Mark Latham Commodity Equity Intelligence Service

Thursday 3rd December 2015
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    Germany's intelligence agency says Saudi Arabia's 'game of thrones' risks tearing the Middle East apart

    Germany's state intelligence agency says competition for influence inside the Saudi Arabian royal family is destabilising the wider Middle East, according to domestic media reports.

    Frankfurter Allgemeine Zeitung (FAZ), one of Germany's premier daily newspapers, carries the warning from the BND intelligence agency.

    According to FAZ, the BND identifies a shift toward an "impulsive intervention policy" in Yemen and elsewhere, driven by internal power struggles that pose a risk to the whole region.

    Analysts at Royal Bank of Canada have previously referred to the internal discord as Saudi Arabia's version of HBO's "Game of Thrones," since the country's political life bears more resemblance to that of the fictional world of court intrigue than it does to that of most other countries.

    Mohammad bin Salman, the country's deputy crown prince, is a major part of that dynastic battle. He is the 30-year old son of the current king, but the complex architecture of the country's stratified royal family means he is not next in line for the top job, even if he wants it. For starters, he's not the King's eldest son, even if he's the favourite.

    The appointed successor falls to Crown Prince Muhammad bin Nayef, the king's nephew, who is decades older than Mohammad bin Salman.

    Mohammad bin Salman has taken a central place in Saudi political life since his father, King Salman, ascended to the throne at the beginning of the year. He is also the country's defence minister, playing a large part in the violent intervention in Yemen's conflict this year.

    The royal family has thousands of members with differing levels of wealth and power, and any sign that the deputy crown prince is attempting to leapfrog the crown prince could provoke resentment, especially if it seems to have the blessing of King Salman.

    FAZ says BND analysts suggested a "latent risk" that the king's son tries to succeed his father directly, skipping out the crown prince. Saudi Arabia's growing proxy conflicts with Iran and a declining trust in the support of the US are also marked as destabilising factors.

    Though it's not mentioned by the BND, Saudi Arabia's economic climate is also far less stable today than it was a few years ago — the tremendous collapse in oil prices means the country's fiscal position will be tenable for around five years, after which its "fiscal buffers" — largely foreign currency reserves — will be exhausted.
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    China says to cut power sector emissions by 60 pct by 2020

    China will cut emissions of major pollutants in the power sector by 60 percent by 2020, the cabinet announced on Wednesday, after world leaders met in Paris to address climate change.

    China will also reduce annual carbon dioxide emissions from coal-fired power generation by 180 million tonnes by 2020, according to a statement on the official government website. It did not give comparison figures but said the cuts would be made through efficiency gains. (

    In Paris, Christiana Figueres, head of the U.N. Climate Change Secretariat, said she had not seen the announcement, but linked it to expectations that China's coal use would peak by the end of the decade.

    "I can only assume they are talking about the same thing," she told Reuters.

    Researchers at Chinese government-backed think-tanks said last month that coal consumption by power stations in China would probably peak by 2020.

    An EU official, speaking on condition of anonymity, said Wednesday's announcement seemed to relate more to air pollutants than greenhouse gas emissions.

    China's capital Beijing suffered choking pollution this week, triggering an "orange" alert, the second-highest level, closing highways, halting or suspending construction and prompting a warning to residents to stay indoors.

    The smog was caused by "unfavourable" weather, the Ministry of Environmental Protection said. Emissions in northern China soar over winter as urban heating systems are switched on and low wind speeds meant that polluted air does not get dispersed.

    The hazardous air, which cleared on Wednesday, underscores the challenge facing the government as it battles pollution caused by the coal-burning power industry and raises questions about its ability to clean up its economy.

    Reducing coal use and promoting cleaner forms of energy are set to play a crucial role in China's pledges to bring its greenhouse gas emissions to a peak by around 2030.

    Beijing has pledged to reduce the share of coal in total energy consumption to 60 percent by the end of the decade. It has banned the use of low-grade coals.

    Premier Li Keqiang has said China would set an efficiency "bottom line" of 310 grams of coal per kilowatt-hour for plants across the country, according to the government website.

    The average for the first 10 months of 2015 was 318 grams, according to official data.

    "The efficiency target is in line with earlier emissions standards announced in 2014, but it tightens things up for coal-fired plants nationwide, without regional differences," said Yuan Jiahai, a researcher with the North China Electric Power University.

    The cabinet also said that it would provide more financial support, including preferential loans, to help firms renovate. China already provides subsidies for firms that have installed the mandatory equipment.

    China's delegate at the Paris talks, Su Wei, "noted with concern" what he called a lack of commitment by the rich to make deep cuts in greenhouse gas emissions and help developing nations with new finance to tackle global warming.

    China's coal-fired power sector is notoriously inefficient. Utilisation rates have fallen nearly 8 percent this year to reach a record low, but surplus capacity could still be as high as 130 GW, or 14 percent of the total, industry estimates show.

