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December 18 2018

Commentary by Eoin Treacy

Oil Crashes to 1-Year Low as Dark Clouds Envelop Demand Outlook

This article by Alex Nussbaum for Bloomberg may be of interest to subscribers. Here is a section: 

“Oil has gotten caught up in all the panic you’re seeing,” said Bill O’Grady, chief market strategist at Confluence Investment Management LLC in St. Louis. “This is all about fears of a recession. It’s risk-off everywhere.”

A U.S. government report Monday forecast surging shale-oil production, adding to worries about a glut. In Moscow, Russian Energy Minister Alexander Novak said production is rising, although the country is preparing to implement output curbs to conform with an OPEC+ accord.

Crude’s mired in a bear market amid growing skepticism that cuts by the Organization of Petroleum Exporting Countries and its allies will be deep enough to prevent a surplus in 2019. The group’s efforts to balance the market have been undermined by the relentless growth in U.S. shale, which veteran crude trader Andy Hall said is making it harder to predict global supplies.

Eoin Treacy's view -

It’s all well and good to talk about the relentless growth of US shale but West Texas Intermediate at $46 is uneconomic for a substantial proportion of shale drillers. The response is going to be less drilling as soon as any hedges on supply run off. That is the great strength of unconventional wells. They are more capital intensive to bring online but their supply is elastic because continuous drilling is required to sustain production after initial prolific period. That give companies the ability to more closely match supply to demand than conventional wells.



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December 14 2018

Commentary by Eoin Treacy

Platinum price gets $6 billion shot in the arm

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

Korean carmaker Hyundai on Tuesday announced a $6.7 billion program to raise production of fuel cells 200-fold going from 3,000 this year to 700,000 per annum by 2030.

The hydrogen society is probably further into the future than its promoters want you to believe, and detractors are plentiful 

Toyota was the first to back the technology for passenger vehicles, launching its Mirai – "future" in Japanese – back in 2015. Honda is bringing the Clarity back to its line-up and Hyundai’s Nexo SUV is launching in North America next year. Hyundai also inked a collaboration on fuel cells with Volkswagen in June.

The hydrogen society is probably further into the future than its promoters want you to believe, and detractors are plentiful. (Elon Musk was not only talking his book when he called fuel cell cars "extremely silly".)

Alongside Hyundai's announcement, the Korean government also made a commitment to roll out a fuel cell fleet and charging stations. But Canada, for example, got its first and so far only public hydrogen fuelling station only in August and California’s years long backing for fuel cell cars have hardly moved the needle on consumer and business uptake.

Nevertheless, the impact on platinum could be enormous.

There’s a simple reason – today's fuel cell cars need a full ounce of platinum versus a 2 – 4 grams PGM loading for your average gasoline (primarily palladium) or diesel vehicle.

Eoin Treacy's view -

The automotive sector has been investing in fuel cell technology for years so one of the reactions to the collapse of demand for diesel engines has been the acceleration of commercialisation efforts. The other factor in the development of fuel cells is dependent on ready availability of hydrogen. The low natural gas price, particularly in the USA is a major enabler of that evolution.



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December 13 2018

Commentary by Eoin Treacy

Uranium price: best performer of 2018 set for more gains

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section: 

Struggling French nuclear giant Areva (rebranded as Orano this year) slashed production more than a year ago. In August Paladin put its Langer Heinrich mine in Namibia on care and maintenance, although this week the Sydney-based miner said it's working on a possible restart of operations with vanadium as a byproduct (vanadium is trading at record highs and the only metal outperforming uranium).

In a research note on Kazatomprom, BMO Capital Markets says the production discipline from top miners will break the trend of rising global uranium inventories following the Fukushima nuclear disaster in Japan in 2011 and prompt the first production deficit in more than a decade.

And

China has 42 operating nuclear reactors, 16 reactors under construction and a further 43 planned. At the end of November, the country's national uranium corporation bought control of the Rossing uranium mine in Namibia. China is also behind the only sizeable uranium mine to come into production in the past few years, the Husab mine in Namibia, although ramp there has been slow.

Eoin Treacy's view -

Japan is steadily firing up its shuttered nuclear plants and considering China’s demand for clean energy it is unlikely to be deterred from continuing its construction program. Meanwhile when the world’s major producers find it more cost effective to buy in the spot market than produce the metal themselves then we know prices are depressed.



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December 07 2018

Commentary by Eoin Treacy

The U.S. Just Became a Net Oil Exporter for the First Time in 75 Years

This article by Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

The shift to net exports is the dramatic result of an unprecedented boom in American oil production, with thousands of wells pumping from the Permian region of Texas and New Mexico to the Bakken in North Dakota to the Marcellus in Pennsylvania.

While the country has been heading in that direction for years, this week’s dramatic shift came as data showed a sharp drop in imports and a jump in exports to a record high. Given the volatility in weekly data, the U.S. will likely remain a small net importer most of the time.

“We are becoming the dominant energy power in the world,” said Michael Lynch, president of Strategic Energy & Economic Research. “But, because the change is gradual over time, I don’t think it’s going to cause a huge revolution, but you do have to think that OPEC is going to have to take that into account when they think about cutting.”

 

Eoin Treacy's view -

It feels like yesterday when we first started talking about unconventional gas, and later oil, as being gamechangers for the energy sector. Looking back at the archives it was 12 years ago. The shift in US production from what looked like terminal decline to virtual energy independence is something the market is still coming to terms with.



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December 06 2018

Commentary by Eoin Treacy

Riding in Waymo One, The Google Spinoff's First Self-Driving Taxi Service

This article by Andrew Hawkins for the Verge may be of interest to subscribers. Here is a section:

Over the course of three separate trips in Chandler, the trained drivers in my Waymo vehicles never take control. I’ve ridden in a Waymo vehicle without a human being in the driver’s seat once before, but it was not on public roads. I was fully prepared to experience a fully driverless ride while in Chandler, but, alas, Waymo rejected my request.

The rides are uneventful, but it is exciting to experience the little flourishes that have been added for ride-hailing customers. The minivans still smell new, or at least recently cleaned. The screen on the back of the driver’s headrest features a large blue “start” button that I could press to initiate the ride. (There’s also a physical button in the headliner of the vehicle that performs the same task.) After pressing the button, a musical chime sounds and a robotic-sounding woman’s voice says, “Here we go.”

As I said, I’m an experienced Waymo rider — three trips and counting — but this one feels more mature. Before, it felt like you were being driven by your half-blind grandmother, but now, riding feels… mostly normal. The car slows down for speed bumps, accelerates for lane changes, and handles a number of difficult maneuvers like unprotected left turns. And it even surprises me a couple of times, like when it ended up braking too far into the crosswalk at an intersection, and then reversed back a few inches to make room for pedestrians. Of course, it probably shouldn’t have stopped so abruptly in the first place, but it is still comforting to see the car correct its mistakes in real time.

Eoin Treacy's view -

This is perhaps the biggest news this week, even though the arrest of Huawei’s CFO and the tightening of liquidity are what are making global headlines.

Waymo are going slow on rolling out autonomy because they are very aware of the damage road deaths by semiautonomous vehicles have caused to companies like Uber and Tesla. However, the important point is riders are reporting the cars are delivering smoother rides and fewer unexpected stops where the car has to pause and figure out what to do next.



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December 03 2018

Commentary by Eoin Treacy

Oil Jumps Most Since June on Saudi-Russian Pact, Trade War

This article by Alex Nussbaum for Bloomberg may be of interest to subscribers. Here is a section:

“There’s going to be a cut, I think it’s going to be more than people expected, and I think the market realized that today,” said Bob Iaccino, chief market strategist at Chicago-based Path Trading Partners.

For a time, oil pared gains on Monday after an OPEC advisory panel was said to make no recommendation for action and people familiar with negotiations said Russia and the Saudis still haven’t agreed on details of a cut. Iranian OPEC Governor Hossein Kazempour Ardebili, meanwhile, raised doubts about whether producers can reach unanimity in Vienna.

 

Eoin Treacy's view -

The big news from the oil market has been the decision by Alberta to reduce supply by 385000 barrels a day. That’s a direct response to the plummet in Western Canada Select from a peak near $60 to $13 last week. This also highlights how it is marginal suppliers reliant on high prices for profitability are most at stress in the evolving secular bear market.



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November 29 2018

Commentary by Eoin Treacy

Long-term themes review October 29th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities.

2018 has represented a loss of uptrend consistency for the S&P500 following a particularly impressive and persistent advance in 2016 and 2017. Many people are therefore asking whether this is a medium-term correction or a top. There is perhaps no more important question so let’s just focus on that for the moment.



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November 23 2018

Commentary by Eoin Treacy

BP Starts Production at Massive North Sea Oil Development

This article Sarah Kent for the Wall Street Journal may be of interest to subscribers. Here is a section:

Clair Ridge is expected to reach a production plateau at a peak of 120,000 barrels of oil a day and is designed to run for 40 years. The companies are currently evaluating the potential for a third project within the field to expand output even further.

It’s BP’s sixth new project to start production this year, the latest marker of the company’s return to growth after years of retrenchment in the wake of its fatal blowout in the Gulf of Mexico. To pay for the 2010 disaster, which killed 11 people and caused the worst offshore oil spill in U.S. history, BP was forced to sell off billions of dollars of assets, shrinking its production.

But a string of new developments that started up over the past two years is reversing that trend, and BP is closing in on its ambition to regain its former size. The company’s production averaged 3.6 million barrels a day in the first nine months of the year, up nearly 3% compared with the same period in 2017. Output will receive a further boost from its recent $10.5 billion acquisition of BHP Billiton Ltd’s shale assets.

Eoin Treacy's view -

Saudi Arabia pumping at capacity is one factor in the decline of oil prices and speculation is rife whether that is a quid pro quo for President Trump’s assistance in Khashoggi assassination scandal.



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November 23 2018

Commentary by Eoin Treacy

Japan's Inflation Stalls at 1% as Risks to Price Gains Gather

This article by Yuko Takeo for Bloomberg may be of interest to subscribers. Here is a section: 

Slow but steady improvement in Japan’s core inflation gauge has come to a halt as a host of forces gather that could see price gains begin to slow.

Consumer prices excluding fresh food rose 1 percent in October from a year earlier, as expected by economists. That’s just half way to the Bank of Japan’s 2 percent target with the prospect of falling energy costs and lower charges from mobile-phone carriers pointing to weaker price growth ahead.

Eoin Treacy's view -

The decline in oil prices is a significant benefit for consuming nations like Japan, India and China. In that regard it is disinflationary rather than an outright drag on the economy. Nevertheless, Japan needs inflation so companies can regain pricing power and promote more dynamism in the economy.



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November 20 2018

Commentary by Eoin Treacy

Oil Legend Andy Hall Weighs Crude's Chance of Recovery on OPEC

This article by Aaron Clark for Bloomberg may be of interest to subscribers. Here is a section:

 

“The balance of risk at this point favors some sort of recovery,” the trader once known as ‘God’ in the industry due to his lucrative trades, said in a phone interview Friday. “It’s quite likely OPEC will come through with some sort of cut in the next month or two.”

Demand has taken a downturn probably because of a stronger dollar against emerging market currencies, or on concern the trade war between the U.S. and China is beginning to curb economic growth, according to Hall. West Texas Intermediate crude is in a bear market after plunging from a four-year high in October and is trading near $57 a barrel following the biggest gain in U.S. stockpiles in 21 months.

“When you know you’ve got prices in 2020 and beyond for WTI down below $60 a barrel, almost down to the mid-$50s further along the curve, I think that is essentially at the bottom,” said Hall.

Eoin Treacy's view -

Brent crude oil prices have been unable to sustain a rally of more than $3 since early October. Seven consecutive weeks on the downside have unwound the commodity’s entire advance for the year and in the process a deep short-term oversold condition has evolved. That suggests potential to a bounce and reversionary rally back towards the mean is improving.



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November 19 2018

Commentary by Eoin Treacy

Technology Megatrends Leading to the Disruption of Transportation 2020-2030

Thanks to a subscriber for this presentation by Tony Seba which may be of interest.

Eoin Treacy's view -

Perhaps the most interesting part of the discussion focuses on the rate at which the cost of producing batteries is accelerating to almost 20% per annum.
 
That holds out the prospect of batteries becoming commoditised in the same way as solar cells when production comes on lines. For the shares of battery producers that is likely to represent a challenge but not quite yet considering the supply inelasticity argument that still prevails within the market.



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November 16 2018

Commentary by Eoin Treacy

China Is Giving the World's Carmakers an Electric Ultimatum

This article from Bloomberg News may be of interest to subscribers. Here is a section:

The world’s biggest market for electric vehicles wants to get even bigger, so it’s giving automakers what amounts to an ultimatum. Starting in January, all major manufacturers operating in China—from global giants Toyota Motor and General Motors to domestic players BYD and BAIC Motor—have to meet minimum requirements there for producing new-energy vehicles, or NEVs (plug-in hybrids, pure-battery electrics, and fuel-cell autos). A complex government equation requires that a sizable portion of their production or imports must be green in 2019, with escalating goals thereafter.

The regime resembles the cap-and-trade systems being deployed worldwide for carbon emissions: Carmakers that don’t meet the quota themselves can purchase credits from rivals that exceed it. But if they can’t buy enough credits, they face government fines or, in a worst-case scenario, having their assembly lines shut down.

Eoin Treacy's view -

China is the world’s largest market for automobiles so what they decide is permissible within their market is likely to shape the plans of manufacturers for the globe. One of the primary reasons companies have been announcing plans for lots more electric and hybrid vehicles over the coming years is because of the Chinese mandates. That is the primary driver behind the capacity build in the battery sector which needs to ramp up substantially if the demand growth profile is to be reached.



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November 08 2018

Commentary by Eoin Treacy

OPEC Considers 2019 Oil Production Cuts in Yet Another U-Turn

This article by Grant Smith and Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

Earlier in the summer, prices began to surge as the risk of production shortfalls from sanctions on Iran and Venezuela’s economic collapse rattled the market. Losses from those two OPEC members threatened the biggest supply disruption since the start of the decade and Brent crude eventually peaked above $86 a barrel last month.

Since then, big things have happened on the other side of the supply equation. OPEC has been in “produce as much as you can mode” to reassure consumers, according to Saudi Energy Minister Khalid Al-Falih. The kingdom has lifted output close to record levels, while Libya is pumping the most in five years. Unexpected waivers for buyers of Iranian crude have blunted the impact of U.S. sanctions.

