Having briefly reached bull market status (ripping 20% off last week’s lows), WTI crude oil is collapsing again this morning as the reality of excess supply and dwindling demand crash on the shores of manipulated futures and ETFs. However much hope was imbued into this rally as “setting the bottom” for oil, it seems the rally was used by ‘investors’ to hedge the downside as bets on a bearish plunge have soared to record highs.
The petroleum ministry wants the finance ministry to cut cess on domestic crude and make it ad valorem in view of the slump in global fuel rates, oil minister Dharmendra Pradhan said today. An ad valorem rate of cess means higher payouts when prices are high and lower when rates fall. At present, state-owned ONGC and Oil India pay a cess of Rs 4,500 per tonne on crude oil they produce from their allotted fields on a nomination basis. Cairn has to pay the same cess for oil from the Rajasthan block. With oil prices dropping to an 11-year low of under $35 per barrel, the cess translates into a third of the earnings being paid in just one levy. “We have told the finance ministry that the cess pattern has to be changed to ad valorem from a fixed rate now. Make it formula-driven,” Pradhan told reporters here. The ministry wants cess to be levied at no more than 8 per cent of the price of crude realised.
The Oil Industry (Development) Act, 1974 provides for the collection of cess as an excise duty on indigenous crude. Cess incurred by producers is not recoverable from refineries and thus forms part of the cost of production of crude oil. The cess was levied at Rs 60 per tonne in July 1974 and subsequently revised from time to time. In 2005-06, when crude prices had increased from an average of $40 per barrel to $60, oil cess was raised from Rs 1,800 to Rs 2,500 per tonne from March 1, 2006. Again, when crude prices climbed to over $100, the rate of cess went up to Rs 4,500 ($12 per barrel) with effect from March 17, 2012.
The last time the CME hiked margins across the entire crude oil space was one short week ago, on Tuesday to be specific, when the most important contract, the CL Crude Oil Future, saw its initial margin rise by a little over 4%, from $4070 to $4235.
However, as last week’s subsequent events clearly showed, the margin hike was nowhere near enough to bring some stability to the market, when the crude plunge accelerated toward the end of the week, leading to a near-record rout in the product.
Which perhaps is why moments ago the CME once again hiked both initial and maintenance margins across the board for some 151 pages worth of futures contracts, only this time the required cash for initial positions or to maintain existing spec bets for the front month contract was increased four times as much, from $4235 to $4895…
... which means the weekly increase in crude margins is now about 20%, which also means that those specs who were in margined, money-losing positions until today, will have to pony up substantially more cash, or else the crude dump will resume and rather quickly. Unless of course, the recently most margined positions happen to be new shorts, who would now rush to cover.
Western energy firms are noted for venturing into volatile regions and areas that scare off more faint-hearted capitalists.
But one country is even giving these hardened energy companies pause – Afghanistan.
On 22 September Afghanistan issued a bid for tenders to exploit its vast mineral and hydrocarbon wealth, but found no important takers.
Why is that?
As the U.S. government’s Bureau of Economic and Business Affairs February “2013 Investment Climate Statement – Afghanistan” report dryly noted, “Security threats limit investors’ opportunities to develop businesses in some provinces, and certain sectors (such as mining and hydrocarbons) still lack a regulatory environment that fully supports investment. Domestic and foreign investors also rank endemic corruption high on the list of impediments.” The report then optimistically adds, “Despite these challenges, Afghanistan’s investment climate presents opportunities in all sectors of the economy.” Read More
Cargoes of Abu Dhabi’s Murban crude oil traded at their highest premium in almost six years on Thursday, as signs of tightness in the physical oil market spread to lighter crudes, and those destined for Asian markets.
Murban, a flagship crude of the United Arab Emirates, a leading member of Opec, the oil producers’ cartel, is a relatively light crude, almost exclusively exported to Asia.
Strong demand for Murban is the latest indication that tightness in the sour crude market – a result of the slump in Iranian exports after US-led sanctions were imposed last year – is spreading to other markets and regions, as supply disruptions intensify.
Unexpected supply outages from Libya to the North Sea have been pushing oil prices higher for several weeks, while in recent days renewed unrest in Egypt, a key transit point for trade in oil, has added to upward momentum.
In the futures market, where contracts representing many millions of barrels of oil are traded every day, Brent, the global benchmark, hit a four-month high of $111.53 per barrel on Thursday. Read More
India’s consumption of gold rose to 310 tonnes in the second quarter ended June, highest in the last 10 years, despite government curbs to restrict imports to rein in burgeoning current account deficit, a WGC report said today.
Much of the demand was met by stocks that had been built up to healthy levels following the April price drop. Imports more than doubled to 338 tonnes in April-June of this calendar year, it said. Gold consumption stood at 181.1 tonnes in the same quarter last year.
“Consumers in India showed continued strong appetite for gold, with recent government measures to curb demand having had little impact on the quarter’s figures. Consumer demand was 310 tonnes, up 71 per cent on last year,” the World Gold Council (WGC) said in its latest report.
According to WGC India Managing Director Somasundaram PR, “Gold demand in Q2 was best in the last ten years.”
