling party routed in regional vote on graft, gang violence

    Mexico's ruling party lost several bastions in Sunday's regional elections, dealing a heavy blow to President Enrique Pena Nieto for failing to crack down on corruption and gang violence.

    The rout will help set the tone for the next presidential election in 2018, underscoring deep discontent over graft scandals and a sluggish economy, and throwing the contest open to contenders from both the left and right.

    Early results from gubernatorial races in 12 of Mexico's 31 states on Monday showed Pena Nieto's ruling Institutional Revolutionary Party, or PRI, heading for defeat in seven of them, a result far worse than most polls had forecast.

    Projected losses included two oil-rich strongholds in the Gulf of Mexico, Veracruz and neighboring Tamaulipas, both of which have been plagued by gang violence for years, as well as Quintana Roo, home to Mexico's top tourist destination Cancun. All three have been run by the PRI for over eight decades.

    The opposition center-right National Action Party (PAN) was poised to be the main beneficiary, taking the lead in seven states, three of them in alliance with the center-left Party of the Democratic Revolution (PRD).

    "We've broken the authoritarian monopoly the PRI has held for more than 86 years," a buoyant PAN leader Ricardo Anaya told cheering supporters after polls closed on Sunday.

    In a televised debate, Anaya then chastised the PRI for a surge in kidnappings in Tamaulipas and noted that two of the party's former state governors are wanted by U.S. prosecutors for alleged ties to drug gangs. One of the men, Eugenio Hernandez, was pictured freely casting his vote on Sunday.

    The PRI held nine of the 12 states going into the vote, of which the most populous is Veracruz, a region dominated by just a few families since the PRI took control in the decades after Mexico's 1910 revolution.

    With half the vote counted, the PRI was well behind in Veracruz, with the PAN-PRD contender leading the field ahead of the candidate of the party of two-time presidential runner-up Andres Manuel Lopez Obrador.

    Investors have been wary of a win in Veracruz by Lopez Obrador's new leftist National Regeneration Movement, or Morena, because he has vowed to undo Pena Nieto's historic opening of the oil industry to private investors if he wins the presidency in 2018.

    Veracruz became a liability for Pena Nieto after years of gang warfare, mounting debts and allegations of corruption.

    There were reports of violence and fraud in the state on Sunday, and both opposition campaigns said the PRI had tried to intimidate their supporters and rig the vote.

    Accused by critics of misusing public funds and failing to tackle rampant impunity, outgoing Veracruz Governor Javier Duarte was such a lightning rod for public anger that PRI candidate Hector Yunes was "embarrassed" to be in the same party.

    Duarte, who could not seek re-election, has denied wrongdoing. But his six-year term became notorious for the killings of journalists and violent crime.

    Few voters in Veracruz state capital Xalapa sought to defend him.

    "There's no money, there's no jobs, there's no security for our children," said local teacher Ruth Morales, 52. "This government has only benefited a handful of people."

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    Industrial capacity cut relies on market forces, finance minister

    China will continue to cut surplus capacity relying on market forces, not government-set targets, Finance Minister Lou Jiwei said on June 6 at a press briefing, as the eighth China-US Strategic and Economic Dialogue kicked off.

    Lou said China has attached great importance to cutting industrial overcapacity, and that measures have been taken to eliminate 90 million tonnes of steel production capacity. But he ruled out the possibility of working out a quantitative target initiated by the government.

    While stressing market forces, the minister said the government will strengthen supervision on environmental protection and energy saving, and ensure high quality and security, as well as provide fiscal support to aid laid-off workers.

    The high-level dialogue between China and United States comes at a time when excess steel capacity has become an acute global challenge.

    US steel producers are increasingly resorting to trade remedies and tariff protection to ride out a sluggish steel market, a practice strongly opposed by Chinese exporters.

    As the global economy grapples with a weak recovery, macro-policy coordination is high on the dialogue's agenda.

    Although the US economy is seeing stronger recovery momentum, its investment engine remains weak and trade and fiscal deficits are high. Meanwhile, the Chinese economy is operating stably, but its fundamental problems have not been sorted out, Lou said, reaffirming the need for both countries to implement structural reforms.

    He said China is willing to work alongside the international community to strengthen policy coordination and boost growth potential through structural reform and technology innovation.

