FT - September 28 2006

Crude spikes higher on Opec rumours - By Chris Flood


Crude oil spiked by more than $1 on Thursday after Reuters reported that the Organisation of the Petroleum Exporting Countries had agreed an informal production cut. However, the Opec secretariat in Vienna later said it was unaware of any agreement.

Nymex November West Texas Intermediate hit $64 a barrel but retreated to trade $70 cents higher at $63.66 a barrel. ICE November Brent jumped to $63.63 a barrel before easing back to trade $1.04 higher at $63.25.

Saudi Arabia started to trim its production earlier this month and speculation has been growing in the market that the cartel will cut output. But Edmund Daukoru, Opecs president, said yesterday that even if Opec reached an agreement to cut ahead of the cartel December 14 meeting, it would be difficult logistically to lower supplies before November at the earliest.

The expected slowdown in the US economy next year will not be enough to substantially hurt commodity prices, according to Credit Suisse. It said the crude oil market and key metals (copper, zinc and nickel) would continue to face several years of supply deficit.

The deficits are too large to be deluged by a US economic slowdown, especially one which is consumption-led rather than industrially driven, said Jay Bhutani of Credit Suisse.

Natural gas prices were weaker after the release of the latest US weekly inventories data which showed a 77bn cubic feet increase in stocks, slightly below market expectations. The continuing inventory rise means gas in storage is on track to reach 3.3 trillion cubic feet by the end of October, ensuring plentiful supplies even if there is prolonged cold winter weather.

FT - September 29 2006

Hedge fund interest in commodities growing - By Kevin Morrison


Energy and metal prices have had a significant correction since they reached their record or long-term peaks earlier this year but talk of a prolonged downturn may be premature.

Barclays Capital said the 53-month upward trend in the Goldman Sachs Commodity Index had been broken, as institutional investor inflows into commodity product indices slowed. But it said hedge fund activity in commodities was still growing, as was private investor interest.

The fall in the oil price below $60 a barrel this week prompted talk that oil could be heading for the mid-$50s. Such gossip was enough to spur some ministers of the Organisation of the Petroleum Exporting Countries into action to bolster the sagging, but still relatively high, oil price.

Nigeria and Venezuela said on Friday that they would cut oil output by up to 170,000 barrels a day from Saturday, equivalent to about seven per cent of Opecs estimated production.

While other Opec members said they would not formally cut output, they have been quietly lowering production this year.

Saudi Arabia is estimated to have produced an average of about 9.1m b/d in September, down about 200,000 b/d from its August output, and about 400,000 b/d lower than the same period last year.

The announcement by Nigeria and Venezuela had little effect on prices as traders had factored in a cut, after comments by Edmund Daukoru, Nigerias energy minister and Opec president, that Nigeria would look to trim output.

ICE Brent crude futures for November delivery slipped 6 cents to $62.48 a barrel by the close.

Brent touched a six-month low of $59.32 during the week, and is down more than 20 per cent from its recent peak of $78.65, having suffered its biggest price fall for 15 years in the quarter.

November West Texas Intermediate fell 96 cents to $61.80 a barrel in morning trade on the New York Mercantile Exchange, but settled 15 cents up on the day at $62.91 a barrel. During the week it touched a six-month low of $59.52.

Traders said the move by Opec was a sign that it did not want oil prices to fall below $60 a barrel.

Petroleum product prices have also had a poor quarter, with Nymex gasoline futures down by a third on the quarter to $1.4750 a gallon, and US heating oil futures 17 per cent lower at $1.6675 a gallon.

US natural gas futures are down 36 per cent from the beginning of August, but only nine per cent on the quarter.

Bloomberg

Crude Oil Is Steady as Slower Economic Growth May Curb Fuel Use - By Mark Shenk


Crude oil was little changed as slowing economic growth in the U.S., the world's biggest energy consumer, may cut fuel demand.

Consumer spending in the U.S. rose 0.1 percent last month, the smallest gain since November, the Commerce Department said today. Yesterday, the department cut its estimate of the nation's second-quarter economic growth to an annual rate of 2.6 percent.

``The personal spending and GDP numbers are taking some support away from the market because they translate into slackening energy demand,'' said John Kilduff, vice president of risk management at Fimat USA in New York.

Futures have declined 20 percent from a record $78.40 a barrel on July 14 as tensions in the Middle East eased and U.S. fuel stockpiles increased.

Oct. 2 - Bloomberg

Oil Falls to $61.03 on Signs OPEC Cuts May Have Little Impact - By Mark Shenk


Crude oil plunged to $61.03 a barrel in New York on speculation that the decision by Venezuela and Nigeria to cut output will have little impact on supply.

Venezuela and Nigeria will reduce crude production by a combined 170,000 barrels a day, the Organization of Petroleum Exporting Countries said on Sept. 29. The countries were unable to produce as much as their OPEC quotas allowed in August. Saudi Arabia, OPEC's biggest producer, hasn't announced a cut. Rising fuel stockpiles and a slowing economy have also weighed on oil.

``These cuts may prove to be illusory,'' said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. ``The announcements are going to be taken with a grain of salt until the Saudis say they are going to cut, especially since they are voluntary.''

