Oil

Volkswagen has settled the U.S. portion of its emissions scandal litigation and the Securities and Exchange Commission has written new rules for disclosure of donations by oil, gas and mining companies.

VW Settles U.S. Lawsuts for Nearly $15 Billion

Volkswagen AG will spend more than $15 billion to settle consumer lawsuits and government allegations that it cheated on emissions tests in what lawyers are calling the largest auto-related class-action settlement in U.S. history.

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Under the settlement revealed Tuesday by a U.S. District Court in San Francisco, VW will pay just over $10 billion to either buy back or repair about 475,000 vehicles with cheating 2-liter diesel engines. The company also will compensate owners with payments of $5,100 to $10,000, depending on the age of their vehicles.

SEC Passes New Oil/Gas, Mining Disclosure Rule

The Securities and Exchange Commission on Monday approved a rule requiring oil, gas and mining companies to disclose payments made to foreign governments, capping a process stalled in the courts for years.The rule requires companies to state publicly starting in 2018 how much they pay governments in taxes, royalties and other types of fees for exploration, extraction and other activities.

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An earlier version of the rule was thrown out for being overly broad by a federal judge and the American Petroleum Institute said it is reviewing the new rule and would consider legal action if necessary.

Vietnam and Thailand placed tariffs on Chinese steel exports. China’s Southeast Asian neighbors are joining an international effort to limit its massive steel industry’s influence on world prices led by Europe and the U.S.

Low oil prices forced OPEC’s accounts to dip into deficit for the first time since 1998.

China’s Neighbors Are Sick of Steel Dumping, Too

Countries such as Vietnam, Indonesia and Thailand are challenging a flood of imports from China. They are retooling their steelmaking technology and imposing tariffs as a construction boom spurs steel demand across Southeast Asia

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Steel from China is expected to dominate the market for many years, but swelling demand is driving efforts in countries such as Vietnam and Indonesia to build more modern plants, impose tariffs and better compete with China’s vast mills.

Vietnam imposed temporary anti-dumping tariffs ranging from 14% to 23% on steel imports from China and elsewhere in March. It recently slapped additional import duties of up to 25% on more Chinese steel products that will last until October 2019.

Thailand’s commerce ministry is working on the final draft of an anti-dumping law. The government there expects to propose the draft for approval by end-2016, according to a spokeswoman.

OPEC Accounts Fall into Deficit, First Time Since 1998

OPEC’s 2015 oil export revenues slumped 46% to a 10-year low, the group said in a report published on Wednesday, underlining the impact on producers’ income from a collapse in prices.

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Oil prices are at about $50 a barrel, half their mid-2014 level after being pressured by oversupply. OPEC’s decision in November 2014 to not cut supply, hoping a drop in prices would curb supply from competitors, deepened that decline.

While Saudi Arabia’s grip on oil prices has waned and shale drillers have survived its attempt to undercut them with crude prices nearing $50/barrel, China might just be the new Saudi Arabia of metals markets.

Resilient Shale Drillers Investing Again

Two years into the worst oil price rout in a generation, large and mid-sized U.S. independent producers are surviving and eyeing growth again as oil nears $50 a barrel, confounding the Organization of Petroleum Exporting Countries and, particularly, OPEC heavyweight Saudi Arabia with their resiliency.

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That shale giants Hess Corp., Apache Corp. and more than 25 other companies have beaten back OPEC’s attempt to sideline them would have been unthinkable just months ago, when oil plumbed $26 a barrel and collapses were feared.

Is China Metals’ Saudi Arabia?

Speaking of countries that dominate the market for important commodities, is China doing for metals markets what Saudi Arabia used to do for crude oil?

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The world’s largest producer and consumer of industrial metals may be acting as a de facto, if unwitting, type of OPEC for metals, adjusting supply in response to price signals and balancing the market.

OPEC oil export revenue is down and if Hong Kong Exchanges and Clearing Ltd. can’t bring China to the London Metal Exchange, it’ll bring the LME to China.

OPEC Export Revenues Down Again

OPEC’s full-year 2016 oil export revenues will probably fall 15%, down for the third straight year and possibly the lowest in more than a decade before rising in 2017, the U.S. Energy Information Administration (EIA) said on Wednesday.

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Members of Organization of the Petroleum Exporting Countries (OPEC), including Iran, will likely earn about $341 billion in 2016, about 15% below 2015 levels, based on projections of global oil prices and the group’s production levels, the U.S. government’s EIA said in a report.

HKEx Tries Bringing the LME to China

Some four years after shelling out a top-of-the-market $2.2 billion for the London Metal Exchange, it appears owners Hong Kong Exchanges and Clearing Ltd. (HKEx) are still battling to make the venerable old Western institution work with China, the new and dominant center for metal demand.

