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Oil's Unstoppable Bear Market

Global Energy Advisory

As the trade war between China and the US sparks even lower oil demand growth forecasts from analysts far and wide, not even OPEC’s July oil production – which hit an eight year low - was able to keep prices from their worst week in nearly seven months.

Market Panic Bandaged by OPEC Psychological Intervention

Saudi Arabia “leaked” on Thursday that it was talking with OPEC members behind the scenes to see what could be done to lift oil prices.

This, combined with its official announcement that it would keep oil exports below 7 million bpd through at least September, had an almost immediate and profound effect on the price of oil.

After the trade war between the US and China escalated earlier in the week, fears of a currency war took hold, tanking oil prices. Prices were pressured further as analysts misjudged the inventory movements reported by the EIA on Wednesday, with analysts predicting a draw rather than the build that was reported.

Saudi Arabia, which is still looking to get a $2 trillion valuation out of Aramco, needed to react swiftly. OPEC options are somewhat limited, however, as they are already producing below their agreed upon quota.

As China and OPEC jockey for position in setting oil prices, a further price slide may be on the horizon should China increase its purchases of Iranian crude oil in defiance of US sanctions.

While Saudi Arabia has halted the crash, bearish sentiment is still dominating oil markets.

Cobalt Just Got a Reprieve from Price Purgatory

Cobalt prices got a nice boost this week, but it was not a natural one.

Cobalt

The problem with battery metals is that everyone’s sounding the alarm bells about an impending supply crunch, but in the meantime, we’re oversupplied. The interim is painful.

Cobalt has been profoundly volatile over the past few years, despite the large role it plays in lithium-ion batteries, and despite the fact that there is a massive electric vehicle push that, in theory, should push cobalt prices through the roof due to demand.

But so far, the EV reality hasn’t caught up with the battery metal, and cobalt prices have been based on projections for the EV market, not on existing fundamentals. Based on those projections, cobalt prices soared starting in 2016. But by 2018, they started to collapse again.

Cobalt

What’s happened, in the meantime, is that the mouthwatering EV projections have sparked a rush on cobalt, leading to oversupply. Much of the supply has come out of the Democratic Republic of Congo (DRC), which accounts for 60% of the world’s cobalt output.

The uptick in prices this week is thanks to Glencore. The 50% drop in cobalt prices this year led Glencore this week to shut down its Mutanda copper and cobalt mine in DRC. That instantly removes around one-fifth of the world’s cobalt supply from the market.

So are we about to see another cobalt price surge on the back of this?

By Wednesday this week, cobalt prices were up to $12.84 per pound, from $12 per pound on Monday. It’s not exactly a ‘surge’.

But keep this in mind: In 2015, when Glasenberg slashed its zinc production because prices were too low, it caused zinc prices to surge in 2016.

Also keep a close eye on nickel prices – a key battery metal - as prices jumped Thursday, hitting a 16-month high in London on worries that Indonesia, a key supplier, might ban the export of ore.


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