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Oil Price Surge Above $46 as Demand Increases

Oil prices surge above $46 a barrel as optimism that demand will help shrink supplies outweighed an increase in U.S. rigs drilling for crude.

Futures were little changed in New York, after rising 5.2% last week. Stockpiles will drop at a faster pace worldwide this half of the year as demand rises and OPEC members comply better with an output-cut agreement.

 

While oil advanced last week, prices in New York are still below $50 a barrel on concerns expanded global supplies will offset output curbs by the Organization of Petroleum Exporting Countries and its allies as part of a deal to help re-balance the market.

The group’s output climbed last month to the highest this year as members exempt from the deal Nigeria and Libya pumped more and others slipped in delivering their pledged curbs.

West Texas Intermediate for August delivery was at $46.66 a barrel on the New York Mercantile Exchange, up 12 cents, at 11:37 a.m. in Seoul. Total volume traded was about 47% above the 100-day average. Prices gained $2.31 to $46.54 a barrel last week.

Brent for September settlement added 15 cents, or 0.3%, to $49.06 a barrel on the London-based ICE Futures Europe exchange. Prices climbed 4.7% last week. The global benchmark crude traded at a premium of $2.18 to WTI.

 

The number of active oil rigs in the U.S. rose to 765. It’s the second week of renewed growth after drillers snapped a 23-week stretch of advances at the end of June.

Shale explorers have been the driving force behind a surge in U.S. production, more than doubling the rig count from a low of 316 in May 2016.

 

 

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Uranium Price Forecast to Rise by 40% by the End of 2018

Uranium was the glaring exception amid a broad-based rally in metals and minerals in 2016. The price of U3O8 fell 41% in 2016 with the industry tracker UxC's broker average price hitting 12-year lows below $18 per pound in November.

After top supplier Kazakhstan announced in the second week of January that it's cutting output by 5.2 million pounds, equal to 3% of global production, the price rallied, hitting $26.75 a pound by mid-February.

 

But Japanese utility TEPCO’s declaration of force majeure on a key uranium delivery contract from Cameco Corp., the world's top listed uranium producer, dampened enthusiasm.

And news in April that the US dept of Energy is making cuts to the amount of uranium that it disperses into the market (as much as 1.1m pounds per year less) did little to buoy sentiment, not to mention bad news surrounding nuclear power including the first new reactor to be built in the UK in a generation and risks to the US industry.

Last week Russian state nuclear corporation Rosatom suspended its Mkuju River uranium project in Tanzania for at least three years due to depressed uranium market.

Spot uranium rose to $20.75 this week but remains technically in a bear market, trading down more than 20% from its February peak. Despite the current negativity analysts surveyed in July predict a steady increase in the price from today's levels rising by 40% by the end of next year and over $40 a pound in 2020.

 

 

 

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Australia to Buy Back $262 million of Shenhua's Mining Licence in NSW

Australia will buy back half of a coal exploration licence from China Shenhua Energy as pressure from farmers and environmentalists opposed to mining on prime agricultural land.

The NSW state government had agreed to pay $262 million to buy back 51.4% of Shenhua's exploration licence on the Liverpool Plains 400 kms northwest of Sydney.

 

The exploration licence for Shenhua's $1 billion Watermark mine, granted in 2008, sparked a public backlash and split Australia's conservative ruling coalition into pro-mining and pro-farming camps.

Development has been delayed by assessments and modifications in response to concerns raised by farmers, and mining has not yet begun. Shenhua was disappointed by the government's move and would have mined the area responsibly but added the buyback was an acceptable financial outcome.

Anti-mining activists vowed to continue campaigning for a complete ban on mining in the region, including a coal mine proposed by Korea Electric Power Corp (Kepco).

Kepco is facing renewed resistance from farmers after the state's planning department endorsed its project, saying the impact on water supplies was outweighed by the economic benefits a mine would bring.

 

Last year, New South Wales agreed to buy back BHP Billiton's licence for the Caroona coal mine on the Liverpool Plains for A$220 million, ending a decade-long fight by farmers to shut down the project.

