Mark Latham Commodity Equity Intelligence Service

Thursday 14th April 2016
Background Stories on www.commodityintelligence.com

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    Macro

    Shanghai Accord?

    This information involves the secret ‘Shanghai Accord’ reached on the sidelines of the G-20 central bankers meeting in Shanghai, China, on Feb. 26.

    The situation confronting the central bankers was the following: China needs to devalue its currency to rescue the Chinese economy. But the last two times China devalued against the U.S. dollar (August 2015 and January 2016), the U.S. stock market sank like a stone. This threatened to set off global financial contagion that could lead to a repetition of the 2008 panic, except worse. The challenge was to find a way to give China some currency relief without igniting a global stock market collapse.

    The solution is to recognise that the US dollar and the Chinese yuan are not the only two currencies in the game. China has a larger combined trading relationship with Japan and Europe than it does with the U.S. The secret plan devised by the central banks has three parts: Tighten in Europe and Japan, ease in the U.S. and maintain the U.S.-China peg.

    By maintaining the US-China peg, markets would not panic about Chinese devaluation. In fact, by easing the US dollar, China could ease the yuan and still maintain the peg. It’s just a case of follow the leader.

    Meanwhile, the stronger euro and yen gave China competitive relief in its trading relations with those trading giants.

    Voilà! The Chinese got currency devaluation, and the world hardly noticed.

    How do we know this? After all, this plan was never publicly disclosed.

    The secret summit took place on 26 February. Our hypothesis was that a plan to give China some relief was on the front burner. What subsequent facts enabled us to update the hypothesis (as Bayes’ theorem requires) to confirm or contradict the hypothesis?

    We used the following:

    • On March 10, Mario Draghi, head of the European Central Bank, delivered the expected ease, but then surprised markets by saying that was the last round of easing. Relative to expectations, this ‘timeout’ was a tightening, and the euro rallied
    • On March 15, Haruhiko Kuroda, governor of the Bank of Japan, failed to deliver the additional ‘QQE’ (qualitative and quantitative easing) markets expected. This was also tightening relative to expectations, and the yen rallied
    • On March 16, Janet Yellen and the Fed’s FOMC took a pass on interest rate hikes. This was expected, but Yellen’s comments in the post-meeting press conference were surprisingly dovish. This led to initial declines in the US dollar, a form of ease
    • On March 29, Yellen delivered a blockbuster speech to the Economic Club of New York. In the speech, she did not merely hint at dovish tendencies — she made them explicit. Yellen adopted an asymmetric test that raised the bar significantly for future rate hike increases. Markets immediately repriced to these new expectations and the dollar cratered. Yellen’s turnabout delivered on the US easing part of the secret Shanghai Accord.

    From an analytic perspective, the case is overwhelming. We had four powerful confirmation points and no contrary evidence. The odds of these four critical events happening in a short time frame without coordination are miniscule. The odds in favour of the existence of the Shanghai Accord are high. There has been no official denial.

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    China’s snow job continues.


    China's electricity consumption rose at a faster pace in March as economic activity and residential demand picked up, showed data from the National Development and Reform Commission (NDRC) on April 13.

    Power consumption rose 5.6% on year in March, reaching 476.2 TWh, said Zhao Chenxi, spokesperson for NDRC, at a press conference. The growth accelerated by 1.6 percentage points from February and improved markedly from a 2.2% contraction in March last year.

    In the first quarter of 2016, power use increased 3.2% year on year to 1,352.4 TWh, with the growth rate up 2.4 percentage points from the same period last year, said Zhao.

    He attributed the recovery to stronger demand in the service sector and households, which contributed to an increase of 3 percentage points in the first-quarter growth.

    Power consumption by Chinese households gained 10.8%, up 8.2 percentage points on year.

    Electricity used by the agricultural and industrial sector climbed 7.8% and 0.2% respectively in the first quarter, exiting negative territory but still at a relatively low level of growth, the spokesperson said.

    Power use by the service sector jumped 10.9% year on year in the first three months, up 4 percentage points from a year earlier.

    The financial, real estate, catering and hotel industries all recorded faster increases in power consumption, Zhao added.


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    Following Double-Fed Emergency Meetings, China Devalues Yuan By Most In 3 Months


    After weeks of "stability," and following two emergency Fed meetings in 3 days (and an unexpected ease by MAS), The PBOC decided today was the right time to drastically slash the Yuan fix by 300 pips. This is the largest devaluation of the Chinese currency since January 7th (and second largest since August's world-market-turmoiling devaluation). Offshore Yuan had been tumbling all day (shrugging off the supposedly better trade data as FX traders saw through the colossal spike in imports from HK as indicative of capital outflows), and is falling further following PBOC's cut.

    As Bloomberg's Tom Orlik notes, China's March imports from Hong Kong soared an implausible 116% YoY! As it is clearly disguising capital flows...

    Trade mis-invoicing as a way to hide capital flows remains a factor. In the past, over-invoicing for exports was used as a way to hide capital inflows.

    The latest data show the reverse phenomenon, with over-invoicing of imports as a way of hiding capital outflows.

    All of this chaos amid the biggest short-squeeze in US stocks in 6 months makes us wonder if something serious is not breaking behind the scenes and every effort is being made to put lipstick on this pig.

    http://www.zerohedge.com/news/2016-04-13/following-double-fed-emergency-meetings-china-devalues-yuan-most-3-months
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    The Fed Just Held An Emergency Meeting To Discuss Capital Markets


    As we reported on Friday morning, in a surprise announcement the Fed revealed under its "Government in the Sunshine" protocol that it would hold a closed meeting under expedited procedures in which it would review the "advance and discount rates to be charged by Federal Reserve Banks." The last time such a meeting took place was less than a month before the Fed hiked rates for the first time in years.

