From that bastion of knowledge the Darlington & Stockton Times, it seems like it's good news all round:
The region's first bioethanol plant is on schedule to start production early next year.
John Pinkney, technical director of Ensus, told farmers that building work was going well at Wilton on Teesside.
The plant will use 1m tonnes of wheat a year to produce 400m litres of ethanol for Shell and about 400,000 tonnes of high protein animal feed by-product.
The site is on target to be commissioned in the first quarter of 2009 and in full production by the middle of the year.
Mr Pinkney told the NFU's North-East regional livestock board that he did not believe today's high wheat prices of about £190 a tonne would affect their plans.
He said: "We don't expect the price will be the same when we open, our expectation is that the price will have fallen back."
However, he was relieved that funding for the project had been raised before today's financial volatility which has led to the mothballing of some plants in Europe.
Mr Pinkney said the animal feed by-product was "a very important part of the package", which many had forgotten about. (But not astute people like you Mr Pinkney eh - Nogger).
Only one-third of the crop - the sugars and starches - is used in ethanol production. Another third produces carbon dioxide, which is captured and used as a co-product, and the final third is turned into distilled dried grains plus solubles (DDGS) - the high-protein animal feed.
Most of the DDGS would be dried but some wet product may be available to local farmers.
The DDGS would not only provide a valuable feed, but could also replace a large amount of soya, which is currently imported from South America and Brazil.
That in turn could reduce the amount of forest clearance in those countries and relieve pressure on land elsewhere.
The DDGS would be available from April next year and is expected to cost between £185 to £225 a tonne - it is always likely to lie between the cost of wheat and soya.
Footnote: Thanks for explaining that for us Mr Pinkney. Despite the fact that your new factory adds 1mmt of extra demand for wheat in what isn't, lets face it, the hot-bed of UK wheat production, you expect the price to fall back. Meanwhile you expect the price of the by-product to hold up well in, lets face it, what is not the hot-bed of the UK livestock industry. An industry that is contracting by the minute.
Right then, who would like to tender to take some of these distillers grains at around £200/tonne for 12 months hence? Come on, we've only got 400,000mt to sell then that's yer lot. It's got to be done via a tender because we'll be inundated with demand. And don't forget soya prices will be the same then, Mr Pinkney has already told you that. And by buying them you will be saving the Brazilian rainforest to boot. Hello, this line seems to have gone dead...
From the Yorkshire Post:
A Teesside biofuel maker is making people redundant less than two years after taking them on – due to subsidised competition from the USA.
The troubles of D1 Oils, based at Middlesbrough, illustrate growing cause for alarm about the way the business of making fossil fuel substitutes from crops is developing.
Now, the UK, like others in Europe, is offering tax relief on biofuels for transport. So the soya processors can get a dollar a gallon from the American taxpayer to make biodiesel and 20p a litre from the British to sell it. According to competitors, the Americans even claim the subsidies on tropical palm oil which they import, and blend with their own soya extract, before exporting it again – a trick known as Splash & Dash. One way and another, the B99 dealers are apparently rubbing their hands in anticipation of the UK's Renewable Fuels Transport Obligation, which starts to take effect next month.
Meanwhile, D1's founding chairman, Karl Watkin, has gone, leaving a resignation statement which laid into the failure of government and markets to distinguish between biofuels made to save the planet and those made to exploit the system. The company he left behind says jatropha is still a winner and its backers will see it through. But its refining operation is down to tick-over and it has notified 69 staff – mainly in Middlesbrough, but also at a refinery on the Mersey – that it needs redundancies. The unofficial estimate is one job in two.
John Seymour, a Country Durham arable farmer, is rural affairs spokesman for North East Biofuels, a consortium of regional interests.
He said this week: "D1's bad luck is bad news for all of us. The legality of what the Americans are doing is being challenged. And the EU has to do something about a tax system which takes no account of where a fuel comes from. Meanwhile, though, a lot of people are making a fortune and by the time it is all sorted out, the damage will be done."
Houston, TX - The NYMEX May crude and heating oil contract prices both finished in negative territory; never able to make an honest attempt at going positive. However, gasoline, after opening sharply lower reversed itself and moved into positive territory where it stayed through the close.
