Commodites Plunge To New 16 Year Low; Oil Slides On Venezuela Warning, Soaring Dollar

Tyler Durden's picture

As reported last night, ongoing concerns that China's economy is doing far worse than reported when the PBOC lowered its Yuan fixing below expected to the lowest level since August 31, pushed copper futures to a new low not seen since May 2009 while nickel dropped to the lowest level since 2003.

 

A big catalyst for the ongoing collapse in the Bloomberg commodity index which just hit a fresh 16 year low, is the relentless surge in the dollar, with the DXY rising as high as 99.98 the highest since April, as a result of rising prospects for a December U.S. rake hike (odds are now at 70%, up from 36% a month ago) boosting currency differentials and flows into the USD, making commodities more expensive for buyers in other currencies.

As Bloomberg also notes, a London Metal Exchange Index of six industrial metals has fallen for six weeks. Gold has dropped for five straight weeks, crude oil is on a three-week losing run. The Bloomberg Commodity Index is set for its worst year since the financial crisis, plunging 23 percent.

The result is that global miners continue to suffer and basic resource stocks are taking their lead from the slide in commodities. All 17 members of the Stoxx 600 Basic Resources Index are falling today, with Glencore and ArcelorMittal dropping as much as 5 percent. The gauge is this year's worst performing industry group on the Stoxx Europe 600 Index, falling 26 percent. Along with utilities it's the only one to have fallen out of nineteen. Glencore's 2015 decline is 70 percent. Anglo American's is 65 percent. ArcelorMittal has sunk 50 percent.

 

It's not just the metals though: crude also started the session off on the wrong foot, following this weekend's comments from Venezuela that oil prices may drop to as low as the mid-$20s a barrel unless OPEC takes action to stabilize the market, Venezuelan Oil Minister Eulogio Del Pino said.

This confirms what Goldman warned last week when it predicted oil dropping as low as $25/barrel if warm weather continues over the winter.

According to Bloomberg, Venezuela is urging the Organization of Petroleum Exporting Countries to adopt an “equilibrium price” that covers the cost of new investment in production capacity, Del Pino told reporters Sunday in Tehran. Saudi Arabia and Qatar are considering his country’s proposal for an equilibrium price at $88 a barrel, he said.

Sure, every producer would like a higher price, only problem is nobody wants to be the first to cut production, and so the race to the bottom will accelerate.

OPEC ministers plan to meet on Dec. 4 to assess the producer group’s output policy amid a global supply glut that has pushed down crude prices by 45 percent in the last 12 months. OPEC supplies about 40 percent of the world’s production and has exceeded its official output ceiling of 30 million barrels a day for 17 months as it defends its share of the market.

“We cannot allow that the market continue controlling the price,” Del Pino said. “The principles of OPEC were to act on the price of the crude oil, and we need to go back to the principles of OPEC.”

Also not helping the oil story was news overnight that Chinese oil imports declined even as Saudi Arabia reclaimed its position from Russia as the largest crude supplier to China as OPEC members extended their global fight for market share.

The world’s biggest oil exporter sold 3.99 million metric tons to China in October, 0.8 percent more than in September, data from the Beijing-based General Administration of Customs showed on Monday. Angola, another member of the Organization of Petroleum Exporting Countries, also surpassed Russia in shipping crude to the Asian nation. Russia supplied 3.41 million tons to its neighbor in October, a 16 percent drop from a record in September. Angola’s shipments climbed 27 percent from the previous month to 3.64 million tons, the data showed.

But it's not just the usual suspects who continue to overproduce. Moments ago we got the following Bloomberg headline:

  • NORWAY OIL REGULATOR SEES 2015 OUTPUT HIGHER THAN FORECAST

Which means that oil has a lot more downside before a new equilibrium price is established as producers remain reluctant to stop pumping in a deflationary environment where their only hope is to offset sliding prices with soaring volume.

As a result the rolled over WTI January contract was down 3% at last check, down $1.24, and also en route to test the $30-handle which its now expired December contract would be solidly inside.

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VinceFostersGhost's picture

 

 

Recovery this bitch.

 

Take your global warming and Obamacare....and shove it up your ass.

 

If we can't impeach Obama......let's just start with the GOP. We put you guys in office to do a job.....obviously you failed.

 

By the way....you let one ISIS refugee in country....we're gonna be plenty pissed.

 

I'm not a Democrat or a Republican....cause that doesn't mean crap anymore....I'm an American.

NidStyles's picture

There's a Shekelstein buying it up for sure. Most likely on the margin leveraged 100-1. It's a sure thing for them after all. 

 

This whole shitstorm is such a farce. 

Dead Canary's picture

Obama, Obama!

Who will rid me of this turbulent beast!

Bernoulli's picture

Dear Central Bankers of the world: Good luck fixing that one!

VinceFostersGhost's picture

 

 

Big closed Central Banker meeting today.....no.....you can't watch.

 

I hear it's happening on Jekyll Island.....but that's not confirmed....obviously.

tarabel's picture

 

 

You're close. How about Devil's Island?

Monetas's picture

Defunding Islamic Terror 101 .... pulling the prayer rug out from under them .... Obama gonna' be pissed and powerless ?

Cautiously Pessimistic's picture

Mission Accomplished!

 

Can't wait for the Fed's 'closed door' meeting today....

Debugas's picture

prices only go down in dollar terms.

basically it is just dollar rising against other currencies.

the reason for that ? - debt is mostly nominated in dollars , borrowers need dollars to repay their debts.

