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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

    Peak oil demand is coming - but first brace for an almighty supply crunch

    Thanks to a subscriber for this article by Ambrose Evans Pritchard in the Telegraph. Here is a section:

    The world has turned its back on austerity. Keynesian reflation doctrines are triumphant. The Biden administration explicitly aims to run the US economy hot, with the help of the Federal Reserve.

    Global "green deals" amount to $16 trillion. “It’s going to turbo-charge oil demand in 2022,” said John Hess, head of Hess Corp.

    This spending may be low-carbon in ultimate effect but in the short-run it is brown. The transition requires infrastructure. It requires bulldozers and trucks. It requires the mining of iron ore and thermal coal, and the shipment to steel foundries. It trumps the $10 trillion infrastructure blitz by China, India, Brazil. and the emerging market "mini-BRICs" of the last commodity supercycle.

    If future demand is large, the shortfall in future supply is even larger. Investment of $600bn a year in non-Opec exploration and drilling is needed to keep the global show on the road. Spending collapsed after 2014 and has never recovered. Last year it was $300bn. It has been running at just 35pc of levels reached in the boom.

    This catches up with you in the end. The last two super projects to enter supply were Norway’s Johan Sverdrup and the Exxon-Hess Guyana venture. Henceforth it is a drought.

    Goldman Sachs estimates that 9m to 10m barrels a day of future supply have vanished. That is a tenth of the world’s 100m barrels a day production. Remember that a swing of just 1m either way in normal times can flip the market from slump to price spike. Short-term demand is inelastic.

    The elephant in the room is falling supply from non-Opec producers. These companies and regions (excluding US shale) were gently adding 500,000 barrels a day annually a year until recently. Goldman Sachs thinks they will soon be subtracting up to 1m barrels a day each year.

    The pandemic has distorted the immediate picture but not the underlying dynamics. Global demand has fallen by 6m barrels a day. Two thirds of that is jet fuel. Aviation will come back fast as soon as the flying world is vaccinated.
     
    The world has turned its back on austerity. Keynesian reflation doctrines are triumphant. The Biden administration explicitly aims to run the US economy hot, with the help of the Federal Reserve. Global "green deals" amount to $16 trillion. “It’s going to turbo-charge oil demand in 2022,” said John Hess, head of Hess Corp.

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    Vestas reveals offshore turbine with world's largest sweep

    This article by Paul Ridden for NewAtlas.com may be of interest to subscribers. Here is a section: 

    Each turbine is expected to deliver around 80 GWh of energy per year, depending on site-specific conditions, which is said to work out as being enough to power 20,000 European homes.

    The V236-15.0 MW also offers the potential to reduce the number of turbines deployed at offshore windfarm level – with Vestas calculating that the "offshore turbine offers 65 percent higher annual energy production than the V173-9.5 MW, and for a 900-MW wind park it boosts production by five percent with 34 fewer turbines."

    The company expects the first V236-15.0 MW prototype to be built in 2022, with serial production following two years later. It has a design lifetime of 25 years.

    “With the V236-15.0 MW, we raise the bar in terms of technological innovation and industrialization in the wind energy industry, in favor of building scale," says Anders Nielsen, Vestas CTO. "By leveraging Vestas’ extensive proven technology, the new platform combines innovation with certainty to offer industry-leading performance while reaping the benefits of building on the supply chain of our entire product portfolio. The new offshore platform forms a solid foundation for future products and upgrades.”

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    Lithium | 2021 supercharge?

    Thanks to a subscriber for this report from Canaccord Genuity. Here is a section:

    We estimate 2020 supply lifted 11% YoY to 340kt, noting lower capacity utilisation as largely a function of bottom-of-the-cycle pricing through 2020. We anticipate that a majority of the ~460kt of cumulative potential capacity that was delayed/deferred over the last ~18 months could remain suspended pending a recovery in pricing to higher levels. Recent consolidation among concentrate operations (i.e. Altura>Pilbara, Wodgina>Albemarle) now sees control of large scale, marginal cost production lies with a small number of established producers who, in our view, lack incentive to switch on large volumes of new supply.

    We further note that long lead times to delivering new capacity means that the +US $4.4bn in new equity raised by lithium companies since the start of 2020 is unlikely to lead to a meaningful supply response until the mid-2020s, by which point we expect the market to move into deficit. Our revised market balance forecasts now call for more modest market surpluses (5-7% over 2021-23), with our higher rates of demand growth now expected to outpace supply growth out to 2025. Beyond 2025, we continue to forecast significant market deficits, noting a ~7x increase in supply (i.e. ~240ktpa average increase in capacity) is required to meet our 2030 demand forecast.

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    Marijuana Legalization Is Now in Sight. Here's How to Play It With Options

    This article from Barron’s may be of interest to subscribers. Here is a section:

    A trio of U.S. senators has given investors the green light to invest in marijuana stocks, an endorsement that suggests the volatile sector might finally blossom into something as acceptable and regulated as alcohol.

