Holiday briefing: US oil now at a premium to Brent

US durables flat; sentiment higher; personal income up; NZ housing debt rises faster, rural debt slower; oil prices turn up; gold falls; NZ$1 = 67.8 USc, TWI = 73.1

24th Dec 15, 7:58am by David Chaston

Here's my summary of the key news overnight to keep you up-to-date over these holidays.

In the US, new orders for manufactured capital goods fell in November and the prior month's increase was revised sharply lower as the drag on manufacturing from a strong dollar and spending cuts in the energy sector showed little sign of abating. But new orders for durable goods overall were unchanged with shipments higher and inventories lower.

Sales of newly built housing was marginally higher in November as well but momentum in this sector seems to be slowing.

But there were some bright signs as well. A closely watched survey of consumer sentiment rose to its highest level since July. Importantly, all of the improvement was in how consumers evaluated current economic conditions.

And American personal income in November rose for an eighth straight month on solid wage gains, which should support US consumer spending and bolster economic growth next year.

Data released yesterday showed the total amount of mortgage debt had reached NZ$ 210 bln, and it is growing at +7.5% pa. We haven't seen that level of growth since 2008.

The growth of rural debt is slowing, but it is still rising at a faster rate than for housing mortgages. Rural debt is up +8.8% in a year.

American crude oil prices have moved into a premium over internationally traded Brent following an unexpected drop in American inventories and potential exports, but global markets still suffer from ballooning oversupply. US prices are at US$37.50/bbl while Brent is now at US$37.20.

Gold is down in late New York trade and is now at US$1,070/oz.

UST benchmark 10yr bond yields are slightly higher at 2.26% today, and local swap rates are flatter with rises of 4 bps at the short end and less at the long.

The NZ dollar starts today at 67.8 USc, which is 10c lower than this time last year, 94 AUc, 62.3 euro cents, and the TWI is at 73.1.

Merry Christmas everyone and enjoy your holidays.

The easiest place to stay up with event risk over the holiday period is by following our Economic Calendar here »

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51 Comments

by scarfie | 24th Dec 15, 10:13am 1450905217

Seasons greetings to everyone. I know I have been quiet this year as I follow through on opportunities around my invention. They didn't sink home this year, but there are still a number in progress. I might be quiet again next year, but I am sure I will be back to torment you at some point.

Hope you all have a swimmingly good holiday.

Take care

The Scarfie.

by DFTBA | 24th Dec 15, 12:59pm 1450915167

Good luck with the investion ad making some money off of it.
have a good break

by iconoclast | 24th Dec 15, 10:16pm 1450948567

all the very best for 2016 scarfie

by scarfie | 25th Dec 15, 11:01am 1450994472

You also Iconoclast. Will have to come and see you and that new house of yours, a few people in your vicinity I would love to catch up with.

I was in Montana for most of October and November, and interesting experience. Good to be back to warmer weather!

by steven | 24th Dec 15, 4:29pm 1450927756

"Oil industry to lose 100,000 jobs by the end of 2015 as policy uncertainties, low prices decimate sector"

http://business.financialpost.com/news/energy/oil-industry-to-lose-1000…

by steven | 24th Dec 15, 4:40pm 1450928454

"IMF sees oil between $30 and $20" - "Another major global forecast has suggested that the oil price has a lot further to fall yet – and that it could go as low as $20 a barrel."

Bodes ill for the US shale / junk bond sector if so....sure some are hedged so someone else is bleeding....

http://peakoil.com/consumption/imf-sees-oil-between-30-and-20

by steven | 24th Dec 15, 4:57pm 1450929434

Lots of spare steel about it seems,

http://www.bloomberg.com/news/articles/2015-12-22/u-s-commerce-departme…

iron even lower then?

by iconoclast | 27th Dec 15, 8:07am 1451156849

California, the largest economy within the 50 states of America has listed Glyphosate, the active ingredient in Roundup, as toxic and carcinogenic

NZ govt Agency www.EPA.govt.nz maintains a list of 80 approved products containing glyphosate

by Andrewj | 27th Dec 15, 9:38am 1451162308

The problem with Glyphosate is that we have changed how we use it. We used to use it to kill a few weeds sometimes a whole field before planting. Now it's lots of fields sprayed as direct drilling becomes the primary way to sow crops.
Then it is used over the crops to kill weeds in roundup ready GE crops, so now we actually eat the stuff.
I was shocked in the UK in the 80's when the farm I was on sprayed the wheat and barley fields due to poor ripening, two weeks later we harvested beautiful ripe even fields, but all dead.
So here we are 30 years later and is glyphosate a problem? I think we are going to find out. In the States Glyphosate is found in %80 of exported food stuffs containing grain.
Glyphosate production used to be a few thousand tonnes are year now it's approaching 1.3 million tonnes a year mostly made in China
In the UK rye grass imported from NZ has turned out to be highly resistant to roundup, the way to get around resistance is of course to double the dose. Vineyards and Orchards in NZ are big users and at high volumes due to resistance weeds such as mellow, however at present the alternatives are seen as worse.
It's time we got back to inter-generational low debt family farms.

