Strong data out of China and a massive diplomatic push by John Kerry to sell Europe on a Syria attack has the petroleum complex twisting in the wind. Oil prices (NYMEX:CLV13) seem to have a bit of an upward bias after traders tried to adjust the timing and amount of a reduction in Fed bond purchases after a bad jobs report. RBOB looks a bit heavy and heating oil seems a bit friendly, which seasonally would make sense. Still with a lot of uncertainty overhanging the market, it is hard to embrace a major position in either direction.
Crude has rallied for weeks as the march to war and falling supply in Cushing, Okla. have underpinned the market. High quality crude in short supply in Europe has caused U.S. exports of diesel and gas to surge. Uncertainty and falling Libyan production have lent support. Oil has to worry about a potential strike in Syria.
Add to that rising demand expectations as China's August export rose 7.2% to $190.7 billion, up from July's 5.1% growth. This comes as China's inflation readings were tame. China's producer price index (PPI) fell 1.6% in August from a year earlier, compared with a 2.3% drop in July, the National Bureau of Statistics (NBS) said on Monday. The index, which measures inflation at wholesale level, has been in negative territory for 18 consecutive months.
Then you have Syria.
John Kerry is making his case and the President is set to address the American people on Tuesday. Syrian President Bashar al-Assad is also making his case. The Independent Reports:
Syrian President Bashar al-Assad has denied that he had anything to do with the alleged Aug. 21 Damascus chemical weapons attack, in his first interview on American television for two years. Speaking to CBS's Charlie Rose, Mr. Assad said: "There is no evidence that I used chemical weapons against my own people." The interview in full is not set to be aired until late tonight, but Mr. Rose has appeared on the network's Face the Nation to reveal what he discussed with the Syrian dictator. "He denied that he had anything to do with the attack – he denied that he even knew there was a chemical weapons attack," Mr. Rose said. And while Mr. Assad refused to confirm or deny whether his government has chemical weapons at its disposal, he stressed that even if they did their use would be under centralized control – so they could not be fired without his knowledge.
With U.S. President Barack Obama waging a full-scale media campaign to get Congress's backing for military action, Mr. Assad used the interview as an opportunity to warn the American people "that it had not been good for them getting involved in conflicts in the Middle East before and that they should tell their Congressmen not to authorize a strike." The Syrian leader reportedly reiterated his belief that there was no evidence his government used chemical weapons on its own people, and said that if the Obama administration did have conclusive evidence then it needed to show it to the world and make its case openly.
Mr. Assad said that he did not know whether a U.S. missile strike would take place, but that he was "very concerned" that if it did it would significantly degrade his military's strength and could even sway the course of the civil war. He added that his country was as prepared as it could be for an attack, and warned that any strike would be met with retaliation from both Syria and the countries "aligned with him" – his principle allies being Iran and Russia. Mr. Rose concluded by saying that Damascus seemed remarkably calm in the areas he had seen, and that there was a clear sense that the Syrian people are "closely watching events in Washington."
The comments came as U.S. Secretary of State John Kerry met with U.K. Foreign Secretary William Hague in London this morning. The pair is expected to discuss the possibility of postponing a strike on Syria until UN weapons inspectors return a report on the events in Damascus last month.
Gold prices are lower after the South African gold miners' strike ended. Workers at Harmony Gold Mining Co. Ltd. accepted a final wage increase of 7.5% to 8%. Yet Dow Jones reports that Africa's gold mines could be hit by another strike, after members of the National Union of Mineworkers accepted a revised wage increase Friday, ending a strike that started last Tuesday, but up-and-coming NUM rival union, the Association of Mineworkers and Construction Union, said Saturday that it rejected the same offer and would issue a strike notice if companies didn't come up with a better deal."
Copper was up on China data but also a lot of other news. Bloomberg reports that Pan Pacific Copper Co., Japan's biggest producer of the metal, said it may increase the premium it charges customers in China by 53% next year as demand increases. "We are thinking of annual premiums to Chinese clients at about $130 a metric ton for 2014," said Yoshihiro Nishiyama, an executive officer in the Tokyo-based company's marketing department. This compares with the 2013 surcharge of $85 over the cash price on the London Metal Exchange, he said at a briefing today.
Codelco, the world's top producer, is preparing to set its annual sales premiums for buyers in Europe and Asia, including China, the world's top user. The Chilean company, which sets a benchmark for producers each year, settled its 2013 premium for China at $98 a ton, down from $110 in 2012 as demand slowed. Pan Pacific may conclude its negotiations for 2014 sales later this month, Nishiyama said.
Premiums for copper for immediate delivery jumped to $210 a ton for Shanghai in August as stockpiles at bonded warehouses dropped in China amid a shortage of scrap, he said. The premiums include insurance and shipping costs. The company projected the global surplus of refined copper to increase more than fourfold in 2014, rising for the second straight year, as Chinese production outpaces demand. Supply will exceed demand by 305,000 tons, compared with 69,000 tons estimated for this year, according to Pan Pacific.
China's output will increase 9.7% to 7 million tons in 2014, while the country's demand will grow 4.5% to 9.2 million tons, the company said. Pan Pacific forecasts that world mine output will increase by 13% to 16.2 million tons in 2014. Japanese smelters, including Pan Pacific, will negotiate with mining companies including BHP Billiton Ltd. (BHP) and Freeport-McMoRan Copper & Gold Inc. (FCX) later this year to settle processing fees of next year's raw material supply. "With mine supply increasing, we are looking for higher treatment and refining charges for next year, close to $100 a ton and 10 cents a pound," said Shigeru Oi, an executive officer for raw materials at Pan Pacific. "Electricity bills have jumped for Japanese smelters, increasing our costs." Smelters and mining companies settled 2013 processing fees at $70 a ton and 7 cents per pound, he said. Spot processing fees have recently risen to about $80/8 cents, he said. The fees usually rise when mine supply increases. Treatment fees are expressed in dollars per ton of concentrate received and refining fees in cents per pound of copper in the ore. The fees are deducted from the price paid by smelters to mining companies for the raw material. Pan Pacific is the joint venture between JX Nippon Mining & Metals Corp., a unit of JX Holdings Inc., and Mitsui Mining & Smelting Co.
Futures in London tumbled into a bear market in April and fell 9% this year as economic growth slowed in China, the world's biggest user. Concentrate output will expand 2.6% to 17.1 million tons this year, Morgan Stanley said in July in a report. That will exceed demand by 53,300 tons, the bank said. New output from mines in Oyu Tolgoi in Mongolia, Las Bambas in Peru, and Esperanza in Chile is estimated to add 3.53 million tons in global supply from 2012 through 2015, Zhang Mei, a researcher with China's Ministry of Land and Resources, told the conference in Shanghai.