Browsing Category: "Commodity"
Crude oil witnessed single day gain on back of short squeeze on expiry day. Crude Oil Oct Contracts expired yesterday. Crude oil for Oct delivery rose $ 16/bbl or 17%, to settle at $ 120.9/bbl; hit a high of $ 130//bbl during the day. Crude oil for Nov rose 6.5% & hits a high of $ 109.37/bbl, trading above $ 108/bbl.
Commodities Editor Manisha Gupta says that crude has made a biggest one-day jump USD 25/bbl. It gained 15% in the last week and has gained 15% in the markets yesterday itself. The dramatic jump as we are calling it came in as the shares plunged in US and Europe and US dollar at one-point in time declined as much as 2.3% against euro.
There also was a lot of short covering because October was expiring and a lot of people had created shorts and that’s why the commodity had gone all the way to USD 90/bbl and the buying came in between thin volumes and that is what led a very exaggerated move that we saw in the markets yesterday.
The November contract that we are watching right now can see a range between USD 105/bbl on the lower side to USD 112/bbl on the higher side. The fundamentals also are positive because the refiners demand is coming in back after they have started their facilities; Saudi Arabia has started imports, China crude imports rose by 11% in last month. So markets are looking at these positive fundamentals as well.
If Matt Simmons is right, the recent drop in crude prices is an illusion - and oil could be headed for the stratosphere. He’s just hoping we can prevent civilization from imploding.
By Brian O’Keefe, senior editor
Last Updated: September 22, 2008: 10:01 AM EDT
(Fortune Magazine) — Matt Simmons is as perplexed as anyone that it has fallen to him to take on OPEC, Exxon, the Saudis, and all the other misguided defenders of conventional wisdom in the oil patch. Why should one investment banker with a penchant for research be required to point out what he regards as the obvious - that from here on out, oil supplies can’t meet demand, and if we don’t act soon to solve this crisis, World War III could be looming?
Why should a man who scorns most environmentalists have to argue that locally grown produce and wind power are the way of the future? Why should a lifelong Republican need to be the one to point out that his party’s new mantra - “Drill, baby, drill!” - won’t really fix anything and that his party’s presidential candidate is clueless about energy? That the spike in oil prices earlier this year wasn’t a temporary market anomaly and the recent retreat in prices is just a misleading calm before a calamitous storm? That we’re headed toward $500-a-barrel oil?
“I find it ironic that here we have the biggest industry on earth, and I’m one of the few people to figure out that we have a major problem,” he says, in his confident if not quite brash way. “And I did it all in my spare time. How stupid and tragic is that? I shouldn’t be one of the only folks that actually has a handful of ideas of how we can keep from blowing each other up and get through this.”
Indeed, Simmons isn’t the obvious candidate to be the bearer of bad news about oil. He’s spent his career working in the business, has lived in Houston for decades, and is such an industry insider that he helped edit the Bush campaign’s comprehensive energy plan in the 2000 election - the document that was ultimately more or less rubber-stamped by Vice President Dick Cheney’s infamous secret Energy Task Force. Over the past 35 years, his boutique investment bank, Simmons & Co., has helped finance and shape much of the country’s existing oil-services business. With profits gushing, you might expect him to be celebrating.
Not to mention that the 65-year-old banker doesn’t have the personality of a prophet of doom. He has a puckish wit, a relentlessly cheerful and enthusiastic demeanor, and the appearance of a rosy-cheeked cherub in a navy blazer. He routinely refers - in earnest - to his daily experiences as “tremendous fun.” His closest business associates have a hard time recalling him ever showing anger. But when it comes to oil and gas, his message is downright scary.
An unlikely maverick
Simmons was transformed overnight from an influential industry expert to an A-list pundit by the publication in 2005 of his book “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy,” a fairly technical read which argues that Saudi Arabia’s oil supplies are much more limited than everyone thinks.
Since then he has moved to the forefront of the peak-oil movement - a once fringe but now growing contingent of oil industry veterans, independent consultants, investors, and academics who believe that world oil production is at or near an inflection point, after which it will fall inexorably and fail to meet projected future demands. According to Simmons, we have already passed that peak. And while we’re not going to run out of it anytime soon, the era of easy oil is over, and the world is about to enter a period of convulsive change. (Hint: Learn to garden, and buy some comfortable walking shoes.)