We believe that the lower crude and heating oil and higher gasoline price is due to a massive reversal of crude/gasoline and heat/gasoline spreads. This is especially true of the gasoline/heating oil spread that late last week almost reached a 56 cents per gallon premium for heating oil. Today that spread ended the day at just slightly above a 36 cents premium.
As we look forward to early next week we expect some short-covering in crude and heating oil that could possibly lift prices by at least $1.00 to $2.00 on a per barrel basis.
Our earlier analysis suggested that if crude did not at least rally to $1.00 above yesterday's settle, we may have entered our long anticipated pullback. Unless some real supply disruption occurs over the next few trading days (not the standard hype of worries that demand is outpacing supply) we believe we are headed to $95.00 sometime next week as traders seem more inclined to sell rallies rather than buy retreats.
Beans closed locked in limit down as did oil Thursday night. Meal was a bit strange with nearby months only slightly lower, but with new crop Oct08 onwards down around $10-14.
Outside influences continue to have a large degree of bearing, but didn't they also on the way up. There is some talk of China defaulting on some soy purchases, and with large South American crops around the corner poised to provide competition for U.S. exports that was enough in the current climate to send futures scurrying lower.
Wheat futures opened in negative territory and remained under heavy selling pressure throughout the session. Even bullish news of a larger-than-expected purchase from Egypt failed to lift the market into positive territory.
Nearby May closed with losses of 86 1/2c.
Corn finished at or around limit down (-20c) whilst other commodities such as gold, crude, copper, sugar, cocoa, cotton & sugar also finished with big losses on the week.
CME Group (Chicago Board of Trade as we all still call it) said the CFTC have approved a PERMANENT expansion of daily limits for corn to 30 cents and soybeans to 70 cents, and soyoil to 2.5 cents, effective March 28.
Weekly Export Sales this morning. For the week ended March 13, traders expected: wheat sales from 200,000 to 400,000 MT; corn sales from 550,000 to 750,000 MT; soybean sales from 300,000 to 450,000 MT; meal sales from 75,000 to 125,000 MT; soyoil sales from 5,000 to 15,000 MT.
What traders got was: wheat 168,400 MT; corn 780,700 MT; beans 504,400 MT; meal 188,300 MT; oil 23,900 MT. These amounts include both old & new crop sales.
Looks bearish wheat & neutral/friendly the rest which may add a little support to corn/soy complex, although all products expected to open lower.
Oh err, missus.
News that a Sainsbury’s buyer was arrested last week on suspicion of corruption and money laundering has prompted sources within the industry to suggest the practice could be more common than first thought.
One industry insider, preferring to remain nameless, suggested the five big supermarkets - that control around 80 per cent of food sold in the UK - have rendered many suppliers powerless.
"I wouldn't be at all surprised if this practice doesn't exist in other areas of fruit & veg supplies" he said. Perhaps without realising the irony, he went on to add "this could be just the tip of the iceberg."
Lettuce hope that this isn't the cos. Police have arrested King Edward as part of their ongoing enquiries and have put out an Interpol alert for a Mavis Piper.
Pacific Ethanol Inc., has reported mounting losses and problems in securing $40 million in equity financing it needs to keep going.
In a filing with the Securities and Exchange Commission to explain the delay in filing its annual 10-K statement, the Sacramento-based company said it was in technical default on its debt financing and was seeking a waiver from lenders in order to secure the $40 million in cash from the contractor it hired to build two of its plants.
Without the waiver and the money, the company said its auditors would have to question its ability to continue as a "going concern."
Full story: Please give generously
I'm sure there'll be plenty of takers in the current financial climate.
One of London's leading brokers has demanded that clients put up significantly more cash to cover derivative positions - a move which traders fear could result in millions of shares being dumped on the market today.
MF Global informed clients yesterday that the "margin" on contract for differences (CFDs) was increasing on certain stocks from 25pc to 90pc. The clients have been given until this morning to put up the extra cash or close positions.
Traders fear that the move could increase market volatility as clients - unable to find the cash or transfer their investments to other brokers - are forced to close their positions.
"You are going to see a lot of forced selling," said one leading London stockbroker.
Tesco has been criticised by environmentalists for selling chicken labelled as 'local' that has actually been on a 1,000-mile round trip to be slaughtered and packaged.
