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Response to US sanctions, Russian record oil output & an OPEC cut of production in sight ?

Russian crude – Weekly bulletin #2

Price movement

We can observe that there has been a significant fall in the general prices of crude oil following the trend already set during the previous weeks. Russia’s oil production has hit record high during the previous month at 11.41 million bpd and OPEC’s forecast of a rather slowing demand for next year have contributed to this drop.

Nevertheless, Iranian sanctions were put in place on 4th November and the OPEC proposal to cut 1.4 million bpd in production 10 days later led the market to believe in recovery of the prices. This was halted as the USA are expected to boost their production to 11.43 million bpd in the last quarter of 2018 and continue ramping up.

Moreover, American crude stocks climbed to 426 million barrels and their weekly build in inventory was 8.79 million barrel, stated by the API, almost 5 million over analysts’ expectations. These are all factors that have contributed to halt the price recovery and to push them further down.

This week was also an important turning point on prices as differential for the Urals went from a discount of 2.18$/bbl on October 15th to a discount of 0.18$/bbl on November 15th. Event explainable as the market reacted prior to US sanctions by shifting its supplier and paying the price.

As for the ESPO, the spread has also known a similar variation since they were traded at 3.60 to 3.70$/bbl premium during mid-October to almost 6$/bbl premium for mid-November contract.

This event is explained by the Chinese refiners needing to fulfil their quotas by the end of the year if they do not want to see it diminished for 2019.

Supply and demand dynamic

The physical trade market was trading around 85$/bbl in the first days of October. The high price for BFOE (BFOE is a forward contract for light-sweet North Sea crude oil that can be satisfied with any of four grades of crude: Brent, Forties, Oseberg, or Ekofisk. The contract was created to add volume to the market for Brent as production from the Brent field has declined.) grades push many refiners to medium sour grades like Urals crude.

“I’m not going to say anything about whether or not we need to limit oil production, we have to be very careful, as every word impacts the state budget,” President Vladimir Putin said. Following the announcement of the OPEC to reduce their production, participants of the previous agreements will meet in early December to discuss the about the deal, which may cause a cut in previous output targets.
Despite the disputes over price volatility, the Russian president is rather pleased with the current price.

Internationally geopolitical events have heavily influenced once again global crude prices. Market participants focus their attention on the rising tension between US and China and also the deteriorating relation between Saudi Arabia and US due to the murder of the journalist Jamal Khashoggi.

Geopolitical risk and increased Saudi crude production are among the factors that have heavily influenced global crude prices and that contributed to the spike in market volatility during October.

Recommendation for the future

The forward curve was still backwardation until October 19 and almost contango around October 31. Dated Brent dropped significantly during October and the Dated Brent CFD forward curve moved from a steep backwardation in the first trading days to almost a contango by the end of October. As of the state of the market on 9th November, we can expect that there should be a slight contango over the next six months. Taking into account the sanctions applied by the USA and a probable cut of production from OPEC, we recommend to be long for the next 3 months.

Sources :

‘Crude Build Halts Oil Price Recovery’. OilPrice.com. Accessed 15 November 2018. https://oilprice.com/Latest-Energy-News/World-News/Crude-Build-Halts-Oil-Price-Recovery.html.
‘Crude Recovery? OPEC Eyes 1.4 Million Bpd Production Cut’. OilPrice.com. Accessed 14 November 2018. https://oilprice.com/Energy/Crude-Oil/Crude-Recovery-OPEC-Eyes-14-Million-Bpd-Production-Cut.html.
‘Far East Russian ESPO Blend Crude Premiums Surge for Nov on Demand from China | S&P Global Platts’, 21 September 2018. https://www.spglobal.com/platts/en/market-insights/latest-news/oil/092118-far-east-russian-espo-blend-crude-premiums-surge-for-nov-on-demand-from-china.
‘IEF Head: Oil Prices To Wobble In $60-80 Range Short Term | OilPrice.Com’. Accessed 13 November 2018. https://oilprice.com/Latest-Energy-News/World-News/IEF-Head-Oil-Prices-To-Wobble-In-60-80-Range-Short-Term.html.
‘Non-OPEC Oil Output Soars Despite Price Slide’. OilPrice.com. Accessed 14 November 2018. https://oilprice.com/Energy/Crude-Oil/Non-OPEC-Oil-Output-Soars-Despite-Price-Slide.html.
‘OPEC+ Said to Weigh Bigger Output Cut on Increasing Risk of Glut – Bloomberg’. Accessed 15 November 2018. https://www.bloomberg.com/news/articles/2018-11-14/opec-said-to-weigh-bigger-output-cut-on-increasing-risk-of-glut.
‘Russia Committed to Continuing OPEC Cooperation, Satisfied with Current Oil Price: Putin | S&P Global Platts’, 15 November 2018. https://www.spglobal.com/platts/en/market-insights/latest-news/oil/111518-russia-committed-to-continuing-opec-cooperation-satisfied-with-current-oil-price-putin.
‘Russia’s Oil Production Sets New 30-Year-High Record In October’. OilPrice.com. Accessed 5 November 2018. https://oilprice.com/Latest-Energy-News/World-News/Russias-Oil-Production-Sets-New-30-Year-High-Record-In-October.html.
‘U.S. Mulls Fresh Sanctions On Russian Oil | OilPrice.Com’. Accessed 13 November 2018. https://oilprice.com/Latest-Energy-News/World-News/US-Mulls-Fresh-Sanctions-On-Russian-Oil.html.