 

 

 

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Gold Imports in India Spike Ahead New Sales Tax

Gold imports in India surged more than tripled from a year ago as retail demand jumped ahead of the new sales tax that prompted jewellers and bullion dealers to replenish stocks.

June gold imports climbed to an estimated 75 tonnes from 22.7 tonnes a year ago. For the first half of the year, imports rose to 514 tonnes, up 161% from a year ago.

 

The rush of buying by retail consumers will likely lead to lower July imports. That would put pressure on global gold prices that are already trading near their lowest level since mid March.

Demand was higher than normal in June as some consumers advanced buying to avoid paying higher tax. As part of a new nationwide sales tax regime, the goods and services tax on gold jumped to 3% from 1.2 percent previously.

Gold premiums in India jumped to $10 an ounce in the last week of June, the highest level in 7-½ months.

Imports would be significantly less in July compared to June. Right now demand is very weak due to monsoon. India’s gold imports in July could be less than 35 tonnes.

In July, gold demand usually remains weak in India due to fewer weddings and as farmers are busy sowing crops. Two-thirds of India’s gold demand comes from rural areas, where jewelry is a traditional store of wealth.

 

 

 

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Former Mining Traders will Launch a New Online Platform called Open Mineral

A team of former traders from Glencore will launch a new online trading platform called Open Mineral it will help connect miners with customers such as smelters and sign deals without the need of brokers.

The online marketplace will let miners put up tenders for their concentrate directly to end users. The platform will focus first on goldsilvercopperzinc and lead which represent a combined market worth about $50 billion.

 

Open Mineral will also provide trade services such as transportation, surveying, assaying and insurance. The company is now accepting registrations and the marketplace will go live in August.

Smelters and miners could potentially boost returns by millions of dollars by dealing directly in the concentrate market which is inefficient and opaque. 

Since annual concentrate deals for the year are already set, the new online tool will target spot and 2018 contracts, which are due to be negotiated before the end of the year.

Open Mineral is not the first attempt to take the trading of metals from the physical to the online world. Last month, the former chief executive officer of the London Metals Exchange launched an alternative electronic trading platform for metals.

 

 

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CEFC will Invest $20 Million on Lithium Mine to Support Power Stability in Australia

Clean Energy Finance Corporation will invest on a lithium mine to support  power stability in Australia as the market increasingly dependent on variable wind and solar power.

The government will make a $20 million investment as part of a $132 million secured bond issued by an offshoot of Pilbara Minerals, an ASX listed company that hopes to extract lithium and supply the market for lithium ion battery storage products for electricity and electric vehicles.

 

The lithium concentrate supplies to be produced by this project will help build Australia’s capacity to supply much needed resources for the clean energy technologies that are set to play a vital role in increasing the use of renewable in our future energy mix.

The move comes as the government looks to prove it is being technology neutral in its efforts to beef up power supply in tackling over whether that should include subsidies for coal fired power.

The proceeds of the bond issue together with $80 million raised in a share sale will underpin the $234 million required for the project's first stage of development. Construction is expected to start in early 2018.

The government also awarded a $2 million grant to Australian researchers developing ultra thin, screen printed batteries for use in both large scale energy storage and in cheap, portable devices.

 

 

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BHP $20 Billion Investment Mistake in Shale

BHP entered the shale business at the height of the fracking boom in 2011 and invested billions more developing the operations. The fall in oil prices since then has led to pre-tax writedowns of about $13 billion on the business. 

Activist shareholder and hedge fund Elliott Management, holding 4.1% of BHP's London-listed shares, has been trying to gain support from other shareholders to persuade BHP to sell the shale oil and gas business.

BHP Chairman Jac Nasser said that BHP's $20 billion investment in U.S. shale oil and gas six years ago was, in hindsight, a mistake. 

New York based Elliott has directed a barrage of criticism at the global miner since releasing a list of changes in April it wants the company to implement.

Its list includes an exit from shale, removal of BHP's dual London and Australian stock listings and greater emphasis on shareholder returns. Nasser would not comment on Elliott's proposal. But he defended BHP's performance, saying the company's shareholder returns were up 486% since BHP merged with Billiton Plc in 2001.

 

According to BHP Chief Executive Andrew Mackenzie that the company was considering divesting some shale acreage and believed that the assets were well placed for the future.