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    Groups urge U.S. Congress to reject TPP over environmental concerns

    More than 450 groups on Monday called on Congress to reject the Trans-Pacific Partnership (TPP) if it comes up for a vote this fall, saying the trade deal would allow fossil fuel companies to contest U.S. environmental rules in extrajudicial tribunals.

    The groups, most of them environmental organizations, warned that companies could challenge U.S. environmental standards in tribunals outside the domestic legal system under provisions of the 12-nation TPP and the proposed Transatlantic Trade and Investment Partnership (TTIP) with Europe.

    Congress is expected to vote on the TPP after the Nov. 8 election during a lame-duck session. President Barack Obama wants the agreement ratified before he leaves office on Jan. 20, but opposition to the deal has grown during this year's presidential campaign.

    "We strongly urge you to eliminate this threat to U.S. climate progress by committing to vote no on the TPP and asking the U.S. Trade Representative to remove from TTIP any provision that empowers corporations to challenge government policies in extrajudicial tribunals," the groups wrote in the letter to every member of Congress.

    Obama's political ally and Democratic presidential candidate Hillary Clinton has said she wants to renegotiate the TPP to include stronger rules on currency manipulation.

    Voter anxiety over the impact of trade deals on jobs and the environment has helped power the campaigns of Donald Trump, the likely Republican nominee, and U.S. Senator Bernie Sanders, who is running against Clinton for the Democratic nomination.

    The letter says approving the deals would enable fossil fuel companies to use "investor-state dispute settlements" to demand compensation for environmental rules through cases decided by lawyers outside the U.S. judicial system.

    The groups noted that in January, Canadian energy company TransCanada asked for a private tribunal through the North American Free Trade Agreement to seek compensation exceeding $15 billion, after Obama last year rejected a permit for its Keystone pipeline, citing global warming concerns.

    "The TPP and TTIP would more than double the number of fossil fuel corporations that could follow TransCanada’s example and challenge U.S. policies in private tribunals," the letter said.

    Ilana Solomon, director of the Sierra Club's trade program, said skepticism around trade deals in the U.S. elections creates an opportunity for Congress to reject the TPP.

    "There is so much momentum now to end the TPP and other trade agreements," she told Reuters. "This is an area where there is bipartisan agreement... that these deals harm workers, communities and our environment."
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    Oil and Gas

    Russian oil firm Russneft plans Moscow share sale

    Russian mid-sized oil producer Russneft, majority owned by businessman Mikhail Gutseriyev, plans to sell new shares on the Moscow stock exchange in the fourth quarter, a company spokesman said on Monday.

    Russneft, which produced 7.4 million tonnes (150,000 barrels per day) of oil last year, plans to sell a stake of 25 to 49 percent, comprising new shares, in an initial public offering (IPO), depending on demand, the spokesman said.

    RBC newspaper on Monday quoted Russneft co-owner Mikhail Shishkhanov as saying Gutseriyev's family and trader Glencore will remain its major shareholders after the IPO.

    It also quoted a banking source as saying the company wanted to raise $2 billion through the share sale.

    Russneft, in which Gutseriyev's family currently controls 54 percent of shares and Glencore owns 46 percent, declined to comment on the valuation.

    According to Moody's Investors Service, Russneft's total debt stood at around $2.5 billion as of 31 December 2015, including a $2 billion loan from VTB.
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    Saudi Arabia Scales Back Renewable Energy Target to Favor Gas

    Saudi Arabia is scaling back renewable power targets as the world’s biggest oil exporter plans to use more natural gas, backing away from goals set when crude prices were triple their current level, according to Energy Minister Khalid Al-Falih.

    The kingdom aims to have power generation from renewable resources like the sun make up 10 percent of the energy mix, a reduction from an earlier target of 50 percent, Al-Falih said in Jeddah, Saudi Arabia. Al-Falih provided new details of the country’s revived solar power program as he joined other ministers to announce parts of a plan adopted by the cabinet on Monday to overhaul the country’s economy.

    “Our energy mix has shifted more toward gas, so the need for high targets from renewable sources isn’t there any more,” Al-Falih said. “The previous target of 50 percent from renewable sources was an initial target and it was built on high oil prices” near $150 a barrel, he said.

    Saudi Arabia, which holds the world’s second-largest crude reserves, will double natural gas production under the plan, and the government will expand the gas distribution network to the western part of the nation. Generating more power from gas and renewables should make available for export more crude, which would otherwise be burned for electricity for domestic use.

