Monday, July 13, 2020

China Unlikely To Meet Phase One Demand For U.S. Oil, Gas

Dell and HP to shift up to 30 per cent of production out of China  - report 

It looks like China will not meet its Phase One trade deal promise to import more U.S. fuel products, including LNG, market watchers are now saying. Maybe that analysis is too easy to make at this point.

China has as good excuse as any: the economy is climbing out of a pandemic sized hole, and demand is not what it was a year ago. The question is, will that excuse be good enough for the U.S. to keep Phase One in tact? Given that this is an election year, blowing up what President Trump once called a “great deal” may not be politically prudent. For now, China is not going to deliver on its promises and its excuse is reasonable enough.

China said it would spend around $26 billion on U.S. oil and gas purchases this year.

In Washington, Republican lawmakers and U.S. trade groups have been lobbying the White House to prioritize oil, gas and its derivatives in trade negotiations with numerous countries, with China being a prime target. They all want China — the emerging market’s biggest oil and gas importer — to increase its purchases of things like liquefied petroleum gas and liquefied natural gas, especially. It’s the only way U.S. natural gas is going to get into China. China can get these things cheaper from Russia, just across the border, via pipelines.

China’s economy is in recovery mode, so one would expect more demand for oil and gas. That doesn’t seem to be translating into more demand for the U.S. product. China has a lot in storage to burn through.

Crude oil prices fell over $1.30 during the day on Thursday and are back under $40.
With or Without China, The Oil Glut Continues

This week’s Energy Information Administration inventory report showed a continuous build-up in crude oil sitting in storage tanks. Gasoline demand is picking up, so a drawdown in inventories in the U.S., where oil was being stored on tanker ships offshore because there was no room, for the most part, at on shore storage facilities, will lead to a better outlook for oil prices. A lot is riding on the pandemic winding down.

Oil’s direction is also an important indicator not only for energy stocks, but for commodity exporters like Brazil and Russia. Weak commodities tends to mean a strong dollar and a strong dollar is almost always negative for investor sentiment in emerging markets.

On Tuesday, the EIA released their Short Term Energy Outlook (STEO) report for oil and the July STEO remains subject to heightened levels of uncertainty due to the pandemic. Reduced economic activity has caused changes in energy supply and demand patterns all year; China is no exception.

Uncertainties persist across all energy sources, including liquid fuels, natural gas, electricity, coal, and even renewables.

Last month, OPEC+ announced that the world’s oil producers would all extend through July their period of cutbacks that was set to expire on July 1. It is unclear if Russia will continue along this path once the month is up.

Nevertheless, EIA expects monthly spot prices to average $41 during the second half of 2020 and rise to an average of $50 in 2021. That’d be for Brent crude.

Meanwhile, China not holding up to its end of the trade deal, regardless of pandemic woes, adds to the geopolitical overhang. China stocks are on a tear, anyway, likely thanks to government backing from the People’s Bank of China, the casino-like atmosphere of China’s A-shares among retail investors there, and foreign investors starting to move overweight China on two factors: they are coming out of the coronavirus slump, and the prospect of a Joe Biden presidency. Biden is seen as ending the trade war with China.

For now…the stimulus theme in markets trumps trade wars and trade deals. Stimulus is what’s keeping markets alive right now.

“It is difficult to maintain a ‘bull market case’ that doesn’t involve additional trillions in government spending,” says Marc Odo, client portfolio manager at Swan Global Investments.

US Signs Order for First West Coast Gas-Export Terminal

 Jordan Cove LNG model (File/SBG)

The Trump administration on Monday formally authorized exports from a proposed Oregon natural-gas terminal, the first on the U.S. West Coast.

Energy Secretary Dan Brouillette signed the order for the proposed Jordan Cove liquid natural gas terminal in Coos Bay, Oregon. Monday’s approval for the project, which would target markets in Asia, is part of an administration push to promote U.S. oil and gas production and export despite mounting scientific warnings about fossil fuels damaging the climate.

Oregon officials, including Democratic Gov. Kate Brown, say state approval is still needed before the project can go forward.

“The governor will not stand for any attempt to ignore Oregon’s authority to protect public safety, health, or the environment,” said Brown’s spokeswoman Nikki Fisher. “Political actions by the Trump Administration do not change the fact that the project does not have the state permits to be built.”

Brouillette said in a statement that the project “encapsulates what the Trump administration has been working hard on for the past three years – providing reliable, affordable, and cleaner-burning natural gas to our allies around the world.”

Owned by Canada’s Pembina Pipeline Corp., the terminal would have federal authority to export up to 1.08 billion cubic feet per day of natural gas, from both the United States and Canada.

Regulator and public concern about expected harm from the terminal and its 230-mile (370-kilometer) feeder pipeline in southern Oregon to threatened wildlife species and to landowners had slowed the project previously.

The administration’s export authorization for the Oregon project comes as legal challenges and slumping consumer energy demand amid the coronavirus pandemic and recession block some of the country’s most prominent oil and gas pipeline projects.

Thursday, July 9, 2020

Venezuela: Rulings Threaten Free and Fair Elections Nicolas Maduro, sitting at desk second from right, speaks with Supreme Court President Maikel Moreno at the Supreme Court before giving his annual presidential address in Caracas, Venezuela. January 31, 2020.  © 2020 AP Photo/Ariana Cubillos

Pro-government Supreme Court Co-opts Opposition Parties, Electoral Authority

(Washington, DC) – Venezuela’s Supreme Court is demonstrating its lack of independence by appointing government supporters to leadership positions in three opposition parties and to the National Electoral Council, Human Rights Watch said today. In doing so, it is undermining Venezuelans’ rights to free and fair elections and freedom of association.

On July 7, 2020, the Supreme Court suspended the leadership of the opposition political party Voluntad Popular, to which the National Assembly president Juan Guaidó belongs, and appointed supporters of the Nicolás Maduro administration to lead it. The court also held that the new leadership could use the name and logo of Voluntad Popular in the upcoming parliamentary elections. In a series of rulings in June, the Supreme Court similarly orchestrated the takeover of two other opposition political parties, Acción Democrática and Movimiento Primero Justicia, replacing their leadership with Maduro administration supporters.