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Freight rates increase while the WAF crude price has continued to tumble (WAC #2)

Price movement recap

 

Since October, BRENT and WAF crude oil prices continue to decrease significantly and we can see on the graph above that they are still correlated.

The reason behind this great decrease is an oversupply of crude oil in the market, in general. There are several causes for this decrease:

  • The market reaction in regards to the US sanctions taken by M. Trump against Iran.
  • Then, the US issued sanction waivers for eight countries importing Iranian crude

In order to react to this situation, OPEC countries decided to cut/reduce oil supply for next year. As a result, oil prices will rise and stabilize over time.

If we compare the previous Forward curve to the new one from this week, we can notice that the price decreased from around 8$/per barrel but we can see that future prices are in containgo resulting from the OPEC annoucement.

So it is better to store the crude since carrying costs are supported by a higher price. However afterwards, the future price decreases a little bit (from July 19) so it is better to sell (small backwardation).

Supply and demand

Freight rates for tankers have increased sharply since the beginning of October for Nigeria and Angola. Therefore the offer for WAF crude stays quite pricey for buyers and the high freight rates weigh somehow on Asian demand. The general buying interest, especially to Asia, had slowed due to rising freight rates, even though some spot cargoes were traded at the end of October. The daily cost of shipping Angolan crude to China has jumped to above $50,000, from closer to $42,000 on about a few days. Finally refiners have appropriated vessels in the Middle East to secure alternatives to their usual deliveries of Iranian crude which fall under US sanctions from 4th of November.

“Freight is ridiculously expensive. It’s become a $1 a barrel more expensive going east, which puts the breaks on things,” one trader said.” (Reuters)

Total exports from main WAF crude oil producers will reach 3.86 million barrels per day (bpd) in December, according to 3.88 million bpd in November, led by declines in Angolan output. Nevertheless China’s crude oil imports increased to an all-time high of  9.61 million bpd in October. (32 percent increase on the same month last year)

 

Sources:

https://www.reuters.com/article/westafrica-oil/w-africa-crude-high-freight-rates-weigh-on-asian-demand-idUSL8N1XA82U

https://www.reuters.com/article/westafrica-oil/w-africa-crude-offers-for-nigerian-crude-stay-too-pricey-for-buyers-idUSL8N1XB7VL

https://www.erce.energy/graph/brent-futures-curve

https://www.reuters.com/article/westafrica-oil/w-africa-crude-surplus-cargoes-drag-on-spot-trade-and-diffs-idUSL8N1XI7BF

https://www.reuters.com/article/westafrica-oil/w-africa-crude-sellers-face-off-against-high-freight-and-excess-oil-idUSL8N1XJ6IP

https://www.theweek.co.uk/oil-price/95286/what-is-the-price-of-oil-and-which-way-will-it-go

https://www.theguardian.com/business/2018/nov/12/oil-prices-saudi-arabia-production-opec-khalid-al-falih

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North American Crude Bulletin#1

Price movement recap

In the past four week we have seen a significant of USD 10 drop in oil prices with WTI crude around USD 63 per barrel in early November.

Prices reached a peak in October due to global shortage supply after announcement of US sanctions over Iran, who started on the 4th November.

Early October Saudi Arabia and Russia stated they will raise their production to compensate the shortfall in supply. U.S. Treasury yield increase also impact also impact oil price as it has added volatility across all markets including currencies and commodities.

Future prices: Prices agreed today for delivering a specified quantity of crude oil (light) at a specified time and place in the future.

before theUS midterms election in United States 02.11.2018

We can see that there is not a huge difference on the curve pace after the US midterms election. As we are still in a contango, we recommend to go on long term. Even if there is a little slight on the forward price, it is still profitable to store and sell in the future.

WTI spot and London Brent oil curve:

The exchange of crude knows a lot of variation. The variation can be influence by a lot of thing like a tweet from Donald Trump explaining that some commercial sanction will be proceed against a country from the OPEC.

This graph shows the price variation of the Brent crude and West Texas intermediate spot. We can see that the two curves are correlate and move in the same way. Even if the variation trend is clearly turned to a price decrease, the London Brent oil price remains higher than the WTI crude oil spot.

Crude oil price :

Oil prices are still dropping this week while the U.S crude oil production is increasing. A lot of crude oil actors due to the US production intensification are wondering about a global oversupply return. It is why some of the OPEC member are thinking that a production curbs may become necessary once again in order to prevent a glut.

References:

https://www.zonebourse.com/LONDON-BRENT-OIL-4948/graphiques-comparatif/

http://marketqview.com/forwardcurvechart.php?ID=23&TYPE=Price

https://www.eia.gov/dnav/pet/PET_PRI_SPT_S1_D.htm

http://www.theweek.co.uk/oil-price/95286/what-is-the-price-of-oil-and-which-way-will-it-go

https://oilprice.com/Energy/Crude-Oil/The-Real-Reason-For-The-Big-Sell-Off-In-Oil.html

 

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Copper Weekly Bulletin – N°1

Chinese economic slowdown and the trade war keep copper price low:

The 3-month copper price dropped on Monday November 5 after experiencing a two-week high last Friday following some comments made by the US president Donald Trump, on a probable approaching trade deal with China.

The copper price was trading at USD 6,315 a ton on Friday, its highest since October 22 but slipped down 1.5 percent to USD 6,191.50 a ton on Monday as investor took profits.

Since late September the price of the copper varied between a USD 5,950 and USD 6,400 range as the worries of trade war minimizes the effect of the shortage of the metal.

The LME also introduced a premium of USD 31.00 per tonne as concerns of a shortage rises which contrasts greatly with the discount of USD 47.00 at the end of October.

Indeed, the price of copper is a victim of negative sentiment. FocusEconomics noted at the beginning of the month that the price of the commodity is stable but is not going anywhere soon for two reasons: firstly, the chinese economy is slowing then because of the tariffs.

The price of the red metal was supported last month by the drop in inventories to the lowest in 10 years (see graph 1; on a 5 year-range only). Therefore, the drop helped to outweigh the chinese slowdown as well as the worries of a trade war.

Despite the negative sentiment, analysts forecast that the price of copper should rise in Q4 as new technologies such as renewables and electric cars will drive the demand of the commodity.

Graph 1: Warehouse Stocks Level

  

Inventory Level:

Graph 2: Inventory level and price

On 31st October, the LME copper inventory level was at his lowest in a decade. The day after, it increased from 57’650 (open tonnage) to 102’600 tonnes and directly stabilized around 100’000 tonnes.

We observe here (31.10.2018 – 01.10.2018) a common phenomenon between the price and the inventory level as the stocks suddenly increased when the price was relatively low.

At the same time and on a larger scale (2 weeks), we would expect the price to grow when the inventory fall. Usually, an inventory fall means that there is a shortage or an increased demand in the market. Therefore, such an increase in the inventory illustrates the actual uncertainty around copper supply and demand due to political factors.

Backwardation or Contango?:

Backwardation: In October, the trend in the 3-month future price shows that there is shortage on the supply side as the spot price is higher than the future price. It means that buyers need copper now, in that condition, a trader  should be “short” or sell his positions to not take carriage cost.

Sources:

https://www.voanews.com/a/china-xi-trump-phone-call-extremely-positive/4639713.html

https://www.reuters.com/article/global-metals/metals-copper-slips-on-profit-taking-idUSL4N1XG3CH

https://uk.reuters.com/article/global-metals/metals-london-copper-slips-from-two-week-top-idUKL4N1XG1RM

https://www.bloomberg.com/quote/LMCADS03:COM

https://uk.reuters.com/article/global-metals/metals-copper-rises-as-democrat-victories-in-us-weaken-the-dollar-idUKL8N1XI4OH

https://investingnews.com/daily/resource-investing/base-metals-investing/copper-investing/focuseconomics-chinese-growth-rhetoric-keeping-copper-down/

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West African Crude Bulletin#1