    More details will emerge when Sens. Cory Booker (D., N.J.), Ron Wyden, (D., Ore.), and Chuck Schumer (D., N.Y.) introduce legislation to legalize and tax marijuana.

    “In the early part of this year, we will release a unified discussion draft on comprehensive reform to ensure restorative justice, protect public health and implement responsible taxes and regulations,” they announced Feb. 1 in a joint statement.

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    Email of the day on gold and fighting the Fed

    Thursday's article, “Gold Plunges the most in Four Weeks…” is greatly appreciated.  Despite all the uncertainties and volatility of the past two months you report that you have retained your gold investments and are looking forward to “increase [your] position”.  You express even more confidence in silver.

    The attached St Louis Fed Chart showing an accelerating measure of inflation provides good evidence to support your position, long term, but long-term charts, both weekly and monthly show gold is still over-extended. 

    If “fighting The Fed” is to be avoided, a bullish gold position may be a courageous act when the world’s central banks will be united in their determination to frustrate gold investors.  There may have been some evidence of that last year.  Also, since silver prices are more easily manipulated, that market seems to be more vulnerable to a combined central bank manoeuvre?

    Common sense says that the present world-wide, money creation will end in disaster.  In that situation, precious metals are a safe haven but, in the short term, and even the medium term, risks in those markets appear to be very high. A prudent plan to cover both outcomes seems desirable.  That plan should, perhaps, also incorporate different allocations to gold and silver. Further guidance by you would be invaluable.

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    Gold Plunges the Most in Four Weeks With Dollar Extending Gains

    This article by Yvonne Yue Li for Bloomberg may be of interest to subscribers. Here is a section:

    “Looks like there’s some liquidation so far this morning,” said Tai Wong, head of metals derivatives trading at BMO Capital Markets. “The dollar is slowly grinding higher, 10-year Treasury yields are back up. Longs are very disappointed that gold never broke above key resistance at $1,860-70 even as silver soared.”

    Bullion for immediate delivery fell 2.4% to $1,789.88 an ounce at 11:16 a.m. in New York. The metal dropped as much as 2.7%, the most since Jan. 8. Spot silver slid 2.7% while platinum and palladium also declined.

    The wild ride in silver fueled partly by retail investors is abating for now. Last week, posts on Reddit’s WallStreetBets forum initially called for a “short squeeze” of the metal, and that snowballed into a buying frenzy through exchange-traded funds and physical markets. But sentiment shifted after CME Group raised margins, causing prices to swiftly decline, and the volatility is being scrutinized by U.S. regulators.

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    Billionaire Pierre Lassonde on #SilverSqueeze, Gold Mining Business & Advice for Speculators

    Thanks to a subscriber for this interview which may be of interest to subscribers. Here is a section from the transcript:

    Pierre: Oh, look, as far as I’m concerned, the best, best deposit in the world that you can have or find today is a copper-gold deposit or a copper-gold-silver, or a copper-silver deposit, but something with copper. Because I really believe that copper is the metal of the future. In fact, our entire civilization rests on copper, on one metal, and it’s copper. Because without electricity, we have nothing. We have no transportation. We have like no communications. We have nothing. And with the emphasis on greening the world, we’re going to use more copper. So copper is absolutely the fundamental basis of our civilization and it’s going to get better. And with that in terms of fundamental money, I would say gold and silver is also part of the greening of the world. So these three metals are to my mind, the best place to be at this point in time.

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    New China swine fever strains point to unlicensed vaccines

    This article by Dominique Patton for Bloomberg may be of interest to subscribers. Here is a section: 

    Yan said he believes that people have replicated the sequences of virus strains being studied, which have been published in scientific literature, and that pigs injected with illicit vaccines based on them could be infecting others.

    “It’s definitely man-made; this is not a natural strain,” he said.

    Neither Johnson nor Yan have fully sequenced the new swine fever strains. Beijing strictly controls who is allowed to work with the virus, which can only be handled in laboratories with high biosecurity designations.

    But several private companies have developed test kits that can check for specific genes.

    GM Biotech, based in China’s central Hunan province, said in an online post last week it had developed a test that identifies whether the pathogen is a virulent strain, a single-gene deleted attenuated strain, or a double-gene deleted attenuated strain.

    The test helps pig producers because the new strains are “very difficult to detect at the initial stage of infection and have a longer incubation period after infection,” the company said.

    The government has not said how widely used illicit vaccines are or who has produced them. But a “vast amount” of pigs in China have nonetheless been vaccinated, Johnson said, a sentiment echoed by many other experts.

    In 2004-5, when the H5 bird flu strains were spreading across Asia, Chinese laboratories produced several unauthorised live bird flu vaccines, said Mo Salman, a professor of veterinary medicine at Colorado State University, who has worked on animal health in Asia, raising fears that they could produce dangerous new variants.

    “The current ASF unlawful vaccine(s) in China is repeating history,” Salman said

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    U.S. nuclear: delayed closures could add 26Mlbs to 2021-30 global uranium demand

    Thanks to a subscriber for this report from BoA Securities. Here is a section: