Mark Latham Commodity Equity Intelligence Service

Monday 1st August 2016
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    US GDP growth since the 1940's

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    La Nina set to boost U.S. winter heating oil demand

    Middle distillates remain the one ray of hope for U.S. oil refiners still struggling to clear a glut of gasoline caused by over-production earlier in the year.

    Stocks of distillate fuel oil are higher than normal but have been trending down for the last 15 weeks according to the U.S. Energy Information Administration 

    Distillate stocks are currently around 152 million barrels, almost 8 million barrels higher than at the same point last year and more than 20 million barrels over the 10-year median.

    However, stockpiles have fallen from a peak of 163 million barrels at the start of April, when they were a massive 35 million barrels over the same point in 2015 and 40 million barrels over the 10-year average.

    Unlike gasoline stocks, which have shown an unusual counter-seasonal build up over the first part of the summer, distillate stocks have exhibited an unusual counter-seasonal drawdown.

    Hedge funds have noticed the divergent trends and become much more bullish about the outlook for distillate prices than for gasoline.

    By July 19, hedge funds had amassed a net long position in U.S. heating oil futures and options equivalent to 17 million barrels (

    While the net long position had been cut from an earlier peak of 21 million barrels it was still one of the largest bullish positions since the slump in oil prices began in 2014.

    By contrast, hedge funds had essentially a flat position in gasoline futures and options, with roughly equal long and short positions. In relative terms, the net positioning was among the most bearish in the last seven years.


    Hedge funds and refiners are hoping distillate will get a further boost from a pick-up in freight movements and a colder winter in 2016/17.

    Freight demand in the United States and around the rest of the world has remained flat for the last 12 months and shows no sign of the long-predicted return to significant growth (

    But the weather outlook for winter 2016/17 should offer a bit more support for heating oil demand towards the end of the year and into early 2017.

    The first half of winter (Oct-Dec) is likely to be warmer than normal across the United States, especially in the Southwest, according to the National Weather Service Climate Prediction Center (

    But temperatures in the second half of winter (Jan-March) are likely to be normal or below normal across much of the northern United States, where winter heating oil demand is concentrated (

    Long range forecasts such as these are subject to a high level of uncertainty and should be treated with appropriate caution.

    But the seasonal outlook is driven in part by the development of La Nina conditions in the central Pacific (

    Mild La Nina conditions have developed in the last three weeks and are expected to strengthen through the end of the year (

    La Nina normally "favours the build-up of colder than normal air over Alaska and western Canada, which often penetrates into the northern Great Plains and the western United States. The southeastern United States, on the other hand, becomes warmer and drier than normal," the Climate Prediction Centre says.

    The winter of 2016/17 might not be exceptionally cold, but it is still likely to be colder than very warm winter of 2015/16, which was characterised by one of the strongest El Nino episodes on record.

    Colder temperatures across the northern states in winter 2016/17 should promote more heating oil consumption.

    The expectation of colder winter weather has been an important influence in keeping heating oil prices strong over the summer and creating a large contango in the market.

    But a colder winter is also likely to mean less driving and less gasoline consumption in 2016/17 than in 2015/16.

    U.S. refiners have an incentive to switch away from maximising gasoline production and towards making more distillates.

    However, switching cut points and changing catalysts to increase distillate yields at the expense of naphtha and gasoline is unlikely to be enough on its own to bring gasoline stocks under control.

    Refineries will also have to reduce the total amount of crude they process in the remainder of the year. The coming winter is unlikely to see the record rates of throughput reported in 2015/16.

    Some of the more marginally economic refineries that run heavily between November 2015 and March 2016 may come under financial pressure to cut back this coming winter.
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    This bizarre chart shows how money is leaving China in secret

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    A chart from Nomura, which shows a huge increase in imports from "taxhaven islands or offshore financial centres" has highlighted a quirk of the Chinese economy.

    To skirt capital controls, Chinese households and businesses are seen to overpay for imports in order to get cash out of the economy and into foreign banks and investments.

    It shows they think China may lower the value of its currency, making it more expensive to invest in foreign holdings.

    According to a Deutsche Bank note earlier this year, about $328 billion left China in secret this way between August 2015 and January 2016, that's about 78% of total capital outflows.

    Nomura notes that imports from Hong Kong are growing at 130% a year while "significant import growth from other island economies has also been registered, including Samoa, the Bahamas, the Seychelles, the Cayman Islands and the Cook Islands."

    Samoa, which mostly exports coconut cream and oil, has managed to grow its business with China by more than 700%.

    "This suggests to us that capital outflows may have been disguised as imports in China’s trade with these tax-haven or offshore financial centres, though the precise volumes are unknown. Excluding Hong Kong’s re-exports, these six regions accounted for 1.4% of China’s total imports in H1."

    As a way of getting money out of the country, it's been happening for a while.

    Here's the chart from Deutsche Bank earlier this year:

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    China July factory activity unexpectedly dips on softer orders, flooding

    Activity in China's manufacturing sector eased unexpectedly in July as orders cooled and flooding disrupted business, an official survey showed, adding to fears the economy will slow in coming months unless the government steps up a huge spending spree.

    While a similar private survey showed business picked up for the first time in 17 months, the increase was only slight and the much larger official survey on Monday suggested China's overall industrial activity remains sluggish at best.

    Both surveys showed persistently weak demand at home and abroad were forcing companies to continue to shed jobs, even as Beijing vows to shut more industrial overcapacity that could lead to larger layoffs.

    And other readings on Monday pointed to signs of cooling in both the construction industry and real estate, which were key drivers behind better-than-expected economic growth in the second quarter.

    The official Purchasing Managers' Index (PMI) eased to 49.9 in July from the previous month's 50.0 and below the 50-point mark that separates growth from contraction on a monthly basis.

    Analysts polled by Reuters predicted a level of 50.0.

    While the July reading showed only a slight loss of momentum, Nomura's chief China economist Yang Zhao said it may be a sign that the impact of stimulus measures earlier this year may already be wearing off.

    That has created a dilemma for Beijing as the Communist Party seeks to deliver on official targets, even as concerns grow about the risks of prolonged, debt-fueled stimulus.

    "The government has realized the downward pressure is great but they've also realized that stimulus to stimulate the economy continuously is not a good idea and they want to continue to focus on reform and deleveraging," Zhao said.