October is not really a good month for crude oil prices. Oil prices got their biggest monthly drop in more than two years. For example, the WTI (West Texas Intermediate crude) dropped by 10.8 % in October. The West African grades prices for Qua Iboe and Nemba are also getting down.
Trafigura and Mercuria traders are assuming that Brent crude oil could rise to
$90 per barrel by the end of December and even pass $100 at the beginning of 2019, as markets tighten once U.S. sanctions against Iran are fully implemented in November.
OPEC as well as Russia are planning to raise their output to counter falling supply from Iran, although no decision was publically made yet. Some sources are saying that OPEC and other producers are willing to raise their output by 500,000 bpd when the worldwide production in June 2018 was around 92,6mbpd.
The oil prices are dropping down Following Trump’s tweets (see below) and intervention in the media, the price of crude oil has decreased significantly. Donald Trump was complaining that the oil prices are too high; moreover, he accused OPEC of pushing oil prices higher, and said that they should lower their prices. He actually expressed his discontent on twitter, after which, the oil prices dropped down and are still going down. He even threaten Middle East to withdraw US military resources if they do not want to cooperate. We assume that Trump’s pressure on OPEC is an attempt to make US crude oil more attractive. For instance, in July 2018 the US production was around 11mbpd and exportation around 1.8mbpd in the half of 2018. In 2018, the US has boosted their exports to Asia, Oceania such as China, South Korea and India by 80% compared to 2017.

To conclude, we think that the West African crude is not the only one which is suffering from Trump’s actions but the crude oil industry as a whole.

The forward curve below represents BRENT CRUDE OIL for year 2019. We chose the BRENT CRUDE as it is a benchmark for West African Crude oil. We can see that the price slightly decreases over time and hence tells us that this forward curve is in backwardation.

As we are in backwardation, we recommend to go short. There is no incentive to store because the price decrease over time. Storing crude would lead to carrying costs, which would not be economically viable.

Sources
Prices falling: https://mobile.reuters.com/article/amp/idUSKCN1N427C
Trump’s Tweets: https://twitter.com/?lang=fr
US export: https://www.hydrocarbonengineering.com/gasprocessing/24092018/eia-crude-oil-was-the-largest-us-petroleum-export-inthe-first-half-of-2018/
World production: https://www.forbes.com/sites/rrapier/2018/06/14/world-setsnew-oil-production-record/#4d589dcd752d
Trump’s pressure on OPEC : https://www.cnbc.com/2018/09/20/trump-wantsopec-to-keep-crude-low-it-cant-do-that-oil-expert-says.html
Brent backwardation: https://www.spglobal.com/platts/en/marketinsights/latest-news/oil/091218-brent-cfd-curve-moves-into-backwardationamid-bullish-crude-oil-outlook
Brent Futrue contract: https://www.theice.com/products/219/Brent-CrudeFutures/data?marketId=222467

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China and the structural change on the iron ore market (Iron ore – Bulletin 1)

 Price movement recap

In May, the transaction activity for imported iron ore slowed down in China due to an general economic slowdown because China remains under threat from punitive US tariffs on Chinese imports. Then in June, the prices of iron ore fluctuated and in July, steel production restrictions due to China’s anti-pollution measures impacted China’s imports of iron ore : the demand of iron ore increased because China has to reduce its steel production. From August to October, prices of iron ore are gradually inscreasing.

 Dynamic of supply and demand

Due to the new anti-pollution rules registered in the Three-Year Plan Action by the China government, the Chinese steelmaker imports more iron ore.

However, they are looking for a higher quality of iron ore in order to pollute less. This 2020 action plan to air quality is leading to steel producers to offer a rich iron ore on the market as reducing costs as well.

To illustrate this structural change, International mining and Resources Conference, on this Monday 29th of October until today, the 1st of November in Melbourne, the CEO of Rio Tinto Group, Jean-Sebastien Jacques suggests new ways of mining because the issues of the protecting air, water and land are more important more than ever. He considers that the mining has seen as an “old industry” that it is necessary to modernise by using automation and artificial intelligence (AI).

In that sense, as the CEO of FMG, Elizabeth Gaines is introducing autonomous trucks automatizing their ways to production to propose a best quality to the China demand because China demand still very strong.

Finally, this structural change concerns all of iron ore companies. For example, the emerging iron ore company Finders Mines Limites (FMS) rating in the Australian Securities Exchange which is focusing on the exploitation of the mines in the Pilbara region (western Australia ) operates with discount rates for lower-grade and high-impurity iron ore in order to improve the quality of their iron ore.

 Recommandations

Since iron ore prices per metric tonne are constantly rising due to Chinese factors, we believe that it would be better to sell iron ore to earn a margin.

Sources

MB, F. (2018). ‘Structural change’ in iron ore market leads Flinders Mines to review options | Metal Bulletin.com. [online] Metalbulletin.com. Available at: https://www.metalbulletin.com/Article/3841133/Search-results/Structural-change-in-iron-ore-market-leads-Flinders-Mines-to-review-options.html [Accessed 1 Nov. 2018].