“When a judiciary that answers to Maduro decapitates opposition political parties that represent dissenting voices, it undermines the rights of all Venezuelans, dispensing with even the pretense of a democratic process,” said José Miguel Vivanco, Americas director at Human Rights Watch. “Venezuelans’ right to vote for their preferred candidates requires a free and fair election in which all parties and candidates have a reasonable opportunity to present their ideas to the electorate.”

On July 1, the Venezuelan authorities announced that they will hold legislative elections on December 6 to fill 277 seats in the National Assembly, increasing the total number of seats by 110, from the current 167 seats. The move appears to be a first step toward packing the legislative branch.

In June, the Supreme Court suspended opposition leaders of Acción Democrática and Movimiento Primero Justicia, contending that they had breached their respective statutes regulating the election of party authorities and had denied members various political rights. Some members of both political parties claimed that the suspended leaders had changed the parties’ regional, municipal, and local authorities “at their will.” The ruling on Voluntad Popular is not yet available on the Supreme Court’s website.

In each of the two available rulings, the court used almost identical language, appointing an ad hoc board of directors to “restructure” the parties and ruling that new leaders will fulfill “the managerial and representative functions of the organization” and designate “regional, municipal, and local authorities.” The ruling allows the new leadership to use “the electoral card, the logo, symbols, emblems, colors and any other concept of the organization for political purposes” and to modify the party’s internal statutes. The court announced that it was applying similar measures to Voluntad Popular.

The Supreme Court appointed José Gregorio Noriega, Guillermo Luces, and Lucila Ángela Pacheco to head Voluntad Popular. Noriega is a legislator who was expelled from the party after being implicated in bribing other legislators to vote against Guaidó as president of the National Assembly in January. Luces was also expelled after voting for a government supporter, Luis Parra, to lead the National Assembly in the same contested election, which led to the creation of a parallel pro-government National Assembly leadership. Both Parra and Noriega have been recently sanctioned by the European Union and the United States. Pacheco is a former legislator from the government party, the United Socialist Party of Venezuela (PSUV).

Primero Justicia is now chaired by José Dionisio Brito, who had been expelled from the party amid corruption allegations and had also supported Parra’s election. Acción Democrática is currently chaired by Bernabé Gutiérrez, whose brother is a member of the newly appointed National Electoral Council.

A similar case is pending before the Supreme Court, asking it to remove the leadership of Un Nuevo Tiempo, the only one of the so-called G4 parties that oppose the Maduro administration that the court has not yet taken over.

Meanwhile, Venezuela’s attorney general has asked the Supreme Court to declare Voluntad Popular a terrorist organization, arguing that it has sought to destabilize the Maduro government. This case is currently pending before the Supreme Court’s Criminal Chamber. Voluntad Popular’s leader, Leopoldo López, has been the subject of an arbitrary and politically motivated prosecution since 2014.

The court’s appointment of pro-government politicians to lead Venezuela’s opposition parties severely undermines the ability of dissenting voices to participate in the electoral process, unjustifiably restricting its members’ human rights to freedom of association and expression, Human Rights Watch said. The new leadership’s ability to use logos, symbols, and emblems from the opposition parties also threatens basic rights to information and political participation, as it creates a serious risk of misinformation and deception of voters who have associated those images with the opposition parties’ ideals.

The right to associate for political purposes, the Inter-American Court of Human Rights has said, not only entails the right to associate freely without interference from public authorities, but also the freedom “to seek the common achievement of a licit goal, without pressure or interference that could alter or change their purpose.” The Inter-American Commission on Human Rights “considers that the right to vote and to participate in government includes the right to organize parties and political associations that, through the free exchange of ideas, prevent a monopoly on power[.]” Similarly, the Inter-American Democratic Charter establishes that “The strengthening of political parties and other political organizations is a priority for democracy.”

Governments – including courts – may only restrict political rights if it is lawful to do so and necessary and proportionate for a legitimate purpose. The Supreme Court’s rulings did not analyze whether these criteria were met. The Venezuelan Constitution provides that political parties’ governing bodies and candidates running for office are to be selected in internal elections in which party members should participate. For the court to address a dispute about the election of party leadership by imposing its own hand-picked choices is not lawful, necessary, or proportional.

On June 12, the Supreme Court selected all five members of the National Election Council, despite constitutional provisions establishing that the National Assembly, currently the only opposition-led institution that acts as a check on executive power, should do so. All appointed members of the Council are government supporters, including two former Supreme Court justices who have issued several rulings favoring the government. Three of them have been sanctioned by the United States, Canada, Panama, and/or members of the Inter-American Treaty of Reciprocal Assistance.

The removed leadership of opposition political parties had publicly said they would not participate in the upcoming legislative elections because there are no guarantees they will be free and fair. The new court-appointed leadership, instead, has announced that they intend to do so.

Since former President Hugo Chávez and his supporters in the National Assembly conducted a political takeover of the Supreme Court in 2004, Venezuela’s judiciary has stopped functioning as an independent branch of government. Members of the Supreme Court have openly rejected the principle of separation of powers and have consistently upheld abusive policies and practices.

The Supreme Court has interfered with the leadership or internal structure of eight opposition political parties since 2012. The playing field leading up to past elections was far from even, with arbitrary disqualifications of opposition members from running from office and credible allegations of political discrimination in government jobs, which undermine the ability of many Venezuelans to express their views freely. Venezuelan authorities have also used hunger as a tool of social and political control during past elections.

The last elections in 2017 to choose Constituent Assembly members were marred by allegations of fraud leveled by Smartmatic, a British company hired by the government to oversee the vote that concluded that there had been tampering with the turnout figures and estimated that actual voter turnout was probably at least 1 million less than the 8 million official reported. There has been no independent oversight of Venezuelan elections for years.