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HKEx Chief Executive Charles Li used the LME Week Asia seminar today to tout the latest plan, which involves bringing the LME’s expertise in physical metals markets to China, where financial instruments dominate trade.

Drilling in the North Sea started in the ’60s but really took off after the 1971 oil crisis as higher oil prices supported massive investment in deep offshore drilling technologies and infrastructure required to exploit what was, at the time, one of the most challenging environments in the world for extracting oil and natural gas.

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The city of Aberdeen flourished as the beachhead for this campaign and for 50 yeas it has grown and matured as a world class center of excellence in support services and facilities developing technologies and competencies that have been applied in deep-water offshore environments like the Gulf of Mexico, the South Atlantic and in the Arctic ever since.

But the collapse of the oil price, high taxation and dwindling reserves have hastened the end of a region whose days were always numbered by the finite nature of the resource.

Source Financial Times

Source: Financial Times

Yet as oil majors ponder the timing of closing and decommissioning offshore oil rigs, the challenges are yet again driving innovation and technologies that will be of benefit in decades to come around the world for those companies active in the work. Read more

Low copper prices have led to a strike at one of Peru’s biggest mines and a popular oil trader has closed his twitter account.

Chinalco Copper Strike

Workers at Chinalco Mining Corp. International‘s Toromocho mine in Peru started a four-day strike on Tuesday to demand the reinstatement of a quarterly bonus, the workers’ union said.

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The strike by about 800 workers started at 6:30 local time (11:30 GMT) and followed the suspension of the bonus amid slumping copper prices, said Carlos Roman, an attorney for the union.

Popular Oil Trader Signs Off Twitter

Oil traders keep a low profile. So when one of the most widely followed oil traders on Twitter abruptly closed his account last week, the outpouring of dismay among his thousands of followers was rare for the secretive multi-trillion dollar industry.

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Eric Rosenfeldt, who goes by the Twitter handle of Oil Merchant or @energyrosen, had attracted more than 8,000 Twitter followers for his quirky and candid opinions on the crude oil market.

The sale process of Tata Steel U.K. continues and tensions between Iran and Saudi Arabia continue to plague any OPEC production deal.

Cameron Insists Tata Steel UK is Getting Offers

Tata Steel has received a number of serious offers for its businesses in Britain, Prime Minister David Cameron said on Wednesday as steelworkers marched past Downing Street to put pressure on the government to get a deal.

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The U.K. steel industry has been hit by cheap Chinese imports, high energy costs and a global supply glut and in March Tata said it wanted to sell its remaining plants in the country, putting 15,000 jobs at risk.

Iran-Saudi Conflict Still Plagues Any OPEC Deal

The Organization of Petroleum Exporting Countries‘ thorniest dilemma of the past year — at least the one purely about oil — is about to disappear. Less than six months after the lifting of Western sanctions, Iran is close to regaining normal oil export volumes, adding extra barrels to the market in an unexpectedly smooth way that was helped by supply disruptions from Canada to Nigeria.

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Yet, Saudi Arabia is still unhappy with Iran and its production threatening its Mideast oil leadership and dominance. OPEC meets next week.

As we recently reported, the West’s energy watchdog, the International Energy Agency, faces a possible legal split from its parent body, the Organization for Economic Cooperation and Development, following decades of friction and fresh disagreements over cooperation with China.

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A document seen by Reuters shows that the complexity of cooperation between China and Western organizations such as the OECD, which has a stated commitment to democracy and market economies, has created friction between the two organizations.

The IEA, whose role includes coordinated stocks releases to address global oil shortfalls, could leave the Paris-based OECD, which sent a letter to the IEA in April, proposing the split. The argument has everything to do with China and the difference between market economies and China’s planned one.

“The IEA started negotiating with China in 2016 to establish an IEA center in Beijing, without prior consultation with the OECD which, as the IEA was aware, was itself negotiating with China to create a policy center and a country office,” the document said.

Created in 1961 to stimulate economic progress and world trade, the OECD originated from the Organization for European Economic Co-operation, set up in 1948 to help administer the Marshall Plan to reconstruct Europe with U.S. financial aid.

The IEA was established in 1974 at the proposal of then U.S. Secretary of State Henry Kissinger to help industrialized nations deal with the oil crisis after the Arab embargo squeezed supplies and sent prices surging.

Since then, energy markets have changed radically. OPEC no longer has the same power and non-IEA China has overtaken the U.S. as the biggest energy user. The fight between the two organizations highlights the difficulty regulators face in attempting to work with China and account for its energy consumption using rules and regulations that were largely designed for market-based economies.

