Brent Crude Crashes 7%,after OPEC meeting

Oil Prices Collapse After OPEC Keeps Oil Production Unchanged
OPEC KEEPS OIL PRODUCTION TARGET UNCHANGED AT 30M B/D: DELEGATE WTI @70 and Brent Crude (under $75 for first time since Sept 2010 are collapsing. Big Positive for India

Lowest since June 2010…

CHARTS: Dollar destruction of commodity prices could be ending

The gold price drifted lower on Thursday falling below $1,200 and down nearly $10 overnight, hurt by a 6% slide in the price of oil.

The two commodities often move in tandem because cheaper crude leads to lower inflation, tarnishing gold attractiveness as a hedge against faster rates of price growth.

The fall in the price oil has given another boost to the US dollar. Commodities priced in US dollar usually have an inverse relationship to the world's reserve currency.

The greenback's rise to near five-year highs against a basket of currencies has pressurized not on the price of gold, but everything from copper and cotton to milk and molybdenum.

InvesTRAC passed on this price graph to MINING.com indicating that the US dollar's stunning run since May may be close to correcting.

The technical research and investment blog notes the advance from the May low has "unfolded in five waves which ought to be followed by a three wave correction":

The top of wave 5 seems to be tracing out a head and shoulders top and a dip through 87.50 would open the way to violate the uptrend and teat the bottom of wave 4 at 84.50. The technical picture shows InvesTRAC's short term direction indicator has turned down from an overbought situation with the forecaster showing weakness could be expected until the last week of December. So the stage is set for declining dollar and rising to soon get underway.

InvesTRAC believes the dollar chart confirms movements in the CRB Commodities index and that the decline in the broader commodities index from its June high was probably terminating after a 15.5% decline.

The InvesTRAC short term model shows that the OB/OS indicator has just begun to rise with the forecaster showing a rising ternd into early February. The daily chart below shows a 15 percent rise form the January lows which has more than been taken back by the second half slump…the index has ticked up slightly and is encountering the downtrend with a massive divergence on its RSI. My conclusion is that the worst is over and that we should now (or very soon) see the hard hit commodity prices lifting off their lows.

Copper drops to three-week low on demand worries, aluminium up

* Weak U.S. home sales, consumer spending data
* Chinese speculators hit copper on Shanghai exchange
* London volumes retreat as Thanksgiving, year-end loom
* Nickel stocks rise to fresh record

(Reuters) - Copper fell to a three-week low on Wednesday after soft U.S. economic data and as Chinese speculators hit the market amid worries about weak demand.

Aluminium, however, gained on concern about shortages.

Three-month copper on the London Metal Exchange

(LME) fell to its lowest since Nov. 5 at $6,558 a tonne in intraday trade before paring losses to close 0.6 percent weaker at $6,570.

Volumes on the LME shrank ahead of the U.S. Thanksgiving Day holiday on Thursday.

"It has been a difficult year for speculators to make money and I don't think they are going to risk making bigger losses or eroding some of their gains in the final few weeks of the year, particularly when there aren't really any big stand out stories," said Gayle Berry, metals strategist at Jefferies.

On the Shanghai Futures Exchange, however, turnover climbed four-fold and open interest surged 11 percent as speculators sold copper, said analyst Leon Westgate at Standard Bank.

"With general sentiment at last week’s Asian Copper Week remaining negative... it appeared to be only a matter of time before the more bearish elements of the Chinese speculative community again had another go at shorting the metal."

The metal used in power and construction has been trading in a range between roughly $6,500 and $6,800 a tonne since mid-September and is down more than 10 percent this year.

It hit a three-week high of $6,772.50 a tonne last week following China's surprise interest rate cut. That cut may boost liquidity to businesses after about six months, said Colin Hamilton, head of commodity research at Macquarie.

"This is not an aggressive stimulus ... but it certainly underpins what we're looking at in terms of low single-digit growth rates for steel demand and mid single-digit growth rates for base metals demand into next year," he told a presentation.

Weak U.S. data on consumer and business spending added to jitters about global growth. 

