West Texas drillers could weaken any OPEC agreement on extending the cuts

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All the Oil producing countries which have a deal with OPEC, along with Russia, can extend their deals. But at the same time this will be a green light for United States oil producers.

If the price oscillates following levels between $50 and $60, these are the great news for the U.S. oil drillers. They will gain profit on way broadly group of drilling sites. OPEC’s new deal could speed up the market rebalance. Rather, the numerous U.S. shale drillers could also release bigger amounts to surpass OPEC’s price gains.

Mainly the market analysts wait for oil price to rise close to $60, or even $60 by the end of the year.  But the prices are not expected to climb much higher.

“Basically U.S. supply is coming on faster than we anticipated. Now you have a higher inventory level to begin with, and a slower decline. That means in our view, prices are likely to be lower on average.” (Francisco Blanch, Bank of America Merrill Lynch.)

“The Brent crude will come to average $54 per barrel this year, from an average $61 per barrel. ”

He doesn’t expect much of an increase neither for 2018. The Brent will probably gain the price of  $56 per barrel, versus his previous forecast of an average $65.


Different opinions

Ed Morse from Citigroup said he thinks it would be a way better if the OPEC agrees on a deeper cuts.

“I think this market will re-balance itself very quickly. The extension alone should result in deeper cuts.”

Deeper cuts would mean an “invitation for cheating” and “a sign of desperation in markets.” He explained that the re-balancing is already happening.

On contrary, Blanch said: “I think it’s pretty risky to deepen the cuts when they’ll be losing market share to shale. It seems to me that Saudi, Russia, and even the U.S., everyone needs oil price leveled at $60. The problem is, that by the laws of nature as well as of the economy, you can’t have both the quantities and the prices.”

Morse: “We don’t think U.S. production is going to stop the re-balancing of the market this year. It’s not enough to counter the cuts that are in place, particularly if they’re being extended.”

“We think next year will be more problematic. The shale drilling will accelerate and U.S. shale alone could meet the new demand in global growth.”


U.S. drillers

IHS Markit expects U.S. shale to grow by 900,000 bpd by the end of 2017. By the end of 2017, or entering the early 2018 the U.S. will be giving the record amounts of oil. Based on some U.S. government reports, their production rose to 9.3 million barrels in previous weeks.

“You can certainly say a lot of shale today will be competitive between $40 and $50 a barrel. The question mark is what’s going to happen with costs. We really think the costs this year in the Permian will go up 15 to 20 percent.”  (Daniel Yergin vice chairman of IHS said. “Rising costs will temper activity somewhat.”

Yergin stated that shale is now at medium cost production.

Permian, West Texas

Permian is currently the most active shale. But drilling could open up Eagle Ford in Texas or Bakken in North Dakota, following the upsurge in prices.

“Other plays still remain on the sidelines in this $50 environment. When we were growing at a million barrels in the U.S., it wasn’t Permian. It was Bakken and Eagle Ford.” (Helima Croft, RBC)

“The other thing about shale is it has a very high decline rate. The shale did come back stronger. Rigs are returning and for now it remains largely a Permian story.”

Analysts have expected the market to get a backup from the summer driving season. So far, U.S. gasoline demand has been softer than expected.  That could definitely impact the market, and it should see higher prices this summer .


SHFE morning report; weaker U.S. and Chinese data

Important Facts about Today’s Market:


  • New Zealand Employment Change QoQ rose to actual 1.2% (forecast 0.8%)
  • Germany Unemployment Change – 30K actual (forecast -10K)
  • UK Construction Purchasing Managers Index (PMI) fell to actual 52.2(forecast 52.4)
  • The US ADP Nonfarm Employment Change to actual 263K (forecast 187K)
  • Also US ISM Non-Manufacturing PMI fell to 55.2 (forecast 57.0)
  • US Crude Oil inventories to -3.641M while exp. was -1.661M
  • FED Statement & FED Interest Rate Decision




Base metals today on the Shanghai Futures Exchange were broadly lower during Asian morning trade, as desolate economic data from China and the USA weighed on market sentiment.