    What took place during the meeting will remain a mystery, however what made it particularly interesting is that just hours later it was followed by another impromptu closed-door session, this time between president Obama and Janet Yellen.

    What information was exchanged during the follow up meeting is also a secret, although the White House was kind enough to release the following statement:

    "The President and Chair Yellen met this afternoon in the Oval Office as part of an ongoing dialogue on the state of the economy. They discussed both the near and long-term growth outlook, the state of the labor market, inequality, and potential risks to the economy, both in the United States and globally. They also discussed the significant progress that has been made through the continued implementation of Wall Street Reform to strengthen our financial system and protect consumers."

    We also will never know if there is any coincidence between these two meeting and the fact that just after they took place, the S&P went from red on the year to fresh 2016 highs in under two days.

    http://www.zerohedge.com/news/2016-04-13/fed-just-held-emergency-meeting-under-expedited-procedures-discuss-capital-markets
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    China's economy could be in more trouble than we think


    Rail freight volumes are an indicator of China’s goods-producing and goods-consuming economy, not just manufacturing, construction, agriculture, and the like, but also consumer goods. Thus they’re also an indication of consumer spending on goods. Alas, rail freight volume is collapsing: the first quarter this year puts volume for the whole year on track to revisit levels not seen since 2007.

    While China’s economy was strong, rail freight volumes were soaring. For example, in 2010, when China was pump-priming its economy, rail freight volume jumped 10.8% from a year earlier. In 2011, it rose 6.9%. It had soared 44% from 2005 to 2011! But 2011 was the peak.

    In 2012, volume in trillion ton-kilometers declined one notch and in 2013 stagnated. But in 2014, volume skidded 5.8%. And in 2015, volume plunged 10.5% to 3.4 billion tons, according to Caixin, citing figures from the National Railway Administration. It was the largest annual decline ever booked in China.

    It was a year that the People’s Daily, the official paper of the Communist Party, described in this elegant manner:

    Dragged by a housing slowdown, softening domestic demand, and unsteady exports, China’s economy expanded 6.9% year on year in 2015, the weakest reading in around a quarter of a century.

    Which is precisely where things stop making sense: rail freight volume plunges 10.5% in 2015, and the economy still increases 6.9%? I mean, come on.

    At the time, Caixin said that China’s central planners aimed to increase rail freight volumes to 4.2 billion tons by 2020. This would assume an average annual growth rate of 4.3%. So these declines are not part of the planned transition to a consumption-based economy. They’re totally against that plan or any other plan. They’re very inconvenient for the rosy scenario!

    Then came the first quarter of 2016.

    Rail freight volume plunged 9.4% year-over-year to 788 million tons, according to data from China Railway Corporation, cited today by thePeople’s Daily. At this rate, rail freight volume for 2016 will be down 20% from 2014, which had already been a down year! At this rate, volume in 2016 will end up where it had been in 2007!

    China — hobbled by soggy domestic demand, perhaps even soggier demand overseas, rampant factory overcapacity, cooling investment, an insurmountable mountain of bad debt, and a million other domestic problems — may be trying to transition from a manufacturing-based economy to an economy based on consumption.

    REUTERS/Carlos BarriaNewly-elected General Secretary of the Central Committee of the Communist Party of China (CPC) Xi Jinping speaks as he meets with the press at the Great Hall of the People in Beijing, November 15, 2012.

    But even consumer goods must be transported, even those purchased online! Only services don’t require much transportation. But we doubt that service sales have jumped in two years to the extent that they would even halfway make up for the crashing demand for goods transported by rail.

    http://www.businessinsider.com/china-rail-freight-volumes-are-troubling-2016-4?IR=T
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    Oil and Gas

    OPEC cuts 2016 oil demand growth forecast, warns of more


    OPEC on Wednesday cut its forecast for global oil demand growth in 2016 and warned of further reductions citing concern about Latin America and China, pointing to a larger supply surplus this year.

    The Organization of the Petroleum Exporting Countries also said top exporter Saudi Arabia kept output steady in March - a sign Riyadh is serious about a plan to be discussed this weekend to freeze output and support prices - while OPEC supply overall rose only slightly.

    World demand will grow by 1.20 million barrels per day (bpd) in 2016, OPEC said in its monthly report, 50,000 bpd less than expected previously.

    It also cited the impact of warmer weather and the removal of fuel subsidies in some countries.

    "Economic developments in Latin America and China are of concern," OPEC said. "Current negative factors seem to outweigh positive ones and possibly imply downward revisions in oil demand growth, should existing signs persist going forward."

    OPEC's view contrasts with that of the U.S. Energy Information Administration, which on Tuesday raised its demand forecast slightly.

    A third closely watched oil report, from the International Energy Agency, is due on Thursday.

    A big slowdown in demand could complicate producers' efforts to bolster prices by freezing output. The plan, to be discussed on Sunday in Doha, has helped oil prices LCOc1 to rally above $41 a barrel from a 12-year low close to $27 hit in January.

    OPEC's refusal to cut output in late 2014 helped accelerate a drop in prices, which is slowing the development of relatively expensive rival supply sources such as U.S. shale oil and other projects worldwide.

    In its report, OPEC said it expected supply from outside the group to fall by 730,000 bpd this year, more than the 700,000-bpd drop expected previously. But it reiterated that producer efforts to maintain output were making the forecast uncertain.

    Despite the slightly larger non-OPEC decline expected, OPEC projects demand for its crude will average 31.46 million bpd in 2016, down 60,000 bpd from last month's forecast.

