Economic collapse

"If all else fails go to war"

---Gerald Celente

Why else all this warmongering? The world economy hangs on a knife edge.

Oil producers prepare for prices to halve to $20 a barrel

Financial market turmoil sees fresh slide in crude, lowest iron ore prices for a decade and losses on global stock markets

the Guardian,

8 December, 2015

The world’s leading oil producers are preparing for the possibility of oil prices halving to $20 a barrel after a second day of financial market turmoil saw a fresh slide in crude, the lowest iron ore prices in a decade, and losses on global stock markets.

Benchmark Brent crude briefly dipped below $40 a barrel for the first time since February 2009 before speculators took profits on the 8% drop in the cost of crude since last week’s abortive attempt by the oil cartel Opec to steady the market.

But warnings by commodity analysts that the respite could be shortlived were underlined when Russia said it would need to make additional budget cuts if the oil price halved over the coming months.

Alexei Moiseev, Russia’s deputy finance minister, told Reuters: “If oil goes to $20, we will need to do additional [spending] cuts. Clearly we have shown that we are very willing to cut fiscal spending in line with an oil price at $60, for example. In order for us to be long-term sustainable [with the] oil price at $40, we need to do additional cuts, but if the oil price goes to $20 we need to do even more cuts.”

Russia and Saudi Arabia – the world’s two biggest oil producers – both increased spending when oil prices rose to well above $100 a barrel. The fall from a recent peak of $115 a barrel in August 2014 has left all Opec members in financial difficulty, but Saudi Arabia has refused to relent on a strategy of using a low crude price to knock out US shale producers. Hopes that Opec would announce production curbs to push prices up were dashed when the cartel met in Vienna last Friday, triggering the latest downward lurch in the cost of oil.

Lord Browne, the former chief executive of BP, refused to rule out the possibility that oil could halve again in price when he was interviewed by Bloomberg TV. Asked if oil could hit $20 a barrel, Browne – who ran BP from 1995 to 2007 during a period when the cost of crude rose from $10 to $100 a barrel, said in the short term nothing was impossible. He added: “In the long run, $20 is probably wrong, but that’s as far as I’d go.”

Weak export figures from China triggered the early fall in the price of oil and industrial metals on Tuesday. Iron ore’s 10-year low was accompanied by declines in zinc, lead and nickel, leaving mining companies to bear the brunt of a renewed sell-off in equity markets.

In London, the FTSE 100 dropped 1.42% to close 88.3 points lower at 6135.22. Germany’s Dax lost almost 2% to end the day 212 points down at 10673.6, while in early trading in New York, the Dow Jones industrial average was down just over 150 points.

Connor Campbell at Spreadex said: “There is little on the horizon that looks like it can provide a salve for today’s commodity burns; if anything, with a Chinese inflation figure released in the early hours of Wednesday morning, a figure that could easily underperform expectations if today’s trade balance data is anything to go by, tomorrow may be even worse.”

Samuel Tombs, UK economist at Pantheon, said another downward lurch in oil prices could delay an interest rate increase from the Bank of England.

“Provided oil prices don’t continue to slide, then inflation looks on track to pick up from -0.1% in October to about 1% in March, the latest number the [Bank of England’s] monetary policy committee will have before its May inflation report.”

He said: “It’s a close call, but that rate probably will be strong enough to convince a majority of MPC members that an interest rate rise is warranted. A further plunge in oil prices to below $30 probably would keep CPI inflation below 1% and likely would persuade the committee to stand pat for a few more months.”

The consultancy Capital Economics said: “Brent’s [short-lived] dip today below $40 per barrel is a further damning verdict on Opec’s bungled communications after its meeting last Friday. However, it was never likely that the group would agree to cut output to boost prices. Instead, any recovery next year will depend on reductions in non-Opec supply and on stronger demand. On this basis, while we are lowering our end-2016 forecast for Brent from $60 to $55, we continue to expect oil prices to stage a partial recovery next year.”

Miners in meltdown: Mining stocks plunge to 11-year lows

The FTSE 350 mining index tumbled by almost 7pc to its lowest level since August 2004.

London-listed miners were left reeling after £4.7bn was wiped off their value on Tuesday, as the global commodities price rout intensified and hammered the industry.

The FTSE 350 mining index crashed to its lowest level in 11 years – down 7.1pc to 6,964.07 - its biggest one day drop since the end of September.

“Lower commodity prices have pushed Anglo into even sterner measures to rehabilitate the balance sheet.”

Des Kilaela, RBC Capital Markets

Mining companies worldwide have come under increased pressure to slash capital expenditure and operational costs in the face of an accelerating rout in commodity prices.

International mining giant Anglo American yesterday bowed to the pressure as it announced a “radical” restructuring, slashing its workforce from 135,000 to just 50,000 and scrapping its dividend until the end of 2016. The company’s shares nose-dived 12.3pc to an all-time low of 323.7p.

Its decision to cull its dividend came just two weeks after HSBC warned it would burn at least $2.7bn if it were to maintain it.

Des Kilaela, of RBC Capital Markets said: “Lower commodity prices, high capital expenditure and liquidity have pushed Anglo into even sterner measures to rehabilitate the balance sheet.”

Peer Rio Tinto joined Anglo at the bottom of the FTSE 100, the stock plunging 8.4pc to £18.93 after it also announced a fresh round of spending cuts as it battles the collapse in commodity prices.

Shares in Switzerland-based Glencore touched their lowest level since September 28, when broker Investec warned the stock could be worthless if commodity prices continued to fall. The stock was changing hands at 79.5p by market close – down 6.9pc.

Peter Ward, of London Capital Group, said: “Given Glencore’s move below the £1 marker it will be difficult to clamber back with commodity prices as pressured, despite the plans to cut output and jobs.”

BHP Billiton slumped to levels last seen seven years ago as the repercussions of a deadly dam burst in Brazil in October continued to plague the miner. The FTSE 100-listed stock tumbled 5.5pc to 722.8p. On Monday, Brazil’s National Humanitarian Society filed a civil lawsuit seeking $5.31bn in damages from the mine operator Samarco and its owners, BHP and Vale SA. Shares in Vale dropped by as much as 7pc yesterday.

To add to the mining sector’s woes, iron ore slumped to a decade low, falling below the $40 a tonne mark in intraday trade after a torrid set of data from China reignited fears about weak demand from the world’s biggest metals consumer.

In November, Chinese exports fell by 6.8pc for a fifth consecutive month, while a slump in imports of 8.7pc extended for a record 13th month.

Iron ore slipped below the $40 a tonne mark on Tuesday.  Photo: Alamy

Meanwhile, benchmark three-month copper inched 0.7pc higher to $4,587 a tonne due to the fall in the dollar. However, its gains were restricted by the disappointing Chinese trade data. The release of Chinese CPI data on Wednesday will ensure commodity stocks remain in the spot light for a second consecutive trading session.

In the face of collapsing commodity prices, the mining-heavy FTSE 100 was dragged 1.2pc lower to 6,149 - its biggest one day drop since the European Central bank’s stimulus measures disappointed last week.

Panicked investors fled to the sidelines amid intensified fears about the health of the Chinese economy, triggering a mass sell-off, which wiped more than £22bn of the blue chip index.

With Britain’s benchmark index firmly in the red, those hoping for a Santa rally may be left disappointed as mining stocks continue their downward spiral.