Australian wealth management group Escala and fund Tribeca Investment Partners have also campaigned for a revamp at BHP, calling for board changes and reviews of the energy operations.

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Commodities Weekly Outlook

Gold prices rose to one-week highs on Friday, boosted by the weaker dollar which fell amid persistent fears over prospects for further U.S. interest rate hikes this year.

Gold for August delivery closed up 0.71% at $1,258.31 on the Comex division of the New York Mercantile Exchange, after rising as high as $1,260.00 earlier.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.37% at 96.98 late Friday, posting its largest one day decline in three weeks.

Gold and the dollar typically move in opposite directions, which means if the dollar goes down, gold futures, which are denominated in the U.S. currency, will rise.

The precious metal is also highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar.

 

Silver gained 1.13%% to $16.69 a troy ounce late Friday. While copper rose 1% to $2.624 a pound, platinum added 0.9% to $929.25 and palladium fell 3.1% to $853.23 an ounce.

Investors will be closely watching remarks this week by Fed Chair Janet Yellen on Tuesday for fresh indications on the timing of further rate hikes and signals on plans to trim the Fed’s balance sheet.

Market watchers will also be awaiting Friday’s euro zone inflation data and speeches by central bank heads at the ECB’s forum on central banking.

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Rio Tinto declined Glencore’s Bid to Buy its Thermal Coal Asset

Rio Tinto has rejected a bid from FTSE 100 rival Glencore to buy its coal mines in Australia, opting to stick with its initial buyer, Chinese-backed Yancoal.

The Anglo Australian group said that Yancoal was the preferred bidder because unlike Glencore it had already achieved regulatory clearances for the deal, meaning it could complete sooner.

Rio said it had received “additional information and confirmations” about how Yancoal would fund the acquisition, amid speculation that the company had yet to raise financing. Australia-listed Yancoal is majority owned by China’s Yanzhou, which is in turn owned by state-backed entities.  

 

Yancoal has revised its payment terms so that it will now make one single payment for the Coal & Allied business in New South Wales instead of a number of deferred payments, Rio said. They also revealed it had financial backing from Yankuang Group, its parent company's biggest shareholder, although this has yet to be approved by Yancoal's independent directors.

A bidding war broke out over the coal mines earlier this month when Glencore revealed it had tabled a $2.55bn offer for the assets, $100m more than the initial bid by Yancoal, which was announced in January.

 

Rio is backing out of coal mining to focus on iron ore and steel while China is looking to shore up its energy supply. Although the country is trying to cut back pollution from coal-fired plants, the commodity is expected to remain in long-term demand across Asia for the next two decades prompting Glencore’s interest in gatecrashing the deal.

In its offer earlier this month, Switzerland-based Glencore pointed out it already had mines adjacent to Rio’s operations in the Hunter Valley, offering potential savings if the two businesses were combined. It also has regulatory approval from Japan, which imports the bulk of the area’s coal.

 

Yancoal’s offer was the most attractive because it removes the deferred payment structure, can meet the timeline we have set for the transaction and has given us certainty regarding the outstanding regulatory approvals required.

Because Rio Tinto is 10pc owned by Chinalco, which is also backed by the Chinese government, the sale will count as a related party transaction. As such the deal must go before a vote by Rio Tinto shareholders in the UK and Australia next week.  

 

 

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Hedge funds Reducing Positions on Crude oil as Production Grows

Hedge funds and other money managers cut their combined net long position in the three major futures and options contracts linked to Brent and WTI by 51 million barrels.

According to data published by regulators and exchanges, fund managers cut their net long position for the second week running by a cumulative total of 91 million barrels.

 

Hedge funds have discounted the fact oil prices are already under than $50 per barrel and reassurances from OPEC ministers that global oil stocks will draw in the second half of the year.

Instead they have focused on the continued rise in the number of rigs drilling for oil in the United States and signs gasoline and diesel demand may not be growing fast enough to absorb the record fuel being produced by U.S. refineries.

The global oil stocks will draw down in the third quarter of 2017 as a result of OPEC’s output cuts. But global stocks are expected to rise again through 2018 as OPEC compliance deteriorates and supply from non-OPEC sources increases.