    The 13-member group pumped 32.25 million bpd in March, the report said citing secondary sources, up 15,000 bpd from February.

    Saudi Arabia told OPEC it kept output in March steady at 10.22 million bpd. Riyadh in February struck a preliminary deal with fellow OPEC members Venezuela and Qatar, plus non-OPEC Russia, to freeze output.

    Iran, which wants to regain market share after the lifting of Western sanctions on Tehran rather than freeze output, told OPEC it raised output by a minor 15,000 bpd to 3.40 million bpd.

    The report points to a 790,000-bpd excess supply in 2016 if the group keeps pumping at March's rate, up from 760,000 bpd implied in last month's report.

    http://www.reuters.com/article/us-opec-oil-idUSKCN0XA10P
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    Russia Refutes Its Own Rumour, Says Doha Deal Will Have Few Detailed Commitments


    Yesterday, Russia said there was a virtual deal assured with Saudi Arabia to "freeze" production (at record levels) that did not require Iran's participation.

    And now, it appears the Russians are walking that confident "hope" back. Russia's energy minster just told a briefing that the Doha "freeze" deal would be "loosely-framed with fed detailed commitments."

    http://www.zerohedge.com/news/2016-04-13/russia-refutes-its-own-rumor-says-doha-deal-will-have-few-detailed-committments
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    Russia Said to Hire U.S. Lawyers for Rosneft Sale Amid Sanctions


    Russia has picked a top American legal firm to advise it on how to conduct the sale of some $7.5 billion of shares in the country’s biggest oil producer, Rosneft OJSC, which is under U.S. and European sanctions, two people with knowledge of the matter said.

    While the restrictions that cover Rosneft don’t prohibit equity investment in the company, the U.S. and Europe have frowned on western banks participating in Russian offerings, so far blocking a Russian Eurobond sale after warning firms in February about the risks of working on the transaction.

    This time, Russia has chosen New York-headquartered White & Case LLP, which has a long-term presence in Moscow, to try to find a way to navigate the sanctions-related problem, said one of the two people, who spoke on condition of anonymity because the decision hasn’t been made public. White & Case isn’t in violation of any sanctions laws by advising Rosneft, but it will be challenging for the firm to find a way to get the deal done, according to Gary Hufbauer, a sanctions specialist at the Peterson Institute for International Economics in Washington, who said he didn’t expect any major western banks to take the risk of organizing the share sale.

    Along with Rosneft, Russia hopes to sell a large stake in oil producer Bashneft PJSC as soon as this year to help shore up public finances hobbled by the collapse in oil prices over the past two years. A funding crunch and the longest economic downturn in a decade and a half are adding urgency to the need to bolster the country’s coffers. The Russian government has said it’s looking for an investment bank to manage the Rosneft sale.

    U.S. and European governments warned western banks earlier this year about the reputational risks of working with Russia, where individuals and firms have been hit with a series of measures in response to President Vladimir Putin’s annexation of Crimea and destabilization of eastern Ukraine. Those warnings have so farstymied Russia’s planned $3 billion sovereign Eurobond issue, leaving the government in Moscow searching for other ways to raise cash. The U.S. and European Union sanctions have virtually closed sources of long-term, external funding for many major Russian companies.

    “U.S. sanctions do not prohibit U.S. persons, including law firms, from providing legal advice to the Russian government,” the Treasury Department said in an e-mailed statement. “We have not sanctioned the government of Russia. We would note though that it remains illegal for U.S. persons to facilitate transactions that U.S. persons may not directly engage in.”

    https://mail.google.com/mail/u/0/?shva=1#inbox?compose=1540f8ac0e4eb1ef
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    Reliance, BG to hand some Indian drilling assets to ONGC-sources


    A joint venture led by India's Reliance Industries and BG Group will hand drilling infrastructure from an abandoned Indian gas field to ONGC Ltd , a boost for ONGC's plans to develop a key gas reserve nearby, two company sources said.

    Executives from Reliance, BG and India's state-run oil firm ONGC have been at odds for months over the cost of closing the Tapti field off the country's west coast.

    But after government mediation, the three signed a deal on Tuesday that will see the equipment handed over without charge, with Reliance and BG saving on dismantling costs.

    The sources, with direct knowledge of the matter, declined to be named as they are not authorised to talk to the press.

    ONGC plans to invest around 100 billion rupees ($1.5 billion) to develop the giant Daman field, which is next to Tapti. The equipment deal will help the group keep a lid on costs - buying and setting up equipment from scratch could cost up to 40 billion rupees ($600 million), one of the sources said.

    The deal will also speed up development by three years.

    Daman, now set to produce from 2018, is expected to produce 10 million metric standard cubic metres per day (mmscmd) of gas, or 15 percent of ONGC's current natural gas production.

    The Tapti infrastructure includes an offshore platform and a 70-kilometre pipeline connecting the platform to ONGC's gas terminal at Hazira in Gujarat.

    Reliance, ONGC and BG, now owned by Royal Dutch Shell , did not immediately comment.

    The second source said the companies would continue to talk on other closure costs.

    http://www.reuters.com/article/india-reliance-idUSL3N17G370
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    Arabia sees record oil and gas drilling as rest of world slumps


    A record number of rigs are drilling for oil and gas on the Arabian peninsula even as drilling in the rest of the world tumbles in response to low prices.

    There were almost 290 rigs active in Saudi Arabia and the neighbouring states of Kuwait, the United Arab Emirates and Oman in March, according to oilfield services company Baker Hughes.

    The rig count has increased by 50 since oil prices started to fall in mid-2014 and has almost doubled over the last five years (tmsnrt.rs/1TQYcXj).

