OPEC members reached an understanding that a production cut is required at its meeting in Algiers yesterday. That is not yet a commitment to cut production and the cartel is likely to wait until its formal meeting in Vienna on November 30th to thrash out the details. A press release on the group’s website says it will target between 32.5 to 33 million barrels per day of production, down from 33.2 million barrels of production in August. Proposed OPEC cuts to have little effect.
The market has cheered the news with more than a 5% increase in Brenton 28th September. However, we caution that the group has to figure out a method of apportioning the cut. The Conference decided to set up a High Level Committee to study the implementation of the production levels of individual Member countries. If formalised, this is the first time the group will assign a quota in close to two years. While the group traditionally (pre-November 2014) had an aggregate target, it had never made individual country targets. Historically, Saudi Arabia was willing to take the burden of supply cuts. But with Iran trying to pump oil at a break-neck pace, Saudi Arabia is less willing to assume this role. Any deal made in November is likely to hinge on the burden being shared across most members (although countries suffering from outages such as Venezuelaand Nigeriamay be exempt). We believe it will be difficult to get Iran to participate in production cuts which could damage the chances of a deal being made in November.
Lastly OPEC is aware that their efforts to stabilse the market may be thwarted by non-OPEC countries efforts to gain market share. Saudi Arabia and Russia have already had discussions on the sidelines of the G20 meeting in China about market stabilisation. It appears that Russia will be willing to participate in this effort, but to what degree is unknown. The Committee seeks to develop a framework of consultations between OPEC and non-OPEC countries before the November OPEC conference.
Capping OPEC production at 33 million barrels in of itself will do little to achieve market balance. We continue to believe that the bulk of the heavy lifting to achieve global market balance will be made by non-OPEC countries cutting supply. US$1trn of capex cuts have been planned in the oil and gas industry which will bite into supply. Additionally, weak prices should support the growth of demand.
We believe that crude will continue to trade in a range of US$40-55/bbl, with nimble tight oil producers in the US playing an influential role in setting the top and bottom of this range.
Nitesh Shah, Research Analyst at ETF Securities
Niteshis a Commodities Strategist at ETF Securities. Nitesh has 13 years of experience as an economist and strategist, covering a wide range of markets and asset classes. Prior to joining ETF Securities, Nitesh was an economist covering the European structured finance markets at Moody’s Investors Service and was a member of Moody’s global macroeconomics team. Before that he was an economist at the Pension Protection Fund and an equity strategist at Decision Economics. He started his career at HSBC Investment Bank. Nitesh holds a Bachelor of Science in Economics from the London School of Economics and a Master of Arts in International Economics and Finance from Brandeis University (USA).
The slightly hawkish FOMC statement failed to curb investors’ appetite for gold
ETF Securities Weekly Flows Analysis – The slightly hawkish FOMC statement failed to curb investors’ appetite for gold
• Gold inflows suggest investors continue to hedge against uncertainties ahead.
• Global equity ETPs attracted US$33mn. Inflows dominated by thematic ETPs related to robotics.
• The Bank of Japan easing measures fell short of expectations, boosting long JPY exposures.
Gold attracted US$277.6mn of flows this week suggesting the slightly hawkish FOMC statement failed to clear away uncertainty. The Federal Reserve left interest rates unchanged at its July meeting but noted that near-term risks to the US economy have “diminished” after a rebound in US hiring in June. The odds for September hike – calculated from the Fed funds futures – increased modestly to 28%. Gold strengthened marginally over the past week, by 2.16% to around US$ 1,351 per troy ounce. Platinum showed the strongest price increase for the second consecutive week, rising by 6.15% to US$ 1,148 per troy ounce.
Inflows into crude oil ETPs rise by US$35.3mn, while Brent crude has entered a new bear market. The inflows in long oils (US$40mn) are the largest since February this year suggesting that investors see buying opportunities in the weakness of Brent. Brent price fell more than 20% since the peak of US$52.86 in June, reaching US$42 per barrel. The latest drift downward in crude oil prices comes as outages are reduced, there is an overhang of refined products and US rig counts rise.
Inflows into wheat ETPs rise for the 7th consecutive week. The International Grains Council revised upward (+7mn tons) its estimate for the global wheat production in the 2016-17 harvest year. This increase of supply, together with an upward revision of opening stocks, resulted in a 1.8% decline of wheat price on the week.