    Also, local governments continue to approve new capacity even as the country shuts outdated ones. Around 200 GW of capacity was given the go-ahead in the first half of 2015, while only 4.9 GW of small and ageing plants were shut in 2014.
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    Russia says it has proof Turkey involved in Islamic State oil trade

    Russia's defence ministry said on Wednesday it had proof that Turkish President Tayyip Erdogan and his family were benefiting from the illegal smuggling of oil from Islamic State-held territory in Syria and Iraq.

    Moscow and Ankara have been locked in a war of words since last week when a Turkish air force jet shot down a Russian warplane near the Syrian-Turkish border, the most serious incident between Russia and a NATO state in half a century.

    Erdogan responded by saying no one had the right to "slander" Turkey by accusing it of buying oil from Islamic State, and that he would stand down if such allegations were proven to be true. But speaking during a visit to Qatar, he also said he did not want relations with Moscow to worsen further.

    At a briefing in Moscow, defence ministry officials displayed satellite images which they said showed columns of tanker trucks loading with oil at installations controlled by Islamic State in Syria and Iraq, and then crossing the border into neighbouring Turkey.

    The officials did not specify what direct evidence they had of the involvement of Erdogan and his family, an allegation that the Turkish president has vehemently denied.

    "Turkey is the main consumer of the oil stolen from its rightful owners, Syria and Iraq. According to information we've received, the senior political leadership of the country - President Erdogan and his family - are involved in this criminal business," said Deputy Defence Minister Anatoly Antonov.

    "Maybe I'm being too blunt, but one can only entrust control over this thieving business to one's closest associates."

    "In the West, no one has asked questions about the fact that the Turkish president's son heads one of the biggest energy companies, or that his son-in-law has been appointed energy minister. What a marvellous family business!"

    "The cynicism of the Turkish leadership knows no limits. Look what they're doing. They went into someone else's country, they are robbing it without compunction," Antonov said.

    Erdogan last week denied that Turkey procures oil from anything other than legitimate sources.

    He has said Ankara is taking active steps to prevent fuel smuggling, and he challenged anyone who accused his government of collaborating with Islamic State to prove their allegations.

    On Tuesday, U.S. President Barack Obama said Turkey had made progress in sealing its border with Syria, but Islamic State was still exploiting gaps to bring in foreign fighters and sell oil.

    The Russian defence ministry also alleged that the same criminal networks which were smuggling oil into Turkey were also supplying weapons, equipment and training to Islamic State and other Islamist groups.

    "According to our reliable intelligence data, Turkey has been carrying out such operations for a long period and on a regular basis. And most importantly, it does not plan to stop them," Sergei Rudskoy, deputy head of the Russian military's General Staff, told reporters.

    The defence ministry said its surveillance revealed that hundreds of tanker trucks were gathering in plain sight at Islamic State-controlled sites in Iraq and Syria to load up with oil, and it questioned why the U.S.-led coalition was not launching more air strikes on them.

    "It's hard not to notice them," Rudskoy said of the lines of trucks shown on satellite images.

    Officials said that the Russian air force's bombing campaign had made a significant dent in Islamic State's ability to produce, refine and sell oil.

    Ministry officials described three main routes by which they said oil and oil products were smuggled from Islamic State territory into Turkey.

    It said the Western route took oil produced at fields near the Syrian city of Raqqa to the settlement of Azaz on the border with Turkey.

    From there the columns of tanker trucks pass through the Turkish town of Reyhanli, the ministry said, citing what it said were satellite pictures of hundreds of such trucks moving through the border crossing without obstruction.

    "There is no inspection of the vehicles carried out ... on the Turkish side," said Rudskoy.

    Some of the smuggled cargoes go to the Turkish domestic market, while some is exported via the Turkish Mediterranean ports of Iskenderun and Dortyol, the ministry said.

    Another main route for smuggled oil, according to the ministry, runs from Deir Ez-zour in Syria to the Syrian border crossing at Al-Qamishli. It said the trucks then took the crude for refining at the Turkish city of Batman.

    A third route took oil from eastern Syria and western Iraq into the south-eastern corner of Turkey, the ministry said.

    It said its satellite surveillance had captured hundreds of trucks crossing the border in that area back in the summer, and that since then there had been no reduction in the flow.

    The defence ministry officials said the information they released on Wednesday was only part of the evidence they have in their possession, and that they would be releasing further intelligence in the next days and weeks.

    Read more at Reuters

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    Fossil-Fuel Divestment Tops $3.4 Trillion Mark, Activists Say

    Insurers, cities and other investors controlling more than $3.4 trillion in assets have pledged to keep some or all of their money out of fossil-fuel companies -- a high-water mark for the divestment movement, according to climate-change advocates.

    The number has swelled from the $2.6 trillion announced inSeptember and the $50 billion committed just last year, in a sign of the growing political stigma associated with coal, oil and natural-gas producers, according to a statement from and Divest-Invest, two groups behind the divestment campaign.

    The latest figures were announced on the third day of a United Nations conference in Paris where almost 200 nations are seeking a deal to reduce global-warming pollution. Emissions from fossil fuels are a key target, with governments at the talks pledging to reduce billions of dollars in subsidies for the industry and shift them to renewable energy.

