WTI Plunges To $42 Handle On Massive API Inventory Build

For what appears to be the 10th week in a row, API reports a massive 10.5 million barrels (far bigger than the 3.1 million barrel expectation) and a 3 million barrel build at Cushing. If this holds for DOE data tomorrow (and worryingly API has tended to underestimate the build in recent weeks) it will be the biggest weekly build since 2001. WTI has plunged on this news hitting $42.60 on the April contract.

If API data is accurate (and it has tended to underestimate the inventory build in recent weeks) then this will be the biggest build since 2001...

The US is running out of room to store its oil: Greenspan

Oil production has not eased despite low prices and America's major storage facility is running out of room, said former Federal Reserve Chairman Alan Greenspan on Bloomberg TV on Friday.

Greenspan expected supply to ease but noted that data shows domestic crude production continues to rise:

If you look at the data, our major domestic facility for storage is in Cushing, OK, which is a delivery point for West Texas Intermediate crude contracts. We're probably at the point now where at the current rate of fill we are going to run out of room in Cushing by next month. The question then is where does the crude go? Everyone's forecast was . . . prices collapse and a sharp curtailment of shale oil production. That has not happened. The weekly figures produced by the [energy administration], through March 6, showed a continued rise in domestic crude production, and it's got no place to go because we can't legally export the way we could with most products.

Essentially, we are bottling up a huge amount of crude oil in the United States so if the West Texas Intermediate is running $10 a barrel under Brent Crude, which is the global price. That means we are creating great abnormalities in the system and unless we find a way to get out of this dilemma, prices will continue to ease because there is no place for that oil to go.

Greenspan said the large price differences between WTI and Brent will result in a volatile spot price for oil.

Hat tip, Business Insider

These are the most bullish gold price charts you'll see today

Amid a fresh sell-off on US equity markets (third down week in a row) and another crude oil rout (down 9.6% for the week), gold managed a small gain on Friday with April futures finding a thin cushion against the crucial $1,150 an ounce level.

Gold's resilience is all the more remarkable since it's been into the teeth of a rabid dollar. Gold historically has inverse relationship to the value of the USD and on Friday the greenback jumped back above the 100-mark against the world's major currencies to the highest since early 2003.

That compares to a record low of 71.6 in April of 2008 and a record high of 164.72 in February 1985 when the price of gold bottomed at $284.25 an ounce. The first chart from a new research note by Julian Jessop, Head of Commodities Research Capital Economics, shows just how big a gap has opened up between the dollar and the gold price.

While the two do diverge from time to time (look at the pattern at the height of the global financial crisis) all things being equal you could expect gold to be trading closer to $400 an ounce at the moment. That supplies plenty of upside for gold once the dollar retreats from its lofty heights, which eventually it will.

An even closer negative correlation exists between the gold price and US inflation-adjusted interest rates (Treasury Inflation Protected Securities or TIPS).

Some analysts go so far as to say that the correlation is so strong that the gold price can be used as a predictor of interest rates, serving as an early warning system of both the direction and magnitude of the move in rates.

The underlying reason for the relationship is that as US yields rise – as is widely expected – the opportunity costs of holding gold increases because the metal is not income producing. The expectations of higher rates in the US is also a major factor behind the surging dollar.

Taking chart number two at face value, the eventual return of US real yields to more normal levels of around 2% would be consistent with the gold price falling back below $1,000 per ounce. But real yields have remained stubbornly low and the second chart would suggest gold should be scaling $1,400 right now.

A level which Capital Economics predicts we'll reach by the end of the year.

Japan aluminium stocks climb for 11th month, hit record

* Stocks at 3 key ports grow about 1 pct -Marubeni

* Breaks record set in January

 

(Reuters) - Aluminium stocks held at three major Japanese ports climbed for an eleventh month to hit a record high at the end of February due to robust imports.

 

Aluminium stocks held at Yokohama, Nagoya and Osaka grew 0.8 percent in February from a month earlier to 453,400 tonnes, Marubeni Corp <8002.T> said on Thursday. The trading house collects data from those key ports. 

 

That broke the previous record set in January, the highest level in data going back nearly 15 years. 

 

Behind the higher imports are slack demand elsewhere in Asia and China's increased exports of cheaper aluminium products.

 

"We heard that the inflows (to these ports) were still higher than the outflows in February, reflecting high level of imports," said a Tokyo-based trader, who declined to be named. 

 

"But an expansion pace of the inventories got slower than the previous month," he said.

 

Aluminium stocks at three major ports rose about 9 percent each in December and January, but they increased less than 1 percent in February.

 

"We expect those stocks will head lower toward the end of March as some Japanese buyers have reduced purchase volume of January-March deliveries and some firms are trying to cut their inventories ahead of the end of 2014 business year," the trader said.

 

For many Japanese companies, the business year ends on March 31.

 

Chinese exports of aluminium products grew about 19 percent last year, a trend analysts expect to continue in 2015 given lower local prices compared with international markets. 

 

Meanwhile, Japanese imports of aluminium ingots for 2014 soared 16 percent from a year earlier to 1.698 million tonnes, the highest since 2010 and imports of aluminium alloys rose 11 percent to 1.125 million tonnes, the highest since 2008.

 

As regional supply climbs, Japanese aluminium buyers are asking global producers to lower premiums for primary metal shipments for April-June deliveries in the quarterly pricing negotiations that have begun last month.

 

A major Japanese aluminium buyer has agreed to pay a producer premium of $380 per tonne for metal to be shipped in the April-June period, said a buyer source involved in the pricing talks last week.

 

The deal marked a 11 percent drop from a record high of $425 per tonne for the previous quarter and was the first fall in six quarters.

Japan is Asia's biggest importer of aluminium and the premiums for primary metal shipments it agrees to pay each quarter over the London Metal Exchange cash price set the benchmark for the region.