    As a result, the Arabian peninsula now accounts for nearly 30 percent of all active rigs outside North America, up from less than 18 percent when the slump began (tmsnrt.rs/1TQYkG7).

    Saudi Arabia alone had 127 operating rigs in March, with 67 targeting primarily oil-bearing formations and 60 hunting for gas (tmsnrt.rs/1TQYq0t).

    Some analysts suggest the drilling uptick is part of Saudi Arabia's strategy of defending or even increasing its oil market share ("Saudi oil gambit moves to phase two", Bloomberg, April 10).

    There have even been suggestions the kingdom is reviving its previously abandoned plan to raise capacity from 12.5 million to 15.0 million barrels per day ("Saudi Arabia is on a drilling binge", Quartz, April 12).

    But it is at least as likely the increase in drilling is driven by the need to replace declining output from mature fields and the need to develop new sources of gas for power generation.

    TWILIGHT IN THE DESERT

    Writing about Saudi Arabia's oil reserves, future production and spare capacity is a professional graveyard for oil analysts.

    Ten years ago, respected oil analyst Matthew Simmons wrote an alarming book about the depletion of Saudi oil reserves and its impact on the global economy ("Twilight in the desert", Simmons, 2005).

    On the basis of a detailed study of field production records, Simmons argued the Saudis were overstating the remaining recoverable reserves and would struggle to maintain let alone increase their output in future.

    As oil prices surged between 2004 and 2008, Simmons' book provided powerful ammunition for analysts convinced global oil supplies were peaking.

    Subsequent events proved Simmons wrong, as Saudi Arabia increased oil and gas production to record levels and appeared to have no difficulty sustaining them.

    Simmons also missed the advent of the shale revolution in North America which added significantly to global reserves and production.

    However, even if concerns about reserves have receded, there is still persistent uncertainty about just how much spare production capacity there really is in Saudi Arabia.

    No one knows for certain just how much more crude the kingdom could produce in an emergency if the order was given to open all the wells to the maximum.

    Almost nothing is reported publicly about how much is produced from each field, how much they could produce if the spigots were opened fully, and how much still remains to be produced.

    Field production and reserve figures are closely-held state secrets. It is not even clear if the Saudis themselves have accurate data on reserves and spare capacity.

    http://www.reuters.com/article/arabia-oil-kemp-idUSL5N17G3OI
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    Mexico gives Pemex $4.2 bln shot of liquidity

    Mexico gives Pemex $4.2 bln shot of liquidity

    Mexico's Finance Ministry announced on Wednesday a series of measures to improve Pemex's finances, giving the ailing state-owned giant a $4.2 billion liquidity boost.

    That includes a capital injection of 26.5 billion Mexican pesos ($1.5 billion) and a credit facility for a further 47 billion pesos to pay down pension costs this year.

    The support also includes tax breaks that will allow Pemex to deduct more of its exploration and production costs.

    As a condition of accepting the support, the company must reduce its liabilities by 73.5 billion pesos.

    Mexico's oil output has slid for 11 consecutive years, while crude prices have fallen about 70 percent since 2014, both of which have battered public finances.

    The federal government was able to support Pemex because of previously announced budget cuts in February, the ministry said in a statement.

    Miguel Messmacher, a deputy finance minister, said the Mexican oil company would have less need to tap credit markets after the liquidity injection.

    Pemex said it would use some of the extra cash to pay back billions of dollars owed to dozens of suppliers and contractors for last year, many of them small and medium-sized firms fully dependent on its business.

    "This is good, because it is comprehensive and it deals with the main issues," said Alexis Milo, an economist at Deutsche Bank in Mexico City. "The reaction of markets will be positive because this is the beginning of the structural changes that markets were expecting."

    Pemex has historically provided the federal government with as much as 40 percent of its revenue, but recently that amount has been halved.

    A constitutional energy overhaul passed in 2013 at the start of President Enrique Pena Nieto's administration ended Pemex's decades-long monopoly and promises to boost future oil output by luring new private and foreign producers into the country.

    http://www.reuters.com/article/mexico-pemex-idUSL2N17G17S
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    India's Fuel Demand Rises to Record on Gasoline, Diesel Growth


    Fuel use rose to 183.5 million metric tons from 165.5 million tons in the previous period, according to preliminary data on the websiteof the Oil Ministry’s Petroleum Planning & Analysis Cell. Diesel consumption rose 7.5 percent to 74.6 million tons, while gasoline usage rose 14.5 percent to 21.8 million tons.

    “Gasoline growth has been unprecedented and has even surpassed our own expectations,” Arun Kumar Sharma, finance director at Indian Oil Corp., India’s biggest fuel retailer, said in New Delhi. “People are preferring gasoline more than diesel as the price difference between the two has narrowed.”

    Gasoline is taxed higher than diesel in India, resulting in the former costing more at retail pumps. The differential narrowed to about 25 percent in April from 34 percent in January. India isreplacing China as the world’s oil-demand growth driver as its economy expands faster than any other major country and a growing middle class has more money to spend.

    The International Energy Agency estimates India to account for a quarter of global energy demand growth by 2040 as booming manufacturing and a bigger, richer and more-urbanized population will drive fuel growth. It expects the country’s oil demand to reach 10 million barrels a day in the next quarter of a century, marking the fastest growth in the world.

    “In addition to the boost from low oil prices, structural and policy-driven changes are underway that have resulted in India’s oil demand ‘taking off’ in a similar way to China’s during the late 1990s,” analysts including Amrita Sen at Energy Aspects Ltd. said in a note. “These changes include a rise in per capita oil consumption, a massive programme of road construction and a push towards increasing the share of manufacturing in GDP.”

