Ignore talk of an OPEC price war, say crude market bulls. Just look at Saudi Arabia’s own words to know what will happen next to oil.
Price cuts announced by the Saudis, including the biggest discounts for Asia since 2008, sparked speculation that the world’s biggest crude exporter would let oil tumble rather than cede market share to rivals in OPEC. This is misguided, said UBS AG and BNP Paribas SA. Brent is below the $95-to-$110 range endorsed by Saudi Oil Minister Ali Al-Naimi, ensuring the country will curb output, they said.
Brent, the European benchmark, is plunging toward a bear market amid a surplus of U.S. shale oil and weaker economic growth. The discounts prompted predictions that Saudi Arabia would tolerate lower prices to deter investment in higher-cost U.S. shale. The advance of Islamist militants across a swathe of Iraq and Syria means the kingdom will shore up oil prices to support neighbors instead, BNP Paribas SA said.
“We do not buy into the argument that there’s a price war in the making,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London, said by e-mail on Oct. 6. “Saudi Arabia has always done the heavy lifting when it comes to OPEC supply management. What is key in our view is that it is not in the best interest of OPEC to witness a prolonged period of low prices.”
Battle Commences
Front-month Brent futures slid to $90.57 a barrel today on the ICE Futures Europe exchange, the lowest since June 2012, after the International Monetary Fund cut global economic growth forecasts yesterday. The contract is set to settle more than 20 percent below its June 19 peak of $115.06 a barrel, a common definition of a bear market.
Saudi Arabia lowered the November official selling price, or OSP, last week for its Arab Light grade to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest level since December 2008. The move followed reductions by Iran and Iraq for October, signaling the start of a potential battle for customers in Asia, according to Commerzbank AG and Citigroup Inc.
Rather than stoke competition with other nations in the Organization of Petroleum Exporting Countries, the lower prices were intended to revive profit margins for Asian refiners, a person familiar with Saudi policy said today. A range of $95 to $110 a barrel is suitable for consumers and producers, Saudi Arabia’s Al-Naimi said at OPEC’s last meeting on June 11 in Vienna. The average price of benchmark OPEC crudes dropped below $90 for the first time in more two years, the group said yesterday.
OPEC will discuss prices and production at a meeting on Nov. 27 in Vienna, Al-Naimi said on Sept. 11.
Price Forecasts
History shows that Saudi OSP cuts precede decreases in production, not increases, Giovanni Staunovo, an analyst at UBS in Zurich, said by e-mail on Oct. 6. Prices will rebound by the end of year, Staunovo said. BNP Paribas forecasts that Brent will average $108 a barrel during the fourth quarter. Barclays Plc estimates an average of $106 during the same period, according to an e-mailed report on Oct. 3.
“I don’t think there’s any rush on the Saudis’ side to bring the market lower” when disappointing demand could do that anyway, Francisco Blanch, head of commodities research at Bank of America Corp., said by phone from New York yesterday. “I don’t think a price war is going on. Saudi Arabia will cut if needed.”
Nickel Falls Most in Two Weeks, Copper Declines on IMF
Nickel fell the most in two weeks and copper dropped below $3 a pound after the International Monetary Fund cut its forecast for global economic growth, sparking concern that demand for industrial metals will ebb.
The world economy will expand next year at a 3.8 percent pace, below July’s 4 percent estimate, the IMF said yesterday. Nickel entered a bear market last month as a measure of inventories climbed to a record. Last week, copper dropped to the lowest since April, partly because of prospects for lower demand in Europe.
“The base-metals complex has unquestionably remained under pressure exerted by the IMF global growth downgrade,” Michael Turek, a senior director at Newedge USA LLC in New York, said in an e-mail. Nickel for delivery in three months dropped 2.4 percent to settle at $16,535 a metric ton at 5:50 p.m. on the London Metal Exchange, the biggest drop since Sept. 22. Stockpiles monitored by the LME rose 0.1 percent to a record 364,530 tons.
Copper futures for December delivery fell 1.2 percent to close $3.0035 on the Comex in New York. Earlier, the price touched $2.996. On Oct. 2, the metal dropped to $2.9855, the lowest since April 16. Trading in China resumed today after a week-long holiday. A national gauge of manufacturing and services from HSBC Holdings Plc and Markit Economics fell to 52.3 in September from 52.8 in August. Readings above 50 signal growth.
Aluminum, tin, lead and zinc fell in London.