Global equity inflows increase US$33mn led by thematic ETPs related to robotics. In the meantime, investors continue to reduce their long positions in Europe equity ETPs – although at a moderate pace – in the wake of weaker macro indicators in the region. Last week, we saw US$3mn outflows from EU equity ETPs after inflows culminated at US$10.3mn mid-July.
Investors increase their exposure to JPY by US$18.2mn. The central bank of Japan (BoJ) enlarged its annual purchase of equity ETFs by JPY2.7tn to JPY6tn, while keeping its key monetary tools unchanged. Investors judge the current action insufficient to have a material impact on the inflation outlook. As a result, the JPY soared by 2.85% to 102.30 against the US dollar at close.
Key events to watch this week. The Bank of England meeting will be held on Thursday. The July PMI indicators showed signs of a coming recession in the UK. Investors expect a 25bps decrease of the base rate from 0.5% to 0.25%, to support the UK economy in its transition outside of EU. In the US, the ISM Manufacturing and non-manufacturing indices and more importantly the employment report will get the full attention of the market. A solid increase of nonfarm payrolls after the 287k rise in June would increase the odds for a rate hike in September.
Video Presentation
Morgane Delledonne, Fixed Income Strategist at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.
For more information contact
ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com
Important Information
General
This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.
This is a strictly privileged and confidential communication between ETFS UK and its selected client. This communication contains information addressed only to a specific individual and is not intended for distribution to, or use by, any person other than the named addressee. This communication (i) is provided for informational purposes only, (ii) should not be construed in any manner as any solicitation or offer to buy or sell any securities or any related financial instruments, and (iii) should not be construed in any manner as a public offer of any securities or any related financial instruments. If you are not the named addressee, you should not disseminate, distribute or copy this communication. Please notify the sender immediately if you have mistakenly received this communication. When being made within Italy, this communication is for the exclusive use of the ”qualified investors” and its circulation among the public is prohibited.
This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.
This document may contain independent market commentary prepared by ETFS UK based on publicly available information. ETFS UK does not warrant or guarantee the accuracy or correctness of any information contained herein and any opinions related to product or market activity may change. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data.
Any historical performance included in this document may be based on back testing. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance.
Historical performance is not an indication of or a guide to future performance.
The information contained in this communication is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision.
ETFS UK is required by the United Kingdom Financial Conduct Authority (”FCA”) to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.
Risk Warnings
Any products referenced in this document are generally aimed at sophisticated, professional and institutional investors. Any decision to invest should be based on the information contained in the prospectus (and any supplements thereto) of the relevant product issue. The price of any securities may go up or down and an investor may not get back the amount invested. Securities may valued in currencies other than those in which there are priced and will be affected by exchange rate movements. Investments in the securities which provide a short and/or leveraged exposure are only suitable for sophisticated, professional and institutional investors who understand leveraged and compounded daily returns and are willing to magnify potential losses by comparison to investments which do not incorporate these strategies. Over periods of greater than one day, investments with a short and/or leveraged exposure do not necessarily provide investors with a return equivalent to a return from the unleveraged long or unleveraged short investments multiplied by the relevant leverage factor. Investors should refer to the section entitled ”Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in any securities referenced in this communication.
If you have any questions please contact ETFS UK at +44 20 7448 4330 or info@etfsecurities.com for more information.
Gold ETPs recorded second largest weekly outflows in 2016 as prices retreat near its 2 months low. In line with the hawkish Federal Open Market Committee (FOMC) minutes report released on the 18th of May, Federal Reserve (Fed) officials have also been hinted in their speech on a higher probability for the Fed to hike rates again in June amidst concerns over the UK Brexit. However, the odds, derived from reading of the Fed Fund Futures, remain low, at 30%, highlighting that the uncertainty over the Fed next month move will likely continue to weigh on the metal price until then. The US dollar, on the other hand, rose 2.7% over the past month adding to the current downward pressure on commodities. In our model, we estimate the fair value of gold at US$1,250/oz. for year end 2016, assuming an inflation of 2% in the US and speculative net positioning falls back to 75,000. We, therefore, believe that the current price level should be seen as a potential buying opportunity for investors.