Bearish sentiment among oil traders has triggered a wave of short selling, with hedge funds adding 45 million barrels of extra short positions in crude.

 

There are signs hedge funds may have embarked on the eighth cycle of short selling in WTI since the start of 2015, though it is still too early to tell.

The only supportive factor for oil prices in the short term is that so many short positions have been established and there are relatively few long positions left to liquidate.

Conditions are in place for an eventual short-covering rally but the rebound may not come until there are clear signs global stocks are falling.

 

 

 

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Gold Moves Higher after Fed Raises Interest Rate

Gold broke a six-session losing streak, August gold slid to $1,272.70 after settling up $1,275.90 an ounce as consumer data was soft, retail sales and CPI posted declines of 0.3% and 0.1%, respectively. 

The Federal Reserve announces its benchmark rate, which is expected to increase by 25 basis points to 1.25 percent. The Fed is widely expected to raise interest rates by a quarter point to 1.25%, but there's still plenty of anticipation, as analysts will be focusing on the language in the rate statement and as well as the Fed's economic projections. 

The Fed rate statement will be cautious in tone, and dovish regarding additional rate hikes. A dovish message could pour cold water on a rate hike in September and boost gold prices. 

Earlier in the year, three rate hikes in 2017 seemed almost a given, but currently, the odds of a September move are just 28%. There are two key items which could affect gold prices. First, the Fed Economic Projections will detail forecasts of inflation, growth and unemployment, and most importantly, the rate hike path. 

 

With the US economy performing better in the second quarter, there's a strong likelihood that the Fed will not moderate its rate hike projections,which is good news for the dollar. 

Secondly, the markets will be looking for details regarding its plan to lower the $4.2 trillion balance sheet. If the Fed outlines a plan to reduce its holding in H2, the dollar could respond positively. 

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Oil Prices Plunged Below $46 As Stockpile Surge

Crude Oil prices plunged below $46 per barrel and is poised to test target support near an upward sloping trend line that comes in near $44. Resistance is seen near the 10 day moving average at 48.56.  

Additional resistance is seen near the 200 day moving average at 49.59. Prices continue to form a topping pattern, which include a modified head and shoulder reversal pattern and a break of the neckline level at $44 could lead to a test of the August 2016 lows at 39.60.

Momentum has turned negative as the MACD index generated a crossover sell signal. This occurs as the spread crosses below the 9 day exponential moving average of the spread. 

The index moved from positive to negative territory confirming the sell signal. The MACD histogram is printing in the red with a downward sloping trajectory which foreshadows lower prices.

 

U.S. stockpiles puts up another obstacle for OPEC and other petroleum exporting countries, which have cut back their output in order to shrink global inventories by about 300 million barrels to the five-year average.

The imports of oil rose by 356,000 barrels a day, while exports dropped by 746,000 barrels a day.

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Gold Investing Sentiment Jumped to a New High

GOLD investing sentiment jumped to a new 2017 high in May but only with those existing precious metals investors. The balance of private investors buying gold over those who chose to sell rose at its fastest pace in more than two years. 

Despite gold's strong rally so far in June, equities and other risk assets remain the focus for most private investors. Buying gold as investment insurance is a long way from a crowded trade right now. The number of private individuals coming to the precious metals market for the first time stayed weak, slipping for the second month to its lowest level since gold investing prices bottomed at 6-year lows in December 2015.

This 'bear market' lack of new interest comes after the strongest run of gold investing demand in 5 years. It also contrasts with the underlying trend in gold prices. 

Retreating from April's geopolitical spike, last month's daily average gold price slipped 1.6% against the US Dollar and gold dropped 4.6% and 3.8% versus the Euro and Pound respectively. These discounts saw the number of investors starting or adding to their gold holdings rise over 28% from April, reaching its largest size since December 2016. 

The number of sellers meantime fell by one-third. It pushes gold investor a unique measure of sentiment based on actual trading, up to its highest level since December, reaching 55.3 from April's level of 52.1 and rising at its fastest pace since February 2015. 