GmbH, f. (2018). Iron Ore PRICE Today | Iron Ore Spot Price Chart | Live Price of Iron Ore per Ounce | Markets Insider. [online] markets.businessinsider.com. Available at: https://markets.businessinsider.com/commodities/iron-ore-price [Accessed 1 Nov. 2018].

Creagh, B. (2018). Rio Tinto CEO targets a reinvention of mining – Australian Mining. [online] Australian Mining. Available at: https://www.australianmining.com.au/features/rio-tinto-ceo-targets-reinvention-mining/ [Accessed 1 Nov. 2018].

Eco-Business. (2018). China releases 2020 action plan for air pollution. [online] Available at: https://www.eco-business.com/news/china-releases-2020-action-plan-for-air-pollution/ [Accessed 1 Nov. 2018].

Mining-journal.com. (2018). “… no one at Fortescue is displaced as a result of automation”. [online] Available at: https://www.mining-journal.com/leadership/news/1341574/-…-no-one-at-fortescue-is-displaced-as-result-of-automation [Accessed 1 Nov. 2018].

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Russian Crude Oil Bulletin#1

Price movement 

Prices on the low despite US sanctions

 

Oil prices spiked at the beginning of October to a four-year peak, with Brent Crude at around US$85 per barrel on worries over stretched global supplies due to US sanctions on Iran.

However, following this spike, prices came close to post their biggest monthly percentage decline since July of 2016 as rising production and the potential slowdown in energy demand outweighed expectations.

An important fact has been whether other producers will compensate the diminished supply. OPEC, led by Saudi Arabia, and other leading producers, Russia, agreed in early summer to rise crude production after over a year of reduction. Comments in recent weeks by the Saudis regarding their potential maximum production—reaching up to 11 million barrels a day—have further weighed on prices of late.

Examples to illustrate the supply and demand dynamic of the commodity.

The main change we have seen recently is about the market sentiment, partially due to increasing concerns about demand as a result of the trade conflict between the U.S. and China. However, “real demand data remained robust in September,” Commerzbank said[1]. On the supply side, producing countries have also played an important role, with crude oil inventories in the U.S. having risen significantly for several weeks. Saudi Arabia, Russia and Libya boosted up their oil production in a noticeable manner in October. The result of these actions is positive as oil producers seems to be successful in offsetting the supply outages coming from Iran and Venezuela.

 

The OPEC nations are struggling to fully deliver on the oil production increase of 1 million bpd promised in June, Reuters reported, quoting an internal OPEC document.

In comparison to May, Saudi Arabia ramped up its production by 524,000 bpd but in the meantime Iranian, Venezuelan and Angolan production fell nevertheless, the non-OPEC partners in the deal have significantly increased their combined production. Last September, Russian oil production reached 11.36 million bpd. As a whole, the country’s production has increased by 450,000 bpd since May, but part of that increase was counterbalance by a decrease in Kazakhstan, Mexico, and Malaysia.

Recommendations to be short (sell) or long (buy) for the next 3 or 6 months.

“There’s a sense that the global economy goes into a bit of a slowdown and demand in 2019 isn’t quite as robust as it has been over the past couple years,” said Brian Kessens, energy asset manager at Tortoise in Leawood, Kansas. “We are still in more of a risk-off sentiment.”[2]
In addition to demand side concerns, all eyes are on the impact of Iran’s sanctions, which are expected to come into effect on Nov. 4, with many believing that Saudi Arabia and OPEC will do what is necessary to fill any shortage supply.

Following every bit of information stated previously, we recommend to be short on the commodity as we fully trust in OPEC and other producers capacity to fill the gaps and prevent shortage.

Sources

Beals, Myra P. Saefong, Rachel Koning. « Oil on Track for Biggest Monthly Loss in More than 2 Years ». MarketWatch. Consulté le 1 novembre 2018. https://www.marketwatch.com/story/crude-oil-tips-higher-but-is-about-to-log-a-9-october-retreat-2018-10-31.

« Brent Crude Futures | ICE ». Consulté le 1 novembre 2018. https://www.theice.com/products/219/Brent-Crude-Futures/data?marketId=222467.

« Brent Futures Curve ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/brent-futures-curve.

« Crude Weighed Down by Global Economic Slowdown Worries », 31 octobre 2018. https://www.bloomberg.com/news/articles/2018-10-31/oil-set-for-biggest-monthly-decline-since-2016-on-growth-fears.