US Car sales

Firstly, under-performance in US car sales during April combined with China’s weaker PMI data has left market participants concerned over weaker economic growth in these two countries, according to a Shenzhen-based senior analyst. 

Secondly,the perceived weakness has dampened market sentiment and sent the base metals prices into retreat this morning.

“Prices drifted lower as investors fretted about weaker than expected manufacturing activity in China. Metals also fell as US carmakers reported steeper-than-expected US sales declines, suggesting demand will be weaker in that region.”

Thirdly, sales at all six of the biggest automakers in the USA fell again in April, with each company’s figures coming in below analysts’ estimates resulting in the fourth consecutive month of falling sales in aggregate, according to National Australia Bank (NAB). (Metal Bulletin)

“On Monday, March US personal spending figures disappointed (0.0% compared with 0.2% expected) and now the new drop in car sales confirms the view that not all is well with the US consumer. The recent soft US data releases are challenging the view that a rebound in activity should be expected in [the second quarter].”



Meanwhile, China has also had its fair share of disappointing data this week.

Following, China’s official NBS manufacturing PMI fell to 51.2 in April from 51.8 in March and below market expectations of 51.6, while the country’s non-manufacturing PMI also dropped to 54.0 in April from 55.1 in the previous month. Additionally, China’s Caixin manufacturing PMI fell to 50.3 last month from 51.2 in March.

“These three numbers taken together point to the same issues, that there is a slowdown in new domestic orders, export orders are falling, there is rising unemployment and a fundamental weakening in business confidence. Also, looking at the extreme, we may have to face the fact that the Chinese economy may be starting to embrace a downtrend,” Bands Financial Ltd said on Tuesday.


Copper price dips

SHFE June copper contract stood at 46,610 yuan per tonne as of 03:48 London time. Down 180 yuan compared with the previous session’s close.

“Tightened credit in China during April will continue to put pressure on copper prices,” China’s Galaxy Futures said on Wednesday.
After suffering a mild downturn in April, copper is facing more headwinds going into May, according to INTL FCStone Inc analyst Edward Meir.
“The market finds itself in somewhat of a soft spot going into [the second quarter] given that the big events driving values higher last quarter, namely the Escondida and Grasberg outages, are now behind us and the next wave of labour negotiations will not take place until later this year,” Meir said. (M.B.)

In conclusion, workers at PT Freeport Indonesia have continiued a month-long strike. At the world’s second-largest copper mine Grasberg. The strike is expected to hinder expansion plans at the mine.Strikers are persistent, it is the 3rd day of protests.




Chinese steel exports to U.S. causing national security issues?





U.S. President is launching an investigation about whether the steel imports from foreign countries affects U.S. national interests.

“Steel is critical to both our economy and our military. This is not an area where we can afford to become dependent on foreign countries.”

Firstly, China is the largest national producer. It makes far more steel than it consumes. Secondly, it is exporting the excess output overseas. ” This often leads undercutting domestic producers.”

Trump is pressuring China to do more to rein in an increasingly belligerent North Korea. Which is the unusual step of setting to steel investigation. Two presidents discussed this subjects earlier in Florida. Trump said that he would consider possibility of using trade as a lever to coax China to do more.


Opinions on matter


“Everything they export is dumping.” (Derek Scissors, Asian economist.)


Following, Chinese exports have risen. “Despite repeated Chinese claims that they were going to reduce their steel capacity.” said Ross. Ross was labeled “Mr. Protectionism” for his history of owning businesses protected from foreign competition. “If the Commerce inquiry finds the U.S. steel industry is suffering from too much steel imports, I will recommend retaliatory steps.” That could also include tariffs.


Trump ordered a probe under Section 232 of the Trade Expansion Act of 1962. This lets the president impose restrictions on imports for reasons of national security.


In October 2001, a Commerce Department investigation found “non probative evidence.” Saying that imports of iron ore and semi-finished steel threaten to impair U.S. national security.

The amounts of steel imported, even though big, cannot represent

the national security problem. It is simply called trading” said an analyst.

Steel shares had raised after Trump won the November election amid promises for increased infrastructure spending.