Monsanto Profit Forecast Trails Estimates as Corn Drops
Monsanto Co. (MON), the world’s largest seed company, forecast fiscal 2015 earnings that trailed analysts’ expectations as tumbling grain prices leave farmers with less to spend. Profit will rise as much as 15 percent to $6 a share in the 12 months through Aug. 31, Monsanto said today in a statement. The average of 25 estimates compiled by Bloomberg was for $6.03. Projected free cash flow also fell short of expectations.
Monsanto said earnings gains will mostly occur in the second half of the fiscal year because of a shift in the timing of orders, while spending won’t exceed inflation. Monsanto will get higher seed prices only from the introduction of new products, Chris Shaw, a New York-based analyst at Monness Crespi Hardt & Co., said today by phone.
Chairman and Chief Executive Officer Hugh Grant told investors in August that 2015 profit may rise at a slower pace than in recent years because falling crop futures could limit Monsanto’s ability to raise prices. Corn and soybeans, its two biggest seed markets, have slumped as U.S. farm output surges.
Rain and mild weather have helped to boost U.S. crop yields. Farmers will collect a record 14.395 billion bushels of corn this year, the U.S. Department of Agriculture estimates. Lower grain prices will cut farmer profits by 14 percent, the USDA said in August.
Seed Margins
The drop in income is affecting other companies. Tractor maker AGCO Corp. yesterday cut its full-year earnings forecast citing a slowdown in sales. Deere & Co., the world’s largest manufacturer of farm machinery, last month reduced its forecast and said it’s laying off workers amid weaker demand.
Monsanto fell 0.8 percent to $106.83 at 9:34 a.m. in New York. Monsanto also said today that its loss excluding some items in the fiscal fourth quarter ended Aug. 31, a seasonally weaker period dependent on sales in South America, was 27 cents a share, wider than the 24-cent average estimate. Sales rose 19 percent to $2.63 billion, topping the $2.42 billion average estimate.
For the current financial year, the company sees free cash flow climbing to $2 billion to $2.2 billion, from $959 million. The average estimate is for $2.64 billion. Monsanto said it still sees bigger seed margins because of lower costs and the introduction of pricier varieties.
Monsanto said in June it will repurchase $10 billion of stock over two years as part of a plan to double earnings per share in five years. The company raised $4.5 billion for the buybacks in its biggest-ever bond sale, prompting Standard & Poor’s to cut Monsanto’s credit rating three levels to BBB+ from A+.
source: Bloomberg
Price cuts announced by the Saudis, including the biggest discounts for Asia since 2008, sparked speculation that the world’s biggest crude exporter would let oil tumble rather than cede market share to rivals in OPEC. This is misguided, said UBS AG and BNP Paribas SA. Brent is below the $95-to-$110 range endorsed by Saudi Oil Minister Ali Al-Naimi, ensuring the country will curb output, they said.
Brent, the European benchmark, is plunging toward a bear market amid a surplus of U.S. shale oil and weaker economic growth. The discounts prompted predictions that Saudi Arabia would tolerate lower prices to deter investment in higher-cost U.S. shale. The advance of Islamist militants across a swathe of Iraq and Syria means the kingdom will shore up oil prices to support neighbors instead, BNP Paribas SA said.
“We do not buy into the argument that there’s a price war in the making,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London, said by e-mail on Oct. 6. “Saudi Arabia has always done the heavy lifting when it comes to OPEC supply management. What is key in our view is that it is not in the best interest of OPEC to witness a prolonged period of low prices.”
Battle Commences
Front-month Brent futures slid to $90.57 a barrel today on the ICE Futures Europe exchange, the lowest since June 2012, after the International Monetary Fund cut global economic growth forecasts yesterday. The contract is set to settle more than 20 percent below its June 19 peak of $115.06 a barrel, a common definition of a bear market.
Saudi Arabia lowered the November official selling price, or OSP, last week for its Arab Light grade to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest level since December 2008. The move followed reductions by Iran and Iraq for October, signaling the start of a potential battle for customers in Asia, according to Commerzbank AG and Citigroup Inc.
Rather than stoke competition with other nations in the Organization of Petroleum Exporting Countries, the lower prices were intended to revive profit margins for Asian refiners, a person familiar with Saudi policy said today. A range of $95 to $110 a barrel is suitable for consumers and producers, Saudi Arabia’s Al-Naimi said at OPEC’s last meeting on June 11 in Vienna. The average price of benchmark OPEC crudes dropped below $90 for the first time in more two years, the group said yesterday.
OPEC will discuss prices and production at a meeting on Nov. 27 in Vienna, Al-Naimi said on Sept. 11.