Crude oil for November delivery fell $1.88, or 3 percent, the biggest drop in almost two weeks, on the New York Mercantile Exchange. It was the lowest close since Sept. 26. Prices are down 7.9 percent from a year ago. Futures have declined 22 percent from a record $78.40 a barrel on July 14 as tensions in the Middle East eased and U.S. fuel stockpiles increased.

There is a global oil surplus of at least 500,000 barrels a day, Venezuelan Oil Minister Rafael Ramirez said in a statement Sept. 29 as he explained the country's decision to cut production. The country will reduce output by 50,000 barrels a day, and Nigeria will cut 120,000 barrels, OPEC spokesman Omar Farouk Ibrahim said.



Production Targets

Venezuela produced 2.5 million barrels a day in August, 723,000 barrels below the quota set by OPEC, according to a Bloomberg News survey. Nigerian output averaged 2.2 million barrels a day in August, 106,000 barrels less than allowed by the quota. The two nations were the fourth- and fifth-biggest sources of U.S. oil imports during the first seven months of the year.

``There is clear skepticism about the Nigerian and Venezuelan production cuts,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``We don't know if their statements are credible or if it would be sufficient to affect supply.''

Iran, OPEC's second-biggest oil producer, considers international oil prices too low and said it will support ``any'' OPEC measure that helps raise them. Iran produced 4.02 million barrels of oil a day in August, 90,000 barrels below its OPEC quota. Other OPEC members such as Saudi Arabia are exceeding their limits.



Iranian Support

``The Islamic Republic of Iran will support any effort by OPEC members to strengthen the oil market and return prices to an acceptable and rational level,'' Iran's OPEC Governor Hossein Kazempour Ardebili said, the state-run Islamic Republic News Agency IRNA reported today. Ardebili didn't specify whether Iran would change its current oil output to affect prices.

On Sept. 11, OPEC members agreed to leave their production targets unchanged at 28 million barrels a day. OPEC's next scheduled meeting is on Dec. 14 in Abuja, Nigeria. The group is responsible for about 40 percent of global oil output.

``Remember it's Venezuela and Nigeria that made the announcement, neither of whom has much credibility,'' said Kyle Cooper, director of research at IAF Advisors in Houston. ``The fundamentals look poor. Supply is there and the demand is not.''

U.S. inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, probably rose last week, according to a Bloomberg News survey. Crude oil, gasoline, heating oil, diesel and natural gas supplies in the week ended Sept. 22 were above the five-year average for the period, the Energy Department said.

``Inventories are really comfortable,'' Evans said. ``The accumulation on the product side is particularly important because that means the fuel is close to the consumer. There is less worry about a refinery or pipeline outage with these inventories.''

Brent crude oil for November settlement declined $2.03, or 3.3 percent, to close at $60.45 a barrel on the London-based ICE Futures exchange.

FT - October 3 2006

Oil falls as hurricane threat receeds - By Chris Flood


Crude oil sank below the $59 a barrel level on Tuesday, extending Mondays sharp falls amid growing confidence that this years hurricane season will end without a major storm.

Colorado State University, the leading academic forecasters, said on Tuesday that no more major hurricanes will form in the Atlantic this season.

Following hurricane Katrina last year, the US goverment sold 11m barrels of oil from its strategic stockpiles but it is to delay buying replacement supplies, making more crude available for refineries providing winter heating oil.

Ahead of the latest US weekly inventories data, due out on Wednesday, traders saw high existing levels of US crude and distillate stocks as reasons to drive oil prices to their lowest since February.

ICE November Brent traded $1.81 lower at $58.63 a barrel after it hit a low of $58.37. Nymex November West Texas sank to $58.84 before recovering to trade $1.83 lower at $59.20 a barrel.

The impact of Venezuela and Nigerias recent proposals to cut oil output by a total of 170,000 barrels a day was played down by analysts.

Mike Wittner, global head of energy market research at Calyon, said Nigeria and Venezuela were usually early advocates for production cuts but they had little usable spare capacity, so the burden would fall on Saudi Arabia, with some help from Kuwait and the UAE.

Saudi Arabia is rumoured to be trimming output already, reflected in lower tanker volumes in September, but it is likely to proceed cautiously ahead of the US mid-term elections, as energy prices have become a campaign issue.

A warm winter could potentially drive US crude prices temporarily below $50 a barrel, according to Francisco Blanch, commodity strategist at Merrill Lynch. With US and European distillate inventories already at high levels, a mild winter could reduce distillate demand by 245,000 barrels a day compared to normal. This would force heating oil prices lower and also have a knock-on impact on gasoline prices.

Opec may not be able to prevent a price collapse, as non-Opec crude producers are likely to be able to bring a significant amount of new capacity on stream, said Mr Blanch.

Nymex November heating oil fell almost 5 cents to $1.6550 a gallon, with distillate stocks expected to have risen 1.3m barrels last week. Nymex November unleaded gasoline fell just over 4 cents to $1.4650 a gallon, with stocks forecast to have risen by 0.9m barrels last week.

Gold fell 2.1 per cent to $592.70 a troy ounce as oils retreat put precious metals under pressure. Silver dropped 3.6 per cent to $11.05, while platinum sank 2.4 per cent to $1,120 a troy ounce.

Trading volumes for base metals were light due to holidays in China. Copper sank 2.4 per cent to $7,340 a tonne, while nickel fell 1.5 per cent to $28,800 a tonne.