    Solar-power should be the main renewable energy option for the nation, Ibrahim Babelli, the country’s deputy minister for economy and planning, said in Dubai last month. Babelli directed strategy at the government agency previously responsible for renewable energy policy. The cost of building solar power plants is declining globally as Chinese panel makers boost manufacturing capacity and slash costs.

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    Iran's Zanganeh says OPEC 'friends' dumping crude oil

    Iranian oil minister Bijan Zanganeh accused its regional neighbors of trying to take away its customers by offering cheaper oil, but said despite not offering much of a price discount itself, Iran had managed to retake 1 million b/d.

    Iran's crude is similar to Iraq and Saudi Arabia's and these producers fight for a share of the same market -- being competitive has proved a huge marketing challenge.

    Zanganeh's remarks come in an interview with S&P Global Platts in Vienna Friday, the day after OPEC's meeting in the Austrian capital. It follows Saudi Arabia's new oil minister Khalid al-Falih's comment Thursday that there is "no reason to expect that Saudi Arabia is going to go on a flooding campaign," suggesting gentle moves in crude supply so as not to shock the market. OPEC's largest producer has kept output fairly steady since January at above 10 million b/d and OPEC made no change in output policy.

    Iran has looked to reclaim market share since nuclear sanctions were lifted in mid-January, with Zanganeh stating that output is currently 3.82 million b/d. He predicts Iran will have around 5-6% spare production capacity after reaching 4 million b/d by the end of the year.

    Zanganeh said India, China, South Korea, Europe (including Turkey) and South Africa were primary markets but that Iran "should look more in Europe and Africa."

    This is especially the case for plans to invest in refineries in other countries, with 1.3-1.4 million b/d to be exported as feedstock to overseas refineries, but cautioned that finance could be an issue.

    "We have this proposal but the National Iranian Oil Company doesn't have the money to do it. So we proposed that the National Development Fund comes and does the investment, either directly itself or giving loans to non-state sectors and buys [shares] in those refineries in the chosen destinations, under the condition that they take all their feedstock from Iran, or a main part of the feedstock," Zanganeh said.


    Iran's oil minister wants to see a return to individual country quotas at OPEC, which were abandoned in 2011 for a notional overall ceiling which was also abandoned in December 2015.

    "I am not against the ceiling but what's the point of a ceiling without a country quota. OPEC says it will produce 30 million b/d. How much for each country? When we set the 30 million b/d ceiling, and somebody produced more, you should be able to hold them responsible. You should be able to control and monitor and question them why they exceeded the production. And everybody should comply with it," Zanganeh said.

    He called the removal of quotas OPEC's biggest historic mistake and said that it was just a matter of time before a consensus is reached in reactivating them. "It is inevitable, but I don't know when."

    Zanganeh said attempts to freeze production at the meeting between OPEC and other producers in Doha in mid-April didn't make sense for Iran.

    "If others wanted to freeze or make any other move for the market, we expressed support for it and we will still support any move. But we said that the primary thing for Iran that everyone agrees with it too regaining its historic share," Zanganeh said.


    Iran echoed the sentiment that the outcome in Vienna was the best possible result. The cartel on Thursday kept its output policy unchanged, declining to set a production ceiling or target at its ministerial meeting and confirming a course set by core members who have refused to intervene to prop up prices.

    Zanganeh hoped the trend of higher prices seen since crude hit a low of under $30/b in late January continues, especially "as the gap between supply and demand is shrinking." He also said it was a particularly good meeting for Iran. "I think all [OPEC members] accepted [that] they cannot put pressure on others to change their ideas. And they accepted this reality in the market and accepted the return of Iran to the market."

    Zanganeh said that OPEC members should be more conservative about the level of production as so not to destabilize the market. "I believe all member countries are going to be more realistic," he added. "It means everything to all producers to stabilize the situation."


    Zanganeh stressed it was very lucrative for international energy companies such as Total, Lukoil and Eni to invest in Iran. "Oil [production] in our region is very low. In Iran, it costs a maximum of $10/b."

    He said that there are contractual risks, but that was unlikely to act as a deterrent, without elaborating.

    He did think that US companies were afraid but hoped that this will change. "The way is open for them on our side."