IEA Executive Director Fatih Birol made strengthening ties with emerging powers the agency’s top priority, choosing China for his first trip into the job and breaking with the practice of previous chiefs, who began their tenure by visiting an IEA country.

The OECD groups 34 of the world’s leading economies and has about 2,500 staff. The IEA has 240 employees and 29 member states, all of which are also OECD members.

Under its autonomous status, the IEA’s governing board consists of energy ministers of member countries, which contribute four fifths of its budget of around $30.74 million (27 million euros) with the rest generated from sales of publications.

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Even if OECD and IEA are able to work out their differences and continue to work together, the problem of trying to recognize China’s massive buying power while also regulating it the way that a market economy would be is one that won’t go away any time soon.

U.S. Crude oil reserves unexpectedly jumped this week and major miners and trying to move older assets but can’t close deals because of cleanup costs.

Crude Oil Reserves Rise

U.S. crude oil stockpiles rose unexpectedly last week even as gasoline and distillate inventories fell more than expected, data from the Energy Information Administration showed on Wednesday.

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Crude inventories rose 1.3 million barrels in the week to May 13, compared with analysts’ expectations for a decrease of 2.8 million barrels and a 1.1 million-barrel drawdown reported on Tuesday by the American Petroleum Institute.

Miners Can’t Afford to Older Pits

Major miners are trying to avoid hundreds of millions of dollars in closure costs by selling off pits, as cash is tight due to a prolonged commodities price slump, but the crippling cost of environmental rehabilitation is making it tough to seal deals.

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Where mine sales have gone ahead, production is being prolonged, adding to oversupply in depressed markets, like coal.

Oil prices gained further traction this week as prices climbed above $48 a barrel, the highest level in eight months. Goldman Sachs said in a report on Monday that the oil market has gone from nearing storage saturation to being in deficit much earlier than the bank expected, adding that the global oil market likely shifted into a deficit in May.

Oil prices acting strong although they could meet resistance near $50

Oil prices acting strong although they could meet resistance near $50. Source: @StockCharts.com.

Goldman Sachs gave a bearish forecast just a few months ago, some other banks even predicted oil prices as low as $10/barrel this year. So, why were these predictions so off?

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The answer is simple: predicting what the price of an asset will be in the future is not possible. Well, it’s as possible as winning in the roulette game, you need a bit of luck, but you can’t do it with consistency. A smarter way to look at the markets is to forget about predictions, have a strategy with rules and react to present information.

Right or wrong, Wall Street needs its prophets. They perpetuate the myth that there is somehow a way to predict the market every time. I guess individuals need these predictions to take less responsibility for their own investment decisions. At the end of the day, you wouldn’t feel too stupid if the expert was wrong too.

Market Shifting Into Deficit

Although there is still plenty of oil in the market, most analysts agree that the world’s crude oversupply is slipping into a deficit as the oversupply has narrowed in recent weeks thanks to supply outages in Nigeria, Canada and elsewhere combined with stronger than expected demand.

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Oil prices are acting strong and we previously noticed that the Doha meeting marked an inflection point. The failed Doha meeting is an indication of how strong market sentiments currently are. On another day, this failure to reach a production cut deal between major energy producers would have translated into a big sell-off.

More Bankruptcies

Another factor supporting oil prices is the number of bankruptcies we are witnessing in recent months. Last Sunday, Breitburn Energy Partners LP filed for bankruptcy and just a day after SandRidge Energy Inc. became the latest oil and gas company to file for bankruptcy after joining a growing list of producers that weren’t able to survive long enough to enjoy the recent rebound in oil. Sandridge was founded by former Chesapeake Energy co-founder Tom Ward who was eventually forced out of both companies.

Despite the rally this year, most industry analysts agree that oil prices remain too low for many producers to make money, so expect widespread pain in the U.S. oil industry and elsewhere to continue. In theory, this is also a good indicator that oil prices might have hit a floor this year.

The Outlook

Despite the more bullish forecast from Goldman Sachs, the bank sees a surplus again in the first half of 2017 due to returning output from Nigeria and rising production in Iran and Iraq, among other reasons. That’s a prediction, sure, but we’ll stick with what we witness right now: Oil prices are acting strong, supported by a more positive sentiment on commodity markets. On top of that we have a weakening dollar, which is bullish for oil and other commodities.

The situation could reverse, but right now there is no reason not to take this rally seriously. Oil prices might need to consolidate/pull-back after rising for three consecutive months but they could continue to climb during the rest of the year which would favor higher metal prices, too. Oil prices climbing above $50/barrel would be a signal that this uptrend is due to continue.