    “Investors are reading the writing on the wall and dramatically shifting capital away from fossil fuels,” the two groups said in the statement. Investors “hope that their actions can push governments to follow suit.”

    Since the September report, the groups said, divestment pledges have come from investors including Allianz SE, Europe’s biggest insurer; a $9 billion pension fund controlled by the city of Oslo; and Australian cities representing $4 billion in investments. Some are only partial commitments, covering a particular fuel such as coal or oil-sands, the groups said. More than 500 institutions in all have made divestment commitments, according to the statement.

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    Oil and Gas

    Oil options show investors grow warier of OPEC surprise

    Oil investors are paying more to bet on a rise in the price of crude than on a decline for the first time in six weeks, as they prepare for the possibility of a surprise from OPEC, which is due to release its supply policy decision on Friday.

    Hedge funds have cut bullish bets on crude oil to their lowest in five years, with gloom deepening over the global economy's ability to grow fast enough to absorb the world's excess supply.

    A "no cut" from OPEC is comfortably built into the current oil price, which has halved this year to around $45 a barrel, given Saudi Arabia's financial ability to withstand sub-$50 crude and little likelihood of major non-OPEC producers, such as Russia, joining any coordinated effort to cut output.

    In the last three weeks, investors have increased their holdings of options to buy Brent crude futures at between $50 and $60 a barrel by more than 15 percent. <0#LCOF6++>

    The price of a near-dated out-of-the-money, call option, which offers its holder the right to buy above the current Brent futures price has surpassed that of near-dated, out-of-the-money put options, which offer the holder the right to sell below the current prompt price.

    Nearly half of total open interest in January Brent options is clustered in just six different calls, all with the option to buy at levels above $52 a barrel.

    "The question is whether some people are taking the bet, by using out-of-the money options, that OPEC pulls a rabbit out of their hat," BNP Paribas global head of commodities strategy Harry Tchilinguirian said.


    Over the last five years, out-of-the-money prompt calls have traded at a premium to puts roughly 20 percent of the time.

    In the last year, this frequency has dropped to just 4 percent of the time, reflecting investors' desire to protect against a near-term drop in the oil price is greater than their willingness to bet on a near-term rise.

    Tchilinguirian, whose bank believes the oil price has found a floor around $40 a barrel, said the consensus may be for OPEC to stick with its strategy of pumping hard to retain market share, but this shift in positioning in the options market could reflect a growing unease with trading based on that consensus.

    "The consensus is baked in for the status quo, the current situation. Maybe the devil will be in the details and for those who believe some accommodation may take place, that lessens the bearish outcome for next year," Tchilinguirian said.

    Market players have speculated that a surprise outcome of the OPEC meeting on Friday could range from a verbal intervention to pledge to accommodate additional Iranian barrels when sanctions are removed, to a very unlikely scenario of an outright Saudi-led output cut.

    In terms of what this switch in positioning means for the Brent price, Morgan Stanley said it believed a renewed decline may materialise as a result of these call options expiring unexercised, even in the event of an OPEC-driven bounce.

    The more an option inches towards profitability, the more of the underlying crude futures contract both the holder and the seller of that option must buy or sell to mitigate the risk of the market moving against them.

    This process is known as "delta hedging" and, in the case of unprofitable calls, could lead to the sellers of such options unwinding those hedges by selling the Brent crude futures they had accumulated to manage their options risk.

    "Not only could we see issues with all these calls expiring, but the drop in their value may force counterparties who were buying underlying contracts as a delta hedge to unwind those positions. The loss of this delta could put modest downward pressure on prices," analysts at Morgan Stanley said.

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    Crude inches up on report of proposed Saudi oil deal

    Crude prices inched up on Thursday on a report suggesting that Saudi Arabia will propose a deal to balance oil markets, in the first sign the top OPEC producer is willing to compromise after a rout that has more than halved oil prices since June 2014.

    U.S. crude was trading 29 cents higher at $40.23 per barrel at 0517 GMT, while internationally traded Brent was up 48 cents at $42.97.

    Saudi Arabia, which has so far resisted any intervention, will propose a cut of 1 million barrels per day (bpd) in OPEC output, Energy Intelligence reported, citing a senior OPEC delegate.

    "The market will want to hear from other parties and to have greater assurance that it looked a possibility," said Ric Spooner, chief market analyst at Sydney's CMC Markets.

    "Not only do (the other producers) have to agree to do it, they also have to stick by the agreement."

    OPEC's top producer, Saudi Arabia, wants non-OPEC counties such as Russia, Mexico, Oman and Kazakhstan to participate in the deal.

    But it will be challenging to get all parties to agree, given diverging views on which producers should cut or limit production.

    "Saudi to propose 1 million bpd cuts ... if ... Iran, Iraq and OPEC join cuts. In other words won't happen. Whoever does cut will lose market share," Asenna Wealth Solutions' senior trader Assad Tannous wrote in a tweet following the news.

    Saudi Arabia does not expect a formal deal to be reached this week, but would like the agreement to be implemented next year, Energy Intelligence reported.