    Zanganeh said the whole investment plan will require a total of $70 billion in the coming years and that Iran's Petroleum Contract will be part of that.

    Iran plans fewer than 20 projects as part of the first tenders for the IPC. It has said that it will have its IPC ready and approved in June to soon put out the tenders.

    "First we announce the fields and ask companies to come forward and [declare] their interests in any of those fields. We evaluate the companies regarding their technological and financial capabilities and then we put the tender documents at their disposal," he added.
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    Australia to start importing LNG?

    New South Wales and Victoria may have to consider importing liquefied natural gas due to the looming gas shortage in the two states, according to Andrew Smith, Chairman of Shell Australia.

    Speaking at the APPEA conference in Brisbane on Monday, Smith said the time has come to think “creatively about how we best serve our domestic customers, and ensure we have adequate and reliable gas supply“.

    According to Smith, importing LNG to Sydney could be an option if governments in Victoria and New South Wales persist with “moratoriums that stifle the development of additional reserves“.

    “I for one have mused about importing LNG to our nation’s largest city. If we choose not to act on declining gas fields, the idea of constructing a re-gas terminal in Port Botany may fast become a viable alternative for the industry,” he said.

    Smith said that, in the short term, imports of the chilled fuel would introduce new supply and competition into the New South Wales gas market.

    “In the current climate, I could see the rationale for such a suggestion – as LNG prices are historically low and pricing structures for pipeline capacity limit gas flow. However, the overall benefits are unlikely to outweigh the costs and there are impacts for the effective operation of the east coast gas market.”

    “Of course importing gas from Curtis Island or PNG LNG would come at a cost to customers – particularly if LNG prices recovered to anywhere near 2013 levels,” Smtih said.
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    Shell Deepens Spending Cuts, Promises More Savings From BG

    Royal Dutch Shell Plc cut spending plans further and promised increased savings following its record purchase of BG Group Plc, as Europe’s largest oil company continues to adjust to the slump in energy prices.

    Shell will spend $29 billion this year, it said Tuesday. That compares with a May forecast for capital expenditure “trending toward” $30 billion, which was itself down from an earlier projection of $33 billion. Synergies from the BG acquisition will provide $4.5 billion in savings in 2018, up from an earlier estimate of $3.5 billion.

    “If we see oil price levels at a level where we have to go further, we will go further,” Van Beurden said in an interview with Bloomberg TV. “We still have more in our tank in terms of taking cost out. We have more in our tank in terms of deferring or canceling investment programs.”

    Shell’s capital investment will be in the range of $25 billion to $30 billion a year to 2020. The company can reduce that further if required by low oil prices, even though it needs to spend about $25 billion a year to ensure future growth, Van Beurden said.

    While Shell is banking on BG’s assets to boost production and cash flow, the acquisition of BG is driving up Shell’s debt gearing, which has risen above 26 percent from 14 percent at the end of last year. Debt concerns resulted in a credit-rating cut by Fitch Ratings in February.

    Reducing debt is Shell’s “first priority” for cash, Van Beurden said in the interview.

    Shell pledged to raise free cash flow to $20 billion to $25 billion and boost the return on capital employed to 10 percent by 2020 at an oil price of $60 a barrel. That compares with an average $12 billion free cash flow and 8 percent return on capital at $90 oil from 2013 to 2015.

    Low oil prices make it more difficult for Shell to sell its assets. The company expects to “make significant progress” on as much as $8 billion of its sale program this year. It has earmarked up to 10 percent of production for divestment, including exiting five to 10 countries.

    Shell has deepened job cuts this year as it continues to adjust to the slump in oil prices. It announced last month 2,200 more jobs will be eliminated, taking the tally of losses to 12,500 from 2015 to 2016.
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    Eni Said to Lose Another 65,000 Bpd in Latest Niger Delta Attack

    Attacks late last week in the Niger Delta have put an additional 65,000 barrels per day of oil offline from Italian Eni’s Agip Oil company, according to Nigerian media reports.

    Last week’s militant attacks were the third targeting Agip since 18 May, and the 15th targeting oil installations in the Niger Delta since early February.

    Eni lost 5,200 barrels per day of its share in Agip oil output in May.

    Aiteo Oil, which operates the Nembe Creek trunkline feeding crude oil to the Shell-owed Bonny export terminal has also been shut down since a 28 May attack, with the company telling Nigerian media that it has lost 75,000 barrels per day of production. Shell has claimed force majeure on the Bonny terminal.