    Heavy flooding, particularly along the Yangtze River, contributed to July's manufacturing contraction along with slowing demand and the cutting of overcapacity in some industries, the statistics bureau said.

    Falling activity at smaller firms also was a key reason for July's poor figure, the statistics bureau said, but performance at larger companies improved, in a sign that the government is becoming more reliant on big state firms to generate growth.


    "Today's data do not bode well for GDP growth in the second half," ANZ economists Louis Lam and David Qu wrote in a note.

    Fiscal policy would be the key tool for boosting growth in coming months, while the central bank was expected to keep its policy settings accommodative, they added.

    While many analysts believe the world's second-largest economy may be slowly stabilizing, conditions still look patchy.

    Industrial profits rose at the fastest pace in three months in June, but gains were concentrated in just a few industries including electronics, steel and oil processing.

    Spurred by rebounding prices and stronger construction demand, China's steel output and exports have been near record levels. But it one of the key sectors being targeted by officials for capacity cuts and tougher pollution controls.

    Indeed, the PMI showed factory output in July still expanded solidly, though the pace cooled to 52.1 from 52.5 in June.

    Total new orders hovered just inside expansionary territory at 50.4, slightly down from June, but new export orders contracted as overseas demand remains weak and the impact of Britain's vote to leave the European Union hurt sentiment.

    A private PMI survey by Caixin/Markit was more mixed.

    Its 50.6 reading was stronger than expected and the first expansion since February 2015, sparking hopes that some of the government's stimulus was starting to trickle down to smaller private firms which have been under greater stress than larger state-backed enterprises.

    But overall order growth was modest and export orders continued to fall.

    The Caixin report tends to give more weight to light industry, whereas the official survey is skewed more toward heavy industries, said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, according to Caixin.

    An official survey on the services sector was more upbeat, showing growth accelerated to 53.9 in July from 53.7 in June.

    But it, too, contained several worrying notes, with construction services growth solid but cooling and the property services sector weakening, adding to worries that China's housing boom may have peaked.

        Beijing has been counting on a strong services sector to pick up the slack as it tries to shift the economy away from a dependence on heavy industry and manufacturing exports.
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    Anglo American ‘rebuffs approach from Vedanta’s Agarwal’

    Merger and acquisition activity in the mining industry could be showing a flicker of life after FTSE 100 giant Anglo American reportedly brushed off an approach from Vedanta Resources chairman Anil Agarwal, concluding that a combination of the two companies made little sense.

    Mr Agarwal, the Indian billionaire behind the sprawling Vedanta conglomerate, made a number of informal approaches to the South African group earlier this year to discuss potential tie-ups, but talks were “quickly dismissed”, according to Bloomberg, which first reported the matter.

    FTSE 250-listed Vedanta Resources specialises in zinc mining but also produces copper, iron ore, oil and gas. It recorded a pre-tax loss of $4.98bn (£3.45bn) for the year to March 31 as tumbling commodity prices took their toll. Vedanta’s focus has been on cutting costs as it attempts to wrestle down its debt pile, which stood at $7.3bn in March.

    Anglo American has been tackling a debt pile of its own, selling off assets and cutting its dividend to bring its net debt down to $11.7bn in the first half of this year.

    Analysts identified a number of obstacles to a tie-up between the two companies, not least that the Indian government owns a 30pc stake in Hindustan Zinc, a major subsidiary of Vedanta, and could block any potential tie-up. Meanwhile Vedanta is attempting to complete the drawn-out merger of two of its other subsidiaries, Vedanta Ltd and Cairn India, which was announced a year ago. Vedanta Ltd sweetened its offer for Cairn shareholders earlier this week.

    For its part, Anglo has stated it is committed to shrinking its business down to focus on copper, platinum and diamonds, while backing out of iron ore and coal.

    Vedanta Resources hired former Anglo chief executive Cynthia Carroll last year to advise on strategy around "corporate development" and to pursue "significant value creation opportunities". Ms Carroll served as Anglo boss from 2007 to 2013 before being ousted over the company's troubled Minas Rio iron ore project and falling profits.

    “[There’s] little surprise that Anglo saw no merit in pursuing discussions but it is encouraging that M&A interest in the sector - especially at this scale - is starting to pick up,” said analysts at Investec. “Most activity thus far, outside of gold, has only been asset sales but we would see M&A activity as a clear signal that mining has moved into the buy territory.”

    Anglo American and Vedanta Resources declined to comment.
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    Oil and Gas

    Texas shale oil has fought Saudi Arabia to a standstill

    Opec's worst fears are coming true. Twenty months after Saudi Arabia took the fateful decision to flood world markets with oil, it has still failed to break the back of the US shale industry.

    The Saudi-led Gulf states have certainly succeeded in killing off a string of global mega-projects in deep waters. Investment in upstream exploration from 2014 to 2020 will be $1.8 trillion less than previously assumed, according to consultants IHS. But this is a bitter victory at best.

    North America's hydraulic frackers are cutting costs so fast that most can now produce at prices far below levels needed to fund the Saudi welfare state and its military machine, or to cover Opec budget deficits.

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    Saudi Arabia Cuts Asian Oil Price Most in 10 Months on Glut

    Saudi Aramco, the world’s largest oil exporter, lowered the pricing terms for Arab Light sold to Asia by the most in 10 months as refineries grapple with falling margins and oversupply.

    State-owned Saudi Arabian Oil Co. said Sunday it will sell cargoes of Arab Light in September at $1.10 a barrel below Asia’s regional benchmark. That is a pricing cut of $1.30 from August, the biggest drop since November, according to data compiled by Bloomberg. The company was expected to lower the pricing by $1 a barrel, according to the median estimate in a Bloomberg survey of eight refiners and traders.

    Aramco’s pricing cut is part of a “market share battle” for Asian customers, particularly with OPEC rival Iran which is ramping up crude exports after sanctions eased in January, John Kilduff, partner at Again Capital LLC in New York, said by phone on Sunday. Refineries in China “bought a lot of extra crude earlier this year when prices were lower, so they’re going to have to work that off,” he said.

    Refineries from Singapore to China and South Korea are cutting operating rates amid a slump in margins and rising supply from state-owned giants such as China Petroleum and Chemical Corp. In China, independent refiners are operating at less than half their capacity at a six-month low, according to data compiled from
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    Is Saudi Arabia back in the oil market share game?

    Sometimes actions really do speak louder than words, with Saudi Arabia's slashing of crude oil prices to customers in Asia contrasting with recent comments from the kingdom's top oil executive that chasing market share isn't a priority.