Wednesday, July 8, 2020

Saudi Arabia Is Bullying OPEC Members Into Compliance

 Elliot Blondet / Getty

First, they said it nicely: play along and cut to your quotas, or we’ll all suffer low oil prices for longer. Then they put their foot down: start cutting deeper or else. And now it has emerged what the “or else” part was—a new price war.

The Wall Street Journal’s Benoit Faucon and Summer Said reported earlier this week that Saudi Energy Minister Abdulaziz bin Saud had threatened Nigeria, Angola, and Iraq with another oil price war if they didn’t get in line with the production cuts, according to OPEC delegates. If they kept producing more than their quotas, Saudi Arabia would start selling its crude at a discount on these three countries’ key markets, stealing market share. In a phrase reminiscent of some of the best crime dramas, bin Saud reportedly told Angolan and Nigerian delegates, “We know who your customers are.”

OPEC’s crude oil production last month fell to the lowest in thirty years, at 22.69 million bpd. However, Iraq, Angola, and Nigeria still fell short of their quotas: Iraq only managed to achieve 70 percent compliance, Nigeria did a little better at 77 percent, and Angola even better at 83 percent. But that was not good enough.

It is understandable why the OPEC leader has had enough. The Saudis were not only the driver behind the latest agreement. They also voluntarily deepened their own production quota, pledging to cut an additional one million bpd on top of the more than two million bpd they agreed to cut, shouldering the largest part of the total 9.7-million-bpd OEPC+ cut.

And they have stuck to it, unlike the three laggards. Last month, the Kingdom pumped 7.53 million bpd, when it had originally been set a quota of 8.5 million bpd, the same as OPEC+ fellow Russia, which, however, has been slow to reach its own quota. The Saudis have literally done whatever it takes to prop up prices. And prices have remained weak. That would frustrate even the most patient of producers. 
Brent crude traded at more than $51 a barrel in early March, a few days before Saudi Arabia declared its first price war of the year against Russia for its refusal to sign up for an extension of the previous round of cuts, agreed on last December. On March 9, the benchmark plummeted below $35 a barrel.

After a further plunge in April on the back of the coronavirus lockdowns, Brent has to date recovered to about $40. So, if Saudi Arabia makes good on its threat, this time Brent—and WTI—will be falling from a lower starting point. This is the only thing we can be sure of.

Of course, the threat of a price war remains hypothetical. Perhaps it would prove to be enough to get Iraq, Nigeria, and Angola to mend their ways and start cutting production like they mean it. It would be the safer choice because Saudi Arabia has more oil, and it can afford to sell it more cheaply than the three laggards, at least for a while. But what if they don’t?

Well, if they don’t, we’ll likely have a new price crash, and it could turn out to be worse than the first one as it would come amid a rising fear—and perhaps some evidence—of a second wave of Covid-19 infections in the world’s largest consumer. Meanwhile, demand has been slow to rebound.
There have been some good signs such as a pickup in gasoline production in the U.S. and a drawdown in floating oil storage. And yet, most analysts warn that people around the world would continue to be cautious in commuting and traveling, which will continue to affect oil demand.

If, in such an environment, Saudi Arabia decides to make good on its threat, oil will fall sharply. Just how low it would fall is anyone’s guess, but it is safe to say such a development would hardly benefit anyone, including Saudi Arabia. Certainly, it could beef up exports to undermine the market shares of Iraq, Nigeria, and Angola in China and India by cutting prices, but it wouldn’t be able to keep on doing it for a very long time. The Kingdom has a deficit to deal with.

It could do it for a short while, to make its point. And then Iraq, Nigeria, and Angola could continue under complying because there would be nothing else Saudi Arabia could do to stop them. And that’s not all. Earlier this week, Russia’s Energy Minister said there had been no discussions in OPEC+ to continue cutting deep after the end of July.

As per the agreement, the cuts would be relaxed from 9.7 million bpd to 7.7 million bpd after the July extension. But it’s still early July, and there is a problem with compliance. That Saudi Arabia could propose another extension is not out of the question because oil continues to be way too cheap for it. And then we will have another OPEC+ drama brewing and, should the Saudis’ patience expire, a second price war.

By Irina Slav for

Tuesday, July 7, 2020

Aramco raises August prices for grades to Asia by $1 a barrel Increase is less than expected for flagship Arab Light crude 

  • Aramco raises August prices for grades to Asia by $1 a barrel
  • Increase is less than expected for flagship Arab Light crude
Saudi Arabia raised pricing for August oil shipments to Asia, the U.S. and northern Europe amid signs that energy demand is recovering from its coronavirus-triggered collapse.

The world’s biggest crude exporter is increasing rates as it pushes other major producers to keep cutting supply to re-balance the market.

State producer Saudi Aramco lifted the official selling price for its flagship Arab Light crude to buyers in Asia, its biggest market, for a third consecutive month, though by less than expected. Aramco raised pricing to the U.S., where it’s also reining in shipments, for a fourth month.

“The increase in prices reflects the overall recovery in oil markets,” said Carole Nakhle, chief executive officer of London-based consultant Crystol Energy. “Demand growth remains uneven and may even be subject to temporary reversals, but it is unlikely to fall off a cliff because lockdowns, if re-introduced, are likely to be more localized.”

Arab Light crude to Asia rises to $1.20 a barrel above the Middle East benchmark, compared with a 20-cent premium for July, the company said in a statement. Traders and refiners, who are struggling with low margins, expected the premium to climb to $1.45, according to a Bloomberg survey.

Aramco raised U.S. pricing by between 20 cents and 40 cents a barrel. Light crude will sell at a premium of $1.65 a barrel, up by 30 cents, the company said. It also increased rates for most grades sold to northwestern Europe -- the main hub for which is Rotterdam. The only reductions are to the Mediterranean region, where Aramco pared prices by as much as $1 a barrel.
Aramco increased August pricing for its flagship grade to Asia and other regions
Saudi Arabia and Russia have led efforts by the OPEC+ producer alliance since April to reduce output and drain stockpiles. The group agreed in June to extend cuts totaling nearly 10 million barrels a day -- roughly 10% of world supply before the pandemic hit -- for a third month until the end of July. They plan to scale them back after that.