    Shell has also confirmed the reported attack late last week on its Forcados export pipeline, saying it had been forced to shut down crude exports here indefinitely, according to Nigeria’s Premium Times.

    “The Shell Petroleum Development Company of Nigeria Limited, operator of the SPDC JV, has confirmed signs of a leak on the 48 inch Forcados export pipeline at a location between shoreline and the Forcados terminal in the western Niger Delta”, media quoted a Nigerian Shell spokesman as saying

    “We are currently focused on securing the pipeline to protect the environment. Given this latest incident and the wider security situation in the Niger Delta, we are unable to determine probable timing of resumption of exports from the Forcados terminal,” the spokesman said.
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    Angola LNG returns to global market with first post-shutdown cargo

    Angola's recently refurbished liquefied natural gas (LNG) export plant has launched a tender to sell its first cargo since it was unexpectedly shut down in April 2014.

    According to tender document details relayed by traders, the cargo was loaded between June 3 and 5 on board the Sonangol Sambizanga tanker and bid submissions are due on the morning of June 13, trade sources said.

    Angola LNG confirmed the first cargo since the shutdown had been loaded and was being sold via an international tender but did not give further details of the process.

    The tender is valid until June 15, one source said, while a second trader said that up to six more cargoes could be loaded before the facility goes offline for a final phase of testing.

    In the current tender, the delivery date of the first cargo varies according to the location of terminals dotted around the world.

    For example, the Chevron-led project lists a six-week delivery window for Argentina's Bahia Blanca terminal - between June 28 and August 14, one trader said.

    The cargo may be priced based on levels at Britain's gas trading hub, the National Balancing Point, or as a percentage of Brent crude oil, he said.
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    Argentina's YPF names ex-Total executive as new CEO

    Argentina's state oil company YPF said on Monday it has named Ricardo Darre chief executive officer, as the company makes leadership changes under the new pro-business government.

    Darre, an engineer, previously worked for French oil company Total in the United States. He will take up his post on July 1.

    "With the hiring of Ricardo Darre we reaffirm our commitment to the absolutely professional management of YPF that will strengthen the development of our production and our strategic positioning in the market," the country's largest company said in a statement.

    YPF controls the Vaca Muerta formation, which may contain the world's largest shale reserves.

    "The company has good geological areas and a solid industrial base that is highly competitive in all production stages, from the well to our clients," Darre said in the statement. "This is essential to maximize our investment and the key role the company plays in the search to self-supply the country's energy."

    Businessman Miguel Gutierrez was named as president of YPF in April, during the most recent shareholder assembly.
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    Genscape sees Cushing inventory draw of more than 1 mln bbl to June 3 - Traders

    Genscape sees Cushing inventory draw of more than 1 mln bbl to June 3 - Traders
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    Suncor Lowers Annual Production Guidance 6.2 Percent on Wildfire

    Suncor Energy Inc., Canada’s largest energy company, lowered its crude output forecast for the year by about 6.2 percent because of facility outages caused by wildfires raging across northern Alberta.

    Suncor, the producer most affected by the fires, reduced its production target to between 585,000 and 620,000 barrels a day in a statement on Monday. That compares with a forecast released in April of between 620,000 and 665,000 barrels a day.

    Suncor is ramping up its facilities shut down by the fire and expects they will be producing at normal rates by the end of June, the company said in the statement. The company’s base plant mine is expected to return to pre-fire production rates within a week, while the drilling operations are expected to return to normal levels in the third week of June, the same time planned maintenance of the U2 upgrader is scheduled to be complete.

    “As a result of working with government and the region, we safely returned thousands of people and restarted our operations in a safe manner,” Steve Williams, chief executive officer of the Calgary-based company, said in the statement.

    Suncor was the producer with most production affected during the fire. As a result, its cash flow for 2016 is expected to fall by 20 percent or C$928 million ($724 million), Greg Pardy, an analyst at RBC Dominion Securities in Toronto, said in a May 26 research note.