Ten NGOs Ask China to Stop Producing Glyphosate
to Protect World Health
http://www.i-sis.org.uk/AnnouncingScienceinSociety67.php

Glyphosate In Monsanto’s Roundup Found In All Urine Samples
Testedhttp://naturalsociety.com/monsantos-infertility-linked-roundup-found-in…

by Henry_Tull | 27th Dec 15, 11:57am 1451170671

and then add that to thinking represented here - something has gotta give...

http://www.bbc.co.uk/programmes/b06s9d26#play
Restaurateur Henry Dimbleby unravels the deep-seated attachment of the British to eating meat. Henry wants to cut down on his meat consumption. Many scientists and policy makers think this is a good idea - for global food sustainability, climate change and health. In an effort to understand why he is finding it so difficult, he unpicks the cultural history of the British and their relationship to eating meat.

mind you, its seems an example of the degree that export market intelligence and analysis needs go to, in order to appreciate why communities are motivated to take existing product and also provide a basis from which product/market development may launch?

by Andrewj | 27th Dec 15, 12:20pm 1451172008

The sheep industry looks to be in long term decline, beef is in trouble from Chicken and Pork.
Milk consumption in decline, so why have we now got 6.2 million cows? Can the marketing boys save us?
In my family only my wife drinks milk, although we all eat cheese.

Demand for milk has been in a free fall for decades. U.S. milk consumption has dropped 36% since the 1970s. The dairy industry’s plight is a cautionary tale for other industries whose core product falls out of favor or is under attack by activists. It illustrates the dangers of focusing on just one highly commoditized product, ignoring market trends, and trying valiantly to sell what you make rather than to make what people want.

All the milk mustaches in advertising history can’t disguise the fact that milk is no longer the drink of choice—not for teens and 20-somethings, or people with busy lifestyles, or aging baby boomers, or the elderly. With per-capita U.S. milk consumption down 36% between 1970 and 2011, an industry trade group spokesman recently admitted something everybody already knew: The dairy business is in trouble.

Yet the industry has nobody to blame but itself. It’s in trouble because it has focused on cows instead of consumers. For decades its strategy has been to make dairy operations more efficient.

http://www.forbes.com/sites/forbesleadershipforum/2013/01/04/how-the-mi…
http://www.huffingtonpost.ca/twyla-francois/canadians-dairy-industry_b_…
http://www.nltimes.nl/2015/07/08/milk-consumption-decreases-in-the-neth…

http://www.eater.com/drinks/2015/5/1/8518367/how-cows-milk-went-from-a-…

Diagnosed with osteoporosis
At the age of 46, I got the biggest shock. I was diagnosed with Osteoporosis in my lower spine and Osteopenia in my hips! How does a woman who has consumed dairy products for over forty years have Osteoporosis by her mid-forties?

Only old people get Osteoporosis – right? It made no sense.

How is this possible?
I started doing some research and found statistics that showed in countries where dairy consumption is actively promoted, and is eaten and drunk in vast quantities, that diagnosed cases of Osteoporosis are high.

http://www.unimedliving.com/food/dairy-free/osteoporosis-and-a-lifetime…

by steven | 27th Dec 15, 7:17pm 1451197058

Yep...its a leech of calcium it seems and not a help/add, I wonder if this is the next class action AKA the tobacco industry?

by Roger Witherspoon | 29th Dec 15, 9:46am 1451335614

Dairy in decline because no one drinks it. Could it be perhaps because the rancid factory produced mess that NZ calls milk is not at all likeable? Try some of the Lewis Road non homogenised milk, it's delicious, recalls memories of what milk used to taste like when I was little. Better still get some organic grass fed Jersey raw milk. The latter is a highly desired product overseas.

by Stephen Hulme | 29th Dec 15, 10:21am 1451337682

Dairy in decline because no one drinks it.

Same problem with manufacturing output in the US - no one buys it.