On Thursday shares of steel makers closed between 4 and 8.5 % higher. Steel Dynamics Inc (STLD.O), AK Steel Holding Corp (AKS.N), Cliffs Natural Resources Inc (CLF.N), Allegheny Technologies Inc (ATI.N) and other.


Steel Profits in US


The United States has nearly 100 plants that make millions of tons of steel annually. Government tried to protect them with WTO regulations. Then came Trump and said this has to be put on another level.

“The artificially low prices caused by excess capacity and unfairly traded imports suppress profits in the American steel industry.”

Also, Nucor Chairman John Ferriola said that the steelmakers welcomed the president’s move.

“We look forward to continuing to work with the president and Secretary Ross. To ensure our trade laws are enforced so that U.S. manufacturers can compete on a level-playing field.”

“There is no doubt that steel plays a role in our national security and the manufacturing of U.S. weapons systems.” (Jeff Bialos, who has worked on steel trade cases in the past.)


“But the Department of Defense only consumes a small portion of domestic steel output. And this has decreased over the past decade as composites technology has advanced,” Bialos said.


Scissors said the United States has other ways to take on China over steel trade issues, other than invoking national security.


“Talking about it as a national security issue – I don’t think it’s necessary and I don’t think it’s justified,” he said.


Wall Street losses after US drops mega-bomb on Afganistan



Geopolitical risks remain front and center, following the bombing of Afghanistan.

Most noteworthy, markets in Japan, South Korea and China closed lower on Friday. As geopolitical tensions in the region heightened, while other major bourses in Asia remained closed for a public holiday.

In Japan, the benchmark Nikkei 225 closed down 91.21 points, or 0.49 percent, at 18,335.63, while the Topix slid 9.24 points, or 0.63 percent, to 1,459.07. Across the Korean Strait, the Kospi closed down 13.73 points, or 0.64 percent, at 2,134.88. Chinese mainland markets were also down — the Shanghai composite finished down 31.47 points, or 0.96 percent, at 3,244.48 and the Shenzhen composite fell 28.01 points, or 1.39 percent, to 1,986.64. Taiwan’s Taiex fell 103.75 points, or 1.05 percent, to 9,732.93. (CNBC info)

Asias sessions

The Asia’s sessions followed a lower finish on Wall Street. It happened after US has dropped its biggest non-nuclear bomb on Afganistan. There are many consequences of this move, especially on the stock-exchange markets.

This is the first time the GBU-43 bomb, known as the “mother of all bombs,” has ever been used in combatThe bomb contains 11 tons of explosives and is also known as the Massive Ordnance Air Blast bomb.

In the meantime, the geopolitical tensions are just taking an upwards trend. US and North Korea are problematic. After official for the reclusive regime on Friday blamed President Donald Trump for escalating tensions on the Korean Peninsula.

Vice Minister Han Song Ryol warnes the U.S. against provoking North Korea military with words: “We will go to war if they choose.”

Dollar Index

The dollar index, which measures the U.S. dollar against a basket of currencies, traded at 100.59 at 2:17 p.m. HK/SIN, climbing from levels near 100.01 in previous sessions.


“The U.S. dollar took its cue from yields, weaving in and out of negative territory.” (Kathy Lein, managing director of foreign exchange strategy at BK Asset Management. )



Yen Indexes

Among other currency majors, the yen strengthened to 108.92 against the greenback Friday afternoon local time, after weakening to an earlier high of 109.22. The Japanese currency remained stronger than levels above 110.7 reached against the dollar earlier in the week.


Australian Dollar

Following, the Australian dollar fetched $0.7562 and the euro traded at $1.0613.


Oil summary

Oil prices finished modestly in the Thursday session even as U.S. oil rig count rose to its highest level in two years and threatened the re-balancing of markets, according to Reuters. Energy services firm Baker Hughes said drillers added 11 oil rigs in the week to April 13, bringing the total count up to 683.

Global benchmark Brent settled up 3 cents at $55.89 a barrel in the previous session, while U.S. crude was up 7 cents at $53.18.