« Global Oil Demand and Supply ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/global-oil-demand-and-supply.

« In sign of supply flexibility, Russia wields oil stocks to boost output ». Consulté le 1 novembre 2018. https://www.cnbc.com/2018/07/19/reuters-america-in-sign-of-supply-flexibility-russia-wields-oil-stocks-to-boost-output.html.

« OECD / US Oil Inventories ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/oecd-us-oil-inventories.

« OECD / US Oil Inventories ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/oecd-us-oil-inventories.

« Russia’s Oil Output Won’t Go Much Higher ». OilPrice.com. Consulté le 1 novembre 2018. https://oilprice.com/Energy/Crude-Oil/Russias-Oil-Output-Wont-Go-Much-Higher.html.

« Urals Oil Price Charts ». OilPrice.com. Consulté le 1 novembre 2018. https://oilprice.com/oil-price-charts.

[1]https://www.marketwatch.com/story/crude-oil-tips-higher-but-is-about-to-log-a-9-october-retreat-2018-10-31

[2]https://www.bloomberg.com/news/articles/2018-10-31/oil-set-for-biggest-monthly-decline-since-2016-on-growth-fears

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Soybean – The panic has calmed down

Price

Brazilian soybean have been quoted in China at a $94 premium a tonne over July Chicago futures. In comparison, it reached in April a $160 premium, after the threat to set a tariff on US cargoes. Usually, the premium reaches about $50-60 a tonne at this period of the year.

The price for Brazilian soybean is expected to drop as the government has announced all-time record harvest of more than 119 million tonnes. Moreover, the current high price for Brazilian soybean has slowed down the Chinese demand. However, some traders declared that Chinese importers have booked 20 cargoes for a delivery in August last week.

Céleres, which is active in consultancy in Brazil, estimates that overseas sales of soybean will increase by 2 million tonnes in 2018, to reach an annual total exports of 72 million tonnes.

Price in USD/bushel

http://www.macrotrends.net/2531/soybean-prices-historical-chart-data

Pork’s demand is declining in China

According to Reuters, China will reduce its soybean imports for the first time in 15 years in 2018/19. The agriculture ministry has indeed noticed a dropping demand for hog which lead to a decreasing demand for animal feed. Hog prices in China registered one of the sharpest ever declines in the first quarter and are below average production cost. China’s April soybean imports fell to 6.9 million tonnes, a decline of 13.7% from a year ago.

“Most soybean plants in China are now overstocked with meal and oil,” said a trader in Beijing.

Forward curve – price per contrat (100 short tons (~91 metric tons))

http://marketqview.com/forwardcurvechart.php?ID=74&TYPE=Price

http://marketqview.com/forwardcurvechart.php?ID=74&TYPE=Price

The forward curve has changed compared to our last bulletin. The inversed shape from August to November has turned into a carry. It can be explained by the all-time record harvest of soybean in Brazil announced by the South American country government. It obviously increases the supply so the market has to carry the storage costs of soybean producers.

Crush spread (in cents per bushel)

https://seekingalpha.com/article/4170072-soybean-crush-spread-telling-us-demand-strong

The crush spread shows us how much money we can earn by crushing soybeans into soybean meal and soybean oil. The crush spread has these days reached its higher point since 2013. This represents a bullish factor for the price of oilseed. This changes affect also companies like Bunge, its stock has raised from $63.87 per share in November 2017 to over the $70 level. The same move has happened to ADM stock, from lows of $38.59 in November 2017 to around the $44 level.

Moreover, Bunge’s CEO and ADM’s CFO said that the severe drought in Argentina causes this increasing crushing margin and that their companies were profiting from it since they own many crushing plants.

News

  • ADM recently bought a grain elevator in Manilla in Iowa.  This purchase increase the storage capacity of the company by 2.3 million bushels, whose represents 1.5 m of bunker storage and 775.000 of upright storage. The infrastructure can also receive 32.000 bushels of soybean per hour.
  • Some delays are occurring in China on discharging vessels and soybean are stored on a longer term basis until tests for GM material are concluded. China government keeps reporting finding seed-treated soybeans in shipments, but have not stopped trade due to this presence thus far. It could affect soybean imports if the government decided to react and set up some severe regulations on GM products.
  • The Taiwanese Food and Drug Administration is currently drafting implementation regulations on a law set in 2014 on GMO food labelling. It impacts all soy products except soybean oil. This decision could slow down the demand for bulk soybeans coming from United States.
  • In Japan, the U.S. soybean industry has seen trade perturbations due to detections of chemical residues that exceed the country’s tolerances. As U.S. soybean farmers use new herbicide mixes to eliminate weeds, there is a need to monitor those chemicals and the maximum residue level policies in export markets.

