The jobs report was a disappointment but it was exactly what commodity bulls hoped for. The Fed’s new fear of weak inflation will provide support for commodities. The Fed has made it clear that they are disturbed that despite the fact that they are printing about $85 billion a month to buy Treasuries and mortgage backed securities, inflation is barely registering. Fed President James Bullard even suggested that the Fed may need to put in a floor on inflation of 1.5%. He said the Fed should put tapering on hold until we see more strong economic data. Well Friday’s jobs report may be exactly what he is talking about. Now if you add the fact that the ECB and the Bank of England will continue to keep rates at record lows it looks like we could soon be pumping up the commodity bull. That mindset has pushed down the dollar. A weak dollar is supportive for commodities. Dow Jones reported that HSBC lifted its average silver price forecast for 2013 on Monday, citing physical demand in Asia as a support for prices, although rising supply and shifts in U.S. monetary policy could constrain rallies.
Bloomberg reports that gold output will fall in Australia, the second-largest producer, as mining companies mothballed mines amid falling prices, according to Alacer Gold Corp. “There’s going to be a lot more pain to come over the course of the next 12 months,” David Quinlivan, the chief executive officer of Englewood, Colorado-based Alacer said in an interview yesterday in Kalgoorlie, the Western Australian town 595 kilometers (370 miles) east of the Perth which is hosting the annual Diggers and Dealers mining forum this week. Alacer is the third-biggest gold company traded in Australia, the largest gold producer after China. The company sold its stake in an Australian mine in February and is seeking to sell its two remaining assets there after taking charges of $902 million on the unit since the last quarter of 2012.
From Canada to New Zealand, gold producers have announced write-downs of at least $20 billion over the past two months on the falling bullion price (COMEX:GCU13) and set out plans to cut jobs, pare exploration budgets, crimp executive pay and halt mining. Gold tumbled 22% this year and entered a bear market in April. “We’ll see a general tapering of production over the course of the next year,” Quinlivan said, flagging the likelihood that mines in Australia will be shuttered as producers seek to curb costs.
Of course renewed threats from Al-Qaeda as well as your normal geo-political threats the Wall Street Journal is warning “Iran could begin producing weapons-grade plutonium by next summer, U.S. and European officials believe, using a different nuclear technology that would be easier for foreign countries to attack.” The second path to potentially producing a nuclear weapon could complicate international efforts to negotiate with Iran's new president, Hasan Rouhani, who was sworn in Sunday in Tehran. It also heightens the possibility of an Israeli strike, said U.S. and European officials.
RBOB prices (NYMEX:RBU13) fell when Valero restated its Port Arthur, Texas, refinery. Bloomberg reported “Conventional, 85-octane gasoline, or CBOB, on the Gulf Coast slid 1.75 cents to a discount of 21.75 cents a gallon versus New York Mercantile Exchange futures at 2:12 p.m., a second consecutive decline. Conventional, 87-octane gasoline also fell for a second day as it lost 1 cent to a discount of 12.75 cents a gallon, according to data compiled by Bloomberg. Differentials widened after Valero began increasing a fluid catalytic cracker to planned rates at the 310,000-barrel-a-day Port Arthur plant.
The unit was first idled in early July and later began repairs after a valve problem was found, Bill Day, a company spokesman based in San Antonio, said in e-mails. The unit’s restart may add to inventories already near a six-month high on the Gulf Coast, the region known as PADD 3. Stockpiles of gasoline in the area increased 1.5 million barrels to 78.4 million in the week ended July 26, the most since Feb. 8, Energy Information Administration data showed. Shipments from the Gulf Coast to Chicago on Enterprise Products Partners’ (EPD) TE Pipeline are delayed by as many as 20 days after shippers flooded the Gulf with supply, the company said in a shipping bulletin July 29.
Reuters is reporting that TransCanada’s plan to build one of the world's longest oil pipelines has reverberations far beyond Canadian shores. The planned 2,700 mile pipeline, which will bring crude from Canada's energy capital of Alberta to refineries and ports on the East Coast, has the potential to upturn the dynamics of the North Atlantic oil trade squeezing out some imported crude to North America and revitalizing once-ailing refineries. The Energy East line could also reinforce North Sea Brent crude as the world's oil benchmark against which giants such as Saudi Arabia price their western-bound exports, analysts say, while opening up the option of more Canadian heavy crude flowing to the U.S. Gulf Coast.
The scale of the $12 billion, 1.1-million barrel per day (bpd) pipeline, which will extend part of an old natural gas line, is hard to understate. Were it to start in London, it would stretch all the way to Tehran. In the United States, it could pump crude oil from Beverly Hills to New York City. And its capacity is greater than the entire oil production of Azerbaijan, could provide 6% of daily U.S. oil consumption or, put another way, has the ability to carry 30% of Canada's total daily oil production.