Category Archives: Commodities

OPEC to Cut November Production by 1.5 Million Barrels

Note that the consensus (based on news reports, not a formal sampling) was for OPEC to cut 1 million barrels now, with another 1 million in the offing. OPEC announced a deeper immediate cut and left open the possibility of another reduction in December. From Bloomberg: The Organization of Petroleum Exporting Countries agreed to cut […]

Baltic Dry Index Continues to Fall, Now 90% Below May Level, Ships Sitting Idle

Despite some calls that a commodities bottom is nigh (see Marc Faber, hat tip reader Megan), the Baltic Dry Index, a proxy for international shipping and international manufacturing, continues an alarming fall. While the BDI is known for false positives about trends in economic activity, the dramatic decline in BDi is partly the result of […]

Russia Considering Establishing Oil Reserve to Influence Prices

Russia is dependent on oil exports for its new-found prosperity and does not appear ready to give it up. From CNN Money (hat tip reader Michael): Russia’s top energy official said Wednesday that the nation may set aside an oil reserve to influence global prices – but won’t cut output, news reports said. Deputy Prime […]

Is Another Emerging Markets Crisis in Motion?

We mentioned earlier, focusing on a comment made in Brad Setser’s post “Where is My Swap Line?” that emerging economies had not internalized the lessons of the 1997 Asian crisis as much as was widely believed. Their central banks if anything overreacted, keeping their currencies cheap against the dollar and amassing large foreign currency reserves […]

Oil Falls as Demand Worries Outweigh Prospects of OPEC Cut

Many investors assume that energy use is a relentless upward march as populations grow and consumers acquire more gadgets. But oil consumption has contracted meaningfully in the past, most notably in the first oil shock, when demand fell from roughly 67 million barrels per day to 59. And recall that the oil price shock was […]

Emerging Markets Banks Hoist on Foreign Borrowing Petard

A colorful and informative article by John Dizard in the Financial Times on how emerging markets may not have dodged foreign currency exposure risk despite their central banks having very large foreign exchange reserves. It turns out their banks and major companies weren’t so prudent. Dizard raises a second issue here, one that was discussed […]

Despite Early OPEC Meeting, Some See Even Lower Oil Price Near Term

What a difference six months makes. When we questioned the thesis that the oil price runup earlier in the year was due solely to supply and demand, we got a fair number of hostile comments (see here and here for some of many examples). And now the view that oil will keep falling has also […]

Baltic Dry Index Falls Another 10.7%, Down Nearly 86% From May

The collapse in the Baltic Dry Index continues. As we have noted before, the inability of cargo shippers to secure letters of credit (and the unwillingness of banks to accept L/Cs from other banks) is play a significant role in the plunge in trade transport. From the Financial Times: The cost of shipping bulk commodities […]

Commodities Continue to Tank

Now that deflation worries are upon us, even the mainstream media is taking note of the reversal of the commodities price surge of earlier this year. Below are some excerpts from a New York Times article, “Commodity Prices Tumble.” But first, this tidbit, courtesy reader Michael, from an Oppenheimer report, dated October 13, “Surviving Lower […]

Rush to Put OTC Commodity Derivatives on Exchanges

In yet another sign reluctance to suffer counterparty risk, banks that only recently were aggressive in booking lucrative over the counter derivative trades are now tripping head over heels to shift them on to exchanges (note that the exchange, rather than the bank, would then monitor counterparty performance and be responsible for making margin calls […]

"Why Oil Prices Must Fall"

Reader Michael forwarded a new research piece from Oppenheimer by Fadel Gheit and Daniel Katzenberg that makes the case that oil prices will continue to decline. A core element of their thesis is that OPEC will not defend prices above $60. Here are the main arguments (boldface theirs): Given the bleak global economic outlook, we […]

Russian Stock Market Collapse Exacerbates Its Credit Crunch

Russia’s stock market took a beating as foreigners started getting cold feet over the British Petroleum row, when a consortium of oligarchs engaged in a power and money grab over a Moscow-based development joint venture, TNK. But falling oil prices are also a bad harbinger for a resource-dependent economy. From Bloomberg: Russia’s stock market collapse […]

A Glimpse Into the Abyss

I must confess a certain fondness for the apocalyptic sort of financial writer, provided they don’t lose anchoring with reality and fall into the tinfoil hat category. Nouriel Roubini is the case example of an economist who favors a baroque, melodramatic style, and despite sounding more than a tad unhinged at points, he has proven […]

"Chavez Proposes an Oil Price Manipulation Bank"

Venezuela has lots of oil, but it is heavy and sulphurous, which means it is costly to refine and is not terribly viable uniess oil prices remain high for a sustained period (refinery capacity is now skewed towards the sweet, light grades). That’s why Venezula, along with Iran, is the most aggressive among OPEC members […]

Merrill: Oil May Fall to $50

As the recession takes hold and increasingly looks to be a nasty affair, analysts are quickly revising forecasts to levels that would have seemed barmy a mere month ago. The latest is a new Merrill call that oil could drop to $50 a barrel, although the report waffles hugely by deeming a global recession “unlikely”. […]