    OPEC's historic decision last year to maintain high output to defend market share from other producers such as Russia and U.S. shale drillers, sent oil prices into a spiral.

    OPEC is set to meet in Vienna on Friday to discuss its policy at a time when a global glut shows no signs of abating.

    U.S. crude inventories rose for a 10th straight week, climbing 1.2 million barrels, contrasting analysts' expectations of a fall, data from the U.S. Energy Information Administration showed on Wednesday.

    Additionally, oil product supplies are also building as warmer-than-usual weather in the U.S. northeast, a major market for heating oil, limits demand. Distillate stockpiles climbed by 3.1 million barrels last week, the EIA said, far exceeding expectations of a gain of 326,000 barrels.

    Oil production already exceeds demand by 0.5-2 million barrels per day.

    Read more at Reuters

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    Saudi Arabia Lowers Oil Pricing to U.S. Before OPEC Meeting

    Saudi Arabia, the world’s largest crude exporter, cut pricing for January oil sales to the U.S. before the Organization of Petroleum Exporting Countries meets to decide on production targets.

    Saudi Arabian Oil Co. lowered its official selling price for all crude grades to the U.S., the company said in an e-mailed statement Wednesday. In Asia, the discount for its Arab Light against a regional benchmark will be $1.40 a barrel, compared with $1.30 in December. It was expected to be widened by 25 cents, according to the median estimate in a Bloomberg survey of eight refiners and traders.

    "It’s a slap in the face of OPEC," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. "They are offering their crude oil at a lower price to the two most important markets, the U.S. and Asia, two days before the OPEC meeting," a clear sign the Saudis aren’t going to pull back output, he said.
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    Kazakhs seek up to $3 bln in advance from Vitol for crude

    Kazakh state-owned oil and gas company KazMunayGas plans to receive up to $3 billion from trader Vitol in the form of advance payments for crude from the Tengiz oilfield, it said in a statement on Wednesday.

    KazMunayGas, which has a 20 percent stake in Tengiz, said it expected to get the first tranche within 2-4 months, but provided no other details such as shipment volumes. Tengiz produced 26.7 million tonnes of crude in 2014.

    Vitol, which with the new deal has reaffirmed its position as the biggest trader in Kazakh crude aside from majors with upstream operations there, also declined to disclose any details.

    Daniyar Berlibayev, the deputy head of KazMunayGas, said in September it was considering three-year deals for such financing.

    KazMunayGas' move follows similar deals by Russia's Rosneft, which received around $10 billion from Vitol and Glencore in 2013 for future supplies spread over five years and signed a similar contract with trader Trafigura in the same year.

    The planned pre-payment is roughly the same size as KazMunayGas' bond buy-back offer announced last month and designed to reduce its leverage ratios which could otherwise drag down the firm's credit rating.

    In order to raise cash, KazMunayGas, whose consolidated net debt was $17.92 billion at the end of 2014, has also sold half of its stake in the giant Kashagan oilfield to the country's sovereign wealth fund Samruk-Kazyna for $4.7 billion.

    Read more at Reuters
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    India shoots down free pricing regime for natural gas

    India shoots down free pricing regime for natural gas 

    India’s Finance Ministry has shot down a proposal for free pricing on natural gas on the grounds that the domestic market is not yet ready for such a regime. The decision has effectively derailed the Oil and Natural Gas Ministry’s move to partially dismantle the current administered pricing system and permit oil and gas exploration and production (E&P) companies to adopt market determined prices based on demand and supply, a Ministry official said. 

    The Finance Ministry’s aversion to a market-determined regime has also put under a cloud plans for dual-pricing for output from ‘difficult and challenging oil and gas fields’ and made the latter more attractive for investing by E&P majors, the official said. 

    Rationalising its opposition to freeing the natural gas market, the Finance Ministry observed that the Indian natural gas market was still in a nascent stage and, as such, did not have enough players to ensure sufficient competition in the market and fewer players would risk distortions creeping into the price discovery mechanism. 

    It also pointed out that the Oil and Natural Gas Ministry had failed to clarify sufficiently how feedstock pricing could be left to market forces when several end products, including fertilizers and electricity, were under a government-administered price regime and in some cases offered government subsidies, the official said. 

    The Oil and Gas Ministry had proposed that specified quantities of production of E&P companies would be auctioned and the price discovered based on bids received by consuming industries. In the case of ‘difficult and challenging’ oil and gas blocks, the blocks would be categorised under five divisions based on the level of difficulty in exploration and production, and output ranging from 25% to 50% of output would be priced as per bids received from consumers. However, as a concession to older oil and gas blocks, it said that a free pricing regime would only be applicable for all blocks discovered post March 2015. 

    According to government estimates, India would be able to produce about 47-million meters per day of natural gas from difficult and challenging blocks over the next five years. The country’s current natural gas production was pegged at around 90-million meters per day. 

    The government in September had announced a 15% reduction in gas prices effective October 1, 2015, at  $4.24 per million British thermal unit (mBtu) from $5.18 per mBtu, based on average global gas prices between July 2014 and June 2015. 