Oil bounces back
Kuwait says it may follow OPEC members Venezuela and Nigeria in production cuts; inventories on tap.
October 4 2006: 9:25 AM EDT
LONDON (Reuters) -- Oil rose above $59 a barrel Wednesday after Kuwait said it may join other OPEC countries in cutting output if prices continue their three-month slide.

Kuwait's announcement offset expectations for a further rise in U.S. distillate and gasoline stockpiles, which helped prices dip to an eight-month low earlier in the session.

U.S. crude climbed 36 cents to $59.04. London Brent rose 42 cents to $58.91, after hitting this year's low of $57.78 earlier in the session.

Oil's 25 percent drop from its mid-July peak of $78.40 prompted OPEC President Edmund Daukoru on Tuesday to call on other OPEC members to follow the lead set by Nigeria and Venezuela in cutting exports.

But an OPEC source said Wednesday that other producers were unlikely yet to publicly pledge to trim supplies.

Kuwait's oil minister said it may take action if prices fall further below $60 a barrel.

"Kuwait may voluntarily lower (oil output) in order to maintain the market's stability," Sheikh Ali al-Jarrah al-Sabah told Reuters in an interview.

"The current situation with prices and the big retreat that has taken place is uncomfortable for OPEC nations," he added.

Pressed on price, he said $60 a barrel for U.S. crude was comfortable but $50 was worrying.

Venezuelan President Hugo Chavez said the price of oil should not fall below $60 a barrel, while the country's energy minister said markets were oversupplied by 500,000 barrels.

"What's frightened OPEC is the speed of the price decline - and it's easy to rationalize because stocks are high. There is definite cause for concern," said energy consultant Geoff Pyne.

"But oil at $60 is still high in absolute terms, so it's a difficult political decision for some producers to cut supply - especially Saudi Arabia."

Brimming U.S. stockpiles
U.S. data, set for release at 10:30 a.m. ET, are expected to show a 1.5 million barrel build in distillate stocks, according to a Reuters poll of analysts.

If the forecast holds, distillates such as heating oil will have risen for the past two months.

Gasoline supplies are seen up 700,000 barrels, while crude stockpiles are expected to fall 500,000 barrels.

Japan, the world's third-largest energy consumer, also has healthy heating oil stocks, which are at the highest level since last November.

"Inventories are huge - sentiment is completely bearish," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

But given a risk of further supply disruptions and higher winter demand, some analysts expect a rebound.

"I would think anything below $60 is a buying opportunity so on a technical perspective, prices would see a rebound soon," said Gerard Burg, a commodities analyst at the National Australia Bank.

Oil price forecasts raised for 2007 on rising demand

Wednesday, October 04, 2006

Oil analysts are raising their price estimates for next year in anticipation of increased demand that may outpace the development of new deposits.
Crude oil will average US$64 a barrel in New York in 2007, according to the median forecast of 29 analysts surveyed last week.

That is US$2 (HK$15.60) higher than predicted at the end of the second quarter. Analysts failed to predict the rise in oil throughout a five-year rally during which prices tripled.

"We see a very tight market continuing into next year," said Kevin Norrish, a director of commodities research for Barclays Capital in London. Barclays expects oil next year to average US$76.70 a barrel, the highest forecast in the survey.

"The recent fall in prices is due to short-term factors," he said. "We're looking for fairly strong global growth, and we don't see capacity expanding by much."

Benchmark oil futures touched a record US$78.40 a barrel July 14 on the New York Mercantile Exchange on concern that fighting between Israel and Hezbollah in Lebanon would spread through the Middle East.

Prices fell after fighting ended in Lebanon and the Gulf of Mexico storm season passed without a repeat of last year's hurricanes, which crippled oil production and refineries.

Oil's climb from less than US$20 a barrel at the end of 2001 has been driven by the failure of producers to generate new supplies fast enough to keep pace with rising demand, especially in China.

Analysts are betting that trend will continue. They forecast oil would be US$58 a barrel at the start of 2006, according to the median in a survey last December. So far, crude oil has averaged US$68.26, higher than any prior year.

"We just haven't seen dramatic increases in supply," said James Rollyson, an analyst at Raymond James Financial in Houston. Raymond James is predicting US$70 oil next year after forecasting US$58 at the beginning of this year.

Oil consumption worldwide rose 9percent to an average 83.8 million barrels a day between 2000 and 2005, led by China and the United States, according to the US Energy Department. Global oil supply rose 8.6 percent to 84.5 million barrels.

Prices surged during the first half as Iran, the fourth-largest oil producer, pushed ahead with nuclear fuel enrichment, heightening tensions with the US.

Talks in Berlin between Iran and European Union officials aimed at breaking the deadlock over the atomic program produced some progress.

Oil will average US$65.50 a barrel in the fourth quarter, according to the median estimate in the survey.

Analysts in June said oil would average US$67.65 a barrel during the third quarter. Prices averaged US$70.60 during the past three months, a record.

Strategists who forecast a drop in prices next year say a slowing US economy will coincide with increased output.

US economic growth slowed to a 2.6 percent pace in the second quarter, three percentage points lower than the first three months of the year, the Commerce Department said on September 28.

"We're very pessimistic about the US and global economy next year," said Eoin O'Callaghan, an analyst with BNP Paribas in London who expects oil to average US$59.80 next year.

Rising fuel stockpiles in the US, which is responsible for 25 percent of global energy use, helped cause the decline in prices in the third quarter.