    Saudi Aramco, the state-controlled oil company, cut its official selling price (OSP) for its benchmark Arab Light grade for September-loading cargoes by $1.30 a barrel to a discount of $1.10 to the regional marker Oman-Dubai.

    The reduction was the largest since October last year and has taken the OSP from a premium of 60 cents a barrel to the biggest discount in nine months in just two months.

    Saudi Aramco doesn't release commentary with its pricing statement and doesn't officially comment on its policy in setting the OSP, but the actions of the past two months suggest the world's largest crude exporter may not be quite as relaxed about its market share as its chief executive recently stated.

    Chief Executive Amin Nasser told Reuters on July 20 that Saudi Aramco wasn't worried about rival producers, such as Iraq, Iran and Russia, gaining ground in key market Asia, destination for about two-thirds of the kingdom's exports.

    "Customers are increasing, no we are not," he said when asked if he was worried about other producers gaining market share in Asia.

    While Nasser is correct insofar as Saudi Arabia's exports to Asia are increasing, it may be galling for the market leader to see its rivals doing that much better.

    Top customer China barely increased its purchases from Saudi Arabia in the first half of 2016, taking 0.24 percent more at 26.455 million tonnes, according to customs data.

    On a barrels per day (bpd) basis, Saudi Arabia's exports to China in the first half were actually slightly down, given there was an extra day this year because of the leap year.

    China imported 1.061 million bpd in the first six months of 2016, down from 1.064 million in the same period in 2015.

    Saudi Arabia's share of China crude imports in the first half was 14.2 percent, down from 16.2 percent a year ago.

    In contrast, Russia's share went from 11.9 percent to 14.1 percent and it is almost level pegging with Saudi Arabia as the leading supplier to China.

    It's a stronger story for Saudi Arabia in India, the second-largest crude importer in Asia, where the kingdom has increased market volumes.

    India imported 828,500 bpd from Saudi Arabia in the first half of the year, up from 765,600 bpd in the same period in 2015, according to trade sources and vessel-tracking data from Thomson Reuters Supply Chain and Commodities Research.

    But even though Saudi Arabia has seen its shipments to India rise by 8.2 percent, it has been overtaken as the South Asian nation's top supplier by Iraq, which exported 844,400 bpd in the first half of 2016 compared to 594,600 bpd a year earlier.

    The numbers show that while Saudi Arabia is increasing its exports, it's not doing so by as much as its main regional rivals.


    Up to recently it did appear that the kingdom was fairly relaxed about this situation, as indicated by Aramco's Nasser in the recent interview.

    Aramco raised its OSP in three out of the four months from April to July, and the one month it cut was a token reduction of just 10 cents a barrel.

    This suggested that Saudi Arabia was gaining some confidence that the oil market was starting to re-balance, a view that was supported by an 88-percent jump in global benchmark Brent crude between late January and early June.

    However, since then Brent has retreated by almost 18 percent, which may have dented confidence in the view that the market is close to re-balancing.

    This alone may have been enough to prompt Saudi Aramco to move aggressively to discounting its OSP.

    However, there is another factor at work, namely the sharp contraction of the premium of Brent over the benchmark Middle East grade, Dubai.

    The difference, known as the exchange for swaps DUB-EFS-1M, dropped to $2.22 a barrel on July 29, the lowest since Nov. 13 last year.

    The Saudi OSP tends to track movements in the Brent-Dubai spread to try and ensure that refining customers pay more or less the same for oil no matter where in the world they are located.

    However, when the Brent-Dubai EFS was last in a declining pattern between May and August last year, the Saudis were actually raising the OSP, albeit from discounted levels.

    Overall, while there are market factors that would help explain the sharp drop in the Saudi OSP, it's also likely that the kingdom isn't quite so relaxed about both its market share and pace of re-balancing between crude supply and demand.
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    U.S. Adds Drill Rigs

    Oil held its biggest monthly decline in a year as U.S. producers increased drilling for a fifth week amid a glut of crude and fuel supplies that are at the highest seasonal level in at least two decades.

    “There is a clear downward momentum to the market at the moment,” said Michael McCarthy, a chief strategist at CMC Markets in Sydney. “There are concerns about the oversupply situation continuing. Clearly $40 a barrel is a key point for West Texas and I’d expect to see support there given the bounces we’ve seen previously at that level.”

    The U.S. drill rig count climbed to 374, the highest level since March, Baker Hughes said Friday. The nation’s crude inventories rose to 521.1 million barrels through July 22, keeping supplies more than 100 million barrels above the five-year average, according to the Energy Information Administration.

    Oil-market news:

    Libya reopened the oil export ports of Ras Lanuf, Zuwetina, Es Sidra, and Brega, according to the Petroleum Facilities Guard.

    Hedge funds increased their short positions in WTI by 38,897 futures and options combined during the week ended July 26, according to the Commodity Futures Trading Commission. It was the biggest gain in data going back to 2006.
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    OPEC oil output set to reach record high in July: survey

    OPEC's oil output is likely in July to reach its highest in recent history, a Reuters survey found on Friday, as Iraq pumps more and Nigeria manages to export additional crude despite militant attacks on oil installations.

    Top OPEC exporter Saudi Arabia has kept output close to a record high, the survey found, as it meets seasonally higher domestic demand and focuses on maintaining market share rather than trimming supply to boost prices.

    Supply from the Organization of the Petroleum Exporting Countries has risen to 33.41 million barrels per day (bpd) in July from a revised 33.31 million bpd in June, according to the survey based on shipping data and information from industry sources.

    The increase in OPEC production has added to downward pressure on prices. Oil LCOc1 has fallen from a 2016 high near $53 a barrel in June to $42 as of Friday, pressured also by concern about weaker demand.

    OPEC's production could rise even further should talks to reopen some of Libya's oil facilities succeed. Conflict has been keeping Libyan output at a fraction of the pre-war rate.

    "This could shortly release more oil into an already abundantly supplied market," Carsten Fritsch of Commerzbank said, although earlier hopes of a restart have not been realized.

    "It therefore remains to be seen whether this time will be different."

    OPEC's output has climbed due to the return of former member Indonesia in 2015 and another, Gabon, this month, skewing historical comparisons. July's supply from the remaining members, at 32.46 million bpd, is the highest in Reuters survey records, starting in 1997.

