It was bound to come at some point and they didn’t disappoint. I must make a mental note to fill up the car with petrol before this Friday.
The Organisation of the Petroleum Exporting Countries (that’s OPEC to you and me) have decided to reschedule their extraordinary meeting from the 18th November to the 24th October. We would guess that makes it an extra-extraordinary meeting.
We wonder what will be on the agenda. It’s a tough one?
Now we remember it may have something to do with cutting production. Whether it will work or not is another matter. There are two factors that will weigh against it working in the short term.
First is the fact that OPEC members have typically produced above their quota anyway. This means that any reduction in the nominal quota relies on the member nations of OPEC enforcing the new level.
According to energy and metals information company Platts, OPEC has been exceeding quotas for at least the last four months and that is only likely to continue as member countries shift as much oil through the pipes as they possibly can. It’s the classic herd mentality. Although they know that reducing supply will help to support the price, they also know that if they don’t take advantage of the current oil price by selling as much as they can then others will.
There is also the futures market to be considered as well. As the price has continued to fall a greater weight of hedgers and speculators will be attempting to sell oil contracts at these prices in the anticipation that the price will fall further.
Those that hedge their fuel exposure by buying oil futures contracts are doubtless less inclined to rush in at any price. The comments from Rio Tinto last week about a slowing Chinese economy wouldn’t have done the oil price any favours either.
Mines Close as Nickel Continues to Slide
If you think the crude oil chart looks scary, have a thought for Nickel producers. Since mid 2007 the price of nickel on the London Metal Exchange has fallen from USD$55,000 a tonne to just USD$11,425 a tonne.
Why such a drop? It mainly comes down to what nickel is used for. The principle application for nickel is for it to be used in stainless steel. Which as we have seen have seen the steel market has softened to some degree recently.
Any you only have to look at the warehouse stock levels for the LME to see that the volumes being stored are on an upward trend, clearly indicating an oversupply of nickel in the market.
Although the volumes have fluctuated between 40,000 and 50,000 tonnes, according to the latest data from the LME stocks at the end of September had reached 56,000 tonnes. Is it any wonder that companies such as Norilsk Nickel have put its Cawse mine on “care and maintenance” due to the increased costs and lower yield.
Billy Connolly Gets an Injection
And just because it wouldn’t be the same if we didn’t mention something to do with the credit crunch. We noted with amusement this morning that the Dutch government is going to ‘inject’ $19.6 billion into ING. Or should that be Billy Connolly’s ING?
According to the Dutch finance minister they are doing this because ING is “a healthy business.”
We may be wrong, but we think this could be the first time ever that a government has had to prop up a company that is not in trouble. Or as my colleague Dan Denning said this morning maybe they are doing it because it is a “good investment.”
It seems as though sovereign wealth funds are no longer restricted to the Middle and Far East. The race is on amongst governments to build as big a share portfolio as they can. Who will be the winners in this race? And how will it end?
Cheers.
Kris.