                                     August OSPs to AsiaChangePremium
                                     Arab Super Light+$1/bbl$2.65/bbl
                                     Arab Extra Light+$1$1.20
                                     Arab Light+$1$1.20
                                     Arab Medium+$1$1.20
                                     Arab Heavy+$1$0.90

OPEC+ is “on the right track” but still has “a long way to go” before re-balancing oil markets, Saudi Energy Minister Prince Abdulaziz bin Salman said in mid-June. The Saudis slashed their crude shipments last month to a multi-year low, according to Bloomberg tanker tracking.

Brent crude has more than doubled since OPEC+’s April agreement to around $43 a barrel. The global benchmark is still down 34% this year.

— With assistance by Sharon Cho

(Updates with analyst comment in fourth paragraph; pricing details in fifth.)

Monday, July 6, 2020

Exclusive: Venezuela's PDVSA weighs plan to pay for refinery work with fuel, byproducts - sources

CARACAS (Reuters) - Officials from Venezuelan state oil company Petroleos de Venezuela [PDVSA.UL] have spoken with private contractors about paying for work fixing the country’s refineries with fuel and byproducts, a half dozen people familiar with the talks said.

The possibility of in-kind compensation comes as U.S. sanctions on PDVSA and severe cash-flow problems at the company have complicated its ability to pay third-party contractors, whose help it needs to revamp gasoline output at its 1.3 million barrel-per-day refining network, which is mostly halted. 

The outages have contributed to widespread fuel shortages in recent months, which President Nicolas Maduro’s government temporarily alleviated by importing gasoline from ally Iran.
But the shortages have made it hard for farmers to harvest their crops and for doctors to get to hospitals. 

“We want to attend to a humanitarian issue, because there are many people suffering,” said one of the people, who spoke on condition of anonymity because the talks were not yet public. 

PDVSA has racked up sizable debts to contractors due to failure to make promised payments for work on oilfields and to infrastructure, which has led to the suspension of many projects and left many private contractors struggling with a lack of cash flow. The company has not recently published figures on its total debts to contractors. 

The person said the private companies involved planned to discuss the plan with the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), which enforces sanctions, to try to obtain a license permitting the activities despite the broad sanctions on PDVSA.

The U.S. Treasury Department declined to comment. Neither PDVSA nor Venezuela’s oil ministry responded to requests for comment. 

Payment in fuel could pave the way for those private contractors to export the products themselves. That could boost Venezuela’s oil exports by cutting sanctioned PDVSA out of the process, a bet that customers and shippers would be willing to interact with non-sanctioned private companies. 

To be sure, that part of the plan likely would not hold up without an OFAC license. The Trump administration has sanctioned several oil and shipping companies for dealing with Venezuela in recent months to ratchet up efforts to oust Maduro, a socialist who has overseen an economic collapse and stands accused of corruption and human rights violations. 

It is also weighing sanctions on a Venezuelan shipping magnate who coordinated a gasoline shipment to the country in April, which he described as “humanitarian work.” 

Maduro blames the U.S. sanctions for the fuel shortages and the once-prosperous OPEC nation’s economic woes. Washington has pressured PDVSA’s remaining customers not to send gasoline to the country in exchange for crude, a practice known as a swap that Venezuela had long used to supply the internal market. 

The company has recently restarted the catalytic cracker at its 310,000 barrel-per-day (bpd) Cardon refinery, a necessary step for producing gasoline. It is also aiming to restart gasoline output at the 146,000 bpd El Palito refinery. 

The sanctions have hindered PDVSA’s ability to pay contractors through bank transfers. In-kind payments are not the first method the company has come up with to overcome this obstacle: last year, it paid suppliers and contractors with euros in cash.

But cash has dried up as crude output continues to fall. Venezuela produced just 411,000 barrels per day on June 15 and an average of 421,000 in the first two weeks of June, according to an oil ministry document seen by Reuters. That was down from 573,000 in May, according to figures the country provided to OPEC. 

The people said the products PDVSA could pay the contractors include fuel oil, jet fuel and petcoke - a byproduct of the refining process. 

Reporting by Deisy Buitrago in Caracas and Luc Cohen in New York; Editing by Daniel Flynn and Jonathan Oatis

Saturday, July 4, 2020

Happy Independence Day!

Stout elderly man in his 60s with long white hair, facing partway leftward 
John Adams

Happy Independence Day!

In 1776, after signing the Declaration of Independence, John Adams wrote to his wife Abigail that this act should long be celebrated with great fanfare - and today “We the People” come together to celebrate our nation’s birthday.
"I am apt to believe that it will be celebrated, by succeeding Generations, as the great anniversary Festival. It ought to be commemorated, as the Day of Deliverance by solemn Acts of Devotion to God Almighty. It ought to be solemnized with Pomp and Parade, with Shows, Games, Sports, Guns, Bells, Bonfires and Illuminations from one End of this Continent to the other from this Time forward forever more." - John Adams, July 1776

As we gather with friends and family to celebrate Independence Day, we also remember and celebrate the principles that our nation was founded on.

May God bless all who serve to ensure these ideals endure. We wish everyone a happy and safe holiday!

Thursday, July 2, 2020

Oil barrels come off the water as storage boom at sea fades

FILE PHOTO: Oil tankers pass through the Strait of Hormuz, December 21, 2018. REUTERS/Hamad I Mohammed/File Photo  

LONDON (Reuters) - Tens of millions of barrels of crude and oil products stored on tankers at sea due to the coronavirus crisis are being sold, in a sign fuel demand is recovering as lockdowns ease, shipping sources say.

Fuel demand tumbled as much 30% from March to May, with some surplus stored at sea as land storage filled up. 