Blockchain

HSBC has made their first trade finance transaction integrating blockchain technology. This trade was conducted for a cargo of soybeans shipped from Argentina to Malaysia, involving Cargill Geneva, ING, and HSBC themselves, using a Corda blockchain developed by the R3 consortium.

HSBC’s global head of innovation, Vivek Ramachandran, said that “the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous.” He added that it is an inflection point for how trade is conducted.

The trade, instead of usually taking five to ten days for the exchange of all the documents, has here been made in only 24 hours. Moreover, HSBC said that they consider that blockchain could help reducing costs by 31%.

Video – HSBC’s blockchain engagement

https://twitter.com/HSBC/status/995778209416392704?s=20

Sources

http://www.businesstimes.com.sg/energy-commodities/faltering-chinese-soybean-demand-dents-brazils-chances-of-trade-war-bonanza

http://marketqview.com/forwardcurvechart.php?ID=74&TYPE=Price

http://agriculturewire.com/soy-checkoff-keeps-tabs-on-transportation-issues/

http://www.businessinsider.fr/us/hsbc-ing-blockchain-trade-finance-cargill-soybeans-2018-5

https://www.r3.com/

http://www.macrotrends.net/2531/soybean-prices-historical-chart-data

https://seekingalpha.com/article/4170072-soybean-crush-spread-telling-us-demand-strong

Posted on

Bulletin 3 – Aluminum

Aluminum Futures Historical Prices

Source: investing.com

In our first bulletin, aluminium prices had increased significantly to skyrocket at 2,644 USD/t at the beginning of April when the initial sanctions were put into place. In comparison to our last bulletins, aluminium prices have slightly increased reaching (2.333,25 USD/t, as of 16thMay). The reasons for this increase after the sanctions were postponed to October is the reverse cancellations of orders at the Malaysian port of Port Klang earlier this week. The LME registered back 138’650 tonnes at the same location. The level of price is trying to find its mark since the report of the US sanctions against Russian companies to the 23rdOctober 2018.

Forward Curve Primary Aluminum LME

Bloomberg (2018) Bloomberg Professional [Online]. Available at: Subscription Service (Accessed: 16th March 2018)

Like our second bulletin, the forward curve for aluminium as of the 16th Mai on the LME begin by a backwardation between around 06/2018 to 09/2021. The market is in backwardation because traders expect to experience an overproduction outside the United-States. This overproduction is due to the sanction against Rusal and the US threats of tariffs that might touch the EU in June 2018. Then it changes into a supercontango beginning 2022. We still have an artificial physical shortage as trader keep the metal in their warehouses. Traders are long physical and short future. Their goal is to take advantage of the supercontango.

Forward curve

Source: lme

Rusal:

The impact of the US sanctions over the companies are not measurable yet. Rusal experienced an excellent year in 2017 and its result for the first quarter of 2018 (total revenue of 2.744 billion US dollars) is comparable with the trend of 2017. The aluminium company released its first quarter result last week. The company has performed truly well with an increase of 20.4 % of its adjusted EBITDA in comparison with the overall 2017. The revenue linked to the sale of primary aluminium went up of 16.9% for the first quarter of 2018.   Nevertheless, it is true that Rusal performed slightly better during the last quarter of 2017. The US sanction hit the company truly recently and thus has had almost no impact on the P&L of the Russian company yet. Indeed, the US sanctioned the Russian company only the last week of the first quarter. During the release of its results, Rusal has tried to calm its stakeholder and the market about the impact of the US sanction and has guaranteed that the company will respect its commitment regarding its creditors, shareholders and investors. Nevertheless, Rusal admitted that at the moment nobody can measure how badly the business will be touched in the long-run.

The stock market’s reactions represents well the situation. Rusal’s share on the Hod Kong exchange has lost about 65% of its value at the announcement of the initial sanctions. Not surprisingly, the shares of Rio Tinto, the oil producer seconding Rusal in terms of production, has seen its share increasing. The share price of Rusal is floating around 2.00 HKD and we do not see it regaining strength in the upcoming future as no solution to the sanctions has been found yet, and the company has just received some breathing space.

Source: Bloomberg

Source: Bloomberg

TRUMP VS Tusk and all his European friends

On Wednesday 16thof May, there was a European summit in Sofia where all the main leaders of European countries met. During that summit, the different leaders wanted to show their unity regarding the threat of the American tariffs for the aluminium and steel. The European Union is exempted of the tariffs until the 1stJune 2018. The Union also discussed extensively about their willingness to respect their commitments with Iran and the nuclear deal.