The soaring price of crude - it has risen from below $20 a barrel in 2002 to as high as $147 earlier this year - has helped thrust Simmons further into the spotlight. He was one of the main voices, for instance, in the recent oil-shock documentary “Crude Awakening,” and his book has now sold more than 100,000 copies. His willingness to make bold predictions about how high crude may go has made him an A-list guest for cable TV news programs and a go-to source for newspaper reporters covering oil and gas. In 2005, when oil was $58 a barrel, he predicted it would be at or above $100 within a few years. Now he sees it climbing to $200, $300, or higher. “There really is no roof on oil prices at this point,” he says.
Being so outspoken, of course, invites criticism, and Simmons has endured plenty. But he has also won a lot of high-profile admirers. “Like most people who ignore conventional wisdom, he was scoffed at, ridiculed, and denied,” says commodities guru Jim Rogers. “And now, of course, people are starting to say, ‘Oh, well, I thought of that.’” Billionaire oil and gas investors Richard Rainwater and Boone Pickens both heap praise on Simmons’s analytical abilities. Maine’s Senator Susan Collins, a Republican who recently began consulting with Simmons on energy issues, says, “I think he’s issuing a clarion call that policymakers need to listen to.”
In his own upbeat way, he despairs about what is to come. As the price of oil has fallen this summer (to $101 at press time), Simmons has watched in dismay as complacency has returned and the champions of do-nothingism have popped out of the woodwork to say I told you so. Not that it’s lessened his conviction about the road ahead. “I do think there are a growing number of people who are getting it,” he says. “But I guess it just reminds me that as a society, we don’t have the ability to actually come to grips with a crisis until it’s hit us in the face. I am discouraged enough now to think that we’re going to have to have a really nasty shock before we wake people up.”
Has peak oil peaked?
On a Thursday morning at the end of July, Simmons is sitting in a wicker chair on the back porch of his six-bedroom summer home on the coast of Maine, waiting to do a live television spot on CNBC. Sun glints off Penobscot Bay below him. In the distance, sailboats glide in and out of Camden Harbor. It’s the kind of scene that has captivated him since his Harvard days in the 1960s, when he started coming up here on weekends. Wearing a blue-and-white-checked shirt, cream-colored pants, and tasseled loafers, Simmons chats with Ellen, his wife, and Emma, one of their five daughters. His earpiece is chattering as CNBC anchor Melissa Francis teases his upcoming segment.
At the moment, the price of oil is hovering around $124 a barrel, and CNBC wants him to interpret why crude is suddenly tumbling. “Has peak oil peaked? I guess that’s our topic,” he reports to everyone within earshot, before the shot goes live.
It was on this same porch five years ago that Simmons had the insight that convinced him that the oil age had passed its zenith. During a trip to Saudi Arabia in February 2003 with his friend Herbert Hunt (yes, the son of H.L. Hunt who, with his brother Bunker, almost cornered the silver market in 1980), Simmons had become suspicious of the Saudis’ claims about the vastness of their oil supply. In his four decades of working in the oil and gas industry, everyone he had ever talked to had taken it as gospel that the Saudis had enough oil to bail the world out when other supplies ran short. If that wasn’t true, Simmons believed, the era of cheap oil was over. Demand for crude was on the rise worldwide, and supplies were getting tighter all the time. If the Saudis were pushing up against the limits of their oil production, the world needed to know.
In his typically analytical fashion, Simmons went hunting for data. He found it in the form of hundreds of technical papers submitted by Saudi oil geologists to the Society of Petroleum Engineers over the past 50 years. Simmons spent the month of August 2003 sitting on his porch in Maine and grinding his way through the minutiae of technical accounts of, for instance, reservoir pressure and water-cut percentages, trying to piece together the challenges that the Saudi geologists had encountered in managing their precious oilfields. In the end, his conclusion was clear. “I finished reading the last paper on a Sunday afternoon,” says Simmons, “and I sat back and I thought, Holy crap, this is unbelievable. I’ve just discovered the biggest energy illusion ever in the world. We’re in big trouble. I’m going to write a book.”
And so he did. But writing the book didn’t exhaust his passion. Today he is more convinced than ever that we’ve reached peak oil. If he’s right, current world oil production- 86 million barrels a day- is about as high as we’re going to go.