Crude held on tankers fell below 150 million barrels by the end of June, down from more than 180 million barrels in late April, IHS Markit estimated. 

Refined products held on vessels dropped to 50 million barrels from a mid-May peak close to 75 million barrels, IHS said, adding gasoline stocks were the fastest to be offloaded.

“Volumes shown under floating storage can potentially drop rather fast during July,” Fotios Katsoulas of IHS said, adding there were several tankers off China waiting to discharge. 

Demand for floating storage at the peak of the crisis was helped by a market contango, a price structure where cargoes for delivery in the shorter term are cheaper than those for later delivery, encouraging traders to store fuel until prices pick up. 

As the contango has narrowed with rising demand, there is less incentive to store fuel. 

In addition, OPEC, Russia and other allies, a group known as OPEC+, have curbed production and output from the United States and elsewhere has fallen, leaving less surplus oil to keep at sea, a more costly alternative to onshore storage.

“With output levels lower, this has reduced the need for storage on land and combined with a reduction in price contangos, there is less of an incentive to store crude at sea,” said Rebecca Galanopoulos Jones, with broker Alibra Shipping. 

Clarksons Research estimated 218 million barrels of crude was held on tankers by June 26 from a peak of 290 million barrels in early May, while about 70.5 million barrels of oil products were stored versus a May peak of 100 million barrels. 

“We believe floating storage is going to gradually decline from now and reach normal levels sometime during the autumn,” a spokeswoman with shipping group NORDEN said.
Editing by Dmitry Zhdannikov and Edmund Blair

Wednesday, July 1, 2020

SHEIKHS in Distress: CRISIS in the PERSIAN GULF - VisualPolitik EN

Chinese firm dumps 83 tonnes of fake gold on the market

Gold Scam

Over $2bn of loans may have been backed by fake gold, finds corruption probe.

  • China's Wuhan Kingold Jewelry used at least 83 tonnes of counterfeit gold as collateral for loans.
  • The gold was used to secure loans worth in excess of $2 billion.
  • The discovery raises questions about the practicality of gold as an asset.
An investigation has uncovered one of the biggest gold counterfeiting scandals in recent history. 

The probe, carried out by Chinese news outlet Caixin found that Wuhan Kingold Jewelry, the largest privately-owned gold processor in central China’s Hubei province, used at least 83 tonnes of counterfeit gold as collateral for loans amounting to 20 billion yuan ($2.8 billion) from over a dozen Chinese financial institutions.

According to the report, the faked collateral is equivalent to 22% of China's annual gold production and 4.2% of the state gold reserve as of 2019. In short, more than four percent of China's official gold reserves may be fake. 

The counterfeit metal was discovered in February when one of Kingold’s lenders, Dongguan Trust, decided to liquidate its collateral to cover defaulted debts. Following the discovery, three other Kingold creditors also performed tests on the gold in their vaults and found it was fake.

Kingold was founded in 2002 by Jia Zhihong, who reportedly served in the military and once managed gold mines owned by the People’s Liberation Army. Kingold started off as a gold factory affiliated with the People’s Bank of China but split off from the central bank during restructuring. As of September 2019, it held assets totaling $3.3 billion, and its shares are listed on the Nasdaq stock exchange.

How much gold held as collateral is fake? 

It’s not the first time fake gold has been used as collateral in China. In 2016, regulators found gold bars with black tungsten at their center, backing 19 billion yuan of loans ($2.5 billion.)

A special government task force has been set up to further investigate the fraud. 

But the latest revelations are sure to spark questions about how much gold held as collateral is genuine, and how practical gold is as a reserve asset. In the last four years, at least $50 million worth of fake gold allegedly from Swiss refineries has been found in the vaults of JPMorgan Chase, one of the largest banks at the center of the bullion market.

Cryptocurrency often gets a bad rap for scams, but it’s relatively straightforward to discover if it’s fake; software can scan the Bitcoin blockchain to prove its veracity—a process that costs almost nothing.

Tuesday, June 30, 2020

Saudi Arabia discusses progress of OPEC deal with Nigeria

 Thursday, October 31, 2019, President Buhari met with Saudi Crown Prince Mohammed bin Salman, on the margins of the Future Investment Initiative (FII) conference in Riyadh. Photo: TWITTER/NGRPresident

Saudi Arabia’s Crown Prince Mohammed and the president of Nigeria Muhammadu Buhari, discussed the progress of the OPEC+ oil production cut deal this week in a phone call, the Saudi Press Agency reported without providing any details about the contents of the call.

Nigeria, along with Iraq, has been lagging in compliance with the production quotas set by OPEC+ in April, aiming to shave off some 9.7 million bpd in oil supply until the end of July. 

In fact, Iraq and Nigeria—especially Nigeria—were so bad at compliance that Saudi Arabia’s Energy Minister had to put his foot down at the last OPEC+ meeting and demand from them that they start cutting production more deeply to improve their compliance rates.

Iraq and Nigeria’s non-compliance with the record OPEC+ cuts in May nearly wrecked the June meeting of the pact, ahead of which the two leaders of the group, Saudi Arabia and Russia, had insisted that there would be an extension by one month to the current level of cuts only if laggards in compliance ensured over-compliance going forward to compensate for flouting their quotas so far. 

Iraq and Nigeria had little choice but to cave, and undertook to deepen their production cuts not just in July but also in August and September, to compensate for their under compliance in May when the deep cuts began. For now, the agreement is to cut a total of 9.7 million bpd until the end of July. According to Russia’s Energy Minister, a further extension of the deep cuts would not be needed as the market will have begun to rebalance by the end of July.

Yet another extension remains a possibility: the latest production data on OPEC, from Petro-Logistics, overall OPEC output was down by 1.25 million bpd in June from May but was still above the amount it was supposed to be producing per its agreement with Russia and the other non-OPEC states in OPEC+

By Charles Kennedy for

Monday, June 29, 2020

Iran to Reroute Oil Exports from Hormuz Strait: Rouhani

A new 1000-kilometer-long oil pipeline in the south of Iran, the Gorey-Jask pipeline, will provide the country with an alternative route for crude oil exports which are currently transferring through the Strait of Hormuz, the Iranian president said on Tuesday.