    It might be noted that the Cabinet Committee for Economic Affairs, the government’s apex decision-making body had recognized submissions from domestic and foreign E&P majors that it was becoming difficult for them to take up investments in new exploration and production projects in view of falling gas prices and the need for incentives specially for geologically challenging fields.
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    Shell wins final Australian nod for $70 bln takeover of BG Group

    Royal Dutch Shell on Thursday won approval from Australia's Foreign Investment Review Board for the company's proposed $70 billion takeover of BG Group Plc, leaving China as the last regulatory hurdle to the deal.

    The approval included an unusual condition designed to prevent disputes with the Australian Taxation Office (ATO) with the merged group, amid Australia's push to clamp down on profit shifting and tax avoidance by multinationals.

    "I have approved the...proposal by Royal Dutch Shell plc (Shell) to acquire BG Group plc (BG), subject to the condition that Shell provides an ongoing commitment to engage with the ATO in a transparent manner regarding its tax affairs in relation to acquisition of BG and integration of BG into Shell's operations," Australian Treasurer Scott Morrison said in an emailed statement.

    Shell and BG said they are now awaiting clearance from China's Ministry of Commerce, adding that the deal remains on track to be sealed in early 2016.

    "I am very pleased to receive this news. The FIRB approval is an important step towards deal completion," Shell Chief Executive Ben van Beurden said in an emailed statement.

    The condition imposed by Australia requires Shell to agree with the tax office how it will approach transfer pricing, loans between different arms of the company and other issues before filing tax returns from the merged group.

    The undertaking will not affect the value of the merger, as Shell already has what is called a "cooperative compliance" approach to taxation in Australia, a spokesman said.

    "This not only ensures stability and certainty for business and the government but also reduces inefficiencies for all parties and minimises disputes," Shell Australia Chairman Andrew Smith told a Senate tax hearing on Nov. 18.

    Shell last month won approval from Australia's competition watchdog for the deal, despite concerns raised by major gas users in the country's east.

    Beijing is pressing the Anglo-Dutch company to sweeten long-term gas supply contracts worth tens of billion dollars with state-owned China National Petroleum Corp, China National Offshore Oil Corp (CNOOC) and Sinopec to secure approval for the deal, industry sources close to the talks have told Reuters.

    Read more at Reuters
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    'Slim' chance of Chevron mega-merger

    Chevron is not likely to pursue any earth-shattering mergers, at least until asking prices come down, according to analysts who recently met with the company.
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    Turkey agrees LNG import deal with Qatar

    Botas of Turkey reportedly signed a memorandum of understanding regarding imports of liquefied natural gas from Qatar on a long-term basis.

    The deal was agreed during Turkey’s president Recep Tayyip Erdogan’s meeting with Qatar’s Emir Sheikh Tamim bin Hamad Al Sani.

    According to local reports, the memorandum of understanding is the first step in reaching a final agreement that has been passed on to representatives of Botas and Qatar Petroleum.

    No volumes have yet been revealed, but as Turkey looks to secure gas supplies for the upcoming winter Qatar could up the delivery above the 0.81 million tons it exported to Turkey in 2014.

    Turkey imports most of its gas from Russia, but following a recent dispute, when Turkey’s air force shot down a Russian aircraft, it is expected that this trend could change, although no reports of reduced gas flows from Russia have yet been reported.

    However, according to CNN Turk, Turkey’s Prime Minister, Ahmet Davutoglu will soon visit Azerbaijan as the country looks to diversify the sources of gas supply and cut dependence on Russian gas.
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    Gulf Keystone confirms US$15mln Kurdistan payment

    Gulf Keystone Petroleum has confirmed the receipt of a US$15mln gross payment from the Kurdistan authorities.

    It said the payment satisfies the company’s invoice for the month of November, and following payment the company’s cash position will be US$54.6mln.

    The company added that it has now received a total of US$86mln in payments for oil export sales from the Shaikan field since December 2014.

    As a result of consecutive monthly payments - for September, October and November - Gulf Keystone said it has been able to meet its debt payment obligations.

    It also highlight public statements made by the Kurdistan authorities in which it is said that regular payments to oil companies would continue through 2016 and that amounts owed in arrears would be considered for payment.

    Gulf Keystone said it is currently owed a total of US$298.4mln.

    Jón Ferrier, Gulf Keystone chief executive, said: "We continue to drive the Company forward with three principal strategic objectives: safe and reliable operations, commercial sustainability of the business achieved through regular monthly payments and addressing of the arrears, and constructive relationships with our host government, shareholders and bondholders.”

    The company repeated production guidance of 30,000-34,000 barrels of oil per day for the full year.
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    Summary of Weekly Petroleum Data for the Week Ending November 27, 2015

    U.S. crude oil refinery inputs averaged 16.8 million barrels per day during the week ending November 27, 2015, 423,000 barrels per day more than the previous week’s average. Refineries operated at 94.5% of their operable capacity last week. Gasoline production increased last week, averaging about 9.8 million barrels per day. Distillate fuel production increased last week, averaging about 5.2 million barrels per day.