Spot prices are cheaper than futures for oil delivered later in the year, a market condition called "contango."

This has led to increased inventories, but it may end in coming months, said Adam Sieminski, chief energy economist at Deutsche Bank Securities AG in New York. He expects oil to average US$61 a barrel in 2007.

BLOOMBERG

FT - October 4 2006

Oil struggles to recover from recent weakness - By Chris Flood


Oil markets struggled to stabilise on Wednesday as news of a bigger-than-expected increase in US crude inventories offset a threat by Kuwait to join other members of the Organisation of the Petroleum Exporting countries in cutting output if crude prices weakened further.

Sheikh Ali al-Jarrah al-Sabah, Kuwaits new oil minister, said crude production could be reduced to maintain market stability and that the country was in negotiations with other Opec members about voluntary cuts in output.

Kuwait is the first Gulf state to move but Saudi Arabia raised its official selling price for November crude for delivery to Europe by more than $1 a barrel yesterday which is expected to reduce shipments further.

Momentum in favour of action among Opecs members is growing following Nigeria and Venezuelas recent moves to cut production by a total of 170,000 barrels a day.

After a decline of more than $4 a barrel in the previous two sessions, crude prices remained choppy with the release of the latest weekly US inventories data. Crude stocks rose 3.3m barrels, well above the consensus market forecast for a 0.5m barrel decline. Nymex November West Texas Intermediate fell to as low as $57.75 a barrel before recovering to trade 4 cents higher at $58.72 as barrel.

ICE November Brent sank to $57.70 a barrel, its lowest level this year, before recovering to trade 14 cents higher at $58.57 a barrel.

Nymex November heating oil edged up 1 cent to $1.6640 a gallon after distillate stocks rose 200,000 barrels compared with the consensus forecast for a 1.5m barrel increase.

Nymex unleaded gasoline firmed 1 cents at $1.4714 a gallon after a rise of 1.2m barrels in gasoline stocks compared with the consensus market forecast for a 0.7m barrel increase.

Source: Globe and Mail - 4 October 2006

Commodity bear market begins now: Merrill


Commodity prices are due for a "protracted bear market" after speculators drove prices artificially high in recent months, Merrill Lynch & Co.'s chief investment strategist said Wednesday.

"We commented early last month that the level of speculation in commodities was at an all-time high," said Richard Bernstein in a report. "Despite September's pullback in overall commodity prices, the level of speculation has actually risen!"

Merrill was not the only brokerage betting that the commodity space is getting riskier. An RBC Dominion Securities analyst turned bearish on the Canadian oil field services sector Wednesday, urging investors to view companies working in the field with caution, given the sharp drop in natural gas prices.

"In light of further risks to gas prices, exploration and production spending, and pressures on service pricing and margins created by potentially lower activity levels and more capacity, defensiveness and caution should continue to be the main theme over the next 6-9 months," RBC's Angela Guo wrote in a note.

Merrill's Mr. Bernstein measured the level of speculation in the market by comparing spot prices of commodities that trade exchange-listed futures with spot prices of commodities that do not. He believes that speculation is more likely to occur in the futures markets than in the physical markets.

"By our reckoning, commodities' prices are now about 60 per cent above what could be explained by fundamental supply and demand," the Merrill report said.

Its research suggests that September's drop in commodity prices might "only be the beginning" of a long-term drop in prices.

"We find it amusing that a consensus has now formed that housing is speculative and overdue for an extended pullback, yet many commodities have appreciated much more than housing has, and have done so in a shorter period of time," Mr. Bernstein said.

"Housing is speculative, but commodities are purely a fundamental story? We disagree."

The report comes a day after Merrill's U.S. sector strategist Brian Belski downgraded the U.S. energy sector to "underweight." He predicted the energy sector will underperform the stock market over the coming months.

RBC took a closer look at investing in the companies that provide products and services for the major oil and natural gas companies. The sector has provided another way for investors to profit from the boom in the resource sector.

But the price of natural gas the most common U.S. home heating fuel has dropped nearly 25 per cent since August 1 to its lowest level in nearly two years as North American inventories swelled on the extended warm weather. The drop in natural gas has forced some companies such as Canadian Natural Resources Ltd. to slash their natural-gas drilling plans.

RBC's Ms. Guo said a new look at the risk-reward profile of companies in the oil-field services sector triggered wide-spread downgrades in the sector.

Akita Drilling Ltd., Trinidad Energy Trust, Mullen Group Income Fund, Pason Systems Inc., CHC Helicopter Corp., and Flint Energy Services Ltd. were all downgraded to 'underperform.' Ensign Energy Services Inc., Precision Drilling Trust, Calfrac Well Services Ltd., Trican Well Service Ltd., Cathedral Energy Services Income Trust, and Total Energy Services were all cut to 'sector perform.'

Although the sector looks cheap now, there is no compelling reason to pick up the stocks, Ms. Guo said, nothing that a lack of near-term positive catalysts and continued uncertainty on earnings estimates will likely keep the sector depressed.

"As a dramatic measure of maximum risks should the oil price fall significantly due to macro economic reasons, while the gas price dips further due to a warm winter, applying the historical trough trailing multiples to the stocks would imply an average downside of 24 per cent for the sector from current levels."