    Syncrude Canada Ltd., the oil-sands mining joint venture controlled by Suncor, expects to return to production in late June and will ramp up to full output after the completion of a scheduled turnaround by mid-July, Suncor said on Monday. Suncor’s Petro-Canada retail stations have faced shortages of gasoline and diesel due to outages and unplanned downtime at a unit of the company’s Edmonton refinery. That unit is expected to be back in service by the end of the week and Suncor continues to try to minimize supply disruptions, the company said.

    Cash operating costs for Suncor are expected to stay within its guidance of C$27 to C$30 a barrel for the year, the company said, while Syncrude’s cash operating costs are expected to rise to between C$41 and C$44 a barrel due to the timing of restart and production ramp-up. The Syncrude cost estimate compares with an April outlook of C$35 to C$38 a barrel.
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    Imperial Oil returns to normal operations at Kearl

    Imperial today announced the safe return to normal operations at the Kearl oil sands site. The company will continue to closely monitor developments with the fires in the Regional Municipality of Wood Buffalo. The safety of our employees remains our top priority.

    Kearl's physical plant was not damaged by the fires, and air quality monitoring remains in place.
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    Devon to Sell Oil and Gas Assets for Almost $1 Billion

    Devon Energy Corp., the energy producer that’s targeted $3 billion of asset sales to fund drilling and lower debt, agreed to sell fields in Texas and Oklahoma and a royalty interest in the northern Midland Basin for almost $1 billion to undisclosed buyers.

    The largest transaction was for reserves in East Texas for $525 million, the Oklahoma City-based oil and natural gas producer said in a statement Monday. The company also agreed to sell its position in the Anadarko Basin’s Granite Wash area for $310 million. The transactions are expected to close in the third quarter.

    A global oil-price crash has forced Devon and the rest of the industry to slash costs, lay off thousands of workers and cut dividends and exploration budgets. While prices have rebounded somewhat in 2016, Chief Executive Officer Dave Hager said last month it’s still not enough for Devon to grow production again.

    “With oil prices having moved in our favor throughout the sales process, we are encouraged by the interest and progress in marketing our remaining non-core oil assets in the Midland Basin and Access Pipeline in Canada,” Hager said in the statement. “Proceeds for the entire divestiture program are well on their way to achieving our previously announced range of $2 billion to $3 billion in 2016.”

    The East Texas properties produced the equivalent of 22,000 barrels of oil a day in the first quarter, 5 percent of which was crude. Proved reserves are about 87 million barrel equivalents. The Granite Wash assets produced the equivalent of 14,000 barrel of oil a day, 13 percent of it oil, and generated $6 million in cash during the quarter. Proved reserves are estimated at 31 million barrel-equivalents.

    Devon is in “advanced negotiations” to sell its half stake in the Access Pipeline, according to the statement. The line transports Canadian heavy oil and Devon is seeking a 25-year transportation agreement in that deal, Hager said at a May 18 investor conference.

    Devon intends to use a third of sale proceeds to bolster this year’s capital spending and pay down debt with the rest, Hager said last month.

    Devon to Sell Oil and Gas Assets for Almost $1 Billion
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    Alternative Energy

    England ‘not windy enough to justify more onshore wind’

    England is not windy enough to justify more onshore wind developments.

    That’s according to Hugh McNeal, CEO at RenewableUK, who added wind speeds in the region are not high enough to make projects economically viable without subsidies.

    Speaking to the Telegraph, Mr McNeal said despite the government cuts to subsidy, the industry could still build onshore wind farms but only in some parts of the UK.

    However, new wind farms in England are “very unlikely”, he added.

    Mr McNeal claims the onshore wind industry is “now the cheapest form of new generation” in the country.

    He believes that instead of asking the government for support for onshore wind, the industry must take a step back and win a wider argument with the public.

    He added: “There are plants we can build – I prefer the word onshore wind plants to farms – which are cheaper than new gas.

    “I think that’s a fundamental turning point and we are going to have to persuade people that is true. If plants can be built in places where people don’t object to them and if, as a result of that, over their whole lifetime the net impact on consumers against the alternatives is beneficial, I need to persuade people we should be doing that.”
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    EU nations fail to approve weed-killer glyphosate

    EU nations refused to back a limited extension of the pesticide glyphosate's use on Monday, threatening withdrawal of Monsanto's Roundup and other weed-killers from shelves if no decision is reached by the end of the month.

    Contradictory findings on the carcinogenic risks of the chemical have thrust it into the center of a dispute among EU and U.S. politicians, regulators and researchers.