Aluminium rose 0.6 percent to close at $2,061 a tonne as a key spread remained at the highest levels in nearly two years, indicating lack of spot material.

Nickel ended down 1.1 percent at $16,350 a tonne after LME stocks rose to a fresh all-time high.

Zinc finished up 0.1 percent at $2,273 a tonne, lead added 0.5 percent to $2,062.50 and tin rose 0.4 percent to close at $20,275.

Something Appears To Be Going On With Gold

Something appears to be happening to gold. That something is either China finally revealing its true gold inventory, which is unlikely, or, more likely, the biggest fat finger in the history of gold, as a liquidity testing algo goes absolutely insane in the pre-open period (and loses its job on the BIS' payroll). Or, most likely, just an ongoing bad print.

... and the algo, or the bad feed, or whatever, keeps going. $1400 now.

And... CTRL-Z. The liquidity test is complete as electronic market reopens for trading.

And for those curious to find out what happened, speak to the programmer of whatever the liquidity test was that moved gold higher by $0.10 every second in 1 contract in a diagonal fashion.

Intresting Study on S&P500

The last few weeks have been the strongest and most consistent rallies in US equity market history. US equity markets have traded above their 5-day moving average for 27 days – the longest such streak since March 1928  and all amid  GDP downgrades, missed PMIs, and downward earnings outlook revisions. Given the holiday week, it is hardly surprising volume was weak today.

27 days and counting for the S&P… an 86 year record… (within a year of this exuberance stocks had doubled and then halved from low)

This is what happened the last time the market did that…

Brent Plunge To $60 If OPEC Fails To Cut, Junk Bond Rout, Default Cycle, "Profit Recession" To Follow

While OPEC has been mostly irrelevant in the past 5 years as a result of Saudi Arabia's recurring cartel-busting moves, which have seen the oil exporter frequently align with the US instead of with its OPEC "peers", and thanks to central banks flooding the market with liquidity helping crude prices remain high regardless of where actual global spot or future demand was, this Thanksgiving traders will be periodically resurfacing from a Tryptophan coma and refreshing their favorite headline news service for updates from Vienna, where a failure by OPEC to implement a significant output cut could send oil prices could plunging to $60 a barrel according to Reuters citing "market players" say.

By way of background, the key reason OPEC is struggling to remain relevant is because, as the FT reportedover the weekend, "US imports of crude oil from Opec nations are at their lowest level in almost 30 years, underlining the impact of the shale revolution on global trade flows. The lower dependence on imports from the cartel, which pumps a third of the world’s crude, comes amid advances in hydraulic fracturing that has propelled domestic US production to about 9m barrels a day – the highest level since the mid-1980s."

The US "shale miracle" is best seen on the following chart showing the total output of the US compared to perennial crude powerhouse, Saudi Arabia:

It is this shale threat that has become the dominant concern for OPEC, far beyond whatever current US national interest are vis-a-vis Ukraine, and Russia's sovereign oil revenues, and as reported previously, Brent has to drop below to $75 or lower for US shale player to one by one start going offline.

Unfortunately, it may bee too little too late for the splintered cartel. As Bloomberg reports, "the days when OPEC members could all but guarantee consensus when deciding production levels for oil are long gone, according to a veteran of almost two decades of the group’s meetings."

The global glut of crude, which has contributed to a 30 percent decline in prices since June 19, has left the Organization of Petroleum Exporting Countries disunited and dependent on non-members to shore up the market, said former Qatari Oil Minister Abdullah Bin Hamad Al Attiyah. The 12-member group is set to meet in Vienna on Nov. 27.

“OPEC can’t balance the market alone,” Al Attiyah, who participated in the group’s policy meetings from 1992 to 2011, said in a Nov. 19 phone interview. “This time, Russia, Norway and Mexico must all come to the table. OPEC can make a cut, but what will happen is that non-OPEC supply will continue to grow. Then what will the market do?”

...

“OPEC had been enjoying easy meetings, and decisions were taken without a sweat,” Al Attiyah said. “Now the situation is different.”