Ms. Guo left her 'outperform' recommendations on Savanna Energy Services Corp., Enerflex Systems Ltd., CCS Income Trust and ShawCor Ltd., saying the stocks were already either oversold or more defensive in nature.

The last four companies have a more "favourable" relative risk-reward profiles when compared with the rest of their peer group and could be purchased by "value-oriented investors seeking exposures to the sector," she said.

Market report: Wednesday close
Mickey Clark, Evening Standard
4 October 2006


As crude prices briefly slumped to their lowest of the year, one long-term bull, UBS, appeared to be taking a more cautious stance on prospects. The broker has downgraded Tullow Oil, 9p lower at 358p, from neutral to reduce while slashing its target price from 375p to 330p.

Burren Energy, 15p off at 818p, remains a buy but has seen its target cut from 1065p to 1030p, along with Cairn Energy, down 61p at 1775p, which UBS has trimmed from 2600p to 2450p.

Venture Production, down 19p at 703p, which recently benefited from news of a new drilling campaign in the North Sea, remains a buy with its target increased from 1010p to 1040p.

UBS has also begun coverage of Premier Oil, 7p cheaper at 1010p, with a buy rating and a 1300p target while Dana Petroleum, 44p lower at 1126p, is rated at neutral with a 1240p target. UBS says Dana and Tullow have strong reserves of oil, but warns this is already factored in to their share prices.

BP bounced back to trade 1p higher at 570p after initially being marked lower following a disappointing trading update. That spike in BP, which has a big weighting in the Footsie 100 index, enabled the rest of the market to rally from opening falls.

The Times - October 05, 2006

Opec plans cuts


Opec, the oil cartel, has agreed informally that it needs to cut production by at least one million barrels a day, or 4 per cent, to boost the falling price of oil. Most cartel members back a voluntary reduction and the deal could be ratified as early as the groups mid-December meeting in Abuja, Nigeria. Opec is going to defend a price floor for its oil of $50-$55 a barrel, one Opec official said.

Bloomberg - Oct. 6

Oil Falls on Speculation Saudi Hasn't Agreed to Any Output Cut - By Hector Forster


Crude oil fell on speculation Saudi Arabia, the world's largest producer, hasn't agreed to participate in any output cut by the Organization of Petroleum Exporting Countries.

OPEC President Edmund Daukoru said yesterday there is no formal agreement among member countries to lower output. This week, he urged members to lower production before the group's next scheduled meeting in December, and started the process with a cut from his own country, Nigeria.

``Saudi Arabia seems not to agree on any cutback plan until oil falls below $55,'' said Makoto Takeda, an energy analyst at Bansei Securities Co. in Tokyo. ``Prices are likely to turn downward and test Wednesday's low. We haven't found a bottom yet.''

Crude oil for November delivery fell as much as 43 cents, or 0.7 percent, to $59.60 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded at $59.74 at 12:53 p.m. Singapore time.

Prices declined to $57.75 a barrel on Oct. 4, the lowest in more than seven months.

Crude oil may rise next week on speculation a growing number of OPEC members favor cutting production to bolster prices. Fifteen of 34 analysts, traders and brokers, or 44 percent, said prices will gain next week, according to a Bloomberg News survey.

Brent crude oil for November settlement dropped as much as 27 cents, or 0.5 percent, to $59.73 a barrel on the London-based ICE Futures exchange.



OPEC Output

Nigeria and Venezuela said last week they will cut output by a combined 170,000 barrels a day.

``The consensus that we can all agree on is that the market is very soft,'' Daukoru said by telephone from Abuja, Nigeria. ``It's more or less a free fall.''

OPEC, which may meet this month to debate a cut, may slash production by at least 1 million barrels a day, Algeria's state- owned news agency said yesterday. OPEC will hold an emergency two-day meeting starting Oct. 18 at its headquarters in Vienna, Algiers-based Algerie Presse Service said.

``I do not think they were ready for prices to fall as fast and as far as they actually had,'' said Jonathan Barratt, a founder of Sydney-based Commodity Broking Services. He predicts prices to rise as high as $68 in winter before retreating to the $50-a-barrel level.



Commodity Prices

September's decline in oil and other commodity prices may be the start of a ``protracted bear market'' after speculation by investors pushed prices too high, Merrill Lynch & Co. said.

Speculation has lifted prices 60 percent higher than they should be, given supply and demand levels, Richard Bernstein, Merrill's chief investment strategist in New York, said in an Oct. 3 report.

Morgan Stanley, the world's biggest securities firm by market value, said yesterday the commodities ``supercycle'' isn't over and prices may rise because of production shortages next year.

Global commodity supplies, which are three to five years behind demand, may test record lows in 2007, the New York-based bank wrote in a report yesterday.

``The next leg upward in the commodities cycle'' will happen in the next six to 12 months, it said.

dai oldenrich, like the thread and the metals one. Thanks.

Thanks Eddie. I only post factual up-to-date articles as you can read a wide range of differing opinions on many BBs. Glad they are helpful. Dai.

FT.COM - October 6 2006

Crude lower, commodity weakness continues - By Kevin Morrison


Oil prices fell about 5 per cent this week in spite of planned production cuts by the Organisation of the Petroleum Exporting Countries and the prospect of sanctions against Iran, Opecs second largest producer, by the US.

Prices remained weak in afternoon trade on Friday even after the US said there might be an announcement next week to discuss possible sanctions against Iran over its nuclear ambitions.