The supermarket is currently stocking poultry reared on a site in North-East Scotland that is sent 499 miles to Essex to be processed before being returned to Scotland to go on sale.
According to a report by the Meat Trades Journal, chickens killed at the Grampian Country Foods slaughterhouse in Coupar Angus, Perthshire, have been shipped to Witham in south-east Essex since the nearby packaging plant in Banff, Aberdeenshire shut down last year.
The supermarket has defended its actions however by saying that it didn't have any option. It would not comment on how many chickens were being sent to Essex but said the situation would be resolved later this year.
Pullet the other one Tesco, how long are you going to capon doing these sort of things?
The UK's biggest wood-fired power station has been formally opened by the First Minister who hailed it as a green energy milestone.
The Steven's Croft biomass power station at Lockerbie will produce enough power to supply up to 70,000 homes, more than 17 times the population of the Border town. The 44-megawatt station burns forestry left-overs and specially-grown willow, helping jobs and saving up to 140,000 tonnes a year of greenhouse gases.
The plant is owned and operated by E.ON UK. It cost £90 million including a Lottery grant of £18 million, and most of its fuel comes from within a 60-mile radius.
So thats what happened to all my lucky dips?
Overnight soybeans & corn are sharply lower again this morning with both commodities just shy of another limit down move. So as not to feel left out soyoil is also following suit.
With beans & oil so weak, meal is the strongest leg of a poor trio and is trading around $5 easier.
Wheat openend steadier, supported by last night's Egyptian business which came out afetr the close. It's mixed now however with nearby May down 11, Jul down 4c & Sep +2c.
Checking out other soft commodities sees coffee, cocoa & sugar also marked sharply lower this morning as the shake out continues.
Even gold & crude oil haven't escaped this latest setback, with gold down 8% from it's record high earlier in the week of $1033.90 to currently stand at $915.
Before I can finish typing some months in beans & oil have now hit limit down.
Right then so who wants to buy anything now before the market goes lower?
The world's most wanted terrorist, Osama bin Laden, has released a new audio message, slamming the European Union.
The message is entitled, The Response Will Be What You See, Not What You Hear.
In the recording, Bin Laden expresses his anger over the publication of drawings, said to insult the prophet Muhammad.
'You went overboard in your unbelief and freed yourselves of the etiquettes of dispute and fighting and went to the extent of publishing these insulting drawings, this is the greatest misfortune and the most dangerous,' said a voice meant to be Bin Laden's.
He also vows there'll be a 'strong reaction'.
We've banned hot cross buns in schools here what more does he want?
As you will probably already have seen pretty much everything closed limit down across the board tonight with the odd exception here & there.
May beans ended 50c lower at $12.57 and are trading synthetically after the close at $12.24/12.26 which suggests it'll be a further 30c lower in the am.
Wheat closed down the 90c limit but the Gyppo's who passed on a tender pre-the opening actually bought some after the close so that may add a small amount of support in the am. However Auzzie conditions look good at the mo, the International Grains Council said global output will rise 7% in the year thru Jun 2009.
Gold had its biggest one-day dollar decline in 28 years hitting $945.30 in New York having hit $1033.90 just two days ago!!
Crude also bombed closing at $104.48 and is $102.10 as I type from a high of $111.80 at the beginning of the week.
You name it look at the headlines: "Cotton plunges exchange limit", "Sugar drops the lowest in two months", "Fed can't save stocks today"
PetroSun's initial commercial algae-to-biofuels farm is scheduled to commence operations on April 1, 2008, the company announced last week. The farm, an 1,100 acre salt water open pond system, is located on the Texas Gulf Coast near Harlingen, Texas.
The site currently has 94 five-acre and 63 ten-acre ponds on the 1,831 acres contained within the algae farm operation. The company will extract the algal oil on-site and transport the raw product via barge, rail or truck to company owned or joint ventured biodiesel refineries. The residual algae biomass will be converted into ethanol or other products.
PetroSun says it will conduct algae-to-jet fuel and algae-to-bioplastics research and development projects supported by a supply of algal oil produced from this operation.
The pound will be a big market mover tomorrow with the Bank of England minutes and employment reports due for release.
Although the central bank meeting was held before the latest liquidity crunch, we believe that the minutes should be dovish as the outlook for UK growth and credit conditions deteriorate.