    The EU executive, after failing to win support in two meetings earlier this year for a proposal to renew the license for glyphosate for up to 15 years, had offered a limited 12 to 18 month extension to allow time for further scientific study.

    It hopes a study by the European Union's Agency for Chemical Products (ECHA) will allay health concerns.

    Despite the compromise, the proposal failed to win the qualified majority needed for adoption, an EU official said.

    Seven member states abstained from Monday's vote, 20 backed the proposal and one voted against, a German environment ministry spokeswoman said.

    European Commissioners will discuss the issue at a meeting on Tuesday, a Commission spokesman said.

    Failing a majority decision, the EU executive may submit its proposal to an appeal committee of political representatives of the 28 member states within one month. If, again, there is no decision, the European Commission may adopt its own proposal.

    The controversy overhangs German chemicals group Bayer's $62 billion offer in May to buy U.S. seeds company Monsanto. Germany was among those which abstained from Monday's vote and has in the past opposed Monsanto's genetically modified seeds.
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    Precious Metals

    Lundin to advance Fruta del Norte to development on positive feasibility

    Canadian project developer Lundin Gold, has published the results of a feasibility study on its attractive Fruta del Norte (FDN) gold/silver project, in Ecuador, stating that it would move into the development phase for what is one of the highest grade undeveloped precious metals projects anywhere in the world. 

    With an eye on first production early in 2020, Lundin stated Monday that basic engineering and an early works programme would get underway in the third quarter to provide the infrastructure, services and facilities to support the start of the mine twin decline construction and to advance the project in a fast tracked manner. 

    "The feasibility study provides a solid basis to enable FDN to advance immediately into development, ultimately becoming a landmark, high quality and profitable mining operation, adding great value to the company, its shareholders and the people of Ecuador. 

    FDN has an after-tax netpresent value at a 5% discount rate of $676-million, providing an after-tax rate of return of 15.7%. The study assumed a gold price of $1 250/oz and a silver price of $20/oz. 

    According to Lundin, the initial capital cost was estimated to be $669-million, excluding any expenditures by the company before starting construction on July 1, 2017. The sustaining capital was estimated to be $263-million and closure costs were projected to total $29-million. 

    FDN would produce on average 340 000 oz at an average life-of-mine (LOM) total cash cost of $553/oz and a LOM all-in sustaining cash cost (AISC) of $623/oz, placing FDN in the lowest cash cost quartile globally. 

    Over the project’s initial 13-year mine life, it would produce 4.4-million ounces of gold and 5.2-million ounces of silver, using an average gold recovery of 91.7% and average silver recovery of 81.5%.
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    Base Metals

    South32 CEO says Colombia nickel mine needs cash flow plan

    South32  the diversified miner that’s cutting its global workforce on lower commodity prices, says its loss-making and strike-threatened Colombian nickel asset must deliver a plan to return to profits in the coming fiscal year to remain in operation. 

    Cerro Matoso is facing a deadline of July 2017 to demonstrate how it’ll begin to improve cash flow, CEO Graham Kerr said in an interview last week in Melbourne. 

    The Perth-based producer is continuing talks with union members at the asset to avert a planned strike this month amid a dispute over a wage offer, he said. “If they are not cash flow positive, if they can’t show me a plan to be cash flow positive, well we shouldn’t be running,” Kerr said. “We can’t cross-subsidise across the group, so if we can’t restructure if a way that makes sense, well then we won’t produce.” 

    Even as nickel prices have rebounded about 10% since touching a 13-year low in February, about 70% of global output is still unprofitable, according to GMK Norilsk Nickel PJSC, one of the world’s largest producers. 

    Cerro Matoso is South32’s remaining asset of concern, as other loss-making units show progress toward a recovery, Kerr said. Operating costs at Cerro Matoso were $4.43/lb in the six months to December 31, compared with a realised sale price of $4.30/lb, South32 filings show. 

    The producer outlined plans earlier this year to cut costs and adjust output across its alumina, metallurgical coal, nickel and manganese units. In addition to previously announced plans to cut its global workforce by about 1 750 jobs, South32 will cut 270 corporate and regional posts in Australia, Singapore and South Africa and won’t fill 144 vacant positions, Kerr told reporters in Melbourne. 