The Fed is ripping the harvest - sucking dry the borrowers forcing them to sell on the cheap all they got.

Callz d Ballz's picture

CB's greatest fear is deflation, and it's coming.

Dark Daze's picture

Hmm. ZH doesn't always get things exactly right. For instance, nowhere do we get any kind of idea what kind of volume we are talking about. From what I can see at FXStreet, this is entirely a EURUSD story, there is no acitivity in any other pair. And the other thing that has been left out of this is whether or not this is an acutal demand story or simply a liquidity issue. You would expect with the massive amount of TB selling coupled with the other restrictions being imposed by the FED, that there would be a shortage of dollars, so big hairy deal.

BiPolarFrenchman's picture

Is Francesc still running FXStreet?  I used to work with their website, years ago, and he was a great guy to work with

Balvan's picture

Commodities are in a bear cycle which might last for decades, sell your gold and silver while they're still relatively high.

I'll start accumulating gold when it drops sub $400 which should happen by 2020. And silver sub $6.

VinceFostersGhost's picture

 

 

sell your gold and silver

 

For what?

Dark Daze's picture

OK. There are more than a few issues still outstanding. Basically, the lie of the land is this. The new Basel III regime comes into effect January 1. As a consequence of those new rules, banks can hold fewer soveriegn debt bonds as Tier I capital so there has been massive selling of Treasuries, which of course will force interest rates in the US up. Now the banks will be stuffed with capital, BUT, with the economy in free fall and debtors maxed out, it is not likely the banks will be able to make loans to consumers in volume, however, they will be marginally compensated by higher interest rates.

Now if you follow David Stockman at all, you would know that he believes and has always believed that inflation is a function of productive supply, not simple money supply. That was what drove the crazy investment in capacity over the last 35 years. As usual, everybody went out and did way to much of everything. Stockman also believes that we will be stuck with the capacity oversupply for years, if not decades, but I'm not so sure of that. If they do end up doing a parachute drop of money to people it will obviously stimulate consumption (at some point, perhaps not initially as people direct the initial amounts of new capital to paying off old debts). A parachute drop is about the only way that you can get 'consumers' to consume at this point, because even though there has been substantial deleveraging in the US, the debt to gross income ratio is still 170%, as it is in Canada and most of the Western world. So simply putting new debt on old consumers is not the answer, however, if the average joe doesn't take the debt that goes along with the capital, what are the central banks going to do with their balance sheets which are stuffed with zero value assets? When that parachute drops occurs, US dollars will be in abundance so their value will drop initially, until this sought after 'virtuous circle' becomes established.

So an optimist might say the banks will achieve greater interest income which will increase their profitability and eventually allow them to move away from more dangerous funding mechanisms like deriviatives, while concurrently retiring debt. Consumers will (eventually) if given enough new capital, start consuming again and the overcapacity will be retired. But that is a lot of 'ifs' and the biggest IF is how much capital is required to restart the economic engine? If the central banks control the amount of capital being let loose, then it might work. If captial creation/utilization capacity remains with the private banks, and they decide to exercise that privelege in order to get more and more interest profit coming in then it will probably fail, in a spectacular inflation blow up.

People who are predicting $ 400.00 gold are the biggest bullshitters on the planet. That price would only be possible if the US dollar were to return to it's previous value in the US dollar index, and that isn't going to happen, not anytime soon; some combination of a 75% drop in the value of the Yen/Euro/Pound would have to occur. A hint is contained in the most recent posting on FX composition by the IMF for their SDR basket, which anyone can go and read. They are going to start allocating currency reserve percentages in their SDR basket based on capital flows as opposed to trade flows, which says two very important things. One, trade is dead and is probably going to remain dead for a very long time and two, China, not the US, will become the increasingly significant currency nexus simply because the China capital float drawrfs the US float by a factor of 6 to 1, or 26 Trillion to 4 Trillion.

None of this is simple, it is very complex and I have no idea if it will work out, but it seems to me that they have thought long and hard about this over the last 7 years. The biggest issue will be releasing capital which is of course subject to politics. It will also depend on how the IMF intends to quanitfy 'capital flows'. If they quantify it based on units of currency, then the plan could work. If they assess it based on currency value then it will fail, because nothing will change.

TroyAndAbed's picture

I think you are 0/4 on this, but that's just me. Feels like capitulation in the Au and Ag markets, I'd be a buyer here. I'm not sure you are going to get another chance like this in PM's for a LONG time. 

Callz d Ballz's picture

1. Good luck finding any at that paper price
2. Premiums will be huge if you do

TRM's picture

Or just dollar cost average your metal holdings by buying regular amounts at regular intervals and don't try to time the bottom. Physical delivery only of course. No paper.

DOT's picture

“We cannot allow that the market continue controlling the price,”......................................!

TRM's picture

“We cannot allow that the market continue controlling the price,”

They just summed up their delusion in one sentence.

Goldbugger's picture

The collapse continues, meanwhile equities continue to be propped up by the ECB and FED. A slo train wreck is coming.

Whether you like it or not , we serve the banksters and the FED. The whole game is rigged.

https://www.youtube.com/watch?v=JOK0v2QYy9Y&list=PLknidvzcLCRFU2E_2wLM6P...

Dorothea Binz's picture

I wish China would work out an agreement with Venezuela to double Venezuela's crude production. You know Venezuela won't hold back in dumping all the oil they can as fast as they can. Would just put another nail in the coffin of those oil producing nations that are overly dependent upon production.