This morning, the Bank of England also pumped GBP5 billion into the money markets which is the first time that they have made emergency liquidity provisions since September. Like the US, they have recognized the severity of recent problems and are scrambling to find solutions.
Consumer prices continue to rise with the annualized pace of CPI growth hitting 2.5 percent. Core prices are slightly weaker, which may also give the BoE a reason to be more dovish. As for the labour market, declines in the employment component of construction and service sector PMI suggest that the labour market may be deteriorating.
The Fed cut US interest rates by 75bp turning the US dollar into the second lowest yielding currency in the developed world. For currency traders the rally in the US dollar was expected because the Fed under delivered while the 400 point rise in equities suggests that stock traders are simply relieved that they got a big rate cut.
In the FOMC statement, the Federal Reserve was downbeat about growth but they reminded everyone that inflation is not off their radar. Producer prices indicate that even though headline inflation growth is slowing, prices on a core level are rising. We have not seen the last of rate cuts, but the FOMC statement did contain a tinge of hawkishness as two members of the FOMC voted in favor of a smaller move.
However we believe that the Federal Reserve is giving themselves the flexibility to cut between meetings if needed. Over the past month, they have made historic moves by opening up the discount window to banks and accepting investment grade debt securities as collateral. They know that the market needs time to absorb the recent moves and want to save some ammo for later if another bank sees the same fate as Bear Stearns.
This is not to say that a 75bp cut is not a big move. It is only the second time in the past decade that interest rates had been eased this aggressively. Meanwhile the futures curve is still pricing in a strong probability that interest rates will fall to 1.75 percent in June. With the fear of counterparty risk potentially triggering liquidity problems for other banks on Wall Street, the Federal Reserve is still on high alert. Despite the slightly hawkish statement, they will not be able to sit back and relax just because they have stepped up monetary easing.
Ahead of the USDA's 2008 planting intentions report due to be released on 31st March, here's a quick recap of what other analysts are saying:
- Corn 86.438m acres
- Soybeans 74.239m
- All wheat 62.330m
- Total 223.007m
Farm Futures Magazine
- Corn 87.700m
- Soybeans 71.800m
- All wheat 63.900m
- Total 223.400m
- Corn 87.500m
- Soybeans 71.300m
- All wheat 63.500m
- Total 222.300m
- Corn 93.600m
- Soybeans 63.600m
- All wheat 60.400m
- Total 217.600m
The rates at which banks lend to each other in the UK remains higher across the board, particularly on an overnight basis, as uncertainties plague global financial markets.
The overnight contract, generally the most closely aligned to the Bank of England's 5.25 pct benchmark rate, inched down to 5.58 pct after jumping to 5.59 pct yesterday.
The three-month London Interbank Offered Rate (Libor) -- a key indication of banks' willingness to lend to each other over the medium term -- rose to 5.97 pct from 5.96 pct while the one-month rate was up at 5.75 pct from 5.72 pct.
The Bank of England yesterday auctioned £5 billion in three-day money in order to reduce liquidity problems in money markets, it offer was well over-subscribed.
Well we have here in the good-old politically correct UK anyway...
Schools across Britain have been ordered by local authorities to abandon the ancient tradition of serving hot cross buns at Easter so as not to offend children of non-Christian faiths.
Officials in the London borough of Tower Hamlets decided to remove the buns from menus this year after criticism over its decision to serve pancakes on Shrove Tuesday. A spokesman for the Labour-run council claimed that there had been "a lot" of complaints but did not have a figure.
The spokesman added: "We are moving away from a religious theme for Easter and will not be doing hot cross buns. We can't risk a similar outcry over Easter like the kind we had on Pancake Day. We will probably be serving naan breads instead."
The mind can only boggle at what exactly went on on Pancake Day? Answers on a postcard please.
Princess Royal opens Plumpton college education centre
Prince Charles opens shop
Prince Phillip opens late-night kebab house?
The EU have said that there is a possibility it might reconsider strategy on biofuels over concerns the bloc's approach was pushing up food prices and doing more harm than good to the environment.
"We're not excluding the possibility that we'll have to amend or revise our goals," said Prime Minister Janez Jansa of Solvenia, which holds the rotating EU presidency.