    Supply has also risen since OPEC abandoned in 2014 its historic role of cutting supply to prop up prices as major producers Saudi Arabia, Iraq and Iran pump more.

    In July, the biggest increase of 90,000 bpd has come from Iraq, which has exported more barrels from its southern and northern ports despite a pipeline leak that restrained southern exports.

    Nigeria, where output has been hit by militant attacks on oil facilities, has nonetheless exported slightly more in July than June, the survey found, although crude exports remain significantly below the 2 million bpd seen in early 2016.

    Output in two major producers is largely stable. Iran, OPEC's fastest-growing source of supply expansion this year after the lifting of Western sanctions, has pumped only 20,000 bpd more as the growth rate tops out for now, the survey found.

    Saudi output in July was assessed at 10.50 million bpd, close to June's revised rate and the record 10.56 million bpd reached in June last year.

    "Exports are down a bit, offset by higher direct burn and slightly higher refinery runs," said an industry source who monitors Saudi output. "For the time being, I'm sticking to my numbers, which suggest supply is flat."

    Of countries with lower production, Libyan output edged down due to the stoppage of a major oilfield, Sarir.

    Venezuela's supply is under downward pressure from its cash crunch, slipping further in July.

    The Reuters survey is based on shipping data provided by external sources, Thomson Reuters flows data, and information provided by sources at oil companies, OPEC and consulting firms.
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    Suncor Mulls Stranding Some Oil in Bid to Cut Costs, Save Planet

    Suncor Energy Inc. is discussing with the Alberta government leaving some oil-sands bitumen in the ground in order to lower emissions and reduce costs, Chief Executive Officer Steve Williams said.

    The provincial government in Alberta requires producers to extract “a very high percentage” of the fossil fuel at a given project because those reserves are owned by the public, Williams said Thursday during a conference call with analysts. While it’s “counter-intuitive” to consider leaving oil in the ground, doing so would yield economic and environmental benefits, he added.

    “You could be talking about 10 or 20 percent improvements in the economics of some of those extraction operations,” Williams said. “We would like to leave that last piece in” and produce the best parts of a site, he added.

    Suncor plans to hold total greenhouse gas emissions at current levels through 2030, even as it boosts crude production, by reducing the carbon output per barrel. Canada’s largest oil producer by market value aims to reach its goal by switching to lower-carbon fuels such as natural gas and using renewable electricity and co-generation.
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    US exported 662,000 b/d of crude in May, highest on record: EIA

    US crude exports jumped to their highest level on record in May, coming in at 662,000 b/d, monthly data from the US Energy Information Administration showed Friday.

    Exports are up from 591,000 b/d in April and have been up steadily from the 392,000 b/d exported in December, when the US lifted all restrictions on the export of crude oil.

    A tight ICE Brent/NYMEX WTI spread through May likely didn't stand in the way of exports, despite a strong NYMEX discount often making exports more attractive. That spread averaged just 26 cents/b in May, compared with $1.33/b in April.

    While exports to Canada -- typically the biggest market for US crude -- remained strong at 308,000 b/d, that represents under half of the total. In May 2015, Canada took 524,000 b/d of the 531,000 b/d total from the US.
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    Cabot Oil & Gas reports second quarter 2016 results

    Cabot Oil & Gas Corporation today reported financial and operating results for the second quarter of 2016.

    'Cabot's 2016 operating plan was designed to provide modest production growth while generating positive free cash flow despite a lower commodity price environment,' said Dan O. Dinges, Chairman, President and Chief Executive Officer. 'Our second quarter results delivered on this plan as the Company grew equivalent production 10 percent relative to the second quarter of last year while generating operating cash flow that exceeded our capital expenditures, pipeline investments, and dividends.' Dinges added, 'We anticipate significantly more positive free cash flow generation in the second half of the year based on the current commodity price outlook.'

    Second Quarter 2016 Financial Results

    Equivalent production in the second quarter of 2016 was 151.8 billion cubic feet equivalent (Bcfe), consisting of 144.3 billion cubic feet (Bcf) of natural gas, 1.1 million barrels (Mmbbls) of crude oil and condensate, and 113,000 barrels (Bbls) of natural gas liquids (NGLs). The Company estimates that unscheduled downtime related to infrastructure maintenance negatively impacted natural gas production for the quarter by approximately 3.3 Bcf, or 36 million cubic feet (Mmcf) per day. 'While our daily equivalent production for the quarter was in line with the mid-point of our guidance, the Company would have surpassed the high-end of our guidance range had we not experienced this unexpected downtime during the quarter,' stated Dinges.

    Cash flow from operating activities in the second quarter of 2016 was $85.2 million, compared to $171.2 million in the second quarter of 2015. Discretionary cash flow in the second quarter of 2016 was $97.6 million, compared to $183.2 million in the second quarter of 2015. Net loss in the second quarter of 2016 was $62.9 million, or $0.14 per share, compared to net loss of $27.5 million, or $0.07 per share, in the second quarter of 2015. Excluding the effect of selected items (detailed in the table below), net loss in the second quarter of 2016 was $30.2 million, or $0.07 per share, compared to net income of $14.6 million, or $0.03 per share, in the second quarter of 2015. EBITDAX in the second quarter of 2016 was $127.3 million, compared to $203.9 million in the second quarter of 2015. See the supplemental tables at the end of this press release for a reconciliation of non-GAAP measures including discretionary cash flow, net income (loss) excluding selected items, EBITDAX and net debt to adjusted capitalization ratio.Natural gas price realizations, including the impact of derivatives, were $1.63 per thousand cubic feet (Mcf) in the second quarter of 2016, down 24 percent compared to the second quarter of 2015. Excluding the impact of derivatives, natural gas price realizations for the quarter implied a $0.40 discount to NYMEX settlement prices compared to a $0.89 discount to NYMEX settlement prices in the second quarter of 2015. Oil price realizations, including the impact of derivatives, were $40.30 per Bbl, down 28 percent compared to the second quarter of 2015. NGL price realizations were $12.43 per Bbl, down 29 percent compared to the second quarter of 2015.

    Operating expenses (including financing) decreased to $2.22 per thousand cubic feet equivalent (Mcfe) in the second quarter of 2016, a 12 percent improvement compared to $2.52 per Mcfe in the second quarter of 2015. Cash operating expenses (excluding depreciation, depletion and amortization; stock-based compensation; exploratory dry hole cost; and amortization of debt issuance costs) decreased to $1.19 per Mcfe in the second quarter of 2016, a 12 percent improvement compared to $1.35 per Mcfe in the second quarter of 2015.