Then there’s the small matter of American production growing at the fastest rate in a century, just as fuel demand is at risk from the slowdown in emerging economies and the U.S.-China trade war.

Eoin Treacy's view -

The Brent Crude price trended higher in a consistent manner for more than half of 2017 with each $5 range being one above another. Then the price pulled back by $10 in 2018 before rallying $20 from the low, pulled back by $10 and if consistent would have been expected to rally $20. However, the rally did not quite manage to extend its breakout by that much and has now experienced a much larger reaction. Additionally, the price is back below the trend mean. A deep short-term oversold condition is now evident but a clear upward dynamic will be required to check supply dominance.



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November 06 2018

Commentary by Eoin Treacy

Oil Heads For 8-Month Low as Specter of Global Shortage Fades

This article by Samuel Robinson for Bloomberg may be of interest to subscribers. Here is a section:

“Oil prices don’t have any real reason to rally significantly,” said Phil Streible, senior market strategist at R.J. O’Brien & Associates LLC in Chicago.

Crude has tumbled about 20 percent since touching a four-year high last month as bearish supply signals around the globe crowded out concerns about disrupted exports from Iran and Venezuela. The waivers announced this week by U.S. Secretary of State Mike Pompeo apply to China, India and six other nations.

“The U.S. has for now given a lifeline to Iran,” said Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland. “The end result of the sanctions is softer than expected. The final outcome of the sanctions also confirms the political fear of high gasoline prices.”

 

Eoin Treacy's view -

By issuing exemptions to tariffs to China and India, Iran can now import equipment and material from those countries to try and boost production. That essentially hands the Iranian oil market over the Asia and pretty much re-establishes the status quo that existed before the liberalisation agreement was put in place.



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October 25 2018

Commentary by Eoin Treacy

Long-term themes review October 4th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.



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October 22 2018

Commentary by Eoin Treacy

Howard Marks: Why the Word "When" Is Dangerous

This interview from the Motley Fool may be of interest to subscribers. Here is a section:

3. The words you should never say

Bill Mann: Do you think that there are opinions or beliefs in the market that you find to be particularly unhealthy for investors?

Howard Marks: The first thing (and I try to make this clear in the book, and it's essential if people are going to be able to deal with cycles) is everybody wants an easy answer. Everyone wants to know how long an upswing lasts. And the first step is you must dispense with any concept of regularity.

The whole book is based around Mark Twain's statement that history does not repeat but it does rhyme. When he says it doesn't repeat, in our case he wasn't talking about the market. He was talking about history. But the truth is market cycles vary one to the next in terms of their amplitude, their speed, their violence, their duration. It's all different. And so people want to know how long an upswing is and the answer is we absolutely can't tell them. So expecting regularity and, thus, predictability is wrong.

And then you can go from there to the whole concept of predictions. What makes the market go up and down? To a small extent it is what I call fundamental developments in the economy and the companies. But to a large extent it's psychology or, let's say, popularity. And it should be clear by now to everyone that the swings in popularity are unpredictable. And if they are, then most forecasts are not going to work.

So the next concept is that people say to me, "OK, when will the market turn down?" And I never answer a question that starts with the word "when." In the investment business, sometimes we know what's going to happen. We never know when. So I would dispense with that immediately.

You must accept the ambiguity in the situation and accept the need to live with uncertainty. And that's why in the book I say there are certain words that every good investor should drive out of his vocabulary. Things like never, always, must, can't, has to. These words are out. We can talk about likely events. We can talk about probabilities. More and less likely. But we can never say has to or won't.

Eoin Treacy's view -

One of the biggest lessons from The Chart Seminar in my view is that it is senseless to tell the market what to do. It doesn’t listen. We need to foster the humility to allow the price action to unfold as it will and tailor our tactics accordingly. To do other than react to reality is to engage in fantasy.

At The Chart Seminar, we talk about distilling everything in the market down to two things. Money flows and crowd psychology. We use charts to monitor both. It is impossible to predict exactly where a top might appear but we can narrow the range down to when monetary policy is restrictive and investors are overenthusiastic.

The three primary trends are acceleration, a massive reaction against the prevailing trend and ranging, time and size. Let’s look at some examples.

Amazon has a history of accelerating. It’s half the reason people want to own the share. Every time it accelerates it has reverted to the mean so each of the accelerations is a minor trend ending. The primary consistency of the trend is it finds support in the region of the trend mean, consolidates for a while and rebounds. It has paused at big round numbers like $1000, $1500 and $2000 so the current pullback falls into the ‘normal’ category provided it finds support in the region of the trend mean.

Microchip Devices has posted a massive reaction against the prevailing trend over the last few weeks. Prior to that it exhibited a loss of momentum, greater volatility and failed upside breaks which all constituted a lengthier range. The clear downward dynamic is a trend ending characteristic.

It is quite normal that after a Type-2 topping characteristic we see a range develop below the peak, which can be considered a period of right-hand extension or a first step below the top.

Oil ranged mostly between $100 and $120 between 2011 and the middle of 2014. That lengthy range corresponded with a high degree of confidence the $100 level would hold so when it declined below that level it triggered a lot stop and the price collapsed. The prior to formation was represented by ranging, time and size.

Meanwhile, Microsoft remains in a reasonably consistent medium-term uptrend, characterised by a succession of short-term ranges one above another. Provided the $100 level holds as an area of support during this reaction the trend can be considered consistent.

The next venue for The Chart Seminar will be in London on November 12th and 13th. Please contact Sarah at sarah@fullertreacymoney.com to secure your place.



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October 19 2018

Commentary by Eoin Treacy

Email of the day on timelines to implementing new technologies

About the development of technologies in Batteries and EV, I think a great standpoint is that of Umicore (UMI BB), which is one of the main producers of cathodes. They had their Capital Market Day in June, and with a bit of patience one can follow the webcast on their site here:  , and specifically the part presented by Mr Vandeputte 

One of the points made is that manufacturing autos is complex to the point no one takes on technological risk with a light heart, so the technology currently in use will probably stay around for a years before we get some leap forward into something different such as solid-state batteries.

Eoin Treacy's view -

Thank you for this informative email as well as the reports from Umicore which I’m sure will be of interest to the Collective. Much of the investment focus for batteries has been on lithium but as you say other battery components also offer investment avenues for the sector.



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October 15 2018

Commentary by Eoin Treacy

Plenty of Oil, Just Not in the Right Places

This article by spencer Jakab for the Wall Street Journal may be of interest. Here is a section:

The market isn’t tight everywhere, though. As evidenced by prices, there are localized gluts and producers who would gladly put more supply on the market if logistics would oblige. U.S. benchmark crude futures, priced at Cushing, Okla., are $9.00 a barrel below Brent and cash prices in the prolific Permian Basin are even cheaper. A lack of pipeline capacity is to blame.

None of that holds a candle to western Canada at the moment. Western Canada Select crude cash prices are now $46 a barrel below Brent. Pipeline and rail capacity already was stretched and, according to JBC Energy, a gas pipeline incident in the Pacific Northwest has worsened the situation significantly. Refineries in the region have had to scale back operations and thus crude purchases.

Eoin Treacy's view -

West Canada crude is trading at its widest discount to Brent Crude since at least 2013. At $57, as of Friday’s close, that is enough of an incentive to use any means available to get the oil to market. If previous spikes in the spread are any guide that is exactly what we can expect over the coming months.



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October 12 2018

Commentary by Eoin Treacy

Tesla's Model 3 Sedan Production Cruises Past the 100,000 Mark

This article by Tom Randall for Bloomberg may be of interest to subscribers. Here is a section:

Expanded production comes with downsides, however. Tesla posted on its website Friday that buyers must place their orders by Oct. 15 to get their car by the end of the year and qualify for the expiring U.S. federal tax credit. Tesla was the first company to sell 200,000 electric cars cumulatively in the U.S., which triggers the gradual phase-out of the subsidy. The $7,500 credit will drop by half for Tesla on Jan. 1.

Musk boasted in 2016 that Tesla would make more than 100,000 Model 3s by the end of 2017. It didn’t work out that way. As often happens on Musk time, Tesla arrived late to an impossible goal. But Model 3 production now appears to be cruising—from the first cars off the line in July 2017, it took about 14 months for the company to build the initial 100,000 Model 3s. At the current rate of production, it will build the second 100,000 in less than six months.

Eoin Treacy's view -

This is a good news story for Tesla. Getting production numbers up is essential if the company is going to reach the economies of scale necessary to ever make a profit. The big question which I have seen addressed is what that number is? Musk has stated on more than one occasion that he wants to get the price of a Model 3 down to around $35,000 but how many of them will the company have to make to make a profit at that price?



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October 03 2018

Commentary by Eoin Treacy

Long-term themes review August 15th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities. 



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September 28 2018

Commentary by Eoin Treacy

Oil on Biggest Tear in Decade as Global Supply Cushion Vanishes

This article by Samuel Robinson for Bloomberg may be of interest to subscribers. Here is a section:

Fears are growing that the constriction of Iranian exports by U.S. sanctions and the collapse of Venezuela’s oil industry will leave a deep shortfall in the market. Those worries have only been stoked this week as key producers from Saudi Arabia to Russia and the U.S. signaled their reserves are off limits.

Some of the world’s largest oil producers and traders are warning that triple-digit prices could soon return, with negative consequences for the economy.

“There is concern in the market that the loss of barrels from Iran and Venezuela is not going to be made up for through extra supplies from particularly Saudi Arabia and Russia,” said Gene McGillian, manager of market research at Tradition Energy. “Worries about trade relations affecting economic growth have fallen away.”

Eoin Treacy's view -

Venezuela is unlikely to reverse supply declines under the current administration. Iran’s export capacity has bene constrained by sanctions. Libya is also struggling to increase supply. Meanwhile we seldom hear that Mexico’s supply has been trending lower for years and shows little sign of improving. The bright spot is Texas supply bottlenecks may be easing with a tightening spread between Midland and Cushing prices.



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September 24 2018

Commentary by Eoin Treacy

Oil Traders Say $100 Coming as OPEC Strains to Fill Iran Gap

This article by Javier Blas, Heesu Lee, Alfred Cang and Dan Murtaugh for Bloomberg may be of interest to subscribers. Here is a section:

Major oil trading houses are predicting the return of $100 crude for the first time since 2014 as OPEC and its allies struggle to compensate for U.S. sanctions on Iran’s exports.

With Brent crude already jumping to an almost four-year high on Monday, that’s exactly the kind of price surge President Donald Trump has been seeking to prevent by pressuring the Organization of Petroleum Exporting Countries to raise production. Yet the cartel and its allies gave mixed signals at a meeting in Algiers on Sunday, ultimately showing little sign they would heed U.S. demands to rapidly push down crude prices.

OPEC’s reticence, combined with signs of accelerating supply losses from Iran, created a bullish mood the annual gathering of the Asian oil industry, traders, refiners and bankers in Singapore on Monday.

“The market does not have the supply response for a potential disappearance of 2 million barrels a day in the fourth quarter,” Mercuria Energy Group Ltd. co-founder Daniel Jaeggi said in a speech at the S&P Global Platts Asia Pacific Petroleum Conference, knows as APPEC. “In my view, that makes it conceivable to see a price spike north of $100 a barrel.”

Eoin Treacy's view -

Saudi Arabian official stated only last week that they are comfortable with the idea of oil trading above $80 so it is not so surprising that OPEC is not racing to increase supply not least since its members all rely on high oil prices to balance their budgets.



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September 17 2018

Commentary by Eoin Treacy

How an Aussie miner and American tech company plan to extract lithium quickly in Argentina

This article by Valentina Ruiz Leotaud may be of interest to subscribers. Here is a section:

What sets this partnership apart is that both the miner and the techie claim they can produce lithium carbonate or lithium chloride more rapidly and at a lower cost than others. According to Lilac, this is possible because its system eliminates the need for sprawling evaporation ponds, which are expensive to build, slow to ramp up, and vulnerable to weather fluctuations.

“Even for the world's best lithium reserves in the Atacama desert, conventional evaporation ponds take many years to ramp up and remain vulnerable to weather volatility. Lilac's projects will run at full capacity from year one of commissioning and maintain that output regardless of weather or brine chemistry. We have done benchtop testing in other brines and we saw recoveries over 95% in less than 2 hours versus 9-24 months in evaporation ponds,” the company’s CEO, Dave Snydacker, told MINING.com.

Snydacker explained that the reason why the processes run by his company are so fast is that his engineers have developed ion exchange beads that absorb lithium directly from the brine. Once they do that, the beads are then loaded into ion exchange columns and brine is flowed through such columns. As the brine contacts the beads, the beads absorb the lithium out of the brine. Once the beads are saturated with lithium, the alkali metal is recovered from them as a lithium solution, which is later on processed into battery-grade lithium carbonate or lithium hydroxide using streamlined plant designs.

Eoin Treacy's view -

I described the lithium market as an example of supply inelasticity meets rising demand as early as 2013. What is apparent today, following massive investment in additional supply, is that is no longer true. In fact, as demand for the commodity ramps up technological innovation is contributing to the ability suppliers to more than keep pace.



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September 13 2018

Commentary by Eoin Treacy

The United States is now the largest global crude oil producer

This article from the EIA by Candice Dunn and Tim Hess may be of interest to subscribers. Here is a section:

The United States likely surpassed Russia and Saudi Arabia to become the world’s largest crude oil producer earlier this year, based on preliminary estimates in EIA’s Short-Term Energy Outlook (STEO). In February, U.S. crude oil production exceeded that of Saudi Arabia for the first time in more than two decades. In June and August, the United States surpassed Russia in crude oil production for the first time since February 1999.

Although EIA does not publish crude oil production forecasts for Russia and Saudi Arabia in STEO, EIA expects that U.S. crude oil production will continue to exceed Russian and Saudi Arabian crude oil production for the remaining months of 2018 and through 2019.

U.S. crude oil production, particularly from light sweet crude oil grades, has rapidly increased since 2011. Much of the recent growth has occurred in areas such as the Permian region in western Texas and eastern New Mexico, the Federal Offshore Gulf of Mexico, and the Bakken region in North Dakota and Montana.

Eoin Treacy's view -

The embedded charts in this article tell an important story of renewal in the US onshore domestic supply market versus the relatively stagnant supply growth in both Russia and Saudi Arabia. 



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September 07 2018

Commentary by Eoin Treacy

MIT study sees nuclear power as integral to a low-carbon future

This article by David Szondy for NewAtlas.com may be of interest to subscribers. Here is a section: 

Much of this is a matter of intense debate, but one big problem is that if the world is to invest in a policy of deep decarbonatization by the year 2050, there is a real chance it can only be done at either massive expense or the price of much less electricity being available at higher costs, lower standards of living in both the developed and developing world, and even a shrinking global economy.

To prevent this from happening, the MIT study says that nuclear power with its zero-carbon emissions must play a much larger role in electricity generation on a global scale. Today, the total share of global nuclear power as a primary energy source is a mere five percent, with very little growth in the West and some countries actually abandoning the technology.

Eoin Treacy's view -

If we wish to cut down on carbon emissions then renewables are certainly a way to do it but they do not get around the questions of sustaining base load when the wind does not blow or the sun does not shine. That means we need to have a lot more industrial sized batteries to store energy for the proverbial “rainy day” or we need additional back up conventional generators. Nuclear is carbon neutral but is also prone to massive cost overruns and accidents, however rare, tend to influence public opinion for decades.



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September 04 2018

Commentary by Eoin Treacy

Musings From The Oil Patch September 4th 2018

We listened to Catherine Wood, founder and CEO of ARK Investment Management, LLC, expound to CNBC anchors why her firm was adamantly opposed to Elon Musk’s proposal to take Tesla, Inc. (TSLA-Nasdaq) private.  Her argument was that ARK’s research showed that by 2023 annual electric vehicle (EV) sales would be 17 million units per year worldwide.  Tesla, because of its focus on software, its ability to collect the driving mileage of its vehicle purchasers, and its vision about Mobility-as-a-Service (MaaS), coupled with its ability to create a fleet of four million EV taxis, would be worth nearly $1 trillion, in less than five years, earning shareholders a 17-fold return from the current share price.  

The day following this interview, Mr. Musk announced he was dropping the idea of taking Tesla private.  He stated that he changed his mind because his shareholders told him that they didn’t want him to make such a move.  Was Ms. Wood one of those shareholders Mr. Musk decided to listen to?  He had spent an incredible amount of time and energy since his tweet about privatizing Tesla in preparing for the move, as well as defending himself from a Securities and Exchange Commission (SEC) investigation about possible investment fraud.  That inquiry will not go away as easily as merely changing his mind, and we have yet to hear from the plaintiffs’ attorneys.  

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The emissions cheating scandal and the increasing utility of electric vehicles means established auto manufacturers have to spend very large sums to retool and get electric vehicles to market. Audi announced yesterday it has started production of its electric SUV and Daimler said today that it is going to spend more than €10 billion to develop its electric vehicle fleet.



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August 27 2018

Commentary by Eoin Treacy

2030 Energy Mix: Key Regional Trends Marching Towards A Cleaner Future

Thanks to a subscriber for this report from DBS Group which may be of interest. Here is a section:

As can be seen from the table above, the trend of energy efficiency improvements or declines in energy intensity is not uniform across time periods for various country groups or for individual countries. For developed or high-income countries, the trend is most secular with improving efficiency in every time period as we move forward in time. However, for middle and low-income countries, periods of high growth may be associated with high energy intensity, which could slow down the overall improvement rate. This is most apparent for China in the 2000-2010 timeframe, where very high GDP growth rates coincided with lower focus on energy efficiency. Energy efficiency has now picked up again in the current decade, where Chinese GDP growth has moderated and a focus on environment friendly energy practices has evolved. Move over to low-income countries like India, and it seems that improvements in energy efficiency are lower in the current decade owing to higher economic growth. Thus, the Chinese pattern could repeat for emerging countries like India, which will likely moderate the pace of energy efficiency improvements to an extent as we move toward 2030.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

It is easy to conclude high income countries are more efficient because they are more technologically sophisticated than developing economies. The secular trend toward greater energy efficiency in high income countries and the corresponding evolution of technology is supportive of that conclusion.



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August 22 2018

Commentary by Eoin Treacy

Major lithium-ion battery manufacturer planning output that may rival entire 2015 LIB market: analysts

This article by Michael Allan McCrae for Mining,com may be of interest to subscribers.

LG Chem, a major South Korean lithium-ion battery manufacturer, is increasing its cell manufacturing capacity to such an extent that it may surpass the entire LIB market in both output and raw material consumption from just three years ago.

Roskill, industry analysts that ran the numbers on LG Chem's planned output, says that South Korean manufacturer plans to increase capacity to 90GWh in 2020 from a previous forecast of 70GWh.

"Assuming 100% of output was to be NMC532, 90GWh would require around 100kt of cathode, containing 40kt nickel, 22kt cobalt, 16kt manganese and 50kt lithium (carbonate equivalent), and 90kt of anode materials which could be 100% graphite," writes Roskill.

"If producing at capacity, LG Chem’s LIB output and raw material consumption would be greater than the entire LIB market in 2015."

LG Chem, South Korea's largest chemical company, is one of the top five LIB manufacturers. It makes batteries for the Ford Focus, Chevrolet Volt and Renault ZOE.

LG Chem has been making deals to ensure it has raw material. This past spring Zhejiang Huayou Cobalt and LG Chem announced they are planning a cathode material facilities with capacity of 40,000tpy and 100,000tpy capacity planned for future. It also signed deals other raw material deals with Nemaska Lithium and Ganfeng Lithium.

While cobalt and lithium prices are currently falling, Roskills says cell manufacturers are locking in supply and ". . . that activity in the sector continues at a rapid pace."

Eoin Treacy's view -

The auto-manufacturers sector remains under stress because of continued issues with revelations about emissions cheating; most recently in Japan. The cost of meeting current emissions standards not to mention the tightening of regulations slated for the next few years represents a significant cost for just about all conventional car manufacturers. The fact the majority of manufacturers are planning on releasing electric vehicles is as much about responding to Tesla’s success as it is about the challenge of meeting regulations that are now going to be enforced.



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August 21 2018

Commentary by Eoin Treacy

Musings from the Oil Patch August 21st 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:

August 17 2018

Commentary by Eoin Treacy

Uranium: Time "U" move?

Thanks to a subscriber for this report from Canaccord Genuity which may be of interest. Here is a section:

August 07 2018

Commentary by Eoin Treacy

Musings From the Oil Patch August 7th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may on this occasion focuses on the impending IMO 2020 regulations for ship emissions. Here is a section:

Eoin Treacy's view -

A link to the full report and a section from it is posted in the Subscriber's Area.

The Baltic Dry Index has base formation characteristics and exhibits a rounding characteristic associated with accumulation over the last five years. The pace of scrapping older ships is increasing as shipping rates are low and scrap prices are high so that will create a supply inelasticity environment eventually. Retrofitting costs of older ships both to comply with tighter emissions standards and new ballast water regulations mean the pace of scrapping is likely to increase.



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July 26 2018

Commentary by Eoin Treacy

Musings from the Oil Patch July 24th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. This week it contains some interesting commentary on natural gas. Here is an excerpt:

Natural Gas: The Forgotten Fuel’s Future Needs LNG Exports 

One can be forgiven if he/she believes only crude oil news is important to the energy sector.  The volatility of crude oil prices, coupled with the OPEC meeting drama and President Donald J. Trump’s twitter campaign against high oil prices, provides opportunities for shocking headlines and non-stop commentary by the media.  On the other hand, if your business is tied to natural gas, you can be excused for believing it’s pretty boring since no one is talking about gas.   

Eoin Treacy's view -

                    



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July 17 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.



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July 16 2018

Commentary by Eoin Treacy

Trump Says U.S. to Compete With Russia for Europe Gas Market

This article from Bloomberg news may be of interest to subscribers. Here is a section:

But Europe may have difficulty attracting gas cargoes from overseas, given higher prices in Asia. The WGI spot LNG assessment for Northeast Asia was $10.30 per million British thermal units on July 9, while U.K.’s National Balancing Point gas futures traded at $7.50 on Monday.

Longer term, gas export project developers in the lower 48 states may face delays as they wait for regulatory approval. Sefcovic called the U.S. approval process “redundant” and said it needed to be revamped.

Gazprom is Europe’s largest gas supplier and provides more than a third of the region’s needs in the fuel. Its chief executive officer, Alexey Miller, confirmed in June its plan to start laying the pipes in the next couple of months and to open the Nord Stream 2 link by late-2019. The project would cut Russia’s dependence on Ukraine and help meet additional demand for the fuel in the EU in next two decades as local production falls.

Meanwhile, Russia is unperturbed by the prospect of American LNG supplies to Europe. They “will never catch up with and will never surpass” Russian gas exports to the region, Miller said in June.

Eoin Treacy's view -

Gas is increasingly an international traded commodity with global markets expanding as more countries transition away from a reliance of coal for power generation and heating and from solid fuel or electricity for cooking. The USA has the potential to be a major gas exporter since it has more of the commodity than it knows what to do with but it will have a hard time competing with Russia for Europe’s market.



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July 16 2018

Commentary by Eoin Treacy

Long-term themes review June 22nd 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

I realise this summary at 4600 words is getting rather lengthy which is why I decided to right another book to more fully explore the issues represented by the rise of populism and what that means for markets and the global economic order. I’ve agreed an August/September deadline so hopefully it will be available this year.



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July 13 2018

Commentary by Eoin Treacy

Global Crude Oil Supply-demand

Thanks to a subscriber for this report from Nomura which may be of interest. Here is a section:

The IEA forecasts that US crude oil production will increase 1,720,000bbl/day in 2018 and 1,190,000bbl/day in 2019. In the Permian region, which has been driving growth in output, the lack of pipeline capacity is likely to persist until 2019. Because of this, Midland oil prices are some USD14/bbl lower than the WTI price. With issues including rising production costs and a lack of engineers, too, we think US shale oil output is unlikely to substantially exceed current forecasts even if tightening supply-demand causes oil prices to rise. See our 11 July 2018 Global research report US crude oil output - Sharp slowdown in pace of increase in 2019.  We estimate that US production forecasts are predicated on WTI price assumptions of USD55-60/bbl for 2018 and USD60-65/bbl for 2019. We estimate WTI of around USD70-75/bbl were the aforementioned short supply to be made up with increased output in the US.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The USA’s onshore production of oil and gas continues to surge, fuelled by access to cheap credit. If we cast our minds back to 2015, private equity firms had amassed massive sums to invest in energy and that has helped to fuel the surge in US supply over the intervening period.



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July 12 2018

Commentary by Eoin Treacy

Musings from the Oil Patch July 10th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. This week it contains some interesting commentary on estimates of sea level rises but here is a section on electric vehicle demand:  

There are many reasons why EVs are popular in California.  Continuing to lead national social trends, the large population of wealthy entertainment and technology people love to show off their social awareness credentials, while taking advantage of lucrative financial and other driving benefits by purchasing EVs.  Those benefits are being reduced as EV car manufacturers reach the limits at which federal tax subsidies for EVs are eliminated.  The state has recently decided to double down and boost spending to subsidize EV sales.  What is interesting, however, has been the elimination of the right to drive EVs in High Occupancy Vehicle (HOV) lanes in Southern California with one person, as too many vehicles have slowed lane speed and increased accident risk when EVs are entering and exiting HOV lanes.  When the Toyota Prius lost use of HOV lanes, sales fell the following year.  Prepare for similar shocks.  

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Tesla will soon or potentially already has achieved 200,000 vehicles in sales which will mean that the $7500 subsidy buyers receive when taking delivery of cars will disappear. That’s a headache for the hundreds of thousands of people waiting to get their model 3s.



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July 11 2018

Commentary by Eoin Treacy

Crude Crumbles Under Trade War That Imperils Economic Growth

This article by Jessica Summers for Bloomberg may be of interest to subscribers. Here is a section:

“There’s no doubt that that uncertainty continues to weigh, not only on the crude oil markets, but really all markets,” said Brian Kessens, who helps manage $16 billion in energy assets at Tortoise. As for the storage report, “there was a little bit of noise in the data. It just depends when the ships actually hit the docks.”

Oil topped $75 a barrel last week amid actual and anticipated supply disruptions from Canada to the Persian Gulf.

Saudi Arabia has promised to ramp up output to help cover shortfalls from other major suppliers, though some observers questioned the kingdom’s capacity to do so.

In the U.S. Gulf Coast region that includes refining centers in Texas and Louisiana, oil imports plunged by 1.13 million barrels last week, the steepest decline since September 2012, according to the EIA.

“There’s a sense that Saudi Arabia’s going to increase their exports to the U.S.,” Kessens said. “There’s a lingering sense in the back of people’s minds that we’ll see that a little bit later this summer.”

Eoin Treacy's view -

Oil prices have been firm because economic growth has been robust, OPEC had been reducing supply and major suppliers like Libya and Venezuela have dropped out of the market. News today that pro-government forces have retaken four of Libya’s export ports suggests supply will start flowing once more. Meanwhile the threat to China’s economy from a ratcheting up of tariffs is a simmering issue. 



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July 10 2018

Commentary by Eoin Treacy

Shipowners on Pace to Scrap $1 Billion in Oil Tankers This Year

This article by Costas Paris for the Wall Street Journal may be of interest to subscribers. Here is a section:

Some 1,000 vessels are broken up every year and their steel and other metals are melted or simply stacked up and sold to factories. The yards in the Indian subcontinent recycle around 80% of all ships, with the remainder going to China and Turkey, although Beijing has said it will suspend scrapping starting next year.

The average age of VLCCs going to scrap this year is 18.8 years, the youngest since 2013, according to VesselsValue. A ship’s average operational age is around 25 years, but after 15 years in the water, the vessel has to go through an extensive survey to determine if it is seaworthy. “An average survey costs about $2 million, and you have to do it again at 20 years, so a number of owners opt to scrap instead,” Mr. Sharma said.

The oil glut is also sending offshore rigs to scrapyards. It is a relatively new business that has boomed over the past five years, as the cost of drilling at sea is much higher than inland exploration. At least 18 rigs have been broken up so far this year, compared with 46 last year, according to GMS.

Eoin Treacy's view -

The cost of maintaining a fleet of aging ships has risen considerably over the last few years because of the imposition of the long-awaited restrictions on bilge water discharge and environmental restrictions on diesel fuel. That is in addition to the cost of supporting vessels in a hostile maritime environment. These costs are helping to remove excess inventory from the market after a lengthy bear market.  



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June 27 2018

Commentary by Eoin Treacy

Musings from the Oil Patch June 26th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:

To appreciate how the energy world is changing, two charts presented by Mr. Dale set the stage.  Global energy growth last year was 2.2%, up from 1.2% in 2016, and above the 10-year average of 1.7%.  That robust growth came as a result of strong global economic growth, but also due to a decline in energy productivity.  While the International Monetary Fund is warning of potential dark clouds on the horizon for global economic growth, its forecast remains robust, meaning energy growth is likely to remain high.  

Also important is the difference in where energy growth originated.  The driver for the above-average growth was the strength of the developed economies of the OECD, but also some deterioration in energy productivity.  However, nearly 80% of the total energy growth came from the non-OECD or developing economies of the world.  That is not surprising as they benefit from the global economic recovery, especially China.  China saw energy demand grow by 3%, nearly three times its growth rate of the past several years.  That higher growth was driven by recoveries in numerous high-energy sectors such as iron, crude steel and non-ferrous minerals.  Still, the high growth rate was well below China’s 10-year average rate, even though it was helped by a decline in energy intensity that was more than twice that of the global economy.  

The picture of primary energy fuel mix highlighted the title of Mr. Dale’s remarks – Two Steps Forward and One Step Back.  He pointed to the dramatic growth in natural gas and renewables as the two steps forward.  Combined, those two fuels accounted for 60% of the total growth in energy fuels.  

The backward step was the growth in coal usage.  In 2017, global coal use rose by 1.0%, or 25 million tons of oil-equivalent, marking the first annual increase since 2012.  The increase was driven by India, although China’s consumption also rose after declines in the three prior years.  

Eoin Treacy's view -

Batteries might eventually remove the need for quite so much back up conventional power generating capacity as renewable penetration of the energy market continues, but that is still some ways off. At present natural gas represents the happy medium between reliance on coal and the fact that renewables are not yet ready to stand on their own.



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June 22 2018

Commentary by Eoin Treacy

OPEC+ to Boost Oil Output After Saudis Secure Deal With Iran

This article by Wael Mahdi, Grant Smith and Nayla Razzouk for Bloomberg may be of interest to subscribers. Here is a section:

The final communique made no mention of whether the kingdom, or any other member, could compensate for losses elsewhere. Yet it said the group as a whole should strive for “overall conformity” of 100 percent, which in practice will only be achievable if those nations with spare production capacity step in to fill the gap left by others.

"The lack of specificity is bullish for prices,” said Joe McMonigle, senior energy analyst at Hedgeye Risk Management LLC. “It’s a mystery oil production increase because we don’t really know the final numbers."

Eoin Treacy's view -

OPEC is going to raise production by maybe 1 million barrels a day which is less than it could have. That probably represents the difficulty that exists in getting Saudi Arabia and Iran to agree on anything and suggests the market will be tighter than might otherwise have been the case.



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June 21 2018

Commentary by Eoin Treacy

Long-term themes review May 16th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:



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June 12 2018

Commentary by Eoin Treacy

Musings From The Oil Patch June 12th 2018

Thanks to a subscriber for this report edition of Allen Brooks’ ever interesting report for PPHB. Here is a fascinating section on energy efficiency statistics over the last 50 years:

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area.

There is no doubt that battery efficiency is improving and new solar innovation is being revealed on almost a weekly basis. There are laudable reasons for seeking to reduce carbon and nitrogen oxide emissions in our cities all of us can support. However, the question many people are worried about is whether this is merely transferring a problem from cities to less populated areas.



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June 12 2018

Commentary by Eoin Treacy

Truckers Protest High Gas Prices in Spotty Strikes Across China

This article by Te-Ping Chen for the Wall Street Journal may be of interest to subscribers. Here is a section:

While trucker protests in China have occurred in the past amid complaints of road tolls, fuel prices and excessive fees, Geoff Crothall, spokesman for the labor monitoring group, said he couldn’t recall trucker protests of a similar scale. He estimated thousands of truckers participated.

As they have the world over, gas prices have risen in China this year, by 8.6%, according to data from the Ministry of Commerce. Taxes and other fees generally make gas more expensive in China than the U.S., and on top of that the government sets the prices, lagging changes in international oil markets by 10 days or more.

China’s National Development and Reform Commission, which sets those prices, announced Friday that it would cut the retail price of gasoline and diesel by 130 yuan ($20.29) per ton for gasoline and 125 yuan per ton for diesel. The new prices, effective this past Saturday, reflect a recent retreat in global oil prices. In the central province of Anhui, a transportation hub where protests occurred, gasoline now costs $3.99 a gallon, and diesel $4.04 a gallon.

Rising fuel costs have elsewhere prompted worker frustrations to spill over, most notably in Brazil, where protesters blocked highways and halted shipments of food, fuel and medicine before the government called in the military to help end the strike. Other trucker protests have also recently broken out in Iran.

Eoin Treacy's view -

Trucking has been all over the news recently with strikes in China and Brazil over high fuel prices and low pay while the USA is in dire need of 50,000 drivers.  These trends point to the fact the USA is close to full employment so attracting workers is becoming an issue while all three countries share upward pressure on wages. Higher shipping rates are inflationary because it will put pressure on companies to cover the increasing costs by raising prices for the end customer.



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June 11 2018

Commentary by Eoin Treacy

Biggest Electric-Vehicle Battery Maker Soars 44% on Debut

This article by Ma Jie for Bloomberg may be of interest to subscribers. Here is a section:

Shares of the world’s biggest maker of electric-vehicle batteries jumped on their trading debut as investors bet on rising demand for new-energy cars worldwide.

Contemporary Amperex Technology Ltd. rose by the maximum 44 percent to 36.20 yuan at 10:17 a.m. in Shenzhen, China, valuing the company at about $12.3 billion. The manufacturer sold a 10 percent stake at 25.14 yuan a share in its initial public offering on May 30.

Investors are confident that CATL, as the company is known, can fend off rivals including Panasonic Corp. and continue to win orders as automakers move toward electric vehicles. CATL, whose customers include Volkswagen AG, had reduced the size of its IPO by more than half compared with its original ambitions because of declining margins and a cap imposed by Chinese authorities on price-earnings ratios in IPOs.

 

Eoin Treacy's view -

CATL produces more batteries than Tesla and is likely to continue to do so well into the future considering the pace of factory building it has planned. China has every intention of dominating the battery sector both because it is the largest auto market but also because it has a clear aim to become globally competitive in auto exporting. Additionally, as an energy importer it has a clear reason to reduce imports of oil if at all possible. That suggests China will be investing heavily in batteries for the foreseeable future.



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June 08 2018

Commentary by Eoin Treacy

Milestone claimed as experimental nuclear reactor reaches temperature of the Sun

This article by Nick Lavars for NewAtlas may be of interest to subscribers. Here is a section:

The pursuit of nuclear fusion is inspired by the collision of atomic nuclei in stars, which fuse together to form helium atoms and release huge amounts of energy in the process. If we can recreate this process we could have an inexhaustible supply of energy on our hands that brings no harmful by-products, such as carbon dioxide emissions or the radioactive waste generated at nuclear fission-based power plants like Fukushima and Chernobyl.

But to do that we need to create Sun-like conditions here on Earth, which calls to mind one requirement first and foremost – incredible amounts of heat. Tokamak Energy hopes to achieve this through what's known as merging compression, where running high currents through two symmetrical magnet coils generates two rings of plasma, or electrically charged gas, around them.

Eoin Treacy's view -

The ITER tokomak being constructed in the south of France is based on technology from the 1970s. It is coming at the problem of containing plasma by building a big containment unit which is costing upwards of $30 billion. Today, much stronger magnetic fields can be attained through the use of superconductors. That means experiments can be much smaller and cost a fraction of the ITER model.



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June 04 2018

Commentary by Eoin Treacy

Cobalt price: Congo production surges

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

Supply risks for cobalt are centred on the Democratic Republic of the Congo which is responsible for two-thirds of world output. And the country’s share will only increase over the next five years as Chinese investment in new mines come on stream.

The central African nation's output of cobalt – as a byproduct of copper production – is already soaring as top producer Glencore's operations in the country ramps up again after a refurbishment period.

The DRC produced 296,717 tonnes of copper in the first quarter of 2018, up 8.2% over the same period last year, the central bank said in a report on Thursday. Cobalt production in the first quarter of 2018 rose 34.4% to 23,921 tonnes. Global production last year was around 117,000 tonnes.

Eoin Treacy's view -

The oldest adage from the commodity markets is the cure for high prices is high prices. Cobalt is up 400% already so on the supply side there is real pressure to increase supply. On the demand side consumers are investing heavily in coming up with new chemistries to reduce cobalt intensity.



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June 01 2018

Commentary by Eoin Treacy

U.S. Oil Poised for Weekly Loss as Record Output Weighs on Price

This article by Tsuyoshi Inajima for Bloomberg may be of interest to subscribers. Here is a section:

While hedge funds invested in U.S. oil are betting pipeline bottlenecks will make Texas crude even cheaper, trading giants are seeing an opportunity to export millions of barrels as shale output continues to surge. For now, American price moves have favored the financial players. Meanwhile, Brent climbed last month following President Donald Trump’s decision to reimpose sanctions on Iran, and as Venezuelan output plunged amid an economic crisis.

Also at the forefront of investors’ minds is OPEC and the allies’ next step on output cuts. Saudi Arabia and Russia said last week that they are considering boosting production to ease potential supply disruptions in Iran and Venezuela after a global surplus was eliminated. Most producers weren’t consulted about the proposal, and officials from several producers said they disapproved of raising output.

 

Eoin Treacy's view -

The spread between West Texas Intermediate and Brent Crude is currently at $8.50 which is beginning to make headlines but the gap between the two benchmarks has been rising steadily for the last couple of years and broke out this week. The difference has been as high as $12 and even $16 as recently at 2014 so the argument for boosting exports is likely to be a hot topic of conversation in the USA.

 



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May 29 2018

Commentary by Eoin Treacy

Musings from the Oil Patch May 29th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may be of interest. Here is a section:

 

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area. 

There is no argument that the goal of reducing carbon emissions is a laudable one. However, shuttering the nuclear industry in Germany, which has neither a history of seismic or tsunami activity, is another example of how blind adherence to ideals rather than reality on the ground results in less than optimal outcomes. This is another symptom of the wider problem inside the EU where observance of ideals is prioritized over the needs of the population.



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May 29 2018

Commentary by Eoin Treacy

Oil Slips After Saudi-Russian Revival Talk `Popped the Bubble'

 

This article by Jessica Summers for Bloomberg may be of interest to subscribers. Here is a section:

 

“Clearly, the commentary from Russia and Saudi Arabia popped the bubble,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “There’s some legitimate skepticism about whether or not they will follow through. There is going to be nervousness right up until next month’s meeting.”

Eoin Treacy's view -

It is looking increasingly likely that a process of mean reversion is now underway for the oil price. The commitment to lower supply by both OPEC and Russia was one of the primary drivers behind the persistence of the advance over the last 18 months and that now appears to be over.



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May 25 2018

Commentary by Eoin Treacy

Saudis Signal Oil Output Boost, Offering Relief to Consumers

This article by Jack Farchy, Dina Khrennikova and Elena Mazneva for Bloomberg may be of interest to subscribers. Here is a section:

“Given current developments, with supply worries driving the price to $80, it would make perfect sense to remove the over-compliance by compensating for the shortfall from Venezuela,” said Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen.

Excess cuts amounted to about 740,000 barrels a day in April, according to estimates from the International Energy Agency. Without compensating supply from other members, this number looks likely to expand as the U.S. re-imposes sanctions on Iran and the collapse of Venezuela’s oil industry worsens.

Whether the size of the supply increase is ultimately "a million, more, or less, we’ll have to wait until June," when OPEC and its partners will meet, Al-Falih said. Novak echoed that, saying “it’s too early now to talk about some specific figure, we need to calculate it thoroughly.”

Typically, OPEC operates by consensus, meaning members that have little prospect of boosting production -- Venezuela, Iran and Angola -- would have to agree to the proposal.

Saudi Arabia has recently shown willingness to push prices higher to bankroll domestic economic reforms and underpin the valuation of its state oil company in a planned initial public offering. That appears to be changing, with the Aramco listing delayed until 2019 and Brent crude flirting with the kingdom’s desired price of about $80 for most of this month.

Eoin Treacy's view -

The USA has re-imposed sanctions on Iran and no one is likely happier about that than Saudi Arabia. That is also likely to have a played a role in the decision to help rebalance the oil market. Brent crude is no longer in backwardation between the first and second months suggesting some of the near-term pressure on supply is easing.



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May 25 2018

Commentary by Eoin Treacy

Renewable energy: A green light to Copper Demand

Thanks to a subscriber for this report for BMO which may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

There is always a new demand led story in any bull market and renewables do represent such an opportunity. However, the success of that new idea is dependent on the conventional sources of demand remaining on a steady trajectory and it is in that regard that doubts tend to be raised about copper.



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May 24 2018

Commentary by Eoin Treacy

Petrobras Punished by Wall Street for Caving on Fuel Prices

This article by Peter Millard for Bloomberg may be of interest to subscribers. Here it is in full:

The reaction was swift and severe. Petrobras Chief Executive Officer Pedro Parente woke up this morning to a wave of downgrades from the same Wall Street analysts who had been praising him since he took the helm of the state-controlled oil producer two years ago.

Bank of America Merrill Lynch, Morgan Stanley and Credit Suisse Group AG all cut their recommendations after Parente announced a 10 percent cut in wholesale diesel prices late Wednesday to help the government negotiate an end to a nationwide truckers strike that has wrought havoc on Latin America’s largest economy.

“The just announced diesel price reduction in response to truckers’ protest is likely to materially damage Petrobras’ perceived independence in a way that may be difficult to recover,” Frank McGann, an analyst at Merrill Lynch, wrote in a report where he cut his recommendation on the company’s American depositary receipts to neutral and his price objective to $17.

“We think that the investment case for Petrobras has been seriously damaged, and the risk profile has risen.”

While Parente said Petrobras isn’t bowing to pressure and that the temporary measure doesn’t mean a change in its pricing policy, shares extended losses in after hours trading to as low as $13.40 in late New York trading.

Eoin Treacy's view -

Petrobras is a major constituent in global high yield benchmarks so its decision to cut price against a rising oil price environment is not especially good news. Along with Turkey and Argentina, the risk in the high yield sector has increased this year.