BNP: Gold price will average in triple digits next year

On Thursday gold for delivery in April managed to eke out a slight gain to close at $1,151.90, up $1.30 from a four-month low hit yesterday.

That gold has managed to stay above the crucial $1,150 an ounce support level is a relief to gold bulls. The metal closed below this level early November, but soon bounced back.

For a sustained period of sub-$1,150 gold you have to go back to April 8, 2010.

Gold's resilience is the all the more remarkable since it came into the teeth of a rabid dollar. Gold historically has inverse relationship to the value of the USD.

Overnight the greenback surged above the 100-mark against the world major currencies for the first time since April 2003, before retreating just below triple digits during normal trading in New York.

The last time gold was beaten back for such a stretch of time was January 1998

That compares to a record low of 71.6 in April of 2008 and a record high of 164.72 in February 1985 when the price of gold bottomed at $284.25 an ounce.

The strong dollar coupled with rising interest rates in the US which raises the opportunity costs of holding gold as the metal produces no income, are high on the list of reasons analysts are calling for further weakness in gold.

France-based bullion bank BNP Paribas released forecasts for average prices this year and next that sees gold sliding back into triple digit territory for the first time since September 2009.

Platts News reports BNP sees a 2015 average of $1,160/oz and $975/oz in 2016 according to a research note on Thursday:

"Future policy action by the US Federal Reserve remains high on gold's agenda. It will continue to dictate the pace at which the dollar appreciates (and official sector demand for gold declines) and accordingly how much downward pressure will be exerted on gold," BNP analysts Harry Tchilinguirian and Stephen Briggs said.

The only near-term positive the pair predicted is that any hike in interest rates in the US could be put on hold for the time being, or postponed until later in 2015.

"On the physical side … further strength in the dollar stands in the way of import demand in [certain] key consuming countries, such as Turkey and India," the analysts said.

The spot price of gold in New York, which does not trade in nearly the volumes of the most active futures contract, is suffering its worse streak losing streak in 17 years.

According to Bloomberg it was the ninth straight session of losses with gold for immediate delivery falling slightly to settle at $1,153.73 on Thursday. The last time gold was beaten back for such a stretch of time was January 1998.

Shanghai to Launch Nickel Futures on Mar. 27

China’s first nickel futures contract is expected to be launched on Shanghai Futures Exchange (SHFE) on Mar. 27, local media reported.  

So far, no approval has been received from China’s State Council and Securities and Futures Commission. 

SHFE began to solicit public opinion on draft regulations of nickel futures contract earlier this year.  

In accordance with the proposed draft, nickel futures contract will be traded in unit of 1 ton/lot with trading code NI. The daily price limit will be ±4%, with minimum transaction margin 5% of contract value trading.  

Flood of aluminum seen heading for market as financiers eye exit

* Regional premiums down 10-15 pct over past month
* Some analysts, traders see falls of 40-50 pct this yr
* Lower premiums, LME rules make financing deals less profitable

(Reuters) - A deluge of aluminum , held as collateral in financing deals, could be released back onto global markets as surging Chinese exports of the metal cause surcharges for physical material to extend their dramatic slide.

Premiums - which lurched lower for the first time last month after years of hitting record highs - are also facing pressure from market reform aimed at untangling controversial storage practices and the prospect of higher U.S. interest rates.

The surcharges, paid by buyers on top of the London Metal Exchange cash price to obtain immediate delivery of metal, had soared by up to nine-fold since 2009. This was partly due to expensive backlogs at LME-registered warehouses of up to two years to get access to material. 

They have already shed 10-15 percent in Asia, Europe and the United States and some analysts and traders expect them to tumble by another 40-50 percent this year.

An estimated 10-12 million tonnes of aluminium are in storage worldwide, but until recently the bulk has not been available to the market, locked in financing deals or in warehouse backlogs.

"The whole equation has now changed," said Nic Brown, head of commodities research at Natixis in London.

"The risk is you can get a bit of a stampede from people who are holding metal in these financing transactions. That falling premium is now a negative rather than a positive for these financing trades."

Under financing deals, investors have profited handsomely in recent years by selling forward metal at a higher price, then leaving it in storage while also reaping the benefit of sky-high premiums.

Other elements are also making the financing deals less attractive, including a flatter forward curve in aluminium, reducing the forward selling price, and expected hikes in U.S. interest rates, boosting borrowing costs.

Another factor expected to inflate supply and curb premiums is the LME's wide-ranging reform of its warehousing policy, driven by consumer complaints about the long delays to obtain aluminium from storage.

LME REFORMS

More metal is also expected to flow out of LME-certified warehouses, which hold just under 4 million tonnes of aluminium, after the exchange announced plans earlier this month aimed at slashing delivery backlogs twice as quickly as under current reforms. 

Rising exports of Chinese aluminium have been a key factor in adding to supply and pressuring premiums in Asia and Europe, traders and analysts say.

"There's a knock-on from other geographies," said analyst Edward Meir at broker INTL FCStone, who says the U.S. Midwest premium could fall to as low as 12-15 cents a lb by late summer from about 21 cents currently. 

In February, China exported 420,000 tonnes of unwrought aluminium and aluminium products, more than double the 160,000 tonnes shipped in the same month last year. 

A European source at a producer said it appeared that more metal from Russia was flowing into Europe as some of its Asian customers were now buying Chinese metal.

Producers were in a quandary over whether to liquidate material as premiums fall, a trader in Singapore said.

“It’s a staring contest... As a seller, you’re in a lose-lose scenario. Do you lose less, or do you lose a lot. As a buyer you’re laughing,” the trader said.

“Half the team says,‘Don’t be the first one to liquidate.’ The other half says, ‘don’t be the last one out'.”