The fall in the gold price last April resulted in an increase in jewellery demand by more than 50 per cent to 188 tonnes in Q2 this year from 124 tonnes in the year-ago period, while bar and coin consumption reached a record high at 122 tonnes from 56.5 tonnes in the review period, he said. Read More
Summary of a lecture by Professor Chris Rhodes to the Conway Hall Ethical Society, Conway Hall, Red Lion Square, London. 11.00 am, Sunday July 28th, 2013.
The world supply of crude oil isn’t going to run out any time soon, and we will be producing oil for decades to come. However, what we won’t be doing is producing crude oil – petroleum – at the present rate of around 30 billion barrels per year. For a global civilization that is based almost entirely on a plentiful supply of cheap, crude oil, this is going to present some considerable challenges. If we look over a 40 year period, from 1965 to 2005, we see that by the end of it, humanity was using two and a half times as much oil, twice as much coal and three times as much natural gas, as at the start, and overall, around three times as much energy: this for a population that had “only” doubled. Hence our individual average carbon footprint had increased substantially – not, of course, that this increase in the use of energy, and all else, was by any means equally distributed across the globe.
From the latest document that I can find – the B.P. Statistical Review – we see that the majority form of energy used by humans on earth is crude oil, accounting for 33% of our total, closely followed by coal at 30%: a figure that is rapidly catching up with oil, as coal is the principal and increasing source of energy in developing nations such as China and India. Natural gas follows in a close third place, at 24%; nuclear and hydroelectric power at 5-6% each; and the tiny fraction of our overall energy that comes from “renewables”, is just 1.6%. Thus, we are dependent on the fossil fuels for 87% of our energy. Now, such a comparison is almost misleading and naïve, because it tacitly presumes that if our oil supply becomes compromised, we can make a simple substitution for it using some other energy source.
However, this is not so readily done in practice, because oil is a particular and unique substance, having both a high energy content, and that it is readily refined into liquid fuels – effectively by distillation – to provide the petrol and diesel that runs practically all of the world’s transportation. Moreover, everything we depend upon – literally everything: food, materials, clothes, computers, mobile phones, pharmaceuticals etc. – for our daily existence is underpinned by a plentiful supply of cheap crude oil. So, the loss of this provision is going to have a profound, and shattering effect on human civilization. Read More
Traders waste a lot of time, energy and effort on stuff that has NO BEARING on their P&L at the end of the day / month / quarter. This waste often takes the form of pointless questions. Where do I think XYZ Stock is going to go? I don’t know, I’m neither long nor short, so why should I expend energy on a question that vague when I can instead focus on trying to find the next high conviction opportunity where I actually intend to take a sizable position?
How high do I think crude oil will go before it tops? Again, I have no frigging idea and nor does anyone else, there are literally a thousand variables that could impact the blow-off, no, make that ten thousand, so trying to guess exact timing and magnitude makes zero sense, and again, crude oil as a conflicted trade is in the “too hard” bucket right now, I’m not focused on it, so why waste my time…
Traders are ridiculously enamored with the quest for certainty — the impossible safety blanket of “knowing” what is going to happen. Are you certain the scenario you just laid out will come to pass? How do you KNOW that it’s going to be correct? Can you kindly confirm 100% confidence, so I can completely absolve myself of personal responsibility for the risk I am taking? Hey, something different happened – last week you said X was the probable outcome and it turned out to be wrong! What gives!?!?!
Last Close : 5941
Above is Daily Chart of Nifty Future.
Yesterday as expected above 5913 level it zoomed to kiss our Laxman Rekha of 5941 & made high of 5963 & exactly closed at 5941.
We had Mentioned Two things :(Yes except Fools ,Idiots ,Jokers ,Born Blinds…Everybody else had read )
Watch Triangle of 141 points :Breakout Point was 5905+ 141 = 6046 level.
We are writing from last One Week :Three Consecutive close above 5941 +Weekly close will take to 6069——–6112 level very soon !!
Already SGX at 5971 (Up 31 points )
Today ,We see Hurdle at 5986————-6022 level. (If everything goes right )
Triangle Break out Target already told u at 6046 level.
Support will be given by 3DEMA at 5889 ,7DEMA at 5856 level.
Yesterday ,We Recommended to Buy 6000 ,6100 Call-Buy and Buy 5800 Put too and will see What happens ?
Today before 3:30 will NF kisses 6000 or Tomorow morning at 9:15 ???Lets see !!!Heading towards 6045-6100…Big boys are saying
For the first time in many years NYMEX, WTI and Brent Crude price is converging-the gap which traditionally ruled at $10-15 per bbl has now reduced to a mere $ 3-5. Such compression makes a mockery of hitherto Asia Risk premium which was always attributed to turbulence in North Africa and Persian Gulf states. Now it appears Shale may not be able to keep Crude price down either in the US or Globally. This will mean ever more trouble for the impoverished states of Asia and most of Africa.
Oil is above $100 a barrel for the first time since September, as traders worried about disruptions to Mideast supplies after embattled Egyptian President Mohammed Morsi vowed not to resign.
Benchmark oil was up $1.71 to $101.32 at 9:40 p.m. in electronic trading on the New York Mercantile exchange.
Oil last crossed $100 a barrel on Sept. 14.
Morsi demanded late Tuesday that the military withdraw its ultimatum that he meet the demands of protesters or see the constitution suspended and a new leadership installed.
Expectations of a sharp drop in U.S. supplies are also driving the gains. The Energy Department’s weekly report on U.S. stockpiles of crude oil is due out Wednesday