Category Archives: Commodities

Is the "Commodities as Anti-Dollar" Trade Back?

Commodities had a nice day Wednesday, with oil in particular spiking up. Although the trigger appeared to be the Fed rate cut, one has to wonder at the seemingly disproportionate price reaction, particularly given deteriorating fundamentals and hence falling demand. One reason for the sudden enthusiasm for commodities is that, as in the frenzied days […]

Confirmation of the Role of Financing Difficulties in Collapsing Trade Volumes

One of our pet themes in recent weeks is that the fall in trade traffic, indicated and possibly overstated by a dramatic fall in the Baltic Dry Index, is due at least in part to difficulties in arranging and getting other banks to accept buyers’ letters of credit. For those new to this topic, international […]

Iran to Barter Oil for Thai Rice

Talk about getting creative to avoid use of the dollar (the iranians are particularly keen to avoid use of the dollar in oil trading, it verges on a point of honor with them. They have been selling oil to the Japanese with trades denominated in yen rather than the dollar as the reference currency for […]

Financial Crisis Hits Gulf States

Large current account surpluses do not mean a country’s are on a sound footing, as Japan, China, and now the Gulf States illustrate. A big bank near-failure in Kuwait has led the central bank to mount a rescue plan, and is weighting guaranteeing bank deposits. As the example of Ireland showed, bank guarantees (when stronger […]

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 […]