With the UK following Germany's lead and phasing out tax breaks on biofuel usage, coupled with the latest financial melt-down it's difficult to see many companies standing by their pledged investment of millions into an area where the goal posts have been not so much moved as dismantled & sent for scrap.
Bear in mind that this inclusion level thing isn't compulsary, it's a "commitment". If the big oil companies do not meet their 5 or 10% inclusion levels then they can simply pay a "fine" (a bit more tax effectively). If the economics stack up in such a way that it is cheaper to use fossil fuels than that is exactly what they will do.
Thats the new buzz phrase this morning. After a limit down close last night on most markets the ovenight eCBOT is limit down again in many positions for beans & oil. Meal, corn & wheat are all down as well albeit not limit (at least for the time being).
The funds are continuing their scramble for cash, they know that cash is going to be harder to come by in the current climate. The Fed, the BoE and the ECB and his dog can drop interest rates as much as they like, it isn't going to help the actual cost of borrowing. All that is going to happen is the differential between base rate & the real interest rate will increase to factor in the extra risk.
At limit down this morning May soybean futures are now 21% below their high of $15.86 1/4 set as recently as Mar 3, just fifteen days ago. Meanwhile soybean oil, soybeans and palm oil on the China's Dalian Commodity Exchange fell by the daily maximum of 4 percent. Palm oil on the Malaysia Derivatives Exchange dropped as much as almost 12 percent, the biggest loss in a decade.
Continuing the theme copper, zinc, aluminium & platinum have all dropped their daily limits in the Far East overnight.
The SoyMor Biodiesel plant in Glenville, Minnesota, is the most recent facility of its kind to go dark in the face of tough economic times. A notice on the company's web site cited the high cost of soybean oil as the reason for the, hopefully, temporary shut-down.
Myke Feinman is editor of the Biofuels Journal in Decatur, Illinois. He told Brownfield what happened to SoyMor Biodiesel isn't an isolated incident. "It's a nationwide problem for the biodiesel industry," Feinman said. "The feedstocks are the majority of the costs for those plants and the costs of those feedstocks have been very high because the cost of soybeans has been so high and soybean oil has also been high."
In the meantime, the National Biodiesel Board recently formed a Sustainability Task Force aimed at keeping the industry viable. And it's worth noting that soybeans and soy oil prices have both fallen from recent highs, including a limit down move for the entire soy complex on Monday.
But Feinman warned that for some biodiesel plants, relief can't come fast enough."So I just hope the biodiesel industry can weather this storm," Feinman said, "because they're struggling right now."
That there punter who lost $141.5m overnight selling wheat short just over a fortnight ago would be looking at the biggest Christmas bonus of all-time if he'd just waited a bit.
Timing is everything in this game & unfortunately for him he got his just a little bit wrong.
It reminds me of a certain Pat O'Boyle, who remembers him? He sold summer wheatfeed short one year & got it all wrong & it ended up costing him his business. I guess many of you remember that? Do you also remember that it was subsequently proven that he was right to sell it short? The market ultimately collapsed, unfortunately for Pat just a couple of months after he'd succumbed. He was right all along, unfortunately his timing was just slightly awry.
It's getting interesting now!
All CBOT grains/oilseeds futures closed limit down across the board. Minneapolis wheat however did manage to buck the trend, whilst July onwards was limit down (-60c), spot May managed to close just 59 3/4c! lower!
The Reuters/Jefferies CRB Index of 19 commodities tumbled the most since at least 1956.
As one analyst said "If everyone starts running for the exit door at once, it could get real ugly."
The very (inexperienced in ag terms) people who have pushed ag futures up to unprecedented levels fuelled on greed and an unwavering belief that this market is gonna go up forever, "we're in it for the long term" etc are suddenly having their judgement questioned just a short period after this massive juggernaut got on the road.
Margin calls are eating into speculative long-holders gigantic positions. For many these are positions on the scale of which have never been known. After the Bear Stearns bail-out which seemed to happen upon the market overnight the question now is who else has this kind of exposure?
Shares of MF Global (MF), which is among the largest clearing members at the world's major derivatives exchanges, fell nearly 80% MONDAY ALONE on concerns that customers may start withdrawing cash.
