Why $20 oil isn’t so fanciful

Goldman Sachs recently highlighted the risk that WTI crude prices could fall as low as $20 per barrel before production declines enough to clear the oversupply of crude. While not the banks base-case scenario, $20 per barrel isn’t unrealistic based on the last 35 years of price data.

Back in February we looked at the relationship between WTI crude and natural gas prices in the US on the basis of their relative energy values and what it might imply for the future value of the two energy commodities.

read more

Copper prices need to fall below $4,400/t for Codelco to cut output

“Pretty goddamm bad”

That was how the Codelco chairman described the outlook for the mining industry last night at the LME

Despite the expectation of many in the copper market that cuts to production, most notably from Glencore point towards the market starting to rebalance, the view expressed by the world’s largest copper producer goes against the grain.

Only if copper prices fall below $2 per lb (equivalent to $4,400 per tonne or 17% below the current price) would Codelco consider cutting production. Prices hit a six year low near $4,830 per tonne in August.

read more

Platinum prices near pre-VW scandal levels

The announcement on 18th September that the US Environmental Protection Agency had issued a Notice of Violation of the Clean Air Act against German car maker VW for misleading emissions test with their diesel cars resulted in the price of platinum dropping by almost 10% over the next 10 days to $900 per oz. Platinum is used to make catalytic converters for diesel cars, so investors worried that the scandal could hasten the decline in diesel use and in turn demand for the precious metal.

Since the start of October platinum prices have rebounded to almost $950 per oz, just $10 per oz lower than the metal was traded at just days before news of the scandal broke. The impact of the scandal might not be as bad as feared, certainly for platinum demand. Indeed, lower platinum prices could trigger a swing back to platinum for gasoline auto-catalysis, which is currently largely the preserve of palladium, another platinum-group metal (PGM).

read more