Speaking at an event about boosting and promoting domestic production, Hassan Rouhani said the new oil pipeline from the Goreh oilfield to the Port of Jask on Iran’s coast along the Gulf of Oman would reroute the country’s oil exports away from the Hormuz Strait.

Rouhani hailed the project, which has been allocated a $1.8 billion budget, a first in the state’s history.

According to Shana news agency, Iran’s National Oil Company announced that part of the pipeline would come onstream by the end of the current Iranian calendar year to March 19, 2021.

Data from the International Energy Agency showed that Iran’s proven oil reserves were almost 157 billion barrels in 2018 to rank fourth in the world and second globally for natural gas.

Iran’s exports of petroleum products averaged 507,000 barrels per day (bpd) in 2017, falling from 587,000 bpd in 2016.

Iran, which exported 1.8 million barrels of crude oil daily in 2018, was able to export only 573,261 barrels in 2019 due to the US’s withdrawal from the Joint Comprehensive Plan of Action, also known as Iran Nuclear Agreement.

In May 2018, US President Donald Trump unilaterally withdrew from a landmark 2015 nuclear deal that world powers struck with Tehran to curb its nuclear program in exchange for billions of dollars in relief from economic sanctions.

Trump has since embarked on a campaign to scuttle the agreement, including the re-imposition of sanctions on Iranian crude oil that were lifted as part of the agreement.

Friday, June 26, 2020

A day after another Iranian tanker arrives in Venezuela, the US sends another warship to sail along its coast

Navy destroyer Nitze 
US Navy Arleigh Burke-class guided-missile destroyer USS Nitze leaves Safaga, Egypt, after a port visit, July 20, 2019.
US Navy/MCS 3rd Class Will Hardy
  • A US Navy guided-missile destroyer conducted a freedom of navigation operation off of Venezuela on Tuesday, the second such operation this year.
  • The operation comes amid broader tensions between the US and Venezuela, and as US military assets patrol the region and as Iranian tankers continue to arrive in Venezuela.
  • Visit Business Insider's homepage for more stories.
The US military said Tuesday that a Navy guided-missile destroyer sailed along the coast of Venezuela in what the command responsible for the region called a "freedom of navigation operation."

US Southern Command said in a release that the USS Nitze sailed in international waters outside 12-nautical-mile limit on territorial waters and "lawfully navigated an area the illegitimate Maduro regime falsely claims to have control over, a claim that is inconsistent with international law."

Asked about the operation, a spokesman for the command said it was done "to challenge Venezuela's excessive maritime claim of security jurisdiction from 12 to 15 nautical miles along its coastline and prior permission requirement for military operations within the Exclusive Economic Zone, which are contrary to international law."

Exclusive economic zones extend 200 nautical miles from a country's coast, and while that country has rights to economic activities within that zone, ships from other countries can sail through it.

The operation, the second of its kind this year, comes amid heightened tensions between the US and Venezuela.

The Trump administration has applied increasing pressure to the government of President Nicolás Maduro, who the US and dozens of other countries regard as illegitimate. The US has indicted Maduro and members of his inner circle on drug-trafficking charges and sanctioned many in the government, the military, and government assets.

US efforts to isolate Venezuela's oil industry, on which the country is reliant for income but has been undercut by mismanagement, have led Maduro's government to turn to Iran, which has delivered refinery materials as well as gasoline to ease supply shortages in Venezuela.

Several Iranian tankers have already traveled to Venezuela. On Monday, the Iranian-flagged cargo ship Golsan arrived at the port of La Guaira in Venezuela with what Iran's Embassy in Caracas said was food for the country's first Iranian supermarket, according to Reuters.

There was no indication that the Golsan and Nitze encountered each other, but Washington and Tehran have traded threats over the shipments. The US has said it is considering a response to the tankers but has taken no military action, while Iranian officials have said repeatedly they're ready to retaliate if the US acts against tankers heading to Venezuela.

The aid Iran has offered Venezuela, as well as ongoing support from Russia and China, has led to a growing view of Venezuela as a venue for great-power rivalry.

The latest Iranian shipment also comes amid an ongoing US counter-drug operation in the Caribbean and Eastern Pacific Ocean, which began in April and has seen a number of US naval and air assets deployed to the region; US Army advisers have also deployed to neighboring Colombia.

The US Air Force said on Friday that it would temporarily deploy four aircraft — two surveillance aircraft and two aerial refueling tankers — and 200 airmen to Curaçao to fly missions in support of those counter-drug efforts.

The US government and the other mainly Western countries that no longer recognize Maduro have instead recognized Juan Guaidó, an opposition leader and head of Venezuela's national assembly, as interim president.

But Guaidó has struggled to unite the opposition and to counter Maduro. In an interview on Sunday, Trump appeared to wavier in his support for Guaidó and suggested he was open to meeting Maduro. Hours later, Trump walked that back, saying he "would only meet with Maduro to discuss one thing: a peaceful exit from power!"

Thursday, June 25, 2020

Wednesday, June 24, 2020

‘Welcome to the age of copper’: Why the coronavirus pandemic could spark a red metal rally

Factory workers secure large copper tube coils that will be wrapped and shipped out.
Factory workers secure large copper tube coils that will be wrapped and shipped out.
Michael S. Williamson | The Washington Post | Getty Images

The commodity, which is widely seen as a bellwether for the general state of the economy, has taken a hit during the coronavirus crisis.

Slumping demand drove prices down at the height of the pandemic in March. However, benchmark copper on the London Metal Exchange was trading around $5,909 per metric ton Tuesday, up 0.5%. That’s close to its five-month high of $5,928 hit earlier this month, Reuters reported.

The commodity, which is widely seen as a bellwether for the general state of the economy, has taken a hit during the coronavirus crisis.