Edmund Daukoru, Opec president, said on Friday that he hoped the oil cartel could reach a consensus on Monday on a planned production cut of 1m barrels a day.

Some Opec members have already starting trimming supplies. Saudi Arabia, the worlds largest oil exporter, has cut output by 200,000 barrels a day over recent months.

ICE Brent for November delivery retreated 74 cents to $59.26 a barrel in late afternoon London trade. This left prices down about 5 per cent on the week, and almost 25 per cent below their peak of $78.60 a barrel touched in early August.

November West Texas Intermediate fell 76 cents to $59.27 a barrel on the New York Mercantile Exchange, leaving it down almost 6 per cent on the week.

Kevin Norrish, energy analyst at Barclays Capital, said the oil price had continued to slide because the market was confused by the Opec announcements, which had so far mainly come from the Opec president rather than the secretariat.

The fact that Opec wants to make cuts at this juncture implies that Opec wants a basket price of about $60 to $62, which means about $65 to $67 for WTI, and this is positive for fundamentals, said Mr Norrish.

UK spot gas prices recovered to 12.25p per therm after dropping into negative territory in the week after gas started flowing from the new Langeled pipeline in Norway.

The drop in oil prices has been mirrored by a slide in gold prices. Bullion fell $1.85 to $567.00/$567.75 a troy ounce on Friday, down 5.2 per cent on the week and 22.3 per cent below its 26-year peak of $730 in May.

Oil has become a key barometer of inflation expectations and gold is also an indicator of inflation expectations, so it is no great surprise that there is a relationship between the two. It is a surprise that golds relationship with oil is stronger at the moment than the dollar-gold relationship, said Robin Bhar, metals strategist at UBS.

The weakening dollar provided no support to gold, but gold found support when oil prices rose briefly this week after the initial Opec announcement, said Mr Bhar.

Reuters - Fri Oct 6, 2006 11:59 PM - By Vivianne Rodrigues


A rally in U.S. stocks that pushed the Dow industrials to a record may stall next week as signs of an economic slowdown curb the appetite for equities just as the third quarter's earnings season gets under way.

This week, the blue-chip Dow Jones industrial average hit a record closing high and an all-time intraday high for three days in a row in a rally driven by a sharp drop in oil prices and expectations that the Federal Reserve will not raise interest rates in the near future.

The rally also propelled the Standard & Poor's 500 Index to fresh 5-1/2-year highs more than once.

But on Friday, weaker-than-expected September employment data, following a White House forecast for slower GDP growth late on Thursday, brought the rally to a halt and may drag stocks lower in the week ahead, analysts said.

"We had a long run in equities and we're probably due for a sell no matter what the news is," said Elliot Spar, market strategist at Ryan Beck & Co., in Shrewsbury, New Jersey. "If the economy is going to go down, then you have to worry about earnings momentum."

Investors will scrutinize corporate profits next week, Spar said, as the earnings season heats up, with Alcoa Inc., Costco Wholesale Corp. PepsiCo Inc. and General Electric Co., slated to report.

Trading may be lighter than usual on Monday as the U.S. bond market will be closed in observance of the Columbus Day holiday. The U.S. stock market will remain open.


BEWARE OF THE JINX MONTH

For the week, stocks rose -- with the Dow up 1.5 percent, the S&P 500 up 1 percent and the Nasdaq up 1.8 percent.

The Dow average closed at record highs three times in the week, with an intraday high on Thursday at 11,870.06, its highest level since Jan. 14, 2000. On Thursday, the S&P 500 closed at 1,353.22 and peaked intraday at 1,353.79 -- with those levels marking the highest since Feb. 5, 2001.

For the year to date, the Dow is up 10.6 percent, the S&P 500 is up 8.1 percent and the Nasdaq is up 4.3 percent.

After stocks broke new ground last week, some investors may be more cautious during the rest of October, known as "the jinx month," according to the Stock Trader's Almanac, because of stock market crashes in 1929 and 1987.

Volatility may increase early this week, traders said, with the possibility of a nuclear weapon test by North Korea over the weekend.

"If they do go ahead with the test, the stock market may get a bit more skittish," said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut. "It's just one thing we don't need right now."

The White House said on Friday that it had no new information to disclose about whether a nuclear test was being planned, but said North Korea should not carry out the test.

On Friday, U.S. crude oil for November delivery settled at $59.76 per barrel -- down 5 percent for the week. NYMEX crude is down 24 percent from its record set in July.


EARNINGS ON FRONT BURNER

On Tuesday, the third-quarter earnings season kicks off for blue chips with Alcoa reporting results, followed by General Electric on Friday.

"Earnings have been on the back burner, and they move to the front very soon," said Michael Panzner, vice president of sales trading at Collins Stewart in New York. "I have a funny feeling things haven't been particularly great."

S&P 500 companies are expected to achieve third-quarter earnings growth of 14.1 percent from a year earlier, according to Reuters Estimates. Meanwhile, pre-announcement activity for U.S. companies stayed negative for the week ended Sept. 29.


FOMC MINUTES, RETAIL SALES AHEAD

Next week's economic data could help investors assess the likely magnitude of consumer spending before the start of the holiday season as well as the Fed's view of the economy.

On Tuesday, the government releases its report on wholesale inventories for August. Economists polled by Reuters expect inventories to rise 0.7 percent, down from a 0.8 percent gain in the previous month.