Talk is circulating of the Fed slashing interest rates tomorrow (Tues), indeed there are some who think that interest rates in the US could hit ZERO before the current problems are sorted out.
Of course some will still cling to the rhetoric that these latest losses "present a buying opportunity". Wheat will soon bounce back due to short supply, phenomenal world-wide demand, India, China etc, etc.
Lets not forget that 2008's crop is already in the ground. Off the top of my head we are looking at wheat production increases in the UK of 3-4mmt, France 5-6mmt, Germany 4-5mmt, Russia 3-5mmt, Ukraine 8-10mmt, Australia 10-13mmt. PLUS what the rest of the world is going to thrust at us. Lets face it, with the price of wheat where it is/has been you'd have to be a complete idiot not to grow as much as it as you possibly could this year.
Why on earth prices should be where they are against a supply situation like this is beyond me. And that's before we get onto the world-wide liquidation of livestock.
US credit crisis even affects Mr Whacko Jacko himself....
Michael Jackson’s home was scheduled to be auctioned off this week because of the $24.5 million that he owes on his mortgage for his Neverland Estate in Los Olivos, Calif. However through a “mutual agreement” with his creditors, the auction has been postponed to May 14, according to the Associated Press. The postponement will give Mr. Jackson time to refinance or sell the property, the AP quotes Mr. Jackson’s attorney as saying.
Princeton economist Paul Krugman thinks that US home prices will "fall enough for us to produce about 20 million people with negative equity. That's almost a quarter of U.S. homes. If home prices are rising, or if there's positive equity, you can refinance or sell. But if you have negative equity, you can end up being foreclosed on, and then some people will just find it to their advantage to walk away. We're probably heading for $6 trillion or $7 trillion in capital losses in housing. Some fraction of that will fall on owners of mortgages. I still think the estimates people are putting out there - $400 billion or $500 billion in losses - are too low. I think there'll be $1 trillion of losses on mortgage-backed securities showing up somewhere. "
As far as US interest rates are concerned Krugman says "I'm now reasonably sure that they (the Fed) will cut again and again and again. A few cuts of 75 basis points and we'll be down to zero. And there's a pretty good chance that we're heading to zero, and that there's going to be a Japan-style ZIRP, zero-interest-rate policy. "
Has that happened in the US before? "Not since the 1930s. They didn't have the Fed funds target rate back then, but effectively we had a zero-interest-rate policy for a good part of the '30s. If the Fed responds this time with as much cutting as it did in the last two recessions, we get to zero. And then the problem is, What if that isn't enough? And there's a pretty good chance it won't be. "
The protesters, who belong to the Unións Agrarias, Laboral Galego and Xóvenes Agricultores trade unions, smashed hundreds of cases of cartoned milk, threw fireworks inside the factory and spilled hundreds of litres of milk and water.
Francisco Bello, a spokesman for Xóvenes Agricultores, stated that the price reduction is "illegal" and constitutes "profiteering," adding that it runs the risk of "ruining producers" owing to recent increases in their production costs.
The increased price of feed has been cited as a major reason in the closing up of a Suffolk poultry plant.
The Moy Park plant in Bury St Edmunds will close with production being moved to a company site in Lincolnshire.
A company spokesman said that the recent sharp increase in the price of wheat, a staple of poultry feed, had reduced the economic viability of the plant
A potato buyer for food retailer Sainsbury's has been arrested over claims he took bribes from supplier Greenvale AP.
City of London Police questioned the buyer after accusations that he received payments alleged to total £3 million.
Police also arrested and questioned a member of Greenvale's staff. Both men have been released on bail.
Greenvale is one of the UK’s leading potato businesses and supplies around half of Sainsbury's potatoes. The company has packing operations in Shropshire, Berwickshire and Cambridgeshire and was awarded the Queen’s Award for Innovation in 2006.
They don't have a Queens Award for Backhanders apparently.
I'd love to take the credit for this excellent article, but sadly not a word of it is mine, still if you read nothing else today read this....
Paris, France - A closed door meeting will be adjourned in Paris on Monday morning, bringing together the entities responsible for ridiculously higher oil prices, or at least all of the entities that are benefiting from them. To even suggest anything resembling an accurate assessment of why oil prices are above $110 will emerge from this get together is naïve.