    U.S. crude oil imports averaged over 7.7 million barrels per day last week, up by 414,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.4 million barrels per day, 0.5% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 433,000 barrels per day. Distillate fuel imports averaged 218,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.2 million barrels from the previous week. At 489.4 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 0.1 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 3.1 million barrels last week and are in the upper half of the average range for this time of year. Propane/propylene inventories fell 2.1 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 1.8 million barrels last week.

    Total products supplied over the last four-week period averaged over 19.6 million barrels per day, down by 1.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.2 million barrels per day, down by 0.6% from the same period last year. Distillate fuel product supplied averaged over 3.8 million barrels per day over the last four weeks, down by 0.9% from the same period last year. Jet fuel product supplied is up 4.0% compared to the same four-week period last year.
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    US domestic oil production up last week

                                                 Last Week    Week Ago   Last Year

    Domestic Production '000....... 9,202            9,165          9,083

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    Rubicon Oilfield International Announces Investment Of Up To $300 Million By Warburg Pincus

    Rubicon Oilfield International, a start-up oilfield services company, today announced that Warburg Pincus, a leading global private equity firm focused on growth investing, has agreed to a line-of-equity investment of up to $300 million in the Company.

    Rubicon's strategy is to build a global enterprise in the oilfield products and equipment sector through acquisitions and organic re-investment.  The Company intends to acquire, integrate and ultimately enhance small and medium-sized businesses in the upstream oilfield technology sector with a focus on proprietary downhole tools, products and technologies.

    Today, Rubicon is comprised of five founding members led by Chief Executive Officer Michael Reeves, who brings more than two decades of oilfield experience.  Mr. Reeves most recently served as President of Sandvik - Drilling and Completions, where he oversaw all oilfield business lines, including Varel International.  Previously, Mr. Reeves held leadership positions at Schlumberger, National Oilwell Varco and XACT Downhole Telemetry, and worked in the Middle East, Europe and North America.  John Griggs, formerly a Managing Director at CSL Capital Management, serves as Chief Financial Officer of Rubicon.  Mr. Reeves, Mr. Griggs and the rest of the Rubicon leadership team, who contribute operational, commercial, technical and global manufacturing expertise, collectively have more than 85 years of industry experience as well as proven track records in acquiring and growing oilfield services businesses.

    Mr. Reeves commented, "We see a compelling opportunity to build an enterprise focused on upstream oilfield services through accretive transactions and organic growth initiatives.  With the support of Warburg Pincus, Rubicon will pursue acquisition and partnership opportunities in order to build a global platform with a relentless focus on customer satisfaction.  We will leverage current market trends and consolidation to build a business that will be well positioned for the long term."
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    Enbridge Line 9B Said to Deliver Crude Oil to Eastern Canada

    One eastern Canadian refiner began receiving crude oil via Enbridge Inc.’s newly reversed Line 9B Tuesday, according to person familiar with the matter.

    About 60,000 barrels of crude was received as of Tuesday, including Bakken oil from North Dakota, said the person, who asked not to be identified because the information isn’t public.

    Enbridge began reversing the 300,000 barrel-a-day pipeline in 2011 as refineries in eastern Canada looked to tap into cheaper oil being produced in western Canada and the U.S. Midwest. Land-locked crudes typically sell at a discount to waterborne supplies.

    Companies like Suncor Energy Inc. and Valero Energy Corp. have said their refineries in Quebec could rely 100 percent on North American crude after the reversed pipeline ramps up to full capacity.

    The new flow has redirected some crude that used to go to Cushing, Oklahoma, the largest storage hub in the U.S. Enbridge’s Spearhead pipeline, which runs to Cushing from Illinois, will run below capacity in December and January, the first time that has happened in nearly two and a half years.

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    Global soil loss a rising threat to food production - scientists

    One third of the world's arable land has been lost to soil erosion or pollution in the last 40 years, and preserving topsoil is crucial for feeding a growing population, scientists said in research published during climate change talks in Paris.

    It takes about 500 years to generate 2.5 cm (one inch) of topsoil under normal agricultural conditions, and soil loss has accelerated as demand for food rises, biologists from Britain's Sheffield University said in a report published on Wednesday.

    Preserving valuable topsoil is crucial if the world is to produce enough food for more than 9 billion people by 2050, the scientists said.

    "Soil is lost rapidly but replaced over millennia, and this represents one of the greatest global threats to agriculture," Sheffield University biology Professor Duncan Cameron said in a statement with the report.

    He recommends that farmers engage in "conservation agriculture" where crops are rotated more frequently, organic matter is restored to the soil and less energy is spent on nitrogen fertilizers.

    At present, intensive farming maintains crop yields through the heavy use of fertilizers, made by an industrial process that consumes five percent of the world's natural gas production and two percent of the world's annual energy supply, the report said.

    On Tuesday French officials launched a plan to raise soil carbon levels in order to take carbon dioxide out of the atmosphere, presenting the scheme at international climate change negotiations in the French capital.

    The French-led plan, backed by the U.N. Food and Agriculture Organization (FAO), aims to increase soil carbon stocks by 0.4 percent annually to boost soil fertility while combating global warming.

