Commodities
Polished Diamond Prices Under Pressure Amid Weak Summer Season
Global economic uncertainty is hitting the diamond market, with prices remaining under pressure amid indications demand for the luxury good is decreasing. In their latest monthly diamond market update, The Rapaport Group said that prices for diamonds of all sizes in the month of July fell between 0.5% and 2%.
Looking across the entire year, from January through to August 2016, prices for 1-carat diamonds fell by 1% while prices for 3-carat stones collapsed 10%. Diamond sellers have commented that a cautious tone is persisting across the markets, with both polished and rough diamond demand overseas remaining depressed while demand from the US has been stable. Still, many mining companies are cutting back on production and there are hopes that demand will pick up at the end of the year around the holiday season, which is the typical high-demand season for diamonds. If mining cutbacks start to impact the supply chain, this could also push prices higher.
When recapping the July diamond market, Rapaport noted that diamond trading typically does slow down in the summer months, but that this summer is quieter than normal. Economic uncertainty is hitting demand from Europe and Asia, while fortunately demand from top consumer the US remains strong, but over the summer this has not been enough to boost the market. Dealers are hoping for a pick-up in demand in September from Asia, when the Hong Kong show takes place, and there is increased pressure on the holiday season this year.
Baker Hughes North American Rig Count Increase to 491 Overall in Latest Week
The latest Baker-Hughes North American overall rig count increased to 491 in the latest week from 481 previously. This was the eighth successive weekly advance and longest weekly run for over two years which will tend to slow the rally in crude prices.
There was an increase in the number of oil rigs to 406 from 396 previously while the number of natural gas rigs was unchanged at 83.
The data suggests that only the Permian basin is attracting a significant increase in drilling at recent prices, although the equation could change if WTI sustains a move above $50.0 p/b.
In the latest week, there was a further increase in Texas rigs to 238 from 230, but the total remains well below the 383 at this time last year while rigs in North Dakota declined slightly. Drilling in the Permian basin increased by 7 to 196, although there was still an annual decline of over 20% while the Eagle-Ford count was unchanged in the latest survey and still showing an annual decline of over 60%. Although drilling in the Cana Woodford basin increased to 32 from 29 previously, all basins remain in negative territory for the year.
The oil rig-count data will continued to be monitored very closely, especially with WTI prices rallying strongly during August with WTI at an 8-week high above $48.50 before stalling. If increases in the rig count accelerate over the next few weeks, there will be increased speculation that there will be a cap on prices close to current levels given the potential for US production to rise again from late 2016.
Oil prices were marginally higher following the data with WTI futures trading at $48.25 p/b from $48.20 ahead of the data.
Commodities Are The Best Bargain Now -- Here's What To Buy
What kind of investor are you? Are you the buy-high-sell-higher (trend continuation) type? Or are you a bargain hunter who likes beaten-down (trend reversal) opportunities?
The former type of investor is now in heaven. With the stock market at new highs, there are many stocks on fire.
But if you’re looking for bargains, the pickings are pretty slim.
Don’t worry. There are still many places to invest your money. I’m talking about hard assets, aka commodities.
Why invest in commodities now?
Hard assets go well beyond real estate and gold. They include all types of natural resources like oil, wheat, copper, timber, coffee, zinc, and pork bellies.
Investors often overlook natural resources. But this asset class has been beaten down and should be at the top of every bargain hunter’s list.
You should consider commodities for two reasons:
- Commodities don’t usually move in sync with the stock market, so they will help diversify your investment mix and reduce risk. Since 2000, there has been only a 35% correlation between commodities and the stock market.
- If you buy at the right time, you can make a mountain of money in commodities.
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Wild Ride for Crude Oil Prices Not Over Yet
Renewed volatility swept through the oil markets this week, a trend expected to continue as we approach the 15th International Energy Forum September 26-28.
After briefly trading above $50 a barrel Thursday, ICE Brent crude futures crashed 4% to end the week at $48.01 a barrel. Despite the drop, the global crude benchmark posted its first weekly gain in three weeks.
The October futures contract for light, sweet crude plunged 3.7% Friday to close at $45.88 a barrel. For the week, the contract rose more than 3%.