    Cabot drilled seven net wells and completed 11 net wells during the second quarter of 2016, incurring a total of $70.9 million in capital expenditures associated with activity during this period.
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    Chevron: Gorgon Train 1 production at 70 pct

    Chevron: Gorgon Train 1 production at 70 pct

    Train 1 at Chevron’s giant Gorgon Gorgon LNG plant on Barrow Island in Western Australia is currently producing at 70 percent of its capacity after the plant was closed in early July due to a “minor” gas leak.

    “At Gorgon we are currently producing at 70 percent of Train 1’s capacity, or approximately 90,000 barrels per day,” Jay Johnson, Executive VP, Upstream at Chevron told analysts on Friday after the U.S.-based energy giant posted a loss of $1.5 billion for second quarter this year. Once in full production, Gorgon’s first liquefaction train will have a capacity of 5.2 million mt/year.

    “In early July, we took a short shutdown to address a number of issues and repair a minor leak. Production resumed mid-July, and the plant has been running smoothly since that time,” Johnson said.

    U.S.-based Chevron shipped the second ever Gorgon cargo shortly after the gas leak on July 3 aboard the Marib Spirit that loaded with previously stored LNG. However, since then no ships were dispatched from the plant.

    Johnson did not provide an update on the expected departure of the third Gorgon cargo.

    To remind, LNG World News reported on July 27, citing a shipping schedule posted on the Chevron Australia website, that the 171,800-cbm LNG newbuild Beidou Star, owned by Japanese shipping giant MOL, is expected to load and ship the third Gorgon cargo. The LNG tanker is currently docked at the Gorgon jetty, the shipping schedule shows.

    According to Johnson, construction is progressing on Gorgon’s second and third liquefaction train.

    “We’re incorporating all the experience gained from Train 1’s construction, completion and initial operations into Train 2 and Train 3.”

    Chevron expects first chilled gas from Train 2 “early in the fourth quarter and from Train 3 in the second quarter of 2017.”

    “We’ve always said that our expectation is Train 2 and Train 3 would start up at roughly six-month intervals. And we’re pretty much still on that plan,” Johnson said.

    As per Chevron’s second LNG project in Australia – Wheatstone, Johnson said that construction work is progressing with the clean up and testing of all nine of development wells completed and the plant’s structural, piping, and cabling work “ahead of the plan.”

    “At Wheatstone, our outlook for first LNG remains mid-2017 for Train 1. Train 2 construction work is also progressing per plan, with start-up expected six to eight months after Train 1,” Johnson said.
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    Oil industry suppliers see light at the end of the tunnel

    European suppliers to the oil industry, hit by their customers' spending cutbacks over the past two years, have produced stronger than expected second-quarter earnings and are cautiously pointing to signs of recovery in demand.

    These companies, which encompass oil drillers, engineering groups, oil services providers and seismic surveyors, have had to slash jobs, costs and investments to cope with the fallout from a 60 percent drop in the oil price since 2014.

    The tide may be turning now the oil price has stabilised but any recovery for these companies will be uneven because those that find it tough to cut capacity and costs will lag others with more flexible business models.

    "The oil price has gradually increased since it bottomed out in January, indicating a turning tide for the oilfield service industry expected in the second half of this year," consultancy Rystad Energy said.

    "This will be the last quarter with double-digit drop, and we may see revenues beginning to increase in the third quarter this year."

    Challenges remain, however, including the level of spending by oil companies. This week BP and Statoil said their capital spending would be lower this year than planned. While shell has already made significant cuts earlier in the year.

    Consultancy Wood Mackenzie estimates the world's top 56 oil and gas firms have cut 2016 exploration and production spending by 49 percent or $230 billion relative to 2014 levels.

    Goldman Sachs said in a research note that the industry's investment cycle was nearing a trough, which was a positive for oil services.


    The more positive outlook has been supported by the oil service industry's second quarter earnings.

    On Thursday, Subsea 7, specialising in underwater construction, produced second-quarter earnings 46 percent above a mean forecast in a Reuters poll, due to lower-than-expected costs.

    Likewise, French oil services firm Technip on Thursday raised its 2016 objectives for this year after reporting stronger than expected results.

    Schlumberger, the world's biggest oilfield services provider, said last week it was considering rolling back pricing concessions negotiated with oil firms, in a sign of confidence in future demand.

    "In spite of the continuing headwinds we now appear to have reached the bottom of the cycle," CEO Paal Kibsgaard said when he presented results last week.

    PGS, which maps the seabed for oil and gas deposits, sees higher activity and spending by oil companies next year and that 2016 would be the low point in the cycle. "We see early signs of a stabilising market and improving sentiment," its CEO Jon Erik Reinhardsen said last week, when PGS reported forecast-beating earnings.

    "PGS confirms what we have seen from oil companies and other market players; the panic is gone," Swedbank analyst Teodor Sveen-Nilsen said.

    Oil services firm Aker Solutions said cost-cutting efforts across the industry are taking hold, with project break-even costs coming down. "This may enable some major projects to be sanctioned in the next 12-18 months," the group said.


    But the road back to bumper profits will not be easy and there will be winners and losers.

    Analysts mostly have "buy" recommendations for Technip and Schlumberger, according to Thomson Reuters data, but there is little consensus elsewhere.

    "In terms of what might start recovering earliest, it's more likely to be company-driven, - ie. a service company grabbing the situation by the horns and actually doing something about it. So Technip-FMC, Schlumberger-Cameron, potentially others," Canaccord Genuity Alex Brooks said.

    "What will definitely not recover anytime soon is pure-play asset companies, those where margins are more or less directly linked to asset rates, or those where capacity is incredibly difficult to actually take out - like Seadrill, Transocean, Vallourec, Fugro, Subsea 7, or Saipem," Brooks said.

    Saipem, one of Europe's biggest oil contractors, beat expectations with its second-quarter results on the back of an improving order backlog but still had to cut guidance for the year, citing delays in the awarding of contracts due to low oil prices.

    "The industry is still crossing the desert," Saipem CEO Stefano Cao told analysts on Wednesday.

    "They (Technip and Saipem) are very different businesses. Saipem is an asset rental business and Technip is more a service and consultancy business," Canaccord Genuity's Brooks said.