    Indian Oil, which controls more than half of fuel sales in the country, expects gasoline sales this fiscal to climb 11 percent and diesel by about 3 percent, Sharma said.

    http://www.bloomberg.com/news/articles/2016-04-13/india-s-fuel-demand-rises-to-record-on-gasoline-diesel-growth
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    Summary of Weekly Petroleum Data for the Week Ending April 8, 2016


    U.S. crude oil refinery inputs averaged over 15.9 million barrels per day during the week ending April 8, 2016, 492,000 barrels per day less than the previous week’s average. Refineries operated at 89.2% of their operable capacity last week. Gasoline production decreased last week, averaging about 9.6 million barrels per day. Distillate fuel production decreased last week, averaging 4.8 million barrels per day.

    U.S. crude oil imports averaged over 7.9 million barrels per day last week, up by 686,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.8 million barrels per day, 4.1% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 570,000 barrels per day. Distillate fuel imports averaged 175,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.6 million barrels from the previous week. At 536.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 4.2 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 0.5 million barrels last week and are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.8 million barrels last week and are above the upper limit of the average range.

    Total commercial petroleum inventories increased by 6.9 million barrels last week. Total products supplied over the last four-week period averaged 19.7 million barrels per day, up by 3.2% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.4 million barrels per day, up by 5.7% from the same period last year. Distillate fuel product supplied averaged about 3.7 million barrels per day over the last four weeks, down by 7.1% from the same period last year. Jet fuel product supplied remained unchanged compared to the same four-week period last year.

    Cushing inventories 64.6 vs 66.3 mln bbls

    http://ir.eia.gov/wpsr/wpsrsummary.pdf
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    US oil production dips below 9 mln bd


                                               Last Week    Week Before    Last Year

    Domestic Production '000...... 8,977             9,008              9,384

    http://ir.eia.gov/wpsr/overview.pdf
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    Bakken has Lowest Average Drilling and Completion Costs in the Country


    The Bakken has the lowest average drilling and completion costs in the country, according to a new study conducted for the U.S. Energy Information Administration.

    In 2012, costs were at their highest, but the downturn in oil production in North Dakota has contributed to lower prices.

    The study compared the Bakken with four other oil producing areas including Texas and New Mexico.

    Although Bakken wells are deeper, drilling in recent years has become more efficient.

    Two miles down and two miles out is how far a Bakken rig drills into the ground. That's not cheap to do, but the price has decreased.

    "We have certainly seen a fairly significant reduction in operating costs for the Bakken over the past 14 months and a lot of that is due to less competition for the services. We've probably seen 25 to 28 percent reduction," said North Dakota Petroleum Council President, Ron Ness.

    According to the study, Bakken wells costs were $7.1 million in 2014, but are estimated to drop to $5.9 million. This is approximately a half a million dollars to a $1 million less than other state's oil formations.

    "As the efficiency and productivity have gone up in the wells that are being drilled and are being completed of course we moved into the core area, that helps, but even in those core areas you've seen better wells. That looks good going forward," said Ness.

    Ness says operating costs in the Bakken are traditionally higher because of the climate and geography.

    The Bakken Inflation which used to drive up prices has also been going down, contributing to lower drilling and completion costs.

    Ness says once the Dakota Access Pipeline is built, it will be a key product for shipping oil to market and decrease additional costs.

    http://www.kfyrtv.com/home/headlines/Bakken-has-Lowest-Average-Drilling-and-Completion-Costs-in-the-Country-375462561.html
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    Rice Energy Floats New Round of Stock, Hopes to Raise $488M


    MDN’s lead story today is that Rice Energy has made a $200 million offer to buy the Marcellus/Utica assets from now bankrupt coal company Alpha Natural Resources.

    As you know, drillers like Rice (and every other driller on the planet) are currently in a cash crunch. Rice doesn’t have an extra $200M laying around ready to use for such a purchase.

    So in addition to the ANR deal announced yesterday, Rice also announced they will float another 29 million shares of common stock hoping to raise an additional $488 million, part of which will go for the ANR acreage purchase.

    What happens if Rice doesn’t consummate the ANR acreage deal? They’ll use the money raised from this new stock offering “for general corporate purposes”…

    http://marcellusdrilling.com/2016/04/rice-energy-floats-new-round-of-stock-hopes-to-raise-488m/?utm_source=dlvr.it&utm_medium=twitter
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    Energy XXI to file for bankruptcy as soon as Thursday

    Energy XXI to file for bankruptcy as soon as Thursday

    Oil and natural gas producer Energy XXI Ltd will prepare for bankruptcy protection as soon as a grace period for missed interest payments expires on Thursday, citing people with knowledge of the matter.

    The Houston-based company previously missed two interest payments on a total of $1.6 billion of debt on March 15, Bloomberg reported. (bloom.bg/1Vq2VB4)

    Energy XXI could not be immediately reached for comment.

    The company had said on March 9 that it might seek Chapter 11 bankruptcy protection if oil prices remained low and it failed to refinance its debt.

    http://www.reuters.com/article/us-energ-21-debtrenegotiation-idUSKCN0XA2HP
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    Alternative Energy

    SunEdison financial woes also threaten yieldcos that hold assets


    The prospect of a near-term bankruptcy for solar giant SunEdison Inc also threatens the separate companies it created to hold renewable energy assets - the so-called "yieldcos."

    The companies - TerraForm Power Inc and TerraForm Global Inc - will likely avoid bankruptcy but may not escape unscathed, analysts and restructuring experts said.

    A judge could rule that the yieldcos must be included in a SunEdison bankruptcy, analysts said. The companies could also be sold.

    Either way, a potential SunEdison bankruptcy filing would be unpredictable for the yieldcos because all three companies are so intertwined.