    Read more at Reuters
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    Precious Metals

    Canada's Iamgold says workers go on strike at its Suriname mine

    Workers at Iamgold Corp's Rosebel gold mine in Suriname have gone on strike over the company laying off about 10 percent of the mine's employees, Iamgold said on Wednesday.

    The mid-sized Canadian-based miner said Rosebel had followed the process required by law for the lay-offs, offering a fair severance package, which more than 50 percent of affected employees have accepted.

    Iamgold announced the lay offs in October as part of efforts to reduce costs at Rosebel.

    In the first nine months of 2015 Rosebel produced 217,000 ounces of gold on an attributable basis at an all-in sustaining cost of $1,082 per ounce. The gold price was last at $1,053.

    Iamgold said it still expects Rosebel to produce between 290,000 and 300,000 ounces of gold this year but this could be re-assessed depending on the length of the strike.

    Read more at Reuters
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    Base Metals

    Norsk Hydro to cut costs to cope with aluminium price slide

    Norsk Hydro, one of the world's largest aluminium producers, launched new cost cuts on Thursday to combat a sharp decline in prices triggered by an oversupply of metal from China.

    By the end of 2019, the company aims to reduce its annual costs by 2.9 billion Norwegian crowns ($335.70 million), of which 1.1 billion would come in 2016, it said in a statement ahead of a two day investor conference in London.

    The new plan follows cost cuts of 4.5 billion crowns since 2011.

    The benchmark three-month aluminium price has tumbled nearly 30 percent in the past year to six and a half year lows, pressured by output exceeding demand.

    China's production of aluminium is expected to be 2-2.5 million tonnes higher than the country's consumption in 2016, resulting in a global oversupply of up to 1 million tonnes, Norsk Hydro said.

    "Market conditions have deteriorated compared to a year ago," Chief Executive Svein Richard Brandtzaeg said.

    But the company also said the market outlook for 2017 was better and could potentially see a return to a global undersupply of aluminium.

    "At today's prices, around 50 percent of global smelter capacity is expected to be incurring cash losses, making curtailments, which are needed to balance the market in the medium term, more likely," Brandtzaeg said.

    Norsk Hydro predicted global demand would rise by around four percent this year and four to five percent in 2016, and by three to four percent per year over the next decade.

    The company plans to increase its overall investments next year to 8.6 billion crowns from 5.8 billion in 2015 as it moves ahead with building a pilot plant in Norway aimed at producing aluminium using less power.

    It also said the estimated capital expenditure necessary to sustain its current business was raised to 3.5-4 billion crowns from a previous forecast of 3.5 billion, reflecting inflationary pressures and an update to the company's portfolio.

    Read more at Reuters
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    Steel, Iron Ore and Coal

    World’s two biggest miners walking away from coal, but they are not telling

    BHP Billiton and Rio Tinto, the world’s largest and second biggest mining companies respectively, have been steadily cutting their exposure to thermal coal over the past two years, but without making any big announcements about it.

    Pushed by slack demand, prices at multiyear lows, andrelentless opposition to new coal projects, the companies are seeking to reduce their investments in coal used for power stations.

    But according to analysts interviewed by the Australian Financial Review, they want to do so without making too much noise about it, as they don’t want to jeopardize the sale of some of their coal mines by signalling they think poorly of the commodity.

    "Rio and BHP are still out there flying the flag for coal, but I think they are repositioning behind the scenes," Pengana Global Resources Fund analyst Tim Schroeders told the paper.

    In fact, the companies have managed to keep a neutral stance by singing coal’s praises when asked about it. A couple of weeks ago, Jean-Sebastien Jacques, Rio Tinto’s chief executive for copper and coal, told a Bloomberg conference in Sydney that coal demand was not going to disappear. But he added later the company had “better options” than to spend money on the commodity.

    There is a future for coal. Now the question is, should it be Rio or not Rio” that owns the mines, Jacques told the audience. “If you have a big checkbook, I’m more than happy to take your name.”

    Coal assets from North America to Australia have been up for sale by the world’s biggest miners, which are seeking to protect profits from sharply lower commodity prices. Producers have also been a frequent a target for environmental campaigners, who have stepped up campaigns for a moratorium on coal mines and for investors to sell their shares in fossil fuel companies.

    Last month, 52 leading scientists, economists and experts from around the world published an open letter calling for a moratorium on new mines ahead of the climate change talks in being held in Paris this week.

    This is how they've done it

    Last year Rio sold its Mozambique coal assets to India’s International Coal Venture Private Ltd (ICVL), marking the end of a dreadful venture for the miner. (Image courtesy of Rio Tinto)

    So far, Rio Tinto seems to be leading the coal exiting game. In February, the company folded its coal operations into its copper division, a step that was widely seen as signalling a reduced focus on the fossil fuel.

    Later in the year, it announced the sale of a 40% stake in its Australian Bengalla mine as part of a divestment aimed at ditching coal operations in New South Wales, which could be worth between $3bn and $4bn. When revealing the sale, Rio also said it had restructured one of its main Australian coal businesses —Coal & Allied—, where Mitsubishi Development of Japan previously held a 20% stake, and it is now solely owned by the Anglo-Australian miner.