Of course, if demand goes up but supply doesn’t, prices are apt to go through the roof. And unlike global oil production, global oil demand doesn’t appear to be anywhere near a peak. Both the U.S. government’s Energy Information Association and the independent International Energy Agency, based in Paris, estimate that worldwide demand will be more than 115 million barrels a day by 2030.
http://money.cnn.com/2008/09/
OPEC’s decision to cut output is proving ineffective against speculators, its president Chakib Khelil said on Saturday, adding its next gathering in December would hopefully take more “practical” steps.
“The current situation of the oil market is caused by speculators’ practices,” Algeria’s official APS news agency quoted him as saying. “OPEC’s decision to reduce output has proved to be ineffective against those speculators.”
He added: “We are not working against supply and demand, but against speculators.”
“The next OPEC meeting planned for December 17, 2008 in Oran will come out with a decision that we hope will be more practical,” said Khelil, also Algeria’s energy and mines minister.
OPEC ministers meeting in Vienna earlier this week agreed to reduce the producer group’s oil production by 520,000 barrels a day over the next 40 days.
Oil prices are down about 30 percent from a peak over $147 a barrel hit in mid-July, pulled lower by softening demand and a recent rebound in the U.S. dollar.
Oil prices rose slightly on Friday as Hurricane Ike neared the Texas Coast, shuttering a quarter of U.S. crude oil and refinery production.
But the gains were tempered by mounting concerns that high energy costs and an economic slowdown are cutting deeply into global fuel demand — worries that briefly had crude below the $100 mark for the first time since early April.
A report that Saudi Arabia had no plans to cut output, despite OPEC’s agreement in Vienna this week to trim supply, undercut much of the bullish effect of the OPEC’s announcement that it would reduce production
http://in.news.yahoo.com/137/
As China and India industrialise, the demand for steel has increased exponentially. Coal is one of the important raw materials used in the manufacture of steel. Coal prices have doubled over the past year and are expected to spike even further as a power crisis in China combines with supply problems in leading exporting countries to tighten the market. Although various commodities have taken a hard knock of late, the fundamentals of coal indicate that high prices will cont inue to rule for some more time.
Coal is the cheapest form of energy for power generation, which is reflected in the large amount of new built plans for coal in many countries. Almost 80 per cent of Chinese electricity generation requirements rely on coal.
The Chinese power crisis is likely to be a major driver of the global coal market in the near-to-medium term. In addition, many traditional exporting countries, such as Indonesia, the world’s largest exporter of thermal coal, South Africa or Poland are increasingly relying on domestic coal supplies for power generation, thus adding to supply-demand disequilibrium.
Coal prices are also expected to find support from Chinese government’s efforts to shut more than 4,000 small coal mines and reduce their numbers to below 10,000 by 2010 from 16,000 currently in hopes of reducing the number of deaths by accidents.
The world coal market had been expecting that record prices would trigger an improvement in supply, but supplies from the main coal exporting nations have fallen this year. China produces a large amount of thermal coal, but most of this output is consumed domestically. The country’s energy market is distorted by government price controls that have reduced the incentives for coal producers to lift output. The net result is that China’s next exports of coal have sunk by more than half over the past four years and the country even became a net importer in April 2008, putting a significant strain on supplies in Asia.
European utilities too could begin to feel the impact soon as Poland and Russia have reduced their coal exports to Europe, exacerbating the shortages. There is not much time for restocking before the start of Winter 2008.
Hedge funds make strong entry
Fresh interest from hedge funds and other investors looking to gain exposure to the commodity, thanks to greater liquidity in the till-now opaque over-the-counter coal market, has exacerbated the supply-demand disequilibrium which persists in coal.
The one-year forward contract for the Asian coal benchmark, known as API-4, has risen by over 100 per cent over the past year to trade, moderating recently after reaching a record $179.5 a tonne in early August.
In a bid to secure coal supplies, user industries are establishing backward linkages. British Gas is taking up to 30 per cent of QGC (Queensland Gas Company)’s share of acreage.
In India, Reliance Industries, Reliance Power, Tata Power, IOC, GMR, Lanco and the Jindal group are among the groups that have expressed interest in 6 billion tonnes of coal blocks in Orissa that the government had put on offer for Coal to liquid technology.