    The filing could come as soon as this week as SunEdison reaches the end of a grace period set by lenders stemming from its delayed annual report.

    TerraForm Global and Power said in a joint statement to Reuters that the companies "do not rely substantially on SunEdison for funding or liquidity" and can support their operations on their own.

    A SunEdison spokesman did not immediately respond to requests for comment.

    SunEdison controls TerraForm Power and Global by holding the majority of their voting shares. On their own, both companies have stronger financials than their parent.

    TerraForm Power, the larger of the two companies, recorded profit of $2.4 million and debt of $2.5 billion at Sept. 30, 2015, according to its most recent quarterly report. TerraForm Global reported a loss of $82.9 million and $1.2 billion in debt the same date.

    The companies are valued for the dividends they pay to investors. Their shares closed Tuesday at $9.52 and $2.58, respectively, compared to SunEdison's at 40 cents.

    The companies' original relationship with SunEdison gave them call rights - essentially right of first refusal - on projects in the Edison pipeline. But the future of those projects is in jeopardy because of SunEdison's financial problems, which also threatens the yieldcos future revenues.

    A SunEdison bankruptcy could further dampen the yieldcos' prospects.

    SunEdison has not transferred projects in Uruguay and India to TerraForm Global on time, the yieldco said in public documents. TerraForm Power, focused on domestic markets, may also be at risk of not receiving projects as SunEdison tries to sell off assets in Colorado.

    "If the yieldco never receives any additional assets in the future, they're stuck with limited income every month, as the sun shines and wind blows," said Jeffrey Osborne, an analyst at Cowen & Co who covers SunEdison.

    A SunEdison bankruptcy could also cause defaults in the credit agreements at the individual projects for TerraForm Global and Power, but the banks are unlikely to call in the debt as long as the projects are performing, said Swami Venkataraman, an analyst at Moody's Investors Service Inc.

    The yieldcos also rely on SunEdison to make interest payments for them - longstanding arrangements worth tens of millions of dollars each year. Those agreements could be nixed in bankruptcy, according to a public filing, leaving both of them to fend for themselves.

    Both companies, which have no employees of their own, also rely on SunEdison for back office functions. But hiring staff, Venkataraman said, would not push either yieldco into bankruptcy.

    http://www.reuters.com/article/sunedison-inc-yieldcos-idUSL2N17G0GF
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    GE Global Research excited about potential of new turbine


    GE engineers have developed a turbine that is no bigger than the size of an average desk yet can produce enough power for an average town.

    Designed by GE Global Research, the turbine uses superheated carbon dioxide and could be a breakthrough technology in terms of cleaner, more efficient power generation into the future.

    Doug Hofer, lead engineer on the project, said, “The world is seeking cleaner and more efficient ways to generate power. The concepts we are exploring with this machine are helping us address both.”

    MIT Tech Review reports the turbine is driven by 'supercritical carbon dioxide', which is kept under high pressure at temperatures of 700˚C. Under these conditions, the CO2 enters a physical state between a gas and liquid, enabling the turbine to harness its energy for super-efficient power generation, with turbines transferring 50 per cent of the heat into power.

    Waste heat produced from other power generation methods, such as nuclear power stations or solar could be used to generate molten salt to heat carbon dioxide gas to a supercriticial liquid for the new turbines - which may be much quicker than heating water for steam.

    The design of the turbine would enable up to 10 MW of energy to be produced, but it could be scaled up to 500 MW, enough to power a city. It could also help energy firms take waste gas and repurpose it for efficient and cleaner energy production.

    GE confirmed the power cycle is a closed loop which circulates the CO2 continuously around the cycle, and that there are no waste products from the system when used with solar energy.

    The team is reportedly working with US government’s Advanced Research Projects Agency-Energy and the US Department of Energy.

    The technology is still in its early phase, but researchers hope to put the turbine through its paces later this year, with a view to industrial scale roll-out.

    'With energy demand expected to rise by 50 percent over the next two decades, we can't afford to wait for new, cleaner energy solutions to power the planet,' explained Hofer. 'We have to innovate now and make energy generation as efficient as possible.”

    http://www.powerengineeringint.com/articles/2016/04/ge-global-research-excited-about-potential-of-new-turbine.html
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    Solar power sets new British record by beating coal for a day

    Solar power sets new British record by beating coal for a day

    The sun provided British homes and businesses with more power than coal-fired power stations for 24 hours last weekend.

    While solar power has previously beaten coal for electricity generation over a few hours in the UK, Saturday was the first time this happened for a full day.

    Analysts said the symbolic milestone showed how dramatic coal’s decline had been due to carbon taxes, as solar had “exploded” across the UK in recent years.

    National Grid data gathered by climate analysts Carbon Brief showed that 29 gigawatt hours (GWh) of power was generated on Saturday by solar, or 4% of national demand that day, versus 21GWh from coal-fired power stations.

    “This first for solar reflects the major shifts going on in the electricity system,” said Carbon Brief in its analysis. “Last weekend’s solar breakthrough could not have happened without the increase in solar capacity. However, an ongoing collapse in coal generation was the more immediate cause.”

    http://www.theguardian.com/environment/2016/apr/13/solar-power-sets-new-british-record-by-beating-coal-for-a-day?CMP=Share_iOSApp_Other
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    Agriculture

    European Parliament backs glyphosate but with conditions


    European politicians advised on Wednesday that the herbicide glyphosate should only be approved for another seven years, rather than the 15 proposed by the EU executive, and should not be used by the general public.

    Environmental campaigners have demanded a ban on glyphosate, which is used in products such as Monsanto's Roundup, on the grounds it can cause cancer, though EU and U.N. scientists disagree on whether there is a link.