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May 17 2018

Commentary by Eoin Treacy

Global surge in air-conditioning set to stoke electricity demand

Thanks to a subscriber for this article by Ed Crooks for the Financial Times which may be of interest. Here is a section:

Over the next 30 years, air-conditioning could increase global demand for electricity by the entire capacity of the US, the EU and Japan combined, unless there are significant improvements in the efficiency of the equipment, the IEA warned.

In a report released on Tuesday, the agency urged governments to use regulations and incentives to improve the efficiency of air-conditioning units, to avoid a surge in demand that could put strains on energy supplies and increase greenhouse gas emissions.

Fatih Birol, the IEA's executive director, said: “This is one of the most critical blind spots in international energy policy.”

Air-conditioning has had an enormous effect on the quality of life in hot regions, but its use is unevenly distributed around the world. About 90 per cent of homes in the US and Japan have air-conditioning, compared with about 7 per cent in Indonesia and 5 per cent in India.

Electricity used for cooling in the US is almost as great as the entire demand for power in Africa.

Eoin Treacy's view -

A link to the full article is posted in the Subscriber's Area.

There was a story a few years ago where world leaders were asked what the greatest invention of the 20th century was. Some said the electrical grid but the Prime Minister of Singapore said air conditioning. He opined that without it most people in the country would still be seeking shelter from the heat under the nearest tree.



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May 17 2018

Commentary by Eoin Treacy

Email of the day on the high cost of electric vehicle subsidies

I just returned from a very eye-opening trip to Arizona, visiting Scottsdale (in the Sonoran desert) and the mountains of Northwestern Arizona. We flew into Phoenix and drove a lot. We saw zero Teslas. I'm told there are a few around Phoenix. But with the poor performance of electric vehicles in both cold and hot environments, it probably should not be shocking.

Going to Arizona from California is like going from lala land, where the majority of people are drinking weird kool-aid, to the real world, where people work for a living, dislike taxes, and are really concerned about the massive influx of Californians who are oddly leaving their dream state.

Electric car enthusiasts here in CA get the pleasure of paying $0.38/kwh for their electricity, FAR above the advertised $0.12/kwh, thanks to tiered billing and some of the highest real electric rates in the nation. When an electric car is parked in every driveway, neighborhood power distribution systems will be grossly overloaded (recharging typically starts after 6pm and finishes before 8am, compressing the "average" load on power networks). So, these systems will have to be replaced at taxpayer or ratepayer expense, with lower income people getting no benefits but definitely sharing substantially in the costs.

All this means that one of the highest tax states in the Union will become far higher taxed, both in direct taxes and indirect taxes like state mandated burdens on electricity ratepayers. Meanwhile gas taxes remain some of the highest in the nation, and will only go higher, putting yet more burden on the lower income folks. 

Meanwhile, the exodus of retirees naturally accelerates.

Eoin Treacy's view -

Thank you for this illuminated article. Filling up in California right now is definitely resulting in sticker shock with premium at $3.67 at Costco and testing $4 on the westside of LA. Electric vehicles have come a long way in terms of both efficiency and range but still have a long way to go in order to fully displace the internal combustion engine. Thanks also for the educative report from Continental Economics which I’m sure will be appreciated by subscribers. Here is a section:



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May 16 2018

Commentary by Eoin Treacy

The Coming Scramble for Middle Distillates

Thanks to a subscriber for this report from Morgan Stanley which may be of interest. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The futures curves for crude oil, gasoline, gasoil and heating oil are all in backwardation which confirms there is a supply shortage. OPEC and Russia’s curtailment of supply coupled with the re-imposition of sanctions on Iran and Venezuela’s implosion at certainly part of the story. The surge in supply from unconventional supplies is also pulling pressure on refineries because of the differing grades from what they are set up to receive.



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May 15 2018

Commentary by Eoin Treacy

Musings from the Oil Patch May 15th 2018

Thanks to a subscriber for this edition of Allen Brooks ever interesting report for PPHB. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

If the USA’s increasingly powerful position as a swing producer of oil and gas is reducing the need for it to play the part of the global police force then what can we conclude from China launching its first domestically produced aircraft carrier this week?



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May 15 2018

Commentary by Eoin Treacy

Long-term themes review April 10th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:



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May 11 2018

Commentary by Eoin Treacy

Elysis: A New Era for the Aluminum Industry

This press release today announcing a joint venture between Rio Tinto and Alcoa, with technical input from Apple, may be of interest to subscribers. Here is the key point apart from being carbon free:

A NEW ERA FOR THE ALUMINUM INDUSTRY

There’s a new, revolutionary way to make aluminum. It eliminates all direct greenhouse gases. And it produces pure oxygen.

 The technology can create more aluminum in the same size smelting cell as the traditional process. And it can be installed in new facilities or retrofitted for existing ones.

Eoin Treacy's view -

What I think will surprise many people is that a test facility has been running at Alcoa’s Pittsburgh test facility since 2009 so this is not some far-off pipe dream but it already has a proof of concept and is primed for commercialization. The first commercially oriented industrial project is expected to begin producing aluminium in 2024.



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May 04 2018

Commentary by Eoin Treacy

War on coal making the world's top mine owners a lot richer

This article appeared in Mining.com and may be of interest. Here is a section:

Some of the more significant declines are occurring in China, the top mine operator, and financing for new supplies is drying up. That’s creating a windfall for the producers who remain.

“It’s a perverse consequence” of policies intended to combat climate change, said Julian Treger, co-founder of activist investor Audley Capital Advisors LLP. “It’s going to be very difficult for funders to provide capital to bring new coal assets online. We have a very interesting supply and demand picture being set up.”

Anglo American, which not long ago wanted to unload its coal assets, has seen income from the business triple since 2015 to become the mining company’s most profitable commodity. Last year, Glencore reported earnings from the fuel more than doubled, while BHP Billiton said it surged sixfold.

While global coal use and mine output has been dropping, production failed to keep pace with demand in 2016 for the first time in seven years, data compiled by BP Plc show. As supplies continue to drop, the amount available for export is shrinking. BMO Capital Markets says the 1 billion-metric-ton seaborne market will have a small deficit by 2021 and expand to 15 million tons in 2022.

Eoin Treacy's view -

Coal is about as unfashionable as one might imagine and it must be very difficult for companies to raise capital to increase supply considering how negative sentiment is. At the same time, coal is one of the world’s most popular sources of energy and is indispensable in the production of steel. A good many coal companies when bust before prices started to recover in 2016 and supply is still constrained.



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May 01 2018

Commentary by Eoin Treacy

Musings From the Oil Patch May 1st 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:

The Bloomberg article highlighted the plight of Big Oil.  Its weighting in global equity indices is at a 50-year low.  Of the MSCI World Index’s 100 biggest stocks, only six are oil producers.  Within the Standard & Poor’s 500 Index, Exxon Mobil Corp. (XOM-NYSE), which a decade ago was the largest company, has fallen to ninth place, and investors are requiring higher dividend yields to sustain the share price.  So, what’s the problem for Big Oil?  Simple.  There is a perception that the world is awash in oil at the same time its long-term demand may be falling due to the public’s embrace of climate change policies promoting renewable energies and electric vehicles.  

Institutional money manager Kevin Holt of Invesco Ltd. was quoted in the Bloomberg article saying, “Earnings have started to come through but no one believes it’s sustainable.  That’s why the stocks haven’t worked even though the commodity has gone up.  Everyone’s saying they don’t believe it.”  

Stock market valuations are the collective view of investors as to the future earnings and dividend prospects for companies.  Current low valuations are a manifestation of the industry’s negative perception.  Mr. Holt is certainly correct about oil prices.  Since the start of this year, Brent/WTI prices have climbed 12.2%/13.3% through April 23rd.  If we go back to the oil price low of 10 months ago, prices have soared by 66.7%/61.4%.  In the past, an increase in oil prices of those magnitudes would have sparked a meaningful recovery in oil company and oil-related company share prices.  

A report by the oilfield service research team at Barclays delivered a similar message about their universe of stocks as cited by Bloomberg about Big Oil.  The most telling chart shows a nearly complete correlation (0.96) between the movement in oil prices and the value of the Philadelphia Oilfield Service Stock Index (OSX) between January 2012 and January 2016.  However, from June 2017 to April 2018, the correlation has fallen to only 0.06.  And, June 2017 marked the low price for crude oil!  

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

One of the biggest consensuses in the markets at present is that the future is going to be carbon free, and not in a couple of decades but imminently. There is no doubt that electric car penetration is rising, particularly in China, but it will still be years before it reaches even 10% of the global fleet. I think there is reason for optimism about the future of carbon emissions based on technological improvements alone but perhaps enthusiasm has overtaken the reality represented by the market.



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April 30 2018

Commentary by Eoin Treacy

Email of the day on the long-term outlook and potential for inflation

In your 10/April long-term themes review, you said: "So, the big question many people have is if we accept the bullish hypothesis how do we justify the second half of this bull market based on valuations where they are today? ..... However, the answer is also going to have to include inflation. "

My thoughts, not in any particular order:

If we look at Robert Shiller's research ~1870-now, on the US share market, his studies show that historically, extreme valuations in the US share market (as assessed by cyclically adjusted P/E ratio) have always been followed by poor average real return over the following 10-20 years."
You point to inflation as to how a secular bull market (in nominal terms implied) can now occur for the US share market (by implications I think you are reflecting on the US share market) over say the next 10-15 years (say).  You use the experience of Argentina and Venezuela as justification for your argument - where from memory, there was hyperinflation in the periods to which you refer.

First, I do not think you are suggesting hyperinflation for the USA .... mismatch 1.
For Argentina and Venezuela, I think their currencies also crashed. I do not think you are suggesting the US dollar is going to crash. Possible mismatch 2.
Rather than a comparison with Venezuela and Argentina, perhaps a better analogy is to the period in the USA following the late 1960s, when US share markets where at quite high valuations (though not nearly as expensive as now on a CAPE basis). Following the peak valuations of the late 1960s, the US share market went sideways (with some large dips) over the next 16 years or so.

In summary, I am not sure that your argument is particularly robust.  Yes, the technological revolution is a critically important new phase which will have a huge impact over the next 10 and 20 years..... and there may well be a secular bull market in that sector ... but does that really mean that the technology sector by itself will take the whole S&P500 with it in a secular bull market for the next 10 or 20 years?

Your thoughts?

Eoin Treacy's view -

Thank you for this question which gave me plenty of room for thought. My first reflection is that one of the benefits of this service is the Socratic dialectical method unfolds in real time as these big topics offer endless room for discussion and revision. I spent a good deal of time talking about long-term cycles in the Big Picture Video on the 27th which you may find of interest. 



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April 27 2018

Commentary by Eoin Treacy

World's lithium king is ready to unleash a flood of new supply

This article from Bloomberg appeared in Mining.com and may be of interest. Here is a section:

“There is a legitimate concern on the side of battery manufacturers about long-term availability of supply,” said Daniel Jimenez, an SQM vice president who recently estimated that the industry will require a capital investment of $10 billion to $12 billion in the next decade to meet demand.

The green light to mine vastly more lithium, combined with pending changes in its ownership structure, has suddenly put SQM in the sights of several global mining companies, including London-based giant Rio Tinto Group. Among the most aggressive bidders is China’s Tianqi Lithium Corp., which has offered to buy SQM shares at a 20 percent premium, Eduardo Bitran, the former head of government development agency Corfo, said earlier this year.

“Tianqi owning the stake would be another step towards overall Chinese consolidation of the lithium industry,” Chris Berry, a New York-based energy-metals analyst and founder of House Mountain Partners LLC., said in an email.

Eoin Treacy's view -

SQM’s growth projections have been among the chief catalysts in the decline of lithium miners over the last few months. The big question is how quickly demand picks up over the next decade to absorb additional supply. Lithium was a supply inelasticity meets rising demand market from 2013 but really only garnered interest in the last couple of years as the shares turned to outperformance. Supply is now increasing so we are likely to see more volatility in the respective shares. This story further highlights China's intention to be the dominant force in the electric car sector. 

 

 



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April 26 2018

Commentary by Eoin Treacy

Musings from the Oil Patch April 16th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section on Shell:

Eoin Treacy's view -

A link to the full report and a section from its are posted in the Subscriber's Area.

Major companies, like Exxon Mobil and Royal Dutch Shell, transitioned from being majority oil producers’ years ago. While they still report in energy equivalent barrels the reality is that the majority of their production is natural gas. As a comparatively clean fuel, which tends to see demand increase as living standards improve, the long-term outlook for gas demand appears to be relatively secure.



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April 17 2018

Commentary by Eoin Treacy

The de-dollarization in China

This article by Giancarlo Elia Valori for ModernDiplomacy.eu may be of interest to subscribers. Here is a section:

As further sanction, the United States has removed Iran from the SWIFT network, the well-known world interbank transfer system, which is also a private company.

Iran, however, has immediately joined the Chinese CIPS, a recent network, similar to SWIFT, with which it is already fully connected.

Basically China’s idea is to create an international currency based on the IMF’s Special Drawing Rights and freely expendable on world markets, in lieu of the US dollar, so as to avoid “the dangerous fluctuations stemming from the US currency and the uncertainties on its real value “- just to quote the Governor of the Chinese central bank, Zhou Xiaochuan, who will soon be replaced by Yi Gang.

In the meantime, Russia and China are acquiring significant amounts of gold.

In recent years China has bought gold to the tune of at least 1842.6 tons, but the international index could be distorted, as many transactions on the Shanghai Gold Exchange are Over the Counter (OTC) and hence are not reported.

Again according to official data, so far Russia is supposed to have reached 1857.7 tons.

Both countries have so far bought 10% of the gold available in the world.

Meanwhile, Saudi Arabia has already accepted payments in yuan for the oil sold to China, which is its largest customer. This is a turning point. If Saudi Arabia gives in, sooner or later all OPEC countries will follow suit.

Eoin Treacy's view -

I find these arguments about the petrodollar to be very interesting. The establishment of the Dollar’s dominance in global trade was a masterstroke of diplomacy when the Saudi Arabians agreed to exchange Dollars for investment opportunities and military security. However, that was also at a time when the importance of oil to the global economy was growing.