Where India stands
India has got the fourth largest coal reserves in the world. The coal reserves of India are estimated to be 248 billion tonnes (up to the depth of 1,200 m) of which 93 billion tonnes are proven reserves (7 per cent of the world’s proven reserves).
Out of the total proven reserves, coking coal reserves are about 16.4 billion tonnes and out of this, the prime coking coal reserves amount to a mere 4.6 billion tonnes. It is ironical that India still needs to import coal which is mainly on account of delays in project commissioning, inadequacy of policy framework and inability to create appropriate infrastructure.
The NTPC, in the recent past, raised an alarm over low coal stock at its Ramagundam plant in Andhra Pradesh. In April 2008, the unit which has capacity to produce 2,600 MW, was running with just two days’ of buffer stockpile as it failed to secure supply the quantity of coal required daily.
Coal India IPO
On July 11, 2008 ‘Navratna status’ was granted to Coal India to free it from the need to approach the government for approval of projects irrespective of their size. Coal India is also considering an IPO. CIL has posted over 12 per cent growth in profit before tax — from Rs 8,522.22 crore in 2006-07 to Rs 9,576.22 crore in 2007-08.
Turnover has crossed the Rs 40,000-crore mark. The next few years will be eventful for Coal India as the public sector coal major has a host of significant projects in the pipeline. CIL expects to go ahead with its proposed acquisition of mines in Australia, Indonesia and South Africa through the SPV (Special Purpose Vehicle) — Coal Ventures International, which includes four other PSUs.
CIL has also lined up investment of Rs 14,000 crore to scale up production of coking as well as non-coking coal in its Jharia and Raniganj coalfields. Arcelor Mittal is mulling a Joint Venture with Coal India for extracting coal from abandoned and unexplored reserves. Reliance Industries has also expressed interest in a joint venture with Coal India for surface coal gasification.
Investment opportunities
Coal companies listed elsewhere may throw clues on valuations they are likely to enjoy. Singapore-based as well as listed Straits Asia, with a market capitalisation of $2.9 billion, is involved in a de-merger with Perth-based miner Straits Resources. With the de-merger, proximity to customers in Asia gives it an advantage over producers in South Africa or Australia. Indonesia is the world’s largest thermal coal exporter and its miners have gained from strong demand from China and India and supply constraints that have pushed thermal coal prices to record highs. Shares of Indonesian coal firm PT Adaro Energy Tbk have leapt as much as 60 per cent in their market debut and raised $1.3 billion in the country’s largest ever initial public offering.
The highly successful IPO in Indonesia, Adaro was priced at about seven times its forward earnings. These instances offer a few global benchmarks for valuation of coal companies.
As India nears general elections 2009, this gives rise to the possibility of increases in various administered and quasi-administered commodity prices post-elections, to achieve market-parity and counteract the large budget deficit. The demand for coal is expected to be robust until the myriad alternative energy sources currently being developed find wider application.
The author is CEO of Sunil Kewalramani Global Capital Advisors.
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Gold futures extended its gains after the US August retail sales plunged more than expected. Whereas the producer prices fell a steeper than expected 0.9% in August making the dollar loose very sharply against the single currency and pound.
U.S. producer prices fell a steeper than expected 0.9% in August, the Labor Department reported Friday, helped by lower energy costs. The decline follows on the heels of a sharp 1.2% gain in July. Excluding food and energy, “core” producer prices rose 0.2% last month. Producer prices are up 9.6% over the past 12 months.
US retail sales fell unexpectedly in August, and for the second consecutive month, despite the first gain in auto sales since January, the Commerce Department reported today. Commerce said August retail sales fell 0.3%. Excluding the auto industry, sales fell by 0.7%, a bigger drop than the 0.2% decline economists were expecting.
Gold rose for the first time in ten sessions, as the U.S. dollar lost ground and as investors took profit from the precious metal’s longest losing streak in eight years that had pushed gold down more than $90 an ounce. Gold for December delivery rose $12.8 to $758.20 an ounce in late electronic trading. Despite Friday’s gain, gold is set to end the week down $45, or nearly 6%.
MCX October gold futures also revived hitting the day’s high of 11375 per 10 grams. The same was off late seen trading at Rs 11357 up nearly Rs 90 per 10 grams. The key resistance is at 11410 levels.