    "Saipem is aspiring to very large projects while, as Technip pointed out this morning, no-one wants to do big projects." he said.
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    Phillips 66 profit halves on gasoline glut

    Phillips 66's quarterly profit halved as an oversupply of gasoline and diesel hurt its refining margins.

    Earnings from Phillips 66's refining business plunged 75.3 percent to $149 million in the second quarter.

    Crack spreads, the difference between the cost of crude and refined products, have narrowed due to oversupply, causing inventories to swell and squeezing margins.

    The company, like other refiners, has also been hit by a rise in global crude LCOc1 prices, which touched an eight-month high in June.

    Rival Valero Energy Corp (VLO.N) said on Tuesday it expected lower refinery utilization over the rest of the year as companies step up efforts to counter slumping refining margins.

    Phillips 66's consolidated earnings fell to $496 million, or 93 cents per share, in the second quarter from $1.01 billion, or $1.84 per share, a year earlier.

    Adjusted earnings of 94 cents per share edged past analysts' estimate of 93 cents, according to Thomson Reuters I/B/E/S.
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    Norway's DNO swoops on struggling oil explorer Gulf Keystone

    Norwegian oil and gas operator DNO has launched a $300m (£228m) cash-and-share bid for Gulf Keystone, the struggling Kurdistan-focused explorer that recently announced a financial restructuring.

    DNO, itself highly active in Kurdistan, an autonomous region of Iraq, has its sights on Gulf’s Shaikan field, which turns out 40,000 barrels of oil a day and earlier this month hit the milestone of 25 million barrels of output.

    "Combining these two companies will create further scale and unlock operational synergies that will reinforce DNO's already formidable presence in Kurdistan," said Bijan Mossavar-Rahmani, executive chairman of the Oslo-based company.

    Gulf Keystone put itself up for sale in February, after pursuing the Kurdistan government for $100m in payments for oil exports it said it had not received. In April it defaulted on a $26m debt repayment.

    Earlier this month Gulf Keystone completed a financial restructuring in which its creditors agree to a $500m debt for equity swap.

    DNO said its offer was priced at a 20pc premium on the new shares offered by Gulf as part of its refinancing. The cash element of the offer is $120m, while the rest consists of shares in the enlarged company, which it said would “provide Gulf Keystone investors with continued exposure to the Shaikan field, in addition to DNO's wider portfolio of assets, significantly larger market capitalisation, more robust cash flow, stronger balance sheet and proven operating and management capabilities”.

    Gulf Keystone said: “The board of Gulf Keystone is currently reviewing this proposal and will update the market on its response in due course.”

    Gulf Keystone’s market cap stood at $2.5bn in 2012 but shrank as the price of crude oil collapsed, now standing at just $46m. In the same time, the share price has tumbled from a peak of £3.45 to 4.7p this morning, when it jumped 20pc on news of DNO’s bid.
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    Exxon Mobil profit misses expectations; stock slides

    Exxon Mobil Corp, the world's largest publicly traded oil producer, posted a lower-than-expected quarterly profit on Friday due to weak crude prices and refining income, reflecting the broad malaise in the energy sector.

    Net income slumped to $1.7 billion, or 41 cents per share, in the second quarter, from $4.19 billion, or $1 per share, in the year-ago period.

    Analysts, though, expected earnings of 64 cents per share, according to Thomson Reuters I/B/E/S.

    The earnings miss surprised Wall Street, and Exxon shares fell 2.5 percent to $87.96 in premarket trading. The company is normally known for hitting earnings targets and the miss was its first since the second quarter of last year.

    Production during the quarter fell about 0.6 percent to 3.9 million barrels of oil equivalent per day (boe/d).

    While Exxon slashed its capital budget by 38 percent during the quarter, to $5.16 billion, cost cuts were not enough to offset depressed oil prices, which have dragged down huge swaths of the commodities sector.

    Exxon's profit from producing oil and gas fell about 85 percent to $294 million. In the United States, where Exxon is the largest natural gas producer and a major oil producer, the company lost money.

    In the refining unit, which has been hammered by growing fuel inventories and weak demand, Exxon's profit fell more than 60 percent due to shrinking margins. In previous quarters in this downturn, before fuel inventories swelled, the refining unit had helped insulate Exxon from falling crude prices.

    Rex Tillerson, Exxon's chief executive officer, said the overall results reflected the "volatile industry environment," but defended the company's integrated business model, where oil production and refining are under the same umbrella.

    Earlier this month Exxon said it would pay more than $2.5 billion in stock for InterOil Corp, expanding its push into the Asian liquefied natural gas market.
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    Imperial Oil posts loss due to impact of Alberta wildfires

    Imperial Oil Ltd, Canada's No.2 integrated oil producer and refiner, reported a quarterly loss due to the impact of wildfires in Fort McMurray, Alberta.

    Imperial, in which Exxon Mobil Corp holds a 69.6 percent stake, said its gross production averaged 329,000 barrels of oil equivalent per day (boepd) in the second quarter, compared with 344,000 boepd, a year ago.

    The Alberta wildfires reduced output by about 60,000 barrels per day and net income by an estimated $170 million, Imperial said on Friday.

    Like many of its peers operating in northern Alberta's oil sands, Imperial was forced to shut down its Kearl project in May as a precaution against the wildfires.

    Imperial is now ramping up Kearl to full capacity of 220,000 barrels per day.

    The company reported net loss of C$181 million ($137.57 million), or 21 Canadian cents per share, in the second quarter ended June 30, compared with a profit of C$120 million, or 14 Canadian cents per share, a year ago.

    Total revenue and other income fell 14.4 percent to C$6.25 billion in the quarter.
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    Chevron posts $1.5 billion loss in Q2

    U.S.-based energy giant and LNG player Chevron posted on Friday a loss of $1.5 billion for second quarter this year, compared with earnings of $571 million in the same period a year before.

    The second-quarter results included impairments and other non-cash charges totaling $2.8 billion.

    Chevron said in its statement that sales and other operating revenues in second quarter 2016 were $28 billion, compared to $37 billion in the year-ago period.

    “The second quarter results reflected lower oil prices and our ongoing adjustment to a lower oil price world,” said Chairman and CEO John Watson.

    “In our upstream business, we recorded impairment and other charges on certain assets where revenue from expected oil and gas production is expected to be insufficient to recover costs. Our downstream business continued to perform well.”