Minutes of the Federal Open Market Committee's Sept. 20 meeting will be released on Wednesday and the Fed's Beige Book -- a survey of economic conditions in the Fed's 12 districts -- will follow on Thursday.

The international trade deficit for August, also due on Thursday, is forecast at $66.70 billion, down from $68 billion in July, according to the Reuters poll.

A slew of data is due on Friday, including import prices, retail sales and the University of Michigan's reading on consumer confidence.

Import prices likely shrank 1.2 percent in September, after a 0.8 percent gain in the previous month, according to the estimates of economists surveyed by Reuters.

Retail sales for September are forecast to rise 0.2 percent, matching a 0.2 percent gain in August, according to economists polled by Reuters. Excluding auto sales, September's retail sales are seen unchanged, compared with a 0.2 percent gain the previous month.

The preliminary October reading of the University of Michigan's consumer sentiment index probably will show a rise to 86.5 from 85.4 in September, according to the Reuters poll.

Bloomberg - 6 October 2006

Crude Oil Falls Amid Speculation OPEC Won't Make Proposed Cuts - By Mark Shenk


Crude oil fell on speculation that members of the Organization of Petroleum Exporting Countries won't follow through with production cuts.

``Lately OPEC hasn't had to do anything,'' said Bill O'Grady, an analyst with AG Edwards & Sons in St. Louis. ``It gets hard when they have to make sacrifices. Nobody wants to cut while the other guys continue to pump and reap gains.''

Nigeria and Venezuela said last week they would cut a total of 170,000 barrels a day to prop up prices. OPEC President Edmund Daukoru said in an interview yesterday that Saudi Arabia, Libya, Algeria, Kuwait and Iran may join in the cuts. Saudi Arabia would back a consensus by members on whether to reduce output and wouldn't oppose a meeting, Al-Hayat newspaper reported today.

Crude oil for November delivery fell 27 cents, or 0.4 percent, to close at $59.76 a barrel on the New York Mercantile Exchange. Prices touched $57.75 on Oct. 4, the lowest since Feb. 16. Futures have declined 5 percent this week and are down 24 percent from a record $78.40 a barrel on July 14 as tensions in the Middle East eased and fuel stockpiles increased.

Daukoru said today the group may reach a consensus by Oct. 9 on supply cuts of as much as 1 million barrels a day, Reuters reported. OPEC members remain undecided on whether to hold an emergency meeting on Oct. 18 and 19 in Vienna, he said, Reuters reported.


Proposed Meeting

``OPEC is likely to hold an emergency meeting Oct. 18 and 19 in Vienna if the members show readiness to carry out a substantial reduction in production of not less than one million barrels a day,'' the London-based daily said, citing an unidentified OPEC official. ``Saudi Arabia, as the largest OPEC member, supports any position on which there is a consensus.''

The group's next scheduled meeting is Dec. 14 in Abuja, Nigeria. The 11 members of OPEC, which produce about 40 percent of world oil, kept their output target at 28 million barrels a day at their Sept. 11 meeting.

``High inventories and falling prices are not a very good scenario for OPEC,'' said Francisco Blanch, senior oil strategist at Merrill Lynch & Co. ``I think $55 a barrel is probably a level they would want to hold onto, certainly $50 would get them quite nervous.''

U.S. crude oil, gasoline, heating oil, diesel and natural gas supplies last week were above the five-year average for the period, the Energy Department said on Oct. 4. The U.S. consumes 25 percent of the world's oil.

``The market is well supplied and it looks like economic growth will be slower in 2007 than in 2006,'' said Jason Schenker, an economist with Wachovia Corp. in Charlotte, North Carolina. The slowdown ``is being interpreted as bearish for energy demand.''


Iranian Talks

European Union talks with Iran on restricting the Islamic Republic's nuclear program have failed, U.K. Foreign Secretary Margaret Beckett said. The U.S. and EU say Iran's nuclear power program is aimed at developing weapons, which would put it in breach of treaty obligations and risk escalating tensions in the Middle East, source of almost a third of the world's oil.

The U.S. is pushing for economic sanctions to discourage Iran from acquiring nuclear arms. Russia, which has veto power as one of the five permanent members of the United Nations Security Council, yesterday reiterated its opposition to immediate sanctions.

www.thepost.ie - 08 October 2006

Rise of commodities unlikely to be sustained - By Eugene Kiernan


Commodities have garnered a lot of the financial market limelight in 2006. In the past 18 months, the prices of basic commodities such as aluminium, copper, lead and zinc have doubled in value.

Commodity prices have indeed run very hard. Since the end of 2001, base metal prices have soared about 270 per cent and oil prices have also risen. From $19 for a barrel of oil in 2001 to around $60 currently, we have seen a tripling in energy costs.

This move in commodities has generated a lot of interest and led many portfolio investors to consider commodities as an asset class to be included in pension funds. Base metals, as measured by the Bloomberg Base Metals Index, peaked in early May, slumped by over 20 per cent to mid-June, and then staged a slow recovery. They are currently 10 per cent below these recent highs today. As a pattern, it was not dissimilar to what we saw in many global equity markets.