    “The biggest challenge for the industry is still that there’s excess supply,” Kerr said in the interview. “The demand rates out of China aren’t terrible, the issue is more that the industry has built overcapacity, and that needs restructuring to go away.”
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    Ex LME CEO to set up new metals trading platform for London

    Former chief executive officer of the London Metal Exchange Martin Abbott is trying to set up an alternative metals-trading platform to existing venues.

    Brokers are said to be unhappy with the exchange's new fees as well as the sense that the LME is moving away from its traditional metals trading roots.

    The move, reports Bloomberg, follows months of talks with brokers and other concerned parties about the need to creating another trading platform, as the LME has become expensive for its current users.

    Last year, the 139-year old exchange hiked trading fees by about 34% and it also added charges for using its data as it faces decreasing volumes and competition from CME Group Inc.

    Abbott, who left the LME in 2013, said a study group is being formed to explore the potential for a new venue, and that anyone interested is welcome to join and fund research looking at various ways of developing such platform.

    Hong Kong Exchanges and Clearing acquired the LME in 2012 for $1.4bn.
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    Glencore must face U.S. lawsuit over zinc prices

    A U.S. judge on Monday said Glencore Plc must face a private antitrust lawsuit accused it of trying to monopolize the market for special high-grade zinc, driving up its price.

    U.S. District Judge Katherine Forrest in Manhattan said the zinc purchasers who brought the lawsuit have alleged "a plausible story of market control" by two Glencore affiliates that violated the Sherman Act, a U.S. antitrust law.

    The judge did not rule on the case's merits.
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    Goldcorp and Teck plow ahead with new $3.5bn mine in Chile

    Canadian miners Goldcorp, and Teck Resources are moving ahead with their new $3.5 billion mine in Chile’s Atacama region, with a pre-feasibility study expected to be ready by the second half of 2017.

    The $3.5 billion mine will mean lower costs and improved capital efficiency — before joining El Morro and Relincho, the estimated costs for each project were $3.9 billion and $4.5 billion respectively.

    The 50/50 joint venture, expected to be one of the largest copper-gold-molybdenum mines ever-developed in Latin America, will now be known as NuevaUnion (meaning new union), to symbolize the merger of their two projects in the region, El Morro and Relincho, announced last year.

    The miners are currently working on several scenarios and development plans to complete a pre-feasibility study, they said in an e-mailed statement. They also plan to begin working on the environmental and social aspects of the project in the second half of this year, they noted.

    NuevaUnion is expected to provide Goldcorp and Teck with a number of key benefits, including reduced environmental footprint, an optimized mine plan, enhanced community benefits and greater returns over either standalone project.

    Overall, the mine will mean lower costs and improved capital efficiency. NuevaUnion is expected to be one of the largest copper-gold-molybdenum mines ever-developed in Latin America.

    Based on the results of a Preliminary Economic Assessment (PEA), initial stage development of Project NuevaUnion contemplates a conveyor to transport ore from the El Morro site to a single line mill and concentrator facility at the Relincho site with an initial capacity in the range of 90,000 – 110,000 tonnes per day.

    NuevaUnion will have a 32-year lifespan and produce an average of 190,000 tonnes of copper and 315,000 ounces of gold a year, over the first decade.
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    Steel, Iron Ore and Coal

    Iron ore glut persists with third-largest exports from Hedland

    Iron ore shipments from Australia’s Port Hedland, the world’s largest bulk export-terminal, expanded to the third-highest level on record, signaling that a global surplus is set to persist.

    Exports totaled 39.4 million metric tons last month from 37.7 million tons in April and 38 million tons a year earlier, according to data from the port authority. Shipments were a record 39.5 million tons in March. Cargoes to China were 31.7 million tons in May compared with 32.6 million tons in April and 31.7 million tons in May 2015.

    Goldman Sachs Group said it expects a growing surplus of seaborne supply in coming months to pummel prices, according to a May report. Benchmark prices sank back below $50 last week to the lowest since February on concern that profit margins at China’s steel mills are again tumbling, hurting the outlook for iron ore demand just as miners continue to add supply.

    “Australia’s exports have been steady at high levels and will probably remain so for the rest of 2016 as miners boost output,” Wu Zhili, an analyst from Shenhua Futures Company, said by phone before the data. “This may add to signs of a swelling glut in China, where demand is past the seasonal peak. Exports may continue to push up port inventories in China.”
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