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April 10 2018

Commentary by Eoin Treacy

Saudi Arabia Is Said to Signal Ambition for $80 Oil Price

This article by Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

Saudi Oil Minister Khalid Al-Falih has also sounded increasingly hawkish in public, suggesting that OPEC should keep tightening the oil market even through the cartel is close to meeting its goal of cutting crude inventories in industrialized countries back to their five-year average.

In an interview in New York last month, he said today’s price near $70 a barrel hadn’t been sufficient to stimulate investment in the industry, which remains significantly below levels seen before 2014’s price crash.

"That tells me that the pricing signals that have come out of the recovery haven’t been sufficient," he said, without giving a target for prices.

The Saudi Ministry of Energy didn’t immediately respond to a request for comment.

Domestic Policy
Riyadh’s desire for higher prices is driven by domestic policy imperatives. Although Saudi Arabia’s budget deficit has narrowed sharply as oil has recovered, Prince Mohammed has set out an ambitious and expensive economic and social reform program. He also needs to pay for the kingdom’s increasingly drawn-out military entanglement in Yemen.

While there’s little indication the Saudis are prepared to deepen their oil cuts to achieve $80, at the very least the aspiration suggests they’ll keep with the current measures until the price goal is closer. Riyadh is counting on declining Venezuelan oil production, the likely imposition of new U.S. sanctions on Iran, and continued demand growth to absorb U.S. shale production.

Eoin Treacy's view -

In addition to sanctions on Iran, the deteriorating relationship Europe and the US have with Russia is exerting an influence on oil prices which closed above $70 today and in dynamic fashion. That is going to act as an incentive to increase supply among various higher cost producers such as shale properties, tar sands and deep water, though that supply is going to take time to come to market.

 



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April 03 2018

Commentary by Eoin Treacy

Musings From the Oil Patch April 3rd 2018

Thanks to a subscriber for this edition of Allen Brooks’ everinteresting report for PPHB. Here is a section on autonomous vehicles:

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area. 

Google’s Waymo is obviously the leader based on the above statistics in what is likely to be a transformational technology; once commercialised. Nevertheless, this is still an emerging technology that, despite its potential, needs further innovation to reach the point where drivers are optional.



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March 22 2018

Commentary by Eoin Treacy

Long-term themes review March 7th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a brief summary of my view at present.



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March 20 2018

Commentary by Eoin Treacy

Musings From the Oil Patch March 20th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may be of interest. Here is a section:

Eoin Treacy's view -

Both a section from the report and a link to a pdf are posted in the Subscriber's Area.

Shale oil is typically of the light variety which is used for gasoline production rather than diesel. Europe has favoured diesel for a long time and the aftermath of the Volkswagen cheating scandal suggests it will be using less in future. A lot of the new supply that has become economic over the course of the last 15 years has been of the heavy variety but that is now changing with the evolution of US domestic onshore tight resources. That represents a significant retooling risk for European refineries while the US sector will also need to evolve to cater to the prolific supply coming on line domestically.



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March 16 2018

Commentary by Eoin Treacy

New study rips into cobalt, lithium price bulls

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

Prominent commodities research house Wood Mackenzie this week released a report on battery materials that forecasts a decline in the price of cobalt and lithium this year which would turn into a rout from 2019 onwards.

Woodmac is not lowballing demand growth for lithium and the authors expect demand to grow from 233 kilotonnes (kt) in 2017 to 330kt of lithium carbonate equivalent in 2020 and 405kt in 2022, but:

… the supply response is under way. Yet it will take some time for this new capacity to materialise as battery-grade chemicals. As such, we expect relatively high price levels to be maintained over 2018. However, for 2019 and beyond, supply will start to outpace demand more aggressively and price levels will decline in turn.

According to Woodmac data, spot lithium carbonate prices on the domestic market in China are already down 6% from December levels to around $24,500 a tonne while international market prices have remained robust rising to $16,000 at the end of February.

Eoin Treacy's view -

Lithium and cobalt represent the freshest iterations of the supply inelasticity meets rising demand condition that contributes to the cyclicality of mining ventures. Batteries are now big business and with Volkswagen saying this week that it is willing to outspend Tesla on batteries by the early 2020s the demand portion of the market is well affirmed.



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March 15 2018

Commentary by Eoin Treacy

Pipeline Stocks Sink as FERC Kills Key Income-Tax Allowance

This article by Stephen Cunningham, Tim Loh and Jim Polson for Bloomberg may be of interest to subscribers. Here is a section:

Wells Fargo & Co. analyst Michael Blum said the broad selling was an overreaction, because the effects would be felt only on partnerships with a large amount of interstate pipelines.

"It’s definitely a negative, but it’s not Armageddon for MLPs," Jay Hatfield, a New York-based portfolio manager at the InfraCap MLP exchange-traded fund, said by telephone. "And it’s not as if it affects every asset in every single MLP."

Even among interstate pipelines, it’s unclear how much the ruling will impact different assets, Selman Akyol, an analyst at Stifel Nicolaus & Co. wrote in a note Thursday. That’s because these pipelines can charge rates based on a different agreements -- there are "cost of service" rates, which will be affected, as well as market-based rates or negotiated ones, which won’t be impacted. What’s more, "cost of service" rates are partly built on aspects that have nothing to do with taxes -- including maintenance and depreciation costs for the pipeline.

"This adds a layer of uncertainty to the group, and we do not expect it to be cleared soon," Akyol said in the note. “We anticipate companies will provide disclosures around cost of service exposure and potential impact to cash flow.”

The decision could further the trend of MLPs converting into corporations -- or simply selling interstate pipelines affected by this change in policy to existing corporations such as Kinder Morgan Inc., Hatfield said.

Eoin Treacy's view -

Master Limited Partnerships are generally highly leveraged because taking out debt to fund the construction of pipelines is feasible considering the reliability of the cashflows that arise from it once it moves into service. However as with any leveraged balance sheet how it is treated for tax is a thorny issue which has resulted in a sharp sell-off today as the investors concluded it was better to sell first and ask questions later.



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March 14 2018

Commentary by Eoin Treacy

Commodities Daily

Thanks to a subscriber for this report from Commerzbank which may be of interest. Here is a section:

The cocoa price has soared by 33% in New York and by 28% in London since the beginning of the year. Thus cocoa has achieved the best price performance of all the commodities we track this year – with the exception of carbon. The Coffee and Cocoa Council (CCC) of Ivory Coast, the world’s largest cocoa producer, apparently wishes to curtail its cocoa production. The first step is to count the plantations. Depending on the result, the distribution of higher-quality seeds and plants for the 2018/19 season is then to be temporarily suspended. The aim is to combat the overproduction that saw cocoa prices forced to multi-year lows at the end of last year. According to the International Cocoa Organization, global supply exceeded demand by 300,000 tons in the 2016/17 crop year. The surplus is set to decline to a good 100,000 tons in the current crop year 2017/18. Deficits are needed to reduce the cumulative surplus, as was the case on the oil market a good year ago. OPEC brought this about by cutting production, and Ivory Coast appears to want to follow a similar strategy for cocoa. If the CCC has its way, Ivorian cocoa production will be lowered from 2 million tons now to 1.7-1.8 million tons within two years. Ivory Coast has a good 40% share of the cocoa market, which is even somewhat higher than OPEC’s share of the oil market.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

I was trading cocoa back in August for rather modest profits because I was hoping it would complete its base formation. I grew impatient with the ranging, and probably would not have held in any case during the steep decline posted in December, but there was certainly a case for buying it back at the January lows. The price has now surged higher to emphatically complete its base formation and while increasingly overbought in the short term, a clear downward dynamic would be required to check momentum.



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March 13 2018

Commentary by Eoin Treacy

Volkswagen Steps Up Tesla Rivalry in $25 Billion Battery Buy

This article by Chris Reiter and Christoph Rauwald for Bloomberg may be of interest to subscribers. Here is a section:

 

Volkswagen AG secured 20 billion euros ($25 billion) in battery supplies to underpin an aggressive push into electric cars in the coming years, ramping up pressure on Tesla Inc. as it struggles with production issues for the mainstream Model 3.

The world’s largest carmaker will equip 16 factories to produce electric vehicles by the end of 2022, compared with three currently, Volkswagen said Tuesday in Berlin. The German manufacturer’s plans to build as many as 3 million of the cars a year by 2025 is backstopped by deals with suppliers including Samsung SDI Co., LG Chem Ltd. and Contemporary Amperex Technology Ltd. for batteries in Europe and China.

With the powerpack deliveries secured for its two biggest markets, a deal for North America will follow shortly, Volkswagen said. In total, the Wolfsburg-based automaker has said it plans to purchase about 50 billion euros in batteries as part of its electric-car push, which includes three new models in 2018 with dozens more following. 

Eoin Treacy's view -

Volkswagen needs a new strategy if it is going to get past the diesel scandal, so embracing batteries whether for all-electric or hybrid vehicles is a solution. By committing to such a large purchase of batteries it will overtake Tesla as the largest consumer and this announcement helps to backstop demand for the world’s largest battery producers as well as the miners that produce the requisite metals.



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March 05 2018

Commentary by Eoin Treacy

OPEC Must Rethink Plans as $60 Oil Brings New Glut, IEA Says

This article by Javier Blas and Grant Smith for Bloomberg may be of interest to subscribers. Here is a section:

"Established producers need to reconsider their production plans quickly and substantially in light of the huge production increase from U.S. shale," the agency’s Executive Director Fatih Birol said Monday on the sidelines of the CERAWeek by IHS Markit conference in Houston. Asked whether he was referring to OPEC nations, Birol said: "All OPEC producers are established producers."

The Organization of Petroleum Exporting Countries and allies including Russia, Mexico and Kazakhstan agreed to cut production in late 2016 in an effort to clear a glut in crude inventories. They defied the skeptics by going deeper than their pledged curbs and maintaining them for long enough to deplete the bloated stockpiles.

Yet the strategy has also backfired by unleashing “a new wave of growth from the U.S.” that leaves little space for OPEC to increase output once the cuts expire at the end of the year, according to the agency’s report.

The U.S. will dominate global oil markets for years to come, satisfying 80 percent of global demand growth to 2020, the IEA said. Supplies from other non-OPEC nations will make up the rest.

Eoin Treacy's view -

US unconventional supply is elastic since the pace of production can only be sustained by continued drilling. When prices are high production can be hedged out as far as two years which ensures profitability. At the same time, drilling multiple horizontal wells is a capital-intensive exercise and the sector has been issuing a great deal of debt to fund production in the hope prices will stay higher for longer.

 



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February 22 2018

Commentary by Eoin Treacy

The lithium ion battery and the eV Market

Thanks to a subscriber for this report from BMO which may be of interest. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Battery chemistry is complicated and the rate at which energy density doubles is about every five years. That’s quite a bit slower than the 18-month pace of doubling of efficiency seen in the semiconductors sector on which Moore’s Law is based. 



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February 21 2018

Commentary by Eoin Treacy

Email of the day on the potential for downtrends

Your recent assessments of the markets appear to be that a period of ranging is likely to be followed by markets going up again. Of course, whilst no one knows what the future will be, I wonder why you don't see the greater likelihood of markets turning down after some consolidation. With the amount of US debt increasing, interest rates increasing, and stock market levels already high by historical standards, are you not more concerned that markets, being forwards looking, might be more likely to head down than up? Esp. since markets struggle when interest rates go above 3%? I appreciate your talk of share rotation, but a rising tide lifts all boats and surely the opposite is true when markets tank?

Eoin Treacy's view -

Thank you for these questions which I think everyone asks from time to time. For someone in our position of attempting to forecast the outlook for markets the most important thing we have to remember is that markets rise for longer than they fall but when they fall they often do so quite quickly. However, they do not fall without first exhibiting topping characteristics. 



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February 21 2018

Commentary by Eoin Treacy

Musings from the Oil Patch February 20th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever informative report for PPHB. Here is a section on methane hydrates:

The attacks on the oil and gas industry in the U.S. for its methane emissions have been based on reports and estimates of the volume of leaks from its drilling and transportation activities.  Fighting these leaks is in the companies’ best interests because it will help the bottom lines as less natural gas will be lost to the atmosphere and income will be enhanced.  Fixing the leaks on their own is also a way the oil and gas industry can hope to stave off further debilitating regulations.  Now, however, the industry is hopeful of an easing of the methane containment rules for companies drilling and producing natural gas from federal lands by the Trump administration.  

 

While the discussion about methane leak control for the oil and gas industry is dominating the headlines, there remains a huge untapped source of natural gas in the form of methane hydrates under the ocean that some governments are working to exploit.  These hydrates are where molecules of methane gas are entrapped within an ice lattice.  They form under very low temperatures or high pressures, or a combination of the two.  They are usually found on the outer continental shelves around the world.  (They have been found in the pink areas of the global map in Exhibit 18.)  The challenge is that they have been difficult (risky) to mine, as well as costly.  They have the potential to blow up any vessel attempting to extract the hydrates from the sea floor.  The U.S. Bureau of Ocean Energy Management (BOEM) estimates that the U.S. has 51,338 trillion cubic feet of methane hydrate gas resources.  If only half of BOEM’s estimate is realized, there are 1,000 years of supply based on the current consumption rate of natural gas in the United States.

 

Last year, China, a country with significant needs for more natural gas but lacking success in finding and developing meaningful reserves, has been experimenting with tapping methane hydrates.  The country’s focus is on hydrates situated in the South China Sea, which helps explain China’s attempt to claim territorial rights to that area of the Pacific Ocean.  At the same time, Japan, another nation lacking adequate energy resources, has successfully extracted methane hydrates from an area offshore the Shima Peninsula.  The implications of successful development of methane hydrate mining by either or both countries would be significant for the future of the global liquefied natural gas (LNG) business.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

If one were looking for a single reason China is so interested in claiming the South China Sea, then methane hydrates are probably the answer. The existence of such vast resources is no secret. Just like shale oil and gas, geologists have known about methane hydrates for years. However, they have been largely irrelevant to the energy sector because of the cost of production. 



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February 07 2018

Commentary by Eoin Treacy

Musings from the Oil Patch February 6th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section: 

Eoin Treacy's view -

If Asia and indeed Africa follow the trend of energy usage in the OECD then it is logical to expect more gas fired power generation and more gas used for cooking. At the same time the evolution of the electric vehicle represents a growing challenge for gasoline demand over the medium-term. At the same time electricity demand is likely to trend higher and gas will play a part in the energy mix along with renewables, batteries, nuclear and coal. These are medium to long-term considerations which energy executives will need to come to terms with but what about right now?



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January 31 2018

Commentary by Eoin Treacy

Shale Sends U.S. Output Past Historic 10 Million-Barrel Mark

This article by Jessica Summers for Bloomberg may be of interest to subscribers. Here is a section:

 

U.S. oil production surged above 10 million barrels a day for the first time in four decades, another marker of a profound shift in global crude markets.

The milestone comes weeks after the International Energy Agency said the U.S. is poised for "explosive" growth in oil output that would push it past Saudi Arabia and Russia this year. New drilling and production techniques have opened up billions of barrels of recoverable U.S. oil in shale rock formations in the past 10 years, reversing decades of declining output and turning the nation into an exporter.

The news also comes after the Organization of Petroleum Exporting Countries decided last year to extend an agreement with several non-OPEC members to curb output in response to a global supply glut fed in part by shale. That agreement was finally showing signs of working, with prices emerging from a three-year downturn. After falling near $26 a barrel in 2016, the global benchmark oil price climbed above $70 a barrel in January, and the U.S. price is following suit. Yet, increasing output from the U.S. may threaten rising price.

“You are starting to see a little bit of a shift in market sentiment on oil given the fact that production is really starting to ramp up,” Joseph Bozoyan, a portfolio manager at Manulife Asset Management LLC in Boston, said by telephone.

“These U.S. production numbers are starting to take the wind out of the sails of the crude oil market.”

Eoin Treacy's view -

The USA is the world’s most important swing producer because its production figures are market driven rather than being forced to fund government vanity projects or social programs. The fact it is now the world’s largest producer and exporting both oil and gas is further evidence of its increasing influence on the global market and also helps to explain why the USA is no longer as concerned with ensuring the status quo in the Middle East. 



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January 23 2018

Commentary by Eoin Treacy

Musings from the Oil Patch January 23rd 2017

Thanks to a subscriber for this edition Allen Brooks’ ever interesting report for PPHB. Here is a section:

A section from the report is posted in the Subscriber's Area. 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Brent Crude oil has not pulled back by more than $5 since June and continues to trend higher in a reasonably consistent staircase step sequence uptrend. Consistent trends are usually the easiest to analyse, so we can say with confidence that a reaction of more than $5 would be required to question the consistency of the advance. 



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January 19 2018

Commentary by Eoin Treacy

Speculation Grows That OPEC Will End Cuts Early as Prices Rise

This article by Christopher Sell for Bloomberg may be of interest to subscribers. Here is a section:

"I don’t think the deal per se will end" as inventories near the five-year average, said Bjarne Schieldrop, chief commodity analyst at SEB AB. The Declaration of Cooperation -- the 2016 accord that first established the group of 24 oil producers-- will still stand, but be modified to allow for production cuts to gradually unwind from mid-2018, he said.

Giovanni Staunovo, commodity analyst at UBS Group AG, expects a similar outcome. Citigroup Inc., whose data show that global oil stockpiles are already back in line with the five- year average, predicts a summer agreement to ramp up production.

The oil producers themselves say they’re sticking to the plan. While Russia’s Energy Minister Alexander Novak told reporters on Jan. 12 that the meeting in Oman could include discussion of mechanisms for gradually exiting the cuts, four days later he affirmed that the pact should continue. Ministers from the United Arab Emirates, Iraq and Kuwait also insisted there’s no need to change tack.

Eoin Treacy's view -

Sometimes it is imperative to keep an eye on the price action. Over the course of the last few days I’ve seen one headline after another reporting the ‘collapse’ in oil prices or the major reversal seen from the intraday peak. I’m reminded of Mark Twain’s quip “the report my death was an exaggeration.” 



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January 11 2018

Commentary by Eoin Treacy

Email of the day China, Currencies, Inflation and Gold

In the video today, you emphasized the significance of recent moves by China regarding its currency and inflation.  These issues were discussed in length in a Mises Institute report which will be of interest to many readers.

Eoin Treacy's view -

Thank you for this interesting article which is representative of monetary conservativism that is a central theme in decrying the loss of purchasing power in fiat currencies since the abandonment of gold as a monetary base. 



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January 09 2018

Commentary by Eoin Treacy

Musings from the Oil Patch January 17th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:

A section from the report is posted in the Subscriber's Area. 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Saudi Arabia is not exactly the most politically secure place in the world right now which is going to have an influence on the valuation of Saudi Aramco. Exxon Mobil is the company that tends to get the most accommodative treatment from investors because of its long history of dividend increases and good governance. The big question for Saudi Arabia, regardless of reserves, is what kind of discount the market will demand for accepting the governance risk attached to the company. That is especially true with the UK having had to alter disclosure rules in its efforts to secure the IPO. 



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January 03 2018

Commentary by Eoin Treacy

Commodities Roiled as Arctic Blast Takes Hold

This article by Robert Burgess for Bloomberg may be of interest to subscribers. Here is a section:

Prices for the heating fuel rose to the highest in a month as the U.S. burned the most natural gas ever on Monday, breaking a record set during the so-called polar vortex that blanketed the nation’s eastern half with arctic air in 2014, Bloomberg News reports. America consumed 143 billion cubic feet of gas as temperatures dipped to all-time lows on New Year’s Day, topping the previous high of 142 billion from four years ago, data from PointLogic Energy show. Ice in the Hudson River delayed fuel-barge deliveries, as the government warned of a home heating-fuel shortage from the East Coast to Texas. Natural gas prices have jumped 19 percent from a 10-month low on Dec. 21. U.S. retail diesel prices averaged $2.87 a gallon on New Year’s Day, the most since June 2015, according to AAA.
 

Eoin Treacy's view -

I drove up to Big Bear Lake Tuesday afternoon and there is no sign of the cold wracking other parts of the USA. Talk around town is much more about global warming and the shortening season because of the lack of snow. We took ski lessons this morning which is responsible for the late posting of Comment of the Day and the Subscriber’s audio for which I apologise.  



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December 19 2017

Commentary by Eoin Treacy

Musings From the Oil Patch December 18th 2017

Thanks to a subscriber for this edition of Allen Brooks’ report for PPHB which may be of interest. Here is a section:

A section from this report is posted in the Subscriber's Area. 

Eoin Treacy's view -

A link to the full report is posted in the subscriber's Area.

Autonomous vehicles represent as much of a gamechanger for the energy sector as unconventional oil and gas did a decade ago. No one knows whether it will be 2030 or 2040 when they become ubiquitous but the important point about artificial intelligence is that it only needs to learn a lesson once. It might take millions of lines of code and an equal number of pictures to teach a computer a lesson but the work only needs to be done once. By contrast, every human needs to learn to drive on an individual basis and the Pareto Principle dictates that most of us are not particularly good at it. 



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December 19 2017

Commentary by Eoin Treacy

Sugar industry likely to see record global production of 192m tonnes

This article from UKRAgroConsult may be of interest to subscribers. Here is a section:

According to Informa's Agribusiness Intelligence, an industry research and analysis firm, the biggest driver behind the record output this year will be the European Union, India and Thailand.

Despite this, sugar cane diversion to ethanol production in Brazil means global prices will remain high as the country will produce less sugar in 2018-19.

Agribusiness Intelligence said that in October, for the first time in more than a year, there was a year-on-year increase in local sales of ethanol of 11% in Brazil. This accelerated to a plus of 16% in the first half of November.

"The most important reasons for the attractiveness of ethanol versus sugar are: the relatively high price of gasoline at the pump, an advantageous tax structure, recovering fuel demand as the Brazilian economy is moving out of recession and the low sugar price."

Meanwhile, within the EU, the market is still responding to the scrapping of production quotas for sugar refined from sugar beet, which is creating a huge jump in production. In the EU, 20 million tonnes of sugar will be produced by the end of 2017-18 which is an increase of 3 million tonnes compared to the previous year.

"This growing trend has not been supported by domestic consumption which has been declining in the EU steadily over the last few years. This will have a direct impact on the trade balance of EU countries, with imports declining and exports could double to as much as 4 million tonnes by the end of 2017-18," the analysis firm added.

Eoin Treacy's view -

Synchronised global growth helps to boost demand for all commodities but energy is particularly affected since OPEC is attempting to curtail supply. That is helping Brent Crude prices hold above the $60 area. Meanwhile it improves the allure of producing ethanol for Brazil because of the arbitrage consumers benefit from as long as sugar prices are low. 



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December 19 2017

Commentary by Eoin Treacy

Supply cuts a 'step change' for uranium price

This article by Frik Els for Mining.com may be of interest to subscribes. Here is a section:

The announcement made by uranium giant Cameco in November that it’s suspending operations at its flagship McArthur River mine in northern Saskatchewan and surprisingly deep three-year cuts by Kazakhstan’s state-owned Kazatomprom provide a "step change" for uranium prices says a new report on the sector from Cantor Fitzgerald equity research.

On Monday, the world largest producer of uranium, surprised the beleaguered market with a larger than expected cut to production of its own.

Two weeks ago, Kazakhstan’s state-owned Kazatomprom announced intentions to reduce its output of U3O8 by 20% or 11,000 tonnes (around 28.5m pounds) over the next three years beginning in January 2018. According to the company roughly 4,000 tonnes will be cut in 2018 alone "representing approximately 7.5% of global uranium production for 2018 as forecast by UxC."

Cameco's shuttering of McArthur River for ten months is expected to reduce production by 13.7m pounds in 2018 translating to a combined 42.3m pounds of expected production that has been removed from the market. In 2018 alone, the reduction will be about 24.1m pounds of U3O8 or about 15% of Cantor Fitzgerald's prior forecast of 158.4m pounds of output.

Eoin Treacy's view -

The price of commodities is set by the marginal cost of production and when two of the largest producers’ shutter facilities, it means prices have fallen to uneconomic levels. Uranium isn’t exactly fashionable but it is still required to fuel reactors all over the world. If supply is being curtailed prices will have to rise to attract producers back into the market. 



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December 15 2017

Commentary by Eoin Treacy

This is how much copper, nickel, cobalt an electric vehicle world needs

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

The London-based research company modelled metal requirements across the supply chain – from generation and grid infrastructure through to storage, charging and vehicles – based on relatively modest penetration of EVs in the total global vehicle market out to 2030.

According to the study as early as 2020, when EVs would still make up only 2% of new vehicle sales, related metal demand already becomes significant, requiring an additional 390,000 tonnes of copper, 85,000 tonnes of nickel and 24,000 tonnes of cobalt.

Based on an EV market share of less than 32% in 2030, forecast metal requirements are roughly 4.1m tonnes of additional copper (18% of 2016 supply). The move away from gasoline and diesel-powered vehicles would need 56% more nickel production or 1.1m tonnes compared to 2016 and 314,000 tonnes of cobalt, a fourfold increase from 2016 supply.

Eoin Treacy's view -

Miners went through a decade of investing in supply and then prices collapsed. They were forced to cancel exploration and to focus on free cash flow. Appetite for investing in additional new supply is low but there are obvious demand drivers coming from the electric car market. 



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November 30 2017

Commentary by Eoin Treacy

OPEC and Russia Ready to Extend Oil-Supply Cuts Through 2018

This article by Elena Mazneva, Laura Hurst and Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

OPEC and Russia are ready to extend their oil production cuts until the end of next year to ensure global stockpiles keep falling and prices maintain recent gains.

All OPEC members and Russia, the biggest producer outside the group to join the deal, agree the cuts should last until the end of 2018, according to delegates in Vienna to attend Thursday’s meeting. On Wednesday, a committee charged with overseeing the agreement on behalf of the whole group also recommended extending until the end of next year, two delegates said.

"Everybody’s working toward that nine-month extension,” Nigerian Petroleum Minister Emmanuel Kachikwu said in a Bloomberg television interview.

Eoin Treacy's view -

OPEC’s strategy to restrict supply in order to raise prices took more than a year to reduce excess inventories and improving global growth has certainly helped to achieve that goal. Surging supply from domestic onshore US sources continues to represent a challenge and not least as exports pick up. That has ensured the run-up in prices has not been more aggressive. 



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November 23 2017

Commentary by Eoin Treacy

Mine Shutdown Heats Up Uranium Prices

Thanks to a subscriber for this article from Barron’s which may be of interest. Here is a section:

Cameco (ticker: CCJ), which provides roughly 17% of the world’s uranium production, announced on Nov. 8 that it will temporarily suspend production at its McArthur River mining and Key Lake milling operations in Canada by the end of January. It blamed weakness in uranium prices, which it said had fallen by more than 70% since the Fukushima accident in March 2011. McArthur River is the world’s largest high-grade uranium mine.

The news sent weekly spot prices for uranium up by nearly $3, to $23 a pound, on Nov. 13, according to nuclear-fuel consultancy Ux Consulting. Weekly prices stood at $20.25 a pound on Nov. 6, ahead of the announcement, holding in the tight range of $19.25 and $20.75 they had traded at from late May. January uranium futures traded on Globex settled at $24.40 on Thursday. “This is the last gasp of the uranium bear market,” says Christopher Ecclestone, a mining strategist at investment bank and research firm Hallgarten & Co., adding that the market is likely to “perk up” from here

Eoin Treacy's view -

A link to the full article is posted in the Subscriber's Area.

Uranium prices have stabilized near $20 following news of a supply disruption. The fact that closure was voluntary helps to highlight just how much stress the sector is under. The Fukushima disaster has set back the cause of uranium by at least a decade despite the reliability and abundance of the power it provides and the inherent safety of generation IV reactors.



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November 21 2017

Commentary by Eoin Treacy

Musings From The Oil Patch November 21st 2017

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting, and occasionally controversial, report for PPHB. Here is a section: 

Between 2010 and 2016, coal’s share of U.S. energy fell from 23% to 15.8%, while renewables’ share climbed from 1.7% to 3.7%.  In the EU, coal’s share fell from 16% to 14.5%, and renewables more than doubled its share, going from 3.9% to 8.3%.  This emissions and economic progress by the EU is in jeopardy following the election of President Trump who is determined to boost U.S. oil, natural gas and coal industries, and push back on green mandates and subsidies.  The EU’s response has been to isolate the United States for its climate position.  Their strategy for overcoming high energy costs and exposure to energy disruptions is to make people choose expensive renewable energy in the guise of it being the only logical choice when confronted with the alternative of a disastrous environmental outcome if we continue burning fossil fuels.  

As the EU’s strategy seems not to be working as well as planned, it has become more radical with governments seeking to ban internal combustion engine cars.  This, its leaders believe, will force American auto companies to compete in the marketplace of zero-emission vehicles.  Little is mentioned about the fact that the carbon emissions legacy associated with building electric cars requires years of driving them before it is neutralized.  Electric car promoters also never mention the environmental and social costs of mining the rare earth minerals required in rechargeable batteries.  If fairly presented, people might question whether there are other alternative solutions that are less-costly and do more to mitigate the environmental hazards of electric batteries and renewable energy sources.  

While the goal to level the economic playing field with respect to energy’s cost in manufacturing remains an EU objective, the path to achieving that goal has changed.  The choice presented is impending environmental disaster with continued use of fossil fuels versus feeling good about saving the planet with high cost renewables and zero-emission electric vehicles.  Expect more of rhetoric as we move forward.  Maybe President Trump understands that the climate change movement is really an economic war in the guise of climate change.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The simple fact is the EU imports a lot of its energy and the USA is close to being energy independent. Quite whether the EU is so cynical in its attempts to pioneer high cost power is questionable, but if everyone were to adopt the same cost base for energy production it would certainly create a more level playing field for a lot of important industries and help European competitiveness.  



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November 20 2017

Commentary by Eoin Treacy

The Chart Seminar

Eoin Treacy's view -

It is always a pleasure to meet subscribers but doubly so when we get to spend two days together discussing the outlook for psychological makeup of the market, where we are in the big cycles and which sectors are leading and which are showing relative strength. I had three big takeaways from last week’s seminar in London.

As anyone who has attended the seminar will know, I do not have examples but offer delegates the opportunity to dictate the direction of the conversation. That ensures the subject matter is relevant to what they are interested in and also highlights the fact that subject matter is applicable to all markets where an imbalance between supply and demand exists. The second benefit of allowing delegates to pick the subject matter is that it is offers a window into what is popular in markets right now and what might be getting overlooked. 



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November 16 2017

Commentary by Eoin Treacy

World's Biggest Wealth Fund Wants Out of Oil and Gas

This article by Sveinung Sleire for Bloomberg may be of interest to subscribers. Here is a section:

 

Norway, which relies on oil and gas for about a fifth of economic output, would be less vulnerable to declining crude prices without its fund investing in the industry, the central bank said Thursday. The divestment would mark the second major step in scrubbing the world’s biggest wealth fund of climate risk, after it sold most of its coal stocks.

“Our perspective here is to spread the risks for the state’s wealth,” Egil Matsen, the deputy central bank governor overseeing the fund, said in an interview in Oslo. “We can do that better by not adding oil-price risk.”

The plan would entail the fund, which controls about 1.5 percent of global stocks, dumping as much as $40 billion of shares in international giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc. The Finance Ministry said it will study the proposal and decide what to do in “fall of 2018” at the earliest.

Eoin Treacy's view -

Norway’s proposal to diversify its exposure to the oil sector makes sense but the timing of the decision, ahead of the proposed Saudi Aramco IPO and after the successful sale of Abu Dhabi’s Adnoc retail gasoline stations’ business says more about the trauma of the crash lower from above $100 than the state of the sector at present. 



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November 09 2017

Commentary by Eoin Treacy

Rio Tinto joins race for stake in world's largest lithium miner

Rio Tinto joins race for stake in world’s largest lithium miner – This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here is a section: 

 

El Mostrador suggested Tinto Rio had already made a bid, potentially trumping Chinese companies Sinochem, Tianqi and GSR Capital, all of which had also expressed interest in SQM.

The news came on the heels of PotashCorp and Agrium announcing Tuesday that China’s ministry of commerce had approved the merger, but required the sale of PotashCorp’s minority holdings in Arab Potash Company and SQM within 18 months of closing, and Israel Chemicals Ltd. within nine months.

SQM, which has a market value at just over $15 billion, produced roughly 44 million tonnes of lithium carbonate last year and is developing new projects in Chile and Australia.

Rio's current incursion in the lithium market is mostly limited to its 100%-owned lithium and borates mineral project in Jadar, Serbia, which is still in the early stages of development.

Eoin Treacy's view -

Rio Tinto generates 68% of its revenue from iron-ore and aluminium. Diamonds and minerals, copper and energy make up the balance of its operations in that order. Despite enthusiasm about lithium SQM generate about 26.5% of its revenue from the metal, with plant nutrition (32.2%) and potassium (20.8%) also representing major businesses for the company. 



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November 09 2017

Commentary by Eoin Treacy

Email of the day on feudalism in the modern era

I was thinking back to our dinner at the club in LA, and remembering that you stated that the Princes of the Sauds owed allegiance to their King, comparing them to the Barons of Europe in the middle ages. You said that sooner or later, the finances of the Kingdom would have to be enhanced, and that the Princes would be called upon to do so, just as the Barons of long ago were required to collect taxes and give treasure to the Crown. The parallels between today in the Kingdom of Saudi Arabia and those days so long ago are amazing!

We have now seen the first round of the tax collection begin, and those who were arrested were quite likely opposing the new "taxes", if not plotting actual rebellion (in which case they will almost certainly be executed). There is a clear message here for the rest of the Princes...

Now this is the stuff that historians truly love. 

 

Eoin Treacy's view -

Saudi Arabia has been held together by a series of transfers and concessions to families and tribes that agreed to set aside their enmity in return for a share in the nation’s oil wealth. That worked well as long as the population was small and oil revenues trended higher amid a century of oil’s dominance of the global economy. 



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November 09 2017

Commentary by Eoin Treacy

Britain risks a nuclear dead end by spurning global technology leap

Thanks to a David for this article from Ambrose Evans-Pritchard in the Telegraph. Here is a section: 

A few million will be put aside for ‘blue sky’ research but the real money will go to a consortium led by Rolls-Royce to develop a series of 440 megawatt SMRs for £2.5bn each, drawing on Rolls’ experience building PWR3 reactors for nuclear submarines. The company bills it as part of a “national endeavour’ that will create 40,000 skilled jobs. It requires matching start-up funds of £500m from the state. 

I find myself torn since these ambitions are commendable. They revive a homegrown British sector, akin to the success in aerospace. It is exactly what Theresa May’s industrial strategy should be. Rolls-Royce is a superb company with layers of depth and a global brand. It could genuinely hope to capture an export bonanza.  

Yet the venture looks all too like a scaled-down version of Sizewell, plagued by the same defects as the old reactors, less flexible than advertised, and likely to spew yet more plutonium waste.  

Rolls Royce insists that the design is novel and can slash costs by relying on components small enough to be manufactured in factories. “Everything can be cut down to size and put on a lorry,” said a spokesman.  

Rolls-Royce has said the design can slash costs by relying on components small enough to be manufactured in factories It aims for £65 MWh by the fifth plant, dropping to £60 once the scale is ramped up to seven gigawatts (GW), with exports targeting a putative £400bn global market.  

 

Eoin Treacy's view -

A decade ago the UK went from being an oil and gas exporter to an importer, as the North Sea oil fields hit peak production, and the cost of production began to rise. That represents a considerable headwind to growth from a sector which had been a tailwind for decades previously. When people bemoan declining living standards and the rising cost of living, one of the first places to look has to be the energy sector and absence of a clear strategy to promote energy independence. 



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November 08 2017

Commentary by Eoin Treacy

Venezuela Will Seek to Restructure Debt, Blaming Sanctions

This article by Katia Porzecanski, Patricia Laya, Ben Bartenstein, and Christine Jenkins for Bloomberg may be of interest to subscribers. Here is a section: 

Prices on PDVSA’s $3 billion of bonds maturing in 2027 were quoted at 20 cents on the dollar at 9:23 a.m. in London, according to pricing source CBBT. Venezuelan government bonds maturing in 2018 slid 16 cents on the dollar to 63 cents, while longer-maturity debt was little changed.

Even after the oil producer known as PDVSA made an $842 million principal payment Oct. 27, the nation is behind on about $800 million of interest payments. All told, there’s $143 billion in foreign debt owed by the government and state entities, with about $52 billion in bonds, according to Torino Capital.

Sanctions imposed in August by the U.S. have made it difficult to raise money from international investors, and effectively prohibit refinancing or restructuring existing debt, because they block U.S.-regulated institutions from buying new bonds. It’s an unprecedented situation for bondholders, who have limited recourse as long as sanctions are in effect.

“I decree a refinancing and restructuring of external debt and all Venezuelan payments,” Maduro said. “We’re going to a complete reformatting. To find an equilibrium, and to cover the necessities of the country, the investments of the country.”

 

Eoin Treacy's view -

$60 is a big level for many higher cost private sector oil producers. It’s a number many companies have quoted as they struggled with cutting costs while prices traded below economic levels. Their fortunes are improving now that prices are at two-year highs. Venezuela’s breakeven is well above current levels so the recent rally is less of a salve, while bond payments are a constant drain on revenues. 



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November 07 2017

Commentary by Eoin Treacy

Musings From The Oil Patch November 7th 2017

Thanks to a subscriber for this edition of Allen Brooks’ everinteresting report for PPHB which may be of interest. Here is a section: 

The euphoria that greeted the production cut agreement announcement lifted oil prices above $50 a barrel, a critical threshold for market confidence.  As global oil inventories failed to drop as the market expected, investors turned on the commodity as well as energy stocks, sending their prices lower.  Since the oil price drop in early 2007, prices have largely traded between the low $40s a barrel to now above $54, with a brief excursion as low as $26.  The narrow price range reflected global oil inventories remaining relatively flat, until recently.  As oil inventories started falling a few weeks ago, we are now in a period favorable for higher prices.  

Today, we are firmly planted in an oil market reflecting positive price momentum.  Better projected oil demand growth seemed to be the initial factor that helped lift the oil market.  The International Energy Agency (IEA) upped its demand growth estimates for the second half of 2017.  About the same time, U.S. shale producers began shedding oil drilling rigs in response to weakening oil prices and as they sensed a need to rebuild investor confidence in their financial health.  Producers had to dispel the image of exploration and production (E&P) companies as destroyers of capital, a label the industry’s record seemed to warrant.  Disciplined capital spending, meaning living within a company’s cash flow in order to not have to borrow money or sell more equity to fund the overspending, appears to be the new mantra for E&P companies.  The latest survey of E&P company spending plans versus cash flow demonstrates that overspending remains high.  This may signal that it will take time for companies to generate positive cash flow.  

In recent weeks, as Brent oil prices have risen at a faster rate than WTI oil, the forward oil price curve moved into backwardation, meaning that barrels of oil able to be delivered immediately are worth more than if they are stored and delivered in the future.  This price disparity is further impacted by the cost of storing the oil.  Backwardation encourages holders of oil in storage to begin selling those barrels, which has accelerated the shrinking of global oil inventories.   

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.



Comparing these two futures curves for Brent Crude oil and West Texas Intermediate we see that the backwardation is most acute in Brent while West Texas Intermediate is in contango over the first four contracts. That highlights the continued incentive domestic US suppliers have, to pump and export into the global market; picking up a more than $5 spread in the process. 



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November 06 2017

Commentary by Eoin Treacy

A resignation, detentions and missiles: 24 hours that shook the Middle East

This article by Tamara Qiblawi for CNN may be of interest to subscribers. Here is a section:

Saudi Arabia was still putting out the fires caused by the missile attack when state TV announced the onset of an anti-corruption crackdown led by the crown prince. Over 17 princes and top officials were arrested on graft charges, according to a list obtained by CNN and cited by a senior royal court official.

The list includes billionaire business magnate Prince Alwaleed bin Talal, who owns 95% of Kingdom Holding, which holds stakes in global companies such as Citigroup, Twitter, Apple and News Corp.

The list also includes formal head of the royal court Khaled Al-Tuwaijri, Saudi media mogul Waleed Al-Ibrahim and Prince Turki Bin Nasser.

"Some of the wealthiest figures in the Arab world are in apprehension today," said military analyst Riad Kahwaji.
"This is unprecedented. We're seeing it for the first time and it's definitely causing shockwaves across the region."

 

Eoin Treacy's view -

On October 19th 2015 I wrote this: 

To think of Saudi Arabia as having to go to the market for money is a misrepresentation of just how much capital the kingdom has. Let’s think of the country more as a feudal kingdom than the democracies we are accustomed to. It is not beyond the realm of possibility that the various princes who have accumulated impressive wealth based on the largesse of the crown could be called upon to supply the state with arms, capital or soldiers in just the same way that dukes and earls would have done in feudal Europe.

 



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November 03 2017

Commentary by Eoin Treacy

Fossil-Fuel Friendly Tax Plan Spares Oil, Not Solar or Tesla

This article by Alex Nussbaum, Brian Eckhouse and Emma Ockerman for Bloomberg may be of interest to subscribers. Here is a section:

The House proposal protects three provisions that save explorers billions of dollars annually, while chopping a few others.

The legislation preserves the use of last-in-first-out accounting rules, also known as LIFO. The rules let companies value crude stockpiles at the price they’re selling for, rather than the original purchase cost. The bill also allows continued deductions of so-called intangible drilling costs and preserves a measure that lets explorers reduce taxable income to reflect the depreciation of reserves.

All three were thought to be in jeopardy as Republicans searched for offsets to pay for lowering taxes elsewhere.
Eliminating the drilling and depletion provisions alone would force energy companies to pay about $25 billion in additional taxes between 2016 and 2026, Congress’s Joint Committee on Taxation estimated last year.

The House bill would also end two smaller breaks for “marginal" oil wells and enhanced oil recovery projects, which involve older oil and gas fields. That would cost drillers about $371 million over ten years, the committee estimated.
The plan spares “the Holy Grail of E&P tax breaks" by maintaining the intangible drilling costs provision, analysts at Houston investment bank Tudor Pickering Holt & Co. said in a research note Friday. Between that and a plan to cut the corporate rate from 35 percent to 20 percent, the legislation would be “a net positive for oil and gas," they wrote.

 

Eoin Treacy's view -

The US oil and gas business represents a major opportunity for the economy to reduce its trade deficit with oil producers or even to become a net energy exporter. Renewables represent an equally important part of that goal since every barrel of oil not consumed at home is available for export. It therefore makes sense from a strategic perspective to support both from a regulatory and tax perspective. However, energy is about the most politically charged of all sectors, not to mention being competitive between source and others. Therefore one tends to be favoured over the other depending on the tone of the administration in power. 



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