    Chevron’s capital and exploratory expenditures in the first six months of this year were $12 billion, compared with $17.3 billion in the corresponding 2015 period.

    According to Watson, Chevron’s operating expenses and capital spending were reduced over $6 billion from the first six months of 2015.

    “In addition, we’re bringing our major capital projects to completion,” Watson said, adding that the company has “restarted LNG production and cargo shipments at Gorgon and Angola LNG, and started up the third train at the Chuandongbei Project in China.”
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    US Lower 48 alone sustains $150B in capex cuts to 2017

    With nearly US$1 trillion to be slashed from upstream capital spend globally out to 2020, the US Lower 48 is in a unique position, accounting for US$250 billion in cuts over the next five years, or one quarter of the global total. Unconventional operators in the Lower 48 have been particularly responsive to the oil price collapse, prompting a dramatic drop in capex spend and high-grading development to the core areas. Our US upstream research analysts look deeply into the causes, correlations and projections associated with these capex cuts in the first of our regional spending cuts series.  

    Out of the more than US$370 billion in global capital expenditure cut by upstream developers across 2016 and 2017, US$150 billion was slashed in the US Lower 48 alone — more than three times any other single country. Largely due to responsiveness and flexibility in the unconventional space, spending in the US dropped 56% compared to a global 30% decline.

    The shorter lead times and less capital-intensive nature of US unconventional plays has allowed  the dominant independent operators to react more nimbly than larger IOCs, NOCs, and Majors, quickly altering development plans in response to the oil price collapse.

    Image title

    Regional US capex cuts
    Regionally, the Rocky Mountains — specifically the Bakken/Three Forks and Niobrara — took the deepest cuts in the US, slashing spending by 51%, or US$83 billion across the five-year period spanning 2016-2020. The Gulf Coast region was similarly hard hit, particularly in the Eagle Ford, whose cuts comprised nearly 20% of the US total.

    Although capex cuts were widespread in the US, the Bakken and Eagle Ford plays alone account for over one-third, or approximately 36%, of total lost US spend in our analysis covering Q4 2014 to Q2 2016.
    Image title

    Bakken well decline and Eagle Ford high-grading
    The largest 15 Bakken operators averaged a 60% drop in capex spend across 2016 and 2017, with Continental scaling back its Bakken rig count by 82% and ConocoPhillips dropping down to just a single rig in 2016, despite previous plans to expand. The Bakken is largely dominated by independents, many of whom were agile enough to completely halt operations in the face of market decline. Because of this reactivity, the Bakken is now home to more drilled but uncompleted wells (DUCs) than any other play in the US.

    Despite removing more than 1,700 wells from our Bakken drilling forecast to 2017, we estimate that the play will be back on track by 2019 — but at a slower pace of growth due to the prolonged low-price market.

    In the Eagle Ford, core Karnes Trough and Edwards Condensate sub-plays accounted for one-third of Eagle Ford capex decline despite comprising less than 10% of the play's overall area. Non-core sub-plays have seen a far greater capex decline by percentage, however, highlighting operators' preferences for sticking to the play's most prolific, economic areas.

    Looking beyond rig count for future production
    Although reduced service costs and overall cost deflation have also contributed to falling spend, deferred investment continues to be the foremost influence on capex declines in the US Lower 48. As rig counts have plummeted, a significant backlog of DUCs has provided cash flow to operators, allowing them to focus on completions at will as rig contracts expire—meaning production volumes are no longer tied directly to the rig count.

    Improvements to well productivity further distort the relationship of rig count to production, with EURs steadily rising over the last 18 months in key US tight oil plays. Optimized completion techniques such as longer laterals, greater use of water and proppant, and increased frac stages will also continue to bolster production despite sustained low rig count.

    Production losses to average 4.2 million boe/d through 2020
    As our outlook has evolved since 2014, we now expect 7 billion fewer barrels of oil equivalent production globally through 2020 — but with 70% of those volumes lost from the US Lower 48 in the near term, through 2017. These losses will be especially apparent across two major tight oil plays, particularly the Bakken and Eagle Ford.

    Image title

    Permian promise: a dark horse emerges
    Cutbacks in investment and production across these key play areas naturally also has a trickle-down effect of scaled-back activity and lost value throughout the entire US Lower 48. And while no area is immune to the downturn, there are some bright spots emerging.

    The Permian has held strongest in the last 18 months due to its substantial drilling inventory of stacked pay and low breakeven resource, and its future spend is trending higher than both the Rocky Mountains and the Gulf Coast. After being overshadowed in the last decade by the rise of tight oil in the Bakken and Eagle Ford, the Permian suddenly seems poised to dominate the US Lower 48 in oil production once again.

    Attached Files
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    Oil Giants Find There’s Nowhere to Hide From Doomsday Market

    Exxon Mobil Corp. and Royal Dutch Shell Plc last week reported their lowest quarterly profits since 1999 and 2005, respectively. Chevron Corp.’s third straight loss marked the longest slump in 27 years, and BP Plc lodged its lowest refining margins in six years.

    Welcome to year two of a supply overhang so persistent it’s upsetting industry expectations that the market would return to a state of balance between production and demand. It’s left analysts befuddled and investors running to the doorways as the crude market threatened to tip into yet another bear market, dashing hopes that a slump that began in mid 2014 would show signs of abating.

    Exxon missed analyst estimates by 23 cents a share and fell as much as 4.5 percent on Friday before recouping some of that decline. Chevron posted a surprise $1.47 billion loss after booking $2.8 billion in writedowns. The company’s per-share loss of 78 cents was in stark contrast to the 19- to 41-cent gains expected by analysts. BP and Shell registered similarly gloomy outcomes.

    “What we’re seeing is that there’s just no place for the supermajors to hide,” Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis, said in an interview. “Oil prices, natural gas, refining, it all looks very bad right now.”

    Crude prices dropped during the quarter from a year ago amid a global glut in the $1.5 trillion-a-year market. With diesel and gasoline prices also slumping, the companies were deprived of the tempering effect oil refining typically provides during times of low crude prices.

    Given the plunge in crude and natural gas markets, “you cannot recover, no matter how efficient you are,” Fadel Gheit, an analyst at Oppenheimer & Co., said during an interview with Bloomberg Television. “The industry cannot survive on current oil prices.”

    Shell reported its weakest quarterly result in 11 years and missed analysts’ estimates by more than $1 billion. BP said earnings tumbled 45 percent amid the lowest refining margins for the second quarter since 2010. U.S. margins, based on futures contracts, plunged 30 percent to a second-quarter average of $17.12 a barrel from $24.42 a year earlier.