Slumping demand drove prices down at the height of the pandemic in March. However, benchmark copper on the London Metal Exchange was trading around $5,909 per metric ton Tuesday, up 0.5%. That’s close to its five-month high of $5,928 hit earlier this month, Reuters reported.

Eurasia Group’s Henning Gloystein said in a research note on Tuesday that the pandemic is expected to accelerate trends in government-supported environmental investments and digitalization, which “heralds a coming boom in copper demand.”

“Huge green and digital stimulus programs, especially in Asia and Europe, will create the conditions for a boom in copper demand — electric vehicles, 5G networks, and renewable power generation all require large amounts of the red metal,” Gloystein said.

Demand for copper could fall by as much as 5% in 2020 due to the pandemic-driven recession, he projected. But, widescale fiscal stimulus measures would help drive demand for the metal back to pre-crisis levels next year, he noted, with traders and miners expecting consumption to rebound by 4% in 2021.

Bank of America analysts increased their price forecast for the metal earlier this month, expecting prices to rise 5.4% in 2020 to $5,621 a ton. They kept their projection for 2021 unchanged at $6,250 per ton. The forecasts, they said, were down to “remarkable fiscal stimulus packages” and an expectation that there would be more purchases of raw materials as countries emerged from lockdown.

Analysts at Morgan Stanley also expect the sector to quickly bounce back to pre-pandemic levels, according to Reuters, with global stimulus measures, Chinese infrastructure spending and supply disruptions expected to boost demand.

Green investments

According to Eurasia Group’s note, clean energy and digitalization programs were expected to push average annual growth demand for copper up by 2.5% this decade, which would likely drive consumption toward 30 million tons by 2030.

Policy changes in Asia and Europe would play an important role in the surge in demand, Gloystein said, with shifts in transportation expected to be the “biggest single driver of copper usage.”
“The electric vehicles industry currently makes up just 1% of copper demand. By 2030, many analysts expect that figure to reach 10%,” he said.

China was expected to invest hundreds of billions of dollars in digitalizing its economy over the coming decade, Gloystein noted, while countries all over the world had committed to massive investments in green infrastructure and electric vehicles.

“Copper will be a key input for virtually all the industries that are now being promoted,” he said. “Welcome to the age of copper.”

Political fallout

While Gloystein acknowledged that Southern Hemisphere nations with large copper mining sectors would key beneficiaries from rising copper demand, he noted that China’s influence in the industry could see it gain political leverage in both Australia and South America.

“The rise of the copper economy will have political implications,” he said. “China’s dominant position as a buyer of the raw material will likely give it more political leverage over copper mining regions.”

China is the biggest single user of refined copper in the world, according to Eurasia Group, with the country consuming around 13 million tons of the commodity last year.

Tensions between China and Australia have ramped up in recent years after the latter barred Chinese telecoms giant Huawei from its domestic 5G networks, supporting the U.S. in claims that the company’s presence in the infrastructure posed national security risks.

Relations have been damaged further recently by Australia’s government calling for an investigation into China’s role in the coronavirus outbreak, and by China slapping import tariffs on some Australian goods.

While there is some support among Australian lawmakers to recalibrate exports away from China, Gloystein noted that rising copper demand could limit the country’s ability to achieve this goal.

Meanwhile, Chinese influence would likely rise in Chile – the world’s largest exporter of copper – which is a participant in China’s Belt and Road trade initiative, he added.

“Chile’s sales to China already represent about one-third of total exports,” the note said. “Higher copper sales will likely increase this reliance and expose the country to Beijing’s political pressure in many areas, including in Pacific trade negotiations, the use of Huawei equipment, and relations with the U.S.”

The same, Gloystein warned, was true of Peru, which exports almost twice as many goods to China as it does to Europe or the United States.

Exclusive: Oil tankers carrying two months of Venezuelan output stuck at sea

Venezuela is at the heart of a vast operation to bypass US sanctions as the maritime industry cashes in on the Maduro regime’s desperation, experts claim. (AFP)

MEXICO CITY/SINGAPORE (Reuters) - Tankers carrying nearly two months worth of Venezuelan oil output are stuck at sea as global refiners shun the nation’s crude to avoid falling foul of U.S. sanctions, according to industry sources, PDVSA documents and shipping data. 

Washington is tightening sanctions to cut Venezuela’s oil exports and deprive the government of socialist President Nicolas Maduro of its main source of revenue. 

The OPEC member’s exports are hovering near their lowest levels in more than 70 years and the economy has collapsed, but Maduro has held on - to the frustration of the administration of U.S. President Donald Trump. 

Washington has blacklisted ships and merchants this month for their role in trading and transporting state-run PDVSA’s oil and threatened to add more to its list of sanctioned entities. 

At least 16 tankers carrying 18.1 million barrels of Venezuelan oil are stuck at sea around the globe as buyers shun them to avoid falling foul of sanctions, according to Refinitiv Eikon data. That is the equivalent of almost two months of output at Venezuela’s current production rate. 

Some of the vessels have been at sea for more than six months, and have sailed to several ports but failed to unload. 

Oil cargoes are rarely loaded onto a tanker without a buyer. Those that are on the water with no buyers are generally seen as distressed in the industry, and typically sold at a discount. 

Each tanker is incurring hefty demurrage charges for every day’s delay in unloading. The cost for a vessel transporting Venezuelan oil is at least $30,000 per day, according to a shipping source. 

“This is our third attempt to find a buyer,” said an executive from an oil company registered as PDVSA customer, which took a cargo of Venezuelan heavy crude in January and has been unable to sell it due to the possibility of sanctions. 

The cargo has accumulated demurrage fees in Africa for over 120 days, the executive said, speaking on condition of anonymity.

Even PDVSA’s long-standing customers are struggling to complete transactions that are permitted under sanctions- for debt payment or food swaps, the executive added. Buyers are concerned about sanctions even for those cargoes. 