    The European Commission has proposed glyphosate be approved for 15 years when an existing license expires at the end of June.

    Wednesday's European Parliament motion supported renewal for seven years and urged a ban on non-professional use, as well as in and around public parks and playgrounds.

    Angelique Delahaye, a French member of the European People's Party, the main center-right group in the parliament, said many people were concerned but farmers needed glyphosate.

    "The agricultural sector depends highly on it and it is absolutely necessary to find solutions to replace it before totally forbidding it," she said.

    Wednesday's motion is not binding, but can influence member states so far undecided on whether to approve glyphosate's use.

    Member states were initially expected to extend approval in March, but EU sources, speaking on condition of anonymity, said there was not enough support to reach a majority decision so the vote was deferred.

    http://www.reuters.com/article/health-eu-glyphosate-idUSL5N1792IA
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    Precious Metals

    China's big four banks, StanChart, ANZ to join yuan gold benchmark


    Top Chinese banks, alongside Standard Chartered and ANZ, will be among 18 members to join a new yuan-denominated gold benchmark that signals China's biggest step towards becoming a price-setter for the metal.

    As the world's top producer, importer and consumer of gold, China has baulked at having to depend on a dollar price in international transactions, and believes its market weight should entitle it to set the price of gold.

    The yuan gold fix, to be launched on April 19, is not expected to pose an immediate threat to the gold pricing dominance of London and New York, but it could ultimately give Asia more power, particularly if the Chinese currency becomes fully convertible.

    The Chinese benchmark price will be derived from a 1 kg-contract to be traded by the 18 members on the Shanghai Gold Exchange (SGE), which will act as the central counterparty.

    The price-setting process will include China's big four state-owned banks, Industrial and Commercial Bank of China , Agricultural Bank of China, Bank of China and China Construction Bank, the SGE said in a statement on its website.

    Bank of Communications, Shanghai Pudong Development Bank, China Minsheng Banking Corp , Industrial Bank Co, Ping An Bank and Shanghai Bank will also participate.

    Bank of China (Hong Kong), retailers Chow Tai Fook and Lao Feng Xiang, Swiss trading house MKS, Chinese miners China National Gold Group and Shandong Gold Group will also be members, SGE said.

    The benchmark price, to be quoted in yuan per gram, will be set twice a day based on a few minutes of trading in each session.

    The spot benchmark in London, quoted in dollars per ounce, is set via a twice-daily auction on an electronic platform with 12 participants after starting off with six.

    The London fix, which was previously set via a teleconference among banks, was replaced by electronic auctions after a shake-up in benchmark setting following a scandal over rigging of the Libor interest rate broke in 2012.

    Support from foreign banks will be crucial for the international use of the yuan benchmark, but China had struggled to get them to sign up due to sensitivity around benchmarks amid scrutiny by regulators.

    Reuters reported in January that China had warned foreign banks it could curb their operations in the domestic market if they refuse to participate in the benchmark-setting process.

    Standard Chartered and ANZ, the two foreign banks participating in the fix, have gold import licences in China. HSBC also has an import licence but was not named by SGE as one of the participating banks.

    http://www.reuters.com/article/china-gold-fix-idUSL3N17G2W4
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    Base Metals

    Zambia parliament to consider reducing copper mineral royalties to 4-6 percent


    Zambia's parliament will later on Wednesday debate the amended mines bill which proposes to reduce copper mineral royalties to a variable tax of between 4 to 6 percent, depending on the price of the metal.

    The Mines and Minerals Development (Amendment) Bill also proposes to reduce mineral royalties for other base metals to 5 percent for both underground and open cast operations.

    http://www.reuters.com/article/zambia-mining-idUSJ8N16P02B
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    Steel, Iron Ore and Coal

    China Mar coke exports soar 63.6pct on year


    China’s exports of coke and semi-coke surged 63.6% on year and up 27.3% from February to 1.12 million tonnes in March, showed data released by the General Administration of Customs (GAC) on April 13.

    It was the highest monthly export since 2016, though still 22.76% below last December’s 1.45 million tonnes – a five-and-half-year high since July 2008 after the Chinese government scraped 40% tariff and quota on the steelmaking material.

    The value of the March exports stood at $136.73 million, down 14.3% year on year but up 44.03% from last month. This translated to an average export price of $122.08/t, rising $14.20/t from the month prior.

    Over January-March, China exported a total 2.74 million tonnes of coke and semi-coke, up 22.1% year on year.

    China’s domestic coke market rebounded in March, as demand increased and prices rose amid the rise in steel prices as construction activities recovered after the Chinese Lunar New Year holidays.

    http://en.sxcoal.com/0/144337/DataShow.html
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    Anglo's Australian coal assets interest rivals, private equity -sources


    Mining companies and private equity firms are circling Anglo American's metallurgical coal assets in Australia, which could be valued at around $1.5 billion in a sale, several sources familiar with the matter said on Wednesday.

    Major mining firms BHP Billiton, Rio Tinto and Glencore, as well as U.S. private equity firm Apollo, have all signed non-disclosure agreements as part of the sale process, which is now entering its second round, the sources said.

    Anglo American said in February that discussions were underway about divesting its Moranbah and Grosvenor assets, as part of its plans to sell $3-4 billion of assets this year in order to cut debt. The process is being run by Bank of America Merrill Lynch, the sources said.

    Anglo, BHP, Glencore and BofA Merrill Lynch declined to comment. Apollo and Rio were not immediately available to comment.

    The assets could be valued at around $1.5 billion, one of the sources said, cautioning that valuation was difficult in the current commodity price environment and that no deal was certain.