Oil ETPs recorded outflows for the seventh consecutive week as prices continue to recover. Oil prices rose 1.6% last week, trading above the US$50/bbl. for the first time since November 2015. As a result, oil ETPs recorded outflows for the seventh consecutive week, mainly out of WTI crude ETPs. While the US oil benchmark currently trades slightly below its European peers, investors fear that US shale oil production may return faster than expected, capping the potential gain on the WTI crude price while Brent crude should continue to benefit from depleting oil production in the North Sea. US crude stockpiles fell more than expected in the latest US Energy Information Administration (EIA) report as US oil production continued to decline at the same time, lending support to oil prices. We believe next week’s OPEC meeting will not have any meaningful impact on the global oil market. Both the International Energy Agency (IEA) and the US EIA raised their global demand growth forecast for 2016 to 1.4 million barrels per day on higher demand from China and India.
Industrial metals ETPs have been enjoying net inflows of US$38mn in 2016. While flows remain highly volatile from one week to another, the momentum is building up as industrial metals ETPs were the only commodity sector posting positive flows last week. Investor interest has traditionally been focussed on copper and aluminium ETPs. We however note that recent flows trends suggest a more diversified exposure across the sector with nickel ETPs actually recording positive flows over the past year. Increasing signs that China economy is stabilising combined with continued capex cuts from miners should eventually support industrial metals prices.
Key events to watch this week. A number of manufacturing and non-manufacturing PMIs are due over the course of the week along with retail sales and confidence data. While the European Central Bank will decide on its interest rate policy on Thursday, investors will also be waiting for labour market data for May from key countries, above all the US non-farm payroll on Friday.
For more information contact
ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com
Important Information
General
This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.
This is a strictly privileged and confidential communication between ETFS UK and its selected client. This communication contains information addressed only to a specific individual and is not intended for distribution to, or use by, any person other than the named addressee. This communication (i) is provided for informational purposes only, (ii) should not be construed in any manner as any solicitation or offer to buy or sell any securities or any related financial instruments, and (iii) should not be construed in any manner as a public offer of any securities or any related financial instruments. If you are not the named addressee, you should not disseminate, distribute or copy this communication. Please notify the sender immediately if you have mistakenly received this communication. When being made within Italy, this communication is for the exclusive use of the ”qualified investors” and its circulation among the public is prohibited.
This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.
This document may contain independent market commentary prepared by ETFS UK based on publicly available information. ETFS UK does not warrant or guarantee the accuracy or correctness of any information contained herein and any opinions related to product or market activity may change. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data.
Any historical performance included in this document may be based on back testing. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance.
Historical performance is not an indication of or a guide to future performance.
The information contained in this communication is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision.
ETFS UK is required by the United Kingdom Financial Conduct Authority (”FCA”) to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.
Risk Warnings
Any products referenced in this document are generally aimed at sophisticated, professional and institutional investors. Any decision to invest should be based on the information contained in the prospectus (and any supplements thereto) of the relevant product issue. The price of any securities may go up or down and an investor may not get back the amount invested. Securities may valued in currencies other than those in which there are priced and will be affected by exchange rate movements. Investments in the securities which provide a short and/or leveraged exposure are only suitable for sophisticated, professional and institutional investors who understand leveraged and compounded daily returns and are willing to magnify potential losses by comparison to investments which do not incorporate these strategies. Over periods of greater than one day, investments with a short and/or leveraged exposure do not necessarily provide investors with a return equivalent to a return from the unleveraged long or unleveraged short investments multiplied by the relevant leverage factor. Investors should refer to the section entitled ”Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in any securities referenced in this communication.
If you have any questions please contact ETFS UK at +44 20 7448 4330 or info@etfsecurities.com for more information.
Fallande oljelager gör att oljefond handlas till högsta nivån på sju månader
Under förra veckan handlades energipriserna högre och vi såg oljan gå upp, vi såg fallande oljelager och hur oljepriset steg över 50 USD per fat. Sedan dess har emellertid oljepriset backat ned under 50 USD per fat igen.
Fallande oljelager gör att oljefonderna handlas till högsta nivån på sju månader och hur dessa nu har stigit över den långsiktiga trendlinjen. Detta gäller framförallt de börshandlade fonder som investerar i olja, till exempel United States Oil Fund (NYSEArca: USO), som spårar priset på WTI, West Texas Intermediate, och US Brent Oil Fund (NYSEArca: BNO), som replikerar utvecklingen av Brent Crude. USO steg från sitt motstånd på 200 dagars glidande medelvärde under det att BNO redan har handlats över sin långsiktiga trendlinje under en tid. Sedan årets början har nu USP stigit med 7,5 procent och BNO med 22,3 procent.