Oil markets are oversupplied by about 2 million barrels a day, and global economic growth is below expectations, he said. “The U.S., which was a major market for OPEC, is no longer welcoming imports. It’s now striving to become an oil exporter. It’s already exporting condensates.”

So if OPEC is unable to reach an agreement, what is the worst case? Back to Reuters, which says that "The market would question the credibility of OPEC and its influence on global oil markets if there was no cut," said Daniel Bathe, of Lupus alpha Commodity Invest Fund.

That could send Brent down to around $60, Bathe said.

"Herding behavior and a shift to net negative speculative positions should accelerate the price plunge," he added.

Fund managers are divided over whether OPEC will reach an agreement on cutting output. Bathe put the likelihood at no more than 50 percent.

The oil price has been falling since the summer due to abundant supply -- partly from U.S. shale oil -- and low demand growth, particularly in Europe and Asia.

As a result, some investors believe a small cut -- of around 500,000 bpd -- would not be enough to calm the markets.

If OPEC fails to agree a cut, prices will drop "further and quite quickly", with U.S. crude possibly sliding to $60, he said. U.S. crude closed at $76.51 on Friday, with Brent just above $80.

It's not all downside: there is a chance that OPEC will agree on a 1 million barrel or more cut, which would actually send prices higher:

"The market really wants to see that OPEC is still functioning ... if there is a small cut, with an accompanying statement of coherence from OPEC that presents  a united front, and talks about seeing demand recovery, and some moderation of supply growth, then Brent could move up to $80-$90."  "Prices below $80 are putting significant strain on the cartel's weakest members such as Venezuela," said Nicolas Robin, a commodities fund manager at Threadneedle. He said a bigger cut -- of 1 million bpd or more -- was an "outlier scenario", but such a move would rapidly push prices above $85.

Then again, even thay may be insufficient if the market prices in an ongoing deterioration in global end-demand: "Doug King, chief investment officer of RCMA Capital, sees Brent falling to $70, even with a cut of 1 million bpd."

So in a worst case scenario, where Brent does indeed tumble to $60, what happens? We already know the answer, as it was presented in "If WTI Drops To $60, It Will "Trigger A Broader HY Market Default Cycle", Says Deutsche":

... it is not just the shale companies that are starting to look impaired. According to a Deutsche Bank analysis looking at what the "tipping point" for highly levered companies is in "oil price terms", things start to get really ugly should crude drop another $15 or so per barrell. Its conclusion: "we would expect to see 1/3rd of US energy Bs/CCCs to restructure, which would imply a 15% default rate for overall US HY energy, and a 2.5% contribution to the broad US HY default rate.... A shock of that magnitude could be sufficient to trigger a  broader HY market default cycle, if materialized. "

This explains why the HY space has been far less exuberant in recent weeks, and the correlation between HY and the S&P 500 has completely broken down.

Finally it is not just the junk bond sector that is poised for a rout should there be no meaningful supply cuts later this week: recall that in another note over the weekend, DB said that should crude prices take another leg lower, then the most likely next outcome is a Profit recession, which while left unsaid, will almost certainly assure a full-blown, economic one as well.

So keep an eye on Vienna this Thanksgiving: the black swan may just be coated with an layer of crude oil this year.

Teck predicts zinc deficit on the closure of mining giants

The Vice President for Treck’s Investor Relations and Strategic Analysis,Greg Waller, stated that, the global market of the metal zinc, will soon face a deficit as the large scale zinc producers like  the Century Mine, owned by the MMG Group based in Australia, is planning on shutting down the mine after the  third quarter of this year. This procedure will most probably erase about 1.5 million tonnes of zinc produce from the global market.

Waller further added that, the metal zinc, might be seen more appealing to the investors right now. The metal has been progressed further more during the cycle. The following three years fill be filled with closure of several dominant zinc mines, from which many number of the has recently stopped their production of zinc. The market of zinc will definitely be in deficit.

He added that, the global zinc market, for  the next four years at least will have to face the lack of exploration zinc projects. Many miners in the process of hiking up the demand of zinc and also the price of the metal, has stocked up their production further increasing the deficit of the metal and making it worse. They are putting up their output until the price of zinc climbs over to 1 dollars per pound.