Oil prices displayed a different pattern, rising to just under $79 for Brent crude in early August only to slide by 25 per cent in the weeks since. This decline has been partly responsible for the better feel to equity markets since mid summer. Do these short-term trends have any implication for investors? The commodity which attracts the most attention is oil. Energy prices have been dancing to a different beat in this most recent period. The most recent leg has been clearly downward. How have economies and markets responded to these gyrations?

Its not that economies have become immune to energy price increases, but they have learned to cope better.

Oil companies are an important part of many of the global stock markets today. In Britain, oil companies will account for about 20 per cent of all profits earned in the market. In the US, majors such as Exxon and Chevron account for 6 per cent or so of the S&P index.

Higher oil prices mean stronger cash flows for these companies, but volatile oil prices can hamper planning and indeed final customer demand. Senior management from the global players in this industry have always spoken about long-term pricing for oil being substantially below the level we approached in mid-2006. The key point from an investors point of view is that at oil price levels even lower than today, free cash flow in these companies will still be sufficient to fund developing the business and allow cash to be returned to share holders in healthy dividends or buy-backs.

This robust aspect of energy stock performance is clearly displayed when we look at how their share prices have done even as oil prices have plummeted. The energy sector has lagged other sectors of the market, but the fallout is not as severe as the fall in the energy price itself.

These are volatile times for commodity prices, but what recent moves may have shown investors is that the hyper growth rate that we have seen in commodity prices should not be extrapolated into the future. Oil shares and the oil price are not the same thing.

Oct. 9 (Bloomberg)

Oil Rises After Saudi, OPEC Members Agree to Cut Production - By Christian Schmollinger and Gavin Evans


Crude oil rose in New York after Saudi Arabia and five other OPEC members agreed to cut output by about 3.4 percent to stem a two-month slide in prices.

The six countries, including Venezuela and Nigeria, which promised to lower production on Oct. 1, will reduce supply by 1 million barrels a day, Levi Ajuonuma, spokesman for the Organization of Petroleum Exporting Countries, said yesterday. The 11-member group pumps about 40 percent of the world's oil.

``A 3 1/2 percent cut is quite substantial considering they said a month ago they wouldn't be making any,'' said Steven Rowles, an analyst with CFC Seymour Ltd. in Hong Kong. ``It really comes down to what Saudi Arabia is going to be cutting.''

Oil for November delivery rose as much as 74 cents, or 1.2 percent, to $60.50 a barrel in after-hours electronic trading on the New York Mercantile Exchange. North Korea's announcement today of its first nuclear weapons test failed to move the market because the country doesn't export oil, said Rowan Menzies, an analyst at Commodity Warrants Australia in Sydney.

Crude fell to a seven-month low of $57.75 on Oct. 4 as U.S. inventories rose and concerns eased about a standoff between the U.S. and Iran over the Middle East oil producer's nuclear program. OPEC usually increases output in the fourth quarter when global demand peaks because of heating-fuel use.

Oil traded at $60.16 at 1:07 p.m. Singapore time. Prices have dropped 23 percent from a record $78.40 on July 14.

In London, Brent crude oil for November settlement gained as much as 73 cents, or 1.2 percent, to $60.56 cents on the ICE Futures Exchange.

Demand in the fourth quarter will average 85.6 million barrels a day, up 2.2 percent from a year ago, OPEC said in a Sept. 15 forecast.



Quota Review

Saudi Arabia, Libya, Algeria, and Kuwait joined Venezuela and Nigeria, which announced their cut last week. The plan by the six countries represents a 3.4 percent reduction from last month's estimated output by OPEC.

OPEC President Edmund Daukoru urged member states Oct. 3 to lower production before the group's next scheduled meeting in December. Venezuela and Nigeria pledged to cut output by a total of 170,000 barrels a day.

The group agreed at a meeting on Sept. 11 to leave its output ceiling unchanged at 28 million barrels a day. The quota doesn't apply to Iraq, which pumped about 2 million barrels a day last month. OPEC may say today whether it plans to hold an emergency meeting to ratify the informal cuts that have been agreed, Ajuonuma said.



Winter Demand

OPEC didn't give details of the size of the cut by each country. Saudi Arabia is the world's biggest oil producer and accounted for about 31 percent of the group's output last month.

``This will put a floor in the market'' around $60 a barrel, said Gerard Burg, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. Further cuts may not be needed once falling temperatures boost winter heating demand in the Northern Hemisphere, he said.

North Korea said it detonated a nuclear bomb, hours after the Japanese and Chinese governments warned the communist country against proceeding with the test.

``The nuclear test, conducted under a scientific method and under specific calculations, did not cause any danger,'' North Korea's official Korea Central News Agency said today. It is the first time North Korea has announced a nuclear test.



Oil Bets

Rising stockpiles and falling prices prompted hedge-fund managers and other large speculators to almost eliminate their bets on higher oil prices last week, according to a U.S. Commodity Futures Trading Commission report.

Speculative long positions, or bets prices will rise, fell by 99 percent to 131 contracts in the week ended Oct. 3. That was the smallest long position in New York oil futures since March 24, according to commission data.

Oil stockpiles in the U.S., the world's biggest consumer, held 328.1 million barrels on Sept. 29, or 6.7 percent more than a year earlier, the Energy Department said last week.

Supplies of distillates, including diesel and heating oil, held 151.5 million barrels, 18 percent higher than a year ago.

``Inventories around the world, most notably in Europe and North America, are quite high already,'' National Australia's Burg said.