Price Forecasts
History shows that Saudi OSP cuts precede decreases in production, not increases, Giovanni Staunovo, an analyst at UBS in Zurich, said by e-mail on Oct. 6. Prices will rebound by the end of year, Staunovo said. BNP Paribas forecasts that Brent will average $108 a barrel during the fourth quarter. Barclays Plc estimates an average of $106 during the same period, according to an e-mailed report on Oct. 3.
“I don’t think there’s any rush on the Saudis’ side to bring the market lower” when disappointing demand could do that anyway, Francisco Blanch, head of commodities research at Bank of America Corp., said by phone from New York yesterday. “I don’t think a price war is going on. Saudi Arabia will cut if needed.”
Nickel Falls Most in Two Weeks, Copper Declines on IMF
Nickel fell the most in two weeks and copper dropped below $3 a pound after the International Monetary Fund cut its forecast for global economic growth, sparking concern that demand for industrial metals will ebb.
The world economy will expand next year at a 3.8 percent pace, below July’s 4 percent estimate, the IMF said yesterday. Nickel entered a bear market last month as a measure of inventories climbed to a record. Last week, copper dropped to the lowest since April, partly because of prospects for lower demand in Europe.
“The base-metals complex has unquestionably remained under pressure exerted by the IMF global growth downgrade,” Michael Turek, a senior director at Newedge USA LLC in New York, said in an e-mail. Nickel for delivery in three months dropped 2.4 percent to settle at $16,535 a metric ton at 5:50 p.m. on the London Metal Exchange, the biggest drop since Sept. 22. Stockpiles monitored by the LME rose 0.1 percent to a record 364,530 tons.
Copper futures for December delivery fell 1.2 percent to close $3.0035 on the Comex in New York. Earlier, the price touched $2.996. On Oct. 2, the metal dropped to $2.9855, the lowest since April 16. Trading in China resumed today after a week-long holiday. A national gauge of manufacturing and services from HSBC Holdings Plc and Markit Economics fell to 52.3 in September from 52.8 in August. Readings above 50 signal growth.
Aluminum, tin, lead and zinc fell in London.
Monsanto Profit Forecast Trails Estimates as Corn Drops
Monsanto Co. (MON), the world’s largest seed company, forecast fiscal 2015 earnings that trailed analysts’ expectations as tumbling grain prices leave farmers with less to spend. Profit will rise as much as 15 percent to $6 a share in the 12 months through Aug. 31, Monsanto said today in a statement. The average of 25 estimates compiled by Bloomberg was for $6.03. Projected free cash flow also fell short of expectations.
Monsanto said earnings gains will mostly occur in the second half of the fiscal year because of a shift in the timing of orders, while spending won’t exceed inflation. Monsanto will get higher seed prices only from the introduction of new products, Chris Shaw, a New York-based analyst at Monness Crespi Hardt & Co., said today by phone.
Chairman and Chief Executive Officer Hugh Grant told investors in August that 2015 profit may rise at a slower pace than in recent years because falling crop futures could limit Monsanto’s ability to raise prices. Corn and soybeans, its two biggest seed markets, have slumped as U.S. farm output surges.
Rain and mild weather have helped to boost U.S. crop yields. Farmers will collect a record 14.395 billion bushels of corn this year, the U.S. Department of Agriculture estimates. Lower grain prices will cut farmer profits by 14 percent, the USDA said in August.
Seed Margins
The drop in income is affecting other companies. Tractor maker AGCO Corp. yesterday cut its full-year earnings forecast citing a slowdown in sales. Deere & Co., the world’s largest manufacturer of farm machinery, last month reduced its forecast and said it’s laying off workers amid weaker demand.
Monsanto fell 0.8 percent to $106.83 at 9:34 a.m. in New York. Monsanto also said today that its loss excluding some items in the fiscal fourth quarter ended Aug. 31, a seasonally weaker period dependent on sales in South America, was 27 cents a share, wider than the 24-cent average estimate. Sales rose 19 percent to $2.63 billion, topping the $2.42 billion average estimate.
For the current financial year, the company sees free cash flow climbing to $2 billion to $2.2 billion, from $959 million. The average estimate is for $2.64 billion. Monsanto said it still sees bigger seed margins because of lower costs and the introduction of pricier varieties.
Monsanto said in June it will repurchase $10 billion of stock over two years as part of a plan to double earnings per share in five years. The company raised $4.5 billion for the buybacks in its biggest-ever bond sale, prompting Standard & Poor’s to cut Monsanto’s credit rating three levels to BBB+ from A+.
source: Bloomberg