David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    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.

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    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.

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    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.

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    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.

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    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.”

     

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    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.

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    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.

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    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.

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