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Osisko Shares Bounce after Acquiring Orion Mine’s Assets for $1.13 Billion

Osisko Gold shares bounce more than 10 percent after they decided to acquire a precious metals portfolio from Orion Mine Finance Group for $1.13 billion. The acquisition will result in Osisko holding a total of 131 royalties and streams, including 16 revenue-generating assets.

The company was trading up 9.7% to $15.80 in Toronto and almost 9.9% higher in New York to $11.72 on the news of the acquisition.

Osisko, created in June 2014 following the acquisition of Osisko Mining by Agnico Eagle Mines and Yamana Gold, said it will pay Orion $675-million in cash and the remaining $450-million in company shares for the assets.

The transaction gives the Canadian company a 9.6% diamond stream on the Renard diamond mine and a 4% gold and silver stream on the Brucejack gold and silver mine, in addition to a 100% silver stream on the Mantos Blancos copper mine in Chile.

Osisko’s flagship, Canada’s largest producing gold mine will continue to be the 5% net smelter return royalty on the Malartic mine.

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Production of Coal India Declines for the Second Month

Coal India Ltd.  production decline for the second month. Output fell 4.3 percent from a year earlier to 40.74 million metric tons, the lowest in three years for the month of May. 

Kolkata-based Coal India will focus on liquidating stockpiles for a few months. The company will be counting on higher demand from power plants, its biggest customers, to start growing.

Production will remain under pressure for some time because of subdued demand and high inventory. A recovery is possible if power plants start restocking after the monsoons.

Inventories at Coal India rose 19 percent during the year ended March 31 to 68.6 million metric tons. The company is targeting to bring it below 40 million tons.

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CRUDE Stalling at $50 Below, GOLD Push Higher while SILVER Break 50% Fibonacci Retracement

Crude oil has collapsed after the bounce following the short-squeeze move towards $52. Support is given at a distance 43.76. The technical structure suggests further strengthening.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. Strong support lies at 24.82 while resistance can now be found at 55.24 

 

Gold is pushing higher within uptrend channel. Hourly support is located at 1246. Stronger support is given at 1195. Expected to show further upside pressures.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1392 is necessary ton confirm it, A major support can be found at 1045.

 

Silver increases. Strong support is given at 15.63. Closest support is given at 16.20. Key resistance is given at a distance at 19.00. Expected to push towards 61.8% Fibonacci retracement around 17.75.

In the long-term, the death cross indicates that further downsides are very likely. Resistance is located at 25.11. Strong support can be found at 11.75.

 

 

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WA Proposed an Iron Ore Levy to be Paid Advance

WA proposed an Iron Ore Levy to be paid in advance under the potential plan that would see the two biggest miners in the country to pay out an iron ore levy early in a one-off lump sum.

Instead of increasing the miners’ rental payments levied on iron ore, currently fixed at 25 Australian cents a ton, the companies would be asked to pay them out in advance.

 

The opposition National Party last week said in parliament that such a plan could raise as much as A$4 billion for the state.

Western Australia’s Labor administration, which ousted a Liberal National coalition in March, faces a daunting task in turning around its economy. The government has previously said that erasing a debt mountain of more than A$30 billion will take decades.

 

The plan would involve a lengthy process of negotiations. It would require agreement from both the state and the companies, and the federal government would also have to agree to the payment being exempt from the goods and services tax distribution system.

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Crude Oil Plummeted Sharply

 

Crude oil prices plummeted to below $50 a barrel after an extension to a global output agreement disappointed investors looking for more.

The Organization of Petroleum Exporting Countries (OPEC) reportedly have agreed on a nine-month extension to a production cut agreement, which was set to expire at the end of June.

 

Stocks in Tokyo and Sydney opened lower, with energy producers dropping the most. Oil held losses after falling the most in three weeks as OPEC stuck to the most predictable outcome in its plans to limit production.

Commodity currencies maintained losses against the dollar. The S&P 500 Index reached a fresh record on Thursday while the U.S. currency strengthened as retailer results boosted confidence in the American consumers’ ability to buoy economic growth.

 

Global equities are on course for the best week since April, trading at a record high after six weeks of gains, as investors bet global economic growth can withstand higher U.S. interest rates as soon as next month.

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