This summit of sorts was put together by the world’s chief alarmist, the International Energy Agency that keeps warning everyone about low production soaring demand and the dangerous world we live in that has become a minefield of geopolitical firestorms that threaten that ever so fine line between supply and demand. They will seek to come out of this meeting with justification for their projections, which are at least somewhat responsible for the hype in the marketplace today.
Here’s what will be accomplished. All the nonsense and rhetoric such as Iran’s nuclear ambitions, Nigerian rebels recently celebrating 40 years of disruptive behavior, Turkey’s well rehearsed and permissioned stroll into Northern Iraq, Venezuela –ExxonMobil cat fight, Venezuela’s subsequent self-defeating threats to the U.S., failing infrastructure in the U.S., refining shortages worldwide, hurricane season each year, and a host of other issues that arise each week to justify the soaring prices will be cited and further exploited. That’s the real danger of this meeting. Justification for higher prices.
Here’s how the geopolitical roster should read. Almost on a weekly basis, Nigerian rebels of one faction or another attack someone. They do it for profit. Some do it for loftier humanitarian goals. Despite the highly publicized tempest in a teapot, Nigeria manages to produce its OPEC quota each month, and in many cases, exceeds that quota. Estimates that Nigerian production has fallen by 800,000 barrels per day in 2007 are absurd. The Nigerians know it. Shell knows it. I would even say OPEC hierarchy know it.
The Iranian issue is something that’s not going away anytime soon. However, the chances are remote that Iran would try and shut down the Strait of Hormuz, regardless of what happens in the future. Shutting the Strait would hurt Iran more than anyone else. It would also isolate Iran as oil would be withheld from its customers, and Iran would discover very quickly how few allies it has. Also, “Out of Gas” signs would populate the billboards in the country since Iran imports gasoline. Turkey would never have set foot in Iraqi territory if it didn’t receive permission from the U.S. government. I haven’t seen the memo, but I would bet it went something like this. “Get in and get out, kill a few Kurdish rebels and limit collateral damage, and whatever you do, do not break anything, like pipelines, oil rigs or other infrastructure.”
The Venezuela threats and fights with Bush, the U.S. generally and the more recent spat with ExxonMobil have included veiled and not-so-veiled threats about cutting off oil supplies to the U.S. This really does not deserve explanation as the chance that Hugo Chavez would actually follow through on this threat is as big a danger as the moon crashing into the earth. If he actually did cut the U.S. off, it would lead to more supplies of oil available as President Bush would have no choice but to open the Strategic Petroleum Reserve.
OPEC members are really enjoying prices at these levels. $100 per barrel oil has been a dream for some of them for 20 years. Other than Saudi Arabia, OPEC members don’t believe, or don’t care that $100+ crude oil is self-defeating and eventually will strangle the world’s economies. Live for the moment is their motto. Extend this bonanza is their goal.
The energy market has been hijacked by a financial industry that is trying to weather other storms. Most of these institutions are trying to recover from the mortgage meltdown that they engineered and have found the commodities markets, which lack oversight, an easy target. It’s like having an ATM card to an account that is infinite. If it’s allowed to continue, oil prices will achieve the targets they have assigned, such as Goldman’s predictions of $120 or $130 per barrel. Why not $200 per barrel?
It won’t happen. It cannot happen. The U.S. economy and the rest of the world cannot withstand these prices much longer. The problem is, as the U.S. faces recession or worse, the damage done before everyone wakes up and realizes whats happened will be astronomical. It will be a big bust, much like the dot-com bubble and the housing market. Everything these financial institutions engineer eventually blow up.
This why the meeting in Paris won’t solve anything. It may even make things worse. Unless and until the U.S., in concert with the UK government, step in and make it more expensive to play in the commodities markets, and subject that industry to critical oversight, they will continue to destroy the world’s economies, milk every dollar it can, and leave it for dead. Much like the fox, lions and hyenas did to the chickens.
A barrel of crude oil is worth more in the US than a house!
Oil has hit a fresh all-time high of $111.80 overnight, whilst houses can be bought in the US for $100 (see report further below: US Recession).
The dollar's demise is blamed for this latest rush on crude. Interestingly, soyoil which we have all been told recently is now "inextricably linked" to crude is around 100 points lower on eCBOT this morning.