    Rio has also unloaded Mongolian coal miner South Gobi Resources and the unsuccessful Riversdale project in Mozambique.

    BHP Billiton has done its part too. While it has kept some major assets such as Mt Arthur mine in the Hunter Valley, Cerrejón Coal in Colombia, and a group of metallurgical coal assets in Queensland, the firm sold its thermal coal business in South Africa after spinning-off assets into a separate company, South32.

    The firm has also said it may reconsider its push into coal mining in Borneo, depending on the what comes out of the Indonesian government ongoing review of the sector’s regulations.

    The coal business doesn’t look nearly as promising as it did two years ago, when miners were looking for mines to buy hoping to meet China’s demand, the world’s top coal consumer. But with economic growth weakening many power generators shifting to gas or renewable energy, global coal shipments are falling for the first time in 21 years, the U.S. Energy Information Administration said last month.

    Attached Files
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    Shenhua tops the list of Jan-Oct raw coal output

    China’s coal giant Shenhua Group ranked the No. 1 of top ten coal producers based on their raw coal output over January-October this year, with its coal output falling 9.6% on year to 357.72 million tonnes during the period, showed data from China National Coal Association (CNCA) on December 2.

    The following coal producers included Datong Coal Group, Shandong Energy Group, China Coal Group, Shaanxi Coal & Chemical Industry Group, Yankuang Group, Shanxi Coking Coal Group, Henan Energy & Chemical Industry Group, Jizhong Energy Group and Kailuan Group, data showed.

    Seven of the ten enterprises posted decreased output, with sharpest decline seen in China Coal Group and Shenhua Group – falling 14.8% and 9.6% to 104.8 million and 357.7 million tonnes, respectively.

    While Yanzhou Mining Group and Datong Coal witnessed the greatest rise in coal output of 6.4% and 5.9% to 89.33 million and 143.4 million tonnes during the same period.

    Total coal output of top ten coal producers during the period decreased 3.9% on year to 1.24 billion tonnes, accounting for 59.65% of total output from large coal producers across the country, 0.71 percentage points higher than last year.

    China’s large coal producers produced a total 2.08 billion tonnes over January-October this year, a year-on-year drop of 5%.

    Attached Files
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    Shandong to close all small coal mines before end-2015

    Eastern China’s Shandong province planned to shut all the small coal mines across the province before the end of year, local media reported on December 3.

    The province had closed 26 small coal mines or 74% of the annual target since the start of the year.

    That was in response to the requirement from National Bureau of Statistics (NBS) and State Administration of Coal Mine Safety in March, which ordered the province to shut 35 and upgrade 21 small coal mines in 2015.

    Shandong had closed a total 248 small coal mines since 2005, with outdated annual capacity at 14.85 million tonnes.

    The province’s coal firms decreased from 249 in 2005 to the current 78, with single shaft capacity enhancing from the previous 400,000 tonnes to 910,000 tonnes per year.

    The province had kept its total coal output at 150 million tonnes or so for twelve consecutive years. It produced 148 million tonnes of coal in 2014, down 1.8% on year.

    The move would be a crucial step for Shandong’s coal industry in fitting into the “new normal” development.
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    The iron ore price is in free-fall

    Iron ore fell to a record low on a spot price basis on Wednesday with the Northern China 62% Fe import price including freight and insurance (CFR) dropping 2.4% to $40.60 a tonne.

    After a strong recovery from its July low, the steelmaking raw material has been on a relentless decline since mid-October. Losses so so far this year come to 43% following. Today's price compare to $190 a tonne hit February 2011 and an average of $135 a tonne in 2013 and $97 last year.

    For an iron ore price below $40 you have to go back to 2007 when annual contract pricing between the Big 3 producers – Vale, Rio Tinto and BHP Billiton – and Chinese and Japanese steelmakers were still the industry norm.

    The iron ore price has become a one way bet as an ever deepening glut combine with slumping demand to push down the price.

    Vale this week lowered its forecast for 2016 shipments by 10% due to outages at Samarco,  but the world's top producer  remains on track to add 100 million tonnes of capacity compared with 2015 levels within just three years.

    Number two Rio Tinto is well on its way to reach 360 million tonnes in the next few years, while BHP Billiton is on target to grow capacity to 290 million tonnes per year some time during 2017. World number four producer Fortescue Metals added 5% to its targeted output hitting a rate 165 million tonnes per year in July. Together with Anglo American, the big five is set to command nearly 85% of the seaborne market

    That has not deterred others from entering the market with Gina Rinehart's Roy Hill  mine in Australia  starting shipments just this week. The operator, a joint venture with Korean, Japanese and Taiwanese steelmakers, plans to produce 35 million mt/year of iron ore in 2016 and 45 million mt/year in 2017 before ramping up to full capacity of 55 million mt/year in 2018.

    The demand side is not looking much better either with Shanghai rebar prices dropping to a fresh record low with the most active May futures contract exchanging hands for 1,652 yuan or $258 a tonne on Wednesday.
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