Oljepriset studsade upp efter lagersiffra
Priset på råolja steg efter det att EIA, Energy Information Administration, rapporterade att de amerikanska oljelagren minskade med 4,23 miljoner fat, mer är två gånger mer än vad analytikerna förväntade sig. Samtidigt såg vi hur den amerikanska oljeproduktionen minskade för elfte veckan i rad, vilket gör att den nu är nere på sin lägsta nivå sedan september 2014, något som stödjer fortsatt låga oljelager i USA. Den senaste statistiken visade att den amerikanska produktionen av olja föll med 24 000 fat, ned till 8 770 000 fat per dag. Samtidigt visade den att antalet aktiva oljeplattformar i USA var oförändrat på 318 stycken vilket emellertid är den lägsta nivån sedan oktober 2009.
Flera förvaltare tror emellertid att marknaden inte är riktigt redo för ett oljepris över 50 USD per fat ännu, utan att den vill se en ihållande nedgång av oljelagren innan steget över 50 dollar per fat tas. Visserligen börjar nedgången i antalet aktiva oljeplattformar i USA återspeglas i oljelagren men samtidigt är det många av världens största oljeproducenter som pumpar upp rekordhöga nivåer olja, framförallt OPEC som gör att gör att upprätthålla Saudiarabiens strategi att klämma ut högkostnadskonkurrenter från oljemarknaden.
Oljepriset
Pris på olja, både på WTI och Brent. Du kan se det aktuella priset på WTI- och Brent-olja, samt hur det oljepriset har utvecklats över olika tidsperioder. Överst visas WTI-priset och under det Brent-priset.
WTI (West Texas Intermediate), även känd som Texas Light Sweet, är den typ av olja som oftast används som riktmärke för prissättning av olja. WTI handlas i New York. Brent är den typ av olja som är vanligast i Europa. Oljefutures går till leverans varje månad året om. Olja handlas bland annat på New York Mercantile Exchange under tickersymbolen CL (avser Light Sweet Crude Oil) och huvudkontraktet prissätts i USD och cent per fat.
Oil above $50 is sustainable The Brent oil price today touched $50 per barrel for the first time since November 3rd 2015. The inevitable disappointment at the OPEC meeting in Vienna next week presents some downside risks but a burgeoning supply deficit in Q3 2016 implies oil above 50 is sustainable.
$50 per barrel is a key psychological level but also a technical one. Oil spent several months testing this level before breaking lower in November, thus the opposite may happen now. But the upwards momentum in the oil price is also likely to be interrupted by the Vienna meeting scheduled for 2nd June where a production freeze is unlikely to be agreed.
Iran is keen to achieve a post sanctions production target of 4 million barrels per day, but with existing infrastructure it is unlikely to achieve this without, as the Iranian officials have stated, over $100 billion spent on upstream investment. Some of this investment will have to come from foreign investors who remain reluctant to participate due to Iran’s past history of committing to nuclear deals. Several international oil companies have signed memorandum of understandings with Iran but these have been simply to access more information rather than a commitment to invest. Furthermore, the sanctions that remain in place make investment problematic. As it will take time for foreign investment to filter through, Iran is likely to not agree to a production freeze any time soon.
Disappointment in Vienna is likely to lead to the oil price slipping, although this is likely to be short-lived. Most OPEC nations’ production is currently falling with the exception of Iran and Iraq. So from a market balance perspective it is unlikely we will see any rise in global production. In fact, if it is assumed that global production is frozen at current levels, current demand growth projections by the IEA suggest oil will fall into supply deficit in 3Q 2016.
James Butterfill, Head of Research & Investment Strategy at ETF Securities
James Butterfill joined ETF Securities as Head of Research & Investment Strategy in 2015. James is responsible for leading the strategic direction of the global research team, ensuring that clients receive up-to-date, expert insight into global macroeconomic and asset class specific developments.
James has a wealth of experience in strategy, economics and asset allocation gained at HSBC and most recently in his role as Multi- Asset Fund Manager and Global Equity Strategist at Coutts. James holds a Bachelor of Engineering from the University of Exeter and an MSc in Geophysics from Keele University.