    Metallurgical or coking coal is used in steelmaking. Some industry players have expressed caution at the future of coking coal assets given their increasing unpopularity from an environmental standpoint and their exposure to the troubled steelmaking industry.

    "They're good-quality assets but it's a challenged commodity," a sector banker said.

    Several mining bankers said that BHP was a likely frontrunner for the assets through its BHP Billiton Mitsubishi Alliance (BMA), which operates seven mines in Australia's Bowen Basin, close to Moranbah and Grosvenor, a $1.95 billion mine development project.

    Earlier this month Anglo said it had sold its stake in Australia's Foxleigh metallurgical coal mine to a consortium led by Taurus fund management.

    Reuters reported on Tuesday that Apollo had teamed up with Brazilian miner Vale on a joint bid for Anglo's niobium and phosphates business in Brazil.

    http://www.reuters.com/article/anglo-american-ma-coal-idUSL5N17G4D6
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    Whitehaven output hits record on Maules Creek ramp-up


    Coal miner Whitehaven Coal has reported another quarter of record run-of-mine (ROM) production, defying market sentiment. The ASX-listed miner on Thursday reported that ROM coal production for the three months to March had increased to 5.6-million tonnes, from 4.7-million tonnes reported in the previous corresponding period. 

    Coal production increased on the back of the Maules Creek mine, in New South Wales, ramping up to produce two-million tonnes ROM coal during the quarter. 

    During the next two to three years, the mine would be ramped up to a RoM output of 13-million tonnes a year, with the mine expected to reach a ramp-up stage of 10.5-million tonnes by January next year. 

    Meanwhile, coal sales for the quarter were also up by 48% on the previous corresponding period, to 5.5-million tonnes, which was also a record for Whitehaven. 

    The miner told shareholders that sales of semi-soft coking coal from the Maules Creek mine exceeded expectations with a number of trail cargoes to new steelmakers. The quality of the coal was also attracting strong interest from northern Asian buyers, the company said. 

    Looking ahead, Whitehaven stated that it was on track to reach its saleable coal production guidance of between 19.5-million tonnes and 20.1-million tonnes in 2016.

    http://www.miningweekly.com/article/whitehaven-output-hits-record-on-maules-creek-ramp-up-2016-04-14
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    Iron Ore leaps above $60 as China data, steel’s rally boost outlook



    Iron ore keeps on delighting the bulls. The raw material that was battered for the past three years has vaulted back above $60 a metric ton after data from China added to signs that Asia’s top economy may be on the mend and local mills’ expanding margins spurred increased demand.

    Ore with 62% content delivered to Qingdao in China rose 2.1% to $60.48 a dry ton on Wednesday, the highest since March 8, according to Metal Bulletin. Prices have gained for three days, taking the advance this year to 39%. That’s a turnaround from 2015, when the benchmark plummeted 39% on a global glut and weakening steel demand in China.

    The raw material has staged a surprise rally in 2016 after policymakers signaled they’re prepared to support growth, mills boosted purchases even as port stockpiles climbed, and steel prices advanced. Data on Wednesday showed China’s total exports jumped the most in a year, signaling that the second-biggest economy may be stabilising. Miners’ shares have surged, with Rio Tinto Group gaining in Sydney to the highest since November.

    “As margins are very high currently, mills have an incentive to build steel inventories,” said Zhao Chaoyue, an analyst at China Merchants Futures Co. in Shenzhen. “They’re also more willing to accept higher iron ore prices.”

    Mills in China, which account for about half of global production, have been boosting output after the Lunar New Year slowdown in February as property prices in some bigger cities advanced. Rising prices for steel have improved their profit margins, reversing a squeeze from last year.

    Reinforcement bar, used in construction, has climbed 32 percent in China in 2016 after five years of losses, with futures in Shanghai closing on Wednesday at the highest level since June. Hot-rolled coil futures also rallied this year. That helped to lift the Bloomberg Intelligence China Steel Profitability Index to the highest in almost five years.

    http://www.mineweb.com/news/iron-and-steel/iron-leaps-above-60-as-china-data-steels-rally-boost-outlook/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A%20MasterGold%20%28Gold%20News%29&utm_term=MasterMetals
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    Global steel demand to fall again in 2016, hit by China: Worldsteel


    Global steel demand will fall again this year as leading market China continues to slow, before eventually stabilizing in 2017, the World Steel Association forecast on Wednesday.

    Falling demand has plunged the global steel market into crisis, with excess capacity taking a heavy toll on producers - including China - leading to plant closures and job losses.

    Global apparent steel use - deliveries minus net exports of steel industry goods - is expected to fall 0.8 percent in 2016 to 1.488 billion tonnes after a 3 percent fall last year, according to Worldsteel.

    China's steel demand is seen falling 4 percent this year to 654.4 million tonnes and a further 3 percent in 2017, after a slide of 5.4 percent in 2015, the group added.

    China, which produces about half the world's steel, is under increasing international pressure to tackle a supply glut that has flooded world markets with cheap material.

    Europe has taken a huge hit from the market slide. Tata Steel has put its UK business up for sale after substantial losses over the past two years.

    "The global steel market is suffering from insufficient investment expenditure and continued weakness in the manufacturing sector," Worldsteel Director General Edwin Basson told a briefing in London.

    "In 2016, while we are forecasting another year of contraction in steel demand in China, slow but steady growth in other regions including NAFTA (North American Free Trade Agreement countries) and EU is expected."

    Next year, however, global demand of the key industrial metal is due to edge up by 0.4 percent to 1.494 billion tonnes, Worldsteel added.

    http://www.reuters.com/article/steel-demand-global-idUSL5N17G23N
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