The Panama-flagged MT Kelly is one of the vessels stuck at sea. It sailed for Turkey in April with no charterer disclosed by PDVSA at its monthly loading schedule. The vessel entered the Mediterranean only to turn around, sail back through the Strait of Gibraltar and steam around the coast of Africa, according to the data. 

PDVSA, Venezuela’s oil ministry and Greece-based Altomare SA, commercial manager of the MT Kelly, did not reply to requests for comment. 

Most of the other tankers set sail for Malaysia, Singapore, Indonesia or Togo, where they typically transfer their oil to other vessels at sea, sometimes disguising their origin before they are shipped to a refiner. The vessels have not discharged, but some have switched off the transponders that broadcast their position, according to the Eikon data. 

Six of the vessels anchored off Malaysia are managed by Greece-based Eurotankers Inc and have been waiting for up to four months to discharge, according to the Eikon data. Eurotankers did not reply to a request for comment. 

Mexico’s Libre Abordo, which along with related firm Schlager Business Group chartered three of the stranded cargoes according to the PDVSA documents, declined to comment. The companies were blacklisted by the U.S. Treasury Department last week along with their owners for trading Venezuelan oil through a pact described by the firms as an oil-for-food agreement. 

Amsterdam-based GPB Global Resources, which chartered two other cargoes, declined to comment on the vessels, but said the company and its subsidiaries “are conducting business in compliance with all applicable rules and regulations, including U.S. sanctions.”

Hong-Kong based Richeart International, in charge of another four shipments, could not be reached for comment. 

The plight of Venezuela’s exports comes as most oil producing nations continue struggling to allocate high inventories in an over-supplied market, which has diminished many buyers’ appetite for risky oil such as Iranian and Venezuelan crude. 

The threat of tighter U.S. sanctions is also disrupting the global shipping market. Since late May, at least six tankers that were sailing toward Venezuela or waiting to load for exports have been diverted as the United States considers blacklisting more vessels and shipping firms over alleged sanction violations. 

Reporting by Marianna Parraga in Mexico City and Roslan Khasawneh in Singapore; additional reporting by Luc Cohen in New York and Ana Isabel Martinez in Mexico City; Editing by Simon Webb and Tom Brown

Tuesday, June 23, 2020

Oil Company Run By Forbes 30-Under-30 Winner Files For Chapter 11 Bankruptcy

Executives from Extraction Oil & Gas at their Denver office. They are left to right Rusty Kelley, CFO, Mark Erickson, chairman and CEO, and Matt Owens president  Denver Post via Getty Images 
Extraction's Matt Owens, right, with cofounder Mark Erickson, in 2014.

Matthew Owens has gleaned a lot of experience at a very young age. He was just 26 years old back in 2012 when he and his former boss at Gasco Energy, Mark Erickson, teamed up with private equity group Yorktown Partners to found what would become Extraction Oil & Gas. 

And Owens was barely 30 when in 2016 Extraction held its IPO — and soon surged to become a $4 billion market cap company. Forbes recognized him in 2016 on our 30 Under 30 list

Since then the young oilman has taken a wild ride on the ups and downs of commodity prices while supervising the drilling and fracking of hundreds of wells in the Wattenberg field in the Colorado’s Denver-Julesburg Basin. 

In March 2020, at 34, Owens took over the CEO reins at Extraction from Erickson — just in time to preside over perhaps his toughest challenge yet: Chapter 11 restructuring.

Extraction yesterday filed for bankruptcy protection. From $4 billion a few years ago, the company’s market cap has fallen to just $78 million. The company’s production volumes, having surpassed 100,000 barrels per day in late 2019, are now down to 90,000 bpd, and falling as Extraction has pulled back on drilling activity amid sadsack oil prices. In 2019 the company recorded a $1.4 billion net loss, due primarily to a write down in the value of oil and gas reserves no longer economic to develop. (BP today announced a $17 billion write down.)

A once-managable debt load has become unwieldy, and a month ago Extraction chose not to make a $15 million interest payment on its roughly $1.5 billion in debt, setting the clock ticking on its bankruptcy filing

Owens continues to accumulate valuable experience. He has already negotiated $125 million of debtor-in-possession financing with primary creditor Wells Fargo WFC , and a debt-for-equity swap that will enable deleveraging. According to Extractions bankruptcy filing: “The Agreement outlines a restructuring plan that will effectuate a significant deleveraging of the Company’s balance sheet through a debt-for-equity swap, pursuant to either a standalone restructuring or a combination transaction, that will leave the Debtors’ unsecured noteholders with the majority of the Company’s equity while still providing a meaningful recovery to junior stakeholders.”

It’s unclear whether there will be any value left for current holders of common stock, led by various Yorktown Partners funds, with about 40%. In keeping with recent bizarre trading patterns in insolvent issues, over the past two weeks Extraction shares have jumped from 28 cents, up to $1.42 a week ago, and are now down to 56 cents. 

Whether Owens survives the restructuring is yet to be seen. A spokesman for Extraction did not reply to an email request this morning. The oil industry is full of second, third and fourth acts (e.g. Floyd Wilson of Halcon, etc). And although investors may ultimately lose money on Extraction, Owens has done well for himself — the company this year announced $6.7 million in retention bonuses for 16 executives. 

In terms of debt load, Extraction now becomes one of the biggest oilpatch bankruptcies so far this year. Other big ones, according to the Haynes & Boone bankruptcy monitors include Whiting Petroleum with $3.6 billion in debt, Ultra Petroleum, also with $3.6 billion, Unit Corp. with $800 million; Southland Royalty $625 million; and Sheridan Holding Company I with $620 million. Among service companies, Diamond Offshore Drilling DO went bankrupt with $2.6 billion in debt, while McDermott International returned to restructuring with $9.9 billion in debt. 

There’s plenty more bankruptcies to come as petroleum prices languish in the $30s. Operators on the deathwatch include California Natural Resources, Callon Petroleum, Chaparral Energy, Denbury Resources DNR , and Chesapeake Energy CHK .