    Refining profits will continue to be under “significant pressure,” BP said. Although Brent crude’s rebound provided some relief compared with the first quarter, CEO Bob Dudley still faces a difficult road ahead as the rally fades amid slowing demand growth and returning production from Canada to Nigeria.

    BP’s profit, adjusted for one-time items and inventory changes, dropped to $720 million from $1.3 billion a year earlier, the company said on July 26. That missed the $819 million average estimate of 13 analysts surveyed by Bloomberg. Downstream earnings, which include refining, declined 19 percent.

    Output Hurt

    Exxon, the world’s biggest oil explorer by market value, said wildfires that ravaged the oil-sands region of Western Canada, along with aging wells, reduced output. Its U.S. oil and natural gas wells lost an average of $5.6 million a day during the quarter.

    At Shell, the largest oil producer after Exxon, profit adjusted for one-time items and inventory changes sank 72 percent from a year earlier to $1.05 billion, less than half the $2.16 billion analysts had expected.

    Shell Chief Executive Officer Ben Van Beurden, who this year completed the record purchase of BG Group Plc, has vowed to boost savings from the acquisition following the two-year slump in crude.

    It was Chevron’s third straight quarterly loss, the longest slump for the company since at least 1989, according to data compiled by Bloomberg.

    Still Adjusting

    Chevron Chairman and CEO John Watson said the company continues to adjust to the lower-price environment. He has responded to the market-driven cash squeeze by shrinking drilling programs, writing off discoveries that were too costly to develop at current prices and firing one-tenth of the workforce. The company is seeking to bolster its balance sheet by raising $5 billion to $10 billion from asset sales.

    Despite the rout, and credit-rating cuts, Chevron greenlighted a $36.8 billion expansion of a key Central Asian oilfield earlier this month. Last week, the company committed to distribute a $1.07-a-share dividend that will eat up about $2 billion in cash when paid out to investors in September.

    Exxon Chairman and CEO Rex Tillerson has been looking beyond the current downturn in energy markets to augment the company’s gas and oil portfolios from the South Pacific to Africa. The company also is plowing money into expanding refining and chemical complexes from Singapore to The Netherlands, betting that regional demand for products used in automobile tires, engine oil and plastics will grow over the long term.
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    Alternative Energy

    Tesla, SolarCity set to announce merger on Monday

    Tesla, SolarCity set to announce merger on Monday

    Tesla Motors Inc and SolarCity Corp could announce they have agreed to merge as early as Monday, according to people familiar with the matter.

    While billionaire Elon Musk is chief executive of Tesla, chairman of SolarCity and the biggest shareholder in both companies, a merger agreement was not certain because SolarCity had formed a special committee to review Tesla's offer independent of the influence of Musk and other executives close to him.

    The merger agreement is likely to include a so-called go-shop provision that will allow SolarCity to solicit offers from other potential buyers for a short period of time following the signing of the merger agreement, the people said on Sunday.

    The exact terms of the deal could not be learned. Tesla had previously said it has offered 0.122 to 0.131 of its shares for each SolarCity share.

    The sources asked not to be identified because the negotiations are confidential. Tesla and SolarCity declined to comment.
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    China finds big potassium deposit in Qinghai - Xinhua

    China has discovered a large potassium deposit in Qinghai province in the north, a finding set to ease the country's import dependence for the key fertilizer, the Xinhua state news agency reported on Friday.

    Chinese prospectors have assessed the find at 156 million tonnes of potassium chloride, after three years of work, Xinhua said, citing the Ministry of Land and Resources.

    China relies on imports for more than 70 percent of its potash demand, with global supplies dominated by Canada, Russia and Belarus, Xinhua said.

    China's main grain producing regions in the south are generally short of potassium, resulting in annual imports of about 6 million tonnes of potash, Xinhua said.

    China imported 3.37 million tonnes of potassium chloride in the first six months of this year, down 11.2 percent over the same period in 2015, according to official customs data.
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    Bayer says will halt future U.S. sales of insecticide

    The agricultural unit of German chemicals company Bayer AG will halt future U.S. sales of an insecticide that can be used on more than 200 crops after losing a fight with the U.S. Environmental Protection Agency, the company said on Friday.

    Bayer lost an attempt to continue sales of flubendiamide, marketed in the United States as Belt, after the EPA earlier found that it posed risks to the environment. [nL2N16912L]

    An EPA board, however, ruled that farmers and retailers will be allowed to use their existing supplies of the chemical, Bayer said in a statement.

    Dana Sargent, Bayer's vice president of regulatory affairs, said the product was safe.

    "Bayer maintains the EPA's actions on flubendiamide are unlawful and inconsistent with sound regulatory risk assessment practices," she said in a statement.

    The EPA could not be reached for comment after normal business hours.

    Flubendiamide is the active ingredient in Bayer's Belt and Nichino America's Tourismo and Vetica insecticides. It is registered for use on crops, including soybeans, almonds and tobacco, with some crops having as many as six applications per year, according to the EPA.

    Nichino America could not immediately be reached for comment.
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    Steel, Iron Ore and Coal

    ArcelorMittal keeps 2016 outlook after beating second quarter forecasts

    ArcelorMittal, the world's largest producer of steel, said improving steel prices and better volumes boosted its results in the second quarter, but remained cautious about 2016 as a whole, keeping its outlook.

    Core profit (EBITDA) almost doubled in the second quarter compared to the same period last year to $1.77 billion, well above the $1.57 billion expected in Reuters poll of eight analysts.

    The group grew core profit in both mining and steel production in all of the regions except for Brazil, where selling prices were down by a quarter compared to last year and the economic downturn weighed on demand.

    ArcelorMittal repeated its guidance for its 2016 core profit to be above $4.5 billion, compared to the $5.2 billion achieved in 2015.

    "Despite the steel spread recovery losing momentum in recent weeks, the impact of lagged prices will be an important support for operating results as we move in to a period of seasonally slower steel demand," the company said in a statement, referring to the "spread" between the price for steel and cost of raw materials.

    Some analysts had expected the group to increase its outlook.

    The group kept its outlook for global apparent steel consumption to grow by up to 0.5 percent, though it downwardly adjusted its outlook for steel market in the United States, because of a tightening of supply resulting in lower inventories.
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