Oil (NYMEX:CLX13) is falling after tropical storm Karen and now faces the stormy seas of U.S. politics. Production is now coming back on-line and except for being oversold the bulls are finding it hard to find much to hang their hat on. With the impending showdown over the debt ceiling and the ongoing government shutdown, oil traders are finding it hard to make the bullish case.
Oh sure, we will see the impact from tropical storm Karen and it will take its toll on Gulf Coast supply but we all know that that is only going to have a short term impact. Bloomberg reports that companies including Chevron Corp., BP Plc and BHP Billiton Ltd. returned staff to platforms as Karen was downgraded to a depression on Oct. 5 and passed by offshore assets. The storm's threat shut almost 62% of Gulf crude output. Not to mention gas has a 48% of natural gas (NYMEX:NGX13) output, or 1.8 billion cubic feet daily, as of yesterday.
Bloomberg says that BHP was resuming normal operations as it returned workers to platforms, the company said in an e-mailed statement yesterday. Anadarko Petroleum Corp. was also moving staff back, the company said. The Louisiana Offshore Oil Port planned to resume tanker offloading, spokeswoman Barbara Hestermann said. LOOP, the only U.S. port capable of taking cargoes from ultra-large crude carriers, had suspended tanker operations, the Covington, Louisiana-based company said on its website.
The good news is that gas prices continue to fall. Trilby Lundberg of the Lundberg survey says that the average price for regular gasoline at U.S. pumps fell 13.78 cents in the past two weeks to $3.3829 a gallon, according to Lundberg Survey Inc. The survey covers the period ended Oct. 4 and is based on information obtained at about 2,500 filling stations by the Camarillo, California-based company.
More supply to think about! Dow Jones reports that Royal Dutch Shell PLC said it inaugurated Iraq's huge Majnoon oil field in the south of the country Sunday and aims to reach 175,000 barrels a day in the next weeks. Majnoon, located near the city of Basra in southern Iraq, is one of four major fields that the country is developing with foreign companies, and it is vital to its ambitious plan to up its output to at least 6 million barrels a day from the current production level of 3.2 million. Shell, which started production from the field's first well Sept. 20, successfully opened the wells and restarted production, which will be ramped up to "175,000 barrels a day in the next weeks," a Shell spokesperson told The Wall Street Journal. The output target is a critical milestone in Shell's plans to develop the field as it is the volume required for the Anglo-Dutch oil major to start recovering costs under its deal with the Iraqi oil ministry. Hussein al Shahristani, the Iraqi deputy prime minister for energy, said in Dubai last month that output from the gigantic field is expected to rise to almost 200,000 barrels a day before the end of the year. Iraq signed a series of service contracts with major oil companies such as Shell, Exxon Mobil Corp., Total, BP PLC, and Eni SpA at the end of 2009 to develop its oil fields. Shell and Malaysia's Petronas Gas Bhd were awarded the deal in December 2009 to develop the field located in southern Iraq near the Iranian border. Shell owns 45% of the venture and Petronas owns 30%, with the Iraq state-run company holding 25%. They have pledged to eventually raise production from Majnoon to 1.8 million barrels a day."
Is all the gold in California sitting in a bank in Beverly Hills? Bloomberg reports that central banks, which own 18% of all the gold ever mined, will add as much as 350 tons valued at about $15 billion this year, the London-based World Gold Council estimates. They purchased 535 tons in 2012, the most since 1964. Russia is the biggest buyer, expanding reserves by 20% since prices reached a record $1,921.15 an ounce in September 2011. Gold has slumped 31% since then.
As policy makers were buying, investors were losing faith in the metal as a store of value. The value of exchange-traded products dropped by $60.4 billion, or 43%, this year, saddling hedge fund manager John Paulson with losses, according to data compiled by Bloomberg. Billionaire investor George Soros sold his holdings in the biggest gold-backed ETP this year and mining companies wrote down the values of their assets by at least $26 billion.
Gold, which entered a bear market in April, slid 21% to $1,316.28 in London this year on Oct. 4, set for the biggest drop since 1981. It rose six-fold as it rallied for 12 successive years through 2012, beating a 17% gain in the MSCI All-Country World Index of equities as the Standard & Poor's GSCI gauge of commodities more than doubled. It's this year's third-worst performing raw material, after corn and silver. Gold today fell to $1,310.33 an ounce.
Policy makers, who are responsible for shielding their economies from inflation, often mistime gold investment decisions, buying high and selling low. They were reducing holdings when bullion reached a 20-year low in 1999 and as prices as much as quadrupled in the next nine years. Central bankers became net buyers just before the peak in 2011.
"Central bankers have typically bought when you probably should be selling and selling when you probably should be buying," said Michael Strauss, who helps oversee about $25 billion of assets as chief investment strategist and chief economist at Commonfund Group in Wilton, Connecticut. "It's going to be a difficult market and sometimes the price of gold is driven by emotions rather than fundamental factors. Central banks have been bad traders of gold."
Holdings were little changed from the start of 2008 through early 2009. Then, policy makers increased gold reserves as prices doubled and they have purchased a net 884 tons since the 2011 peak, International Monetary Fund data show. Russia was the biggest buyer, adding about 171 tons. Kazakhstan bought 67.2 tons and South Korea purchased 65 tons. Turkey's reserves swelled about 371 tons in the past two years as it accepted bullion in reserve requirements from commercial banks.
In addition to buying when prices rose, central banks sold into slumping markets, disposing of about 5,899 tons in the two decades from 1988, equal to about two years of current mine supply.
The U.K. auctioned about 395 tons from July 1999, a month before prices reached a two-decade low, through March 2002. Gold averaged about $277 as the country was selling. The Bank of England's hoard of ingots and coins, including a bar smelted in New York in 1916, now totals 310.3 tons, or 13 percent of the nation's total reserves.