Thursday saw a big jump in oil prices after the US Energy Information Administration (EIA) reported the biggest weekly draw in crude inventories since 1999. Stockpiles plunged 14.5 million barrels in the week ending September 2, confounding expectations for a 225,000 barrel increase. However, analysts cautioned that the massive draw was due to supply disruptions in the Gulf of Mexico. This has many analysts calling for a large build in commercial inventories in the coming weeks.
Traders can expect to see continued volatility leading up to the energy summit in Algeria later this month. Major producers from around the world, including OPEC members and Russia, will hold informal talks about the current state of the market, which could potentially lead to a coordinated output freeze. Any deal between OPEC and Russia would be the first in 15 years.
Production-freeze optimism rose this week after Russia and Saudi Arabia agreed to form a working group to monitor the market. Both countries have expressed a willingness to stem the oil-price collapse, with Russian President Vladimir Putin going as far as saying his country’s position on the matter had not changed since negotiations began earlier this year.
Many traders remain skeptical that a production freeze is viable, let alone enforceable. In February Russia and Saudi Arabia had agreed in principle to limit output at January levels, but the plan never panned out.
OPEC Agreement To Prove Difficult To Carry Out; Oil Could Quickly Reverse Gains
ollowing three days of negotiations in Algiers, OPEC may have reached agreement over a strategy to support a stabilisation of the oil market. At the time of writing, there has been no official statement from OPEC, but apparently OPEC has agreed to cut production to around 32.5-33mbpd from the level of 33.2mbpd in August, with the details of the agreement set to be finalised at the 30 November official OPEC meeting. Furthermore, meetings with oil producers outside OPEC are said to be carried out during October.
On the surface, it may look like a pivotal moment for the oil market, but an output ceiling below the current level of production is likely to prove difficult to implement in practice.
First, Libya and Nigeria are currently producing around 0.5-1mbpd below their full capacity due to internal rebels disrupting production. Hence, an output ceiling will have to make room for a potential recovery of their output. Second, most OPEC members are staring at large public budget deficits this year due to falling revenue from oil exports. That will test the credibility of an output ceiling as each individual member will have a strong incentive to cheat on such a deal. If OPEC in turn succeeds in implementing an output ceiling it will support oil prices, but in our view it will not trigger a prolonged oil market rally. Firstly, because it would be a small cut and because the main problem for the oil market in the first place is not too much supply but rather too weak demand due to a strong dollar, declining economic activity in, e.g. China and a halt in growth in global goods trade.
Second, OPEC risks handing over market shares back to, e.g. US shale oil producers who have cut production in response to the fall in oil prices. In the near-term, the oil market will monitor hints over the details of the apparent deal put forth in Algiers.
The immediate market reaction was positive, pushing oil prices up USD2/bl above USD48/bl. However, this move may quickly reverse if the market starts to cast doubt over whether the deal will be carried out. Hence, this will add to the already volatile oil market in the coming months.
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Polished Diamond Prices Under Pressure Amid Weak Summer Season
Global economic uncertainty is hitting the diamond market, with prices remaining under pressure amid indications demand for the luxury good is decreasing. In their latest monthly diamond market update, The Rapaport Group said that prices for diamonds of all sizes in the month of July fell between 0.5% and 2%.
Looking across the entire year, from January through to August 2016, prices for 1-carat diamonds fell by 1% while prices for 3-carat stones collapsed 10%. Diamond sellers have commented that a cautious tone is persisting across the markets, with both polished and rough diamond demand overseas remaining depressed while demand from the US has been stable. Still, many mining companies are cutting back on production and there are hopes that demand will pick up at the end of the year around the holiday season, which is the typical high-demand season for diamonds. If mining cutbacks start to impact the supply chain, this could also push prices higher.
When recapping the July diamond market, Rapaport noted that diamond trading typically does slow down in the summer months, but that this summer is quieter than normal. Economic uncertainty is hitting demand from Europe and Asia, while fortunately demand from top consumer the US remains strong, but over the summer this has not been enough to boost the market. Dealers are hoping for a pick-up in demand in September from Asia, when the Hong Kong show takes place, and there is increased pressure on the holiday season this year.