Tusk during the summit:

“The EU and U.S. are friends and partners. Therefore U.S. tariffs cannot be justified on the basis of national security. It is absurd to even think that the EU could be a threat to the United States.” EU willing to discuss cutting trade barriers with U.S.: MerkelIn bitter comments, Tusk said Trump has rid Europe of “all illusions” with the trade dispute and by pulling out of an international nuclear deal with Iran.

“Looking at the latest decisions of President Trump someone could even think: with friends like that who needs enemies. But frankly speaking, Europe should be grateful to President Trump. Because thanks to him we have got rid of all illusions. He has made us realise that if you need a helping hand, you will find one at the end of your arm,”

Video

https://www.reuters.com/article/us-usa-trade-eu/eu-heads-discuss-bold-or-fold-strategy-toward-trump-tariffs-idUSKCN1IH1VD

Sources

https://aluminiuminsider.com/rusal-pre-sanction-q1-recurring-profit-jumped-22-4-to-us531-mm/

https://www.lme.com/en-GB/Metals/Non-ferrous/Aluminium#tabIndex=0

http://investing.com

https://aluminiuminsider.com

Posted on

Gasoline and Diesel Bulletin n°3

 

Prices are per gallon

As we can see in the both latter graphs, the seasonality is the main explanation of the curve which remain the same every year. In fact, during the beginning of the year the gasoline market structure is systematically on contango, which indicates the traders to stock, and then comes the “harvest” which represents the moment when the gasoline supply is more important and makes decrease the price. We also found out that the quality of gasoline during the summer is more exigent and more expensive because it requires “carry a lower Reid Vapor Pressure (RVP), a common measure of the volatility of gasoline.” (Reuters, March 2018)

Prices are per metric ton

On contrary the diesel curve is not annually seasonal as the gasoline. If we compare the forward curves of the last year with this one in course, we can see that the 2017 curve it is on contango but this year the forward curve is on backwardation. In our opinion, it could be related to the declining diesel promotion as motor companies like Toyota, for example, which is planning to cut diesel vehicles production and European countries which are decreasing and taxing their diesel consumption and demand.

Diesel and Gasoline prices are directly correlated.

In this graph we can see how the gasoline prices are compounded and the evolution during the last five years. As we see the prices declined from 2015 and it is mainly due to the crude oil price that dramatically decreased because of the opposition on the market between the US with their shale oil and the OPEC with its conventional oil. As the crude oil price is correlated with the gasoline price, this latter has also been impacted.

Here are the gasoline and diesel price components in details

Gasoline and blockchain

On April 2, it was announced that China has successfully used blockchain technology for a shipment of gasoline from China to Singapore. Sinochem made a deal with other traders, including Louis Dreyfus and ING. It was the first time that blockchain applications have been applied to all participants in the commodity trading process. Sinochem stated that by using digital B/L and smart contracts, the financing and transaction costs have decreased from 20% to 30%.

Traders and Sonangol

Sonangol, the state owned company of OPEC member Angola, has put an end to the deal they had with Trafigura, who supplied them with diesel and gasoline. Although Angola is the second producer of crude oil (1.632m bbls per day) behind Nigeria (2.14m bbls per day), they only have one refinery, and must rely on suppliers to get refined products. Now, they entered into a deal with Total and Glencore, with the former delivering gasoline, and the latter Diesel.

Glencore forms energy

The company Glencore is forming an alliance with China’s Zhejiang Petroleum to trade energy products. The purpose of this alliance is to have a foot on the Chinese market to be able to import petroleum products and exchange them.

This association will be located in a free trade zone and will be located in Zhoushan Free Trade Zone in eastern Zhejiang province.

Each company will invest 1 billion yuan, (157 million dollars), with Zhejiang holding a 71 percent share and Glencore the remainder.

This alliance follows the alliance between China National Chemical Corp, known as ChemChina, and Swiss-based trader Mercuria expanded an equity tie-up, to be able to gain access to the largest markets for energy consumption. (China)

References

http://marketqview.com/forwardcurvechart.php?ID=83&TYPE=Price

https://www.platts.com/latest-news/oil/london/sonangol-ditches-trafigura-as-main-supplier-of-26915612

https://www.opengovasia.com/articles/china-completes-the-worlds-first-gasoline-shipment-using-blockchain-technology

https://www.eia.gov/petroleum/gasdiesel/

https://www.eia.gov/outlooks/steo/report/us_oil.php

http://marketqview.com/forwardcurvechart.php?ID=39&TYPE=Price

https://www.eia.gov/todayinenergy/detail.php?id=35752