If the economy were in the main healthy and moving in the right direction despite inventory, then we would see that in manufacturing being itself more sprightly than the sales baseline. That is clearly not the case, as manufacturing and durable goods have been underperforming for quite some time. Thus, if inventory is building it cannot be the case of the production side as even these subdued levels of activity yield that huge imbalance. This is clearly a domestic sales problem. Read more

by Andrewj | 29th Dec 15, 10:39am 1451338768

Debord's has number of chief insights that signify trouble ahead for our current economic system. One of them is the apparent and obvious falling use value for goods in abundance (many of them pseudo goods - things we don't really need). Having long fulfilled our need for food, clothing, and shelter, our current economic growth is contingent upon consistently manufacturing pseudo needs that must feed upon the boundless desires of persons in an unending pursuit of gratification through purchasing new products and services.
The problem occurs when the next disillusionment, Debord tells us, takes place not with religion or politics but within the commodity itself. Product prestige evaporates into vulgarity soon after its purchase...at this point; the actual poverty of production stands revealed - but too late. By this time another product will demand attention...the continuous process of replacement means that fake gratification cannot help but be exposed as new models are released every year but yet remain all to similar. Why upgrade, we ask?
For the sake of Dell, GM, Microsoft, Target, Home Depot and so on, we had certainly better. Herein lies the rub picked off by Debord: "By the time that the society has become contingent upon the economy, the economy has in point of fact become contingent on society...he economy begins to lose its power."
A society/economy built upon an illusion of needs will certainly be a fragile on at best. Such a society/economy, whose growth rests upon expanding the market of pseudo commodities, has apparently developed a penchant for reporting pseudo revenue earnings (eg. Enron, World Comm, etc). This is all very predictable and very much Debordian.
Debord is reminiscent of McLuhan, full of arcane wisdom and prolix, and a prophet of the current society nonetheless. He predicted our growing devotion to quantitative trivia that arise from a juxtaposition of roles and competing spectacles, and a never-ending succession of, what he calls, "paltry contests - from competitive sports to elections." All this, he says, fuels an abnormal need for representation, to compensate for the feeling of being at the margins of existence. This seems to be modern man, slavishly devoted to commodities, celebrities, politicians, sports teams and sports heroes, compensating for the loss felt by the dividing line being the self and the world that Debord calls THE SPECTACLE.
http://www.amazon.com/gp/product/0942299795?psc=1&redirect=true&ref_=ox…

by Roger Witherspoon | 29th Dec 15, 1:24pm 1451348649

Hmm, are you sure that consumerism isn't just to distract ourselves from identifying that debt peonage is the fundamental basis of the current system? We distract ourselves so as not to confront the awful truth. Is the name of this website not something of a clue?

by iconoclast | 29th Dec 15, 3:09pm 1451354970

Dairy in decline - Nobody drinks milk anymore

Strewth - have you ever tried having a milk-shake lately

I can never find the milk-shake counter in any of the supermarkets

by Casual Observer | 29th Dec 15, 9:26pm 1451377593

This is a favourite among some of the young male population. Some prefer the Mammoth chocolate to Lewis Rd chocolate.
http://www.mammothsupply.co.nz/

by Andrewj | 29th Dec 15, 10:56pm 1451382990

Only until they discover the joy and taste of Hops :-)

by iconoclast | 30th Dec 15, 9:22am 1451420562

I mean a real fresh frothy milk-shake made in front of your eyes, not a flat 20 day old job in a plastic Polyethylene Terephthalate PET bottle - have ya seen what that stuff does to the testicles of alligators in the everglades in Florida - shrinks them - there's a full length doco on it - PET that is

by steven | 27th Dec 15, 10:51am 1451166713

Low oil prices is having a not good effect,

http://www.bloomberg.com/news/articles/2015-12-24/oil-bankruptcies-reac…

by iconoclast | 27th Dec 15, 12:00pm 1451170839

Isn't this a re-run of Ronald Reagans "star wars" SDI initiative designed to outspend the USSR which resulted in the collapse of the Soviet Union

Using the price of oil damages the Russian economy

Collateral damage are local US and Middle East producers

Very good for China and Japan

by steven | 27th Dec 15, 7:24pm 1451197483

No I dont think so (RR re-run) that it is a political game, or if it is its remarkably stupid of the US.

If you look at all conventional oil production its flat (more or less) for a decade, except the expensive US shale oil that has added 4.5mbpd since about 2009.

China needs to sell its produce to someone(s). So no I dont think its good for China at all, indeed if they implode inside of 2 years I wouldn't be surprised, horrified yes for what that means for us (World and in turn NZ).

by iconoclast | 29th Dec 15, 3:11pm 1451355104

Oil has been political ever since WW2

by Roger Witherspoon | 29th Dec 15, 1:28pm 1451348920

Ah, you mean Al Queda/Isis/Mujahadein/Saudi intelligence/CIA causing trouble in Syria is part of a wider plot? Surely not. I mean, who would have thought?

by Ergophobia | 27th Dec 15, 4:42pm 1451187725

You won't have to worry about low fuel prices for long; governments will soon fill the gap with more taxes.

by steven | 27th Dec 15, 7:25pm 1451197520

It wont stay low for many years, then we'll be walking a lot more.

by Andrewj | 27th Dec 15, 7:55pm 1451199303

Broad Side Effects To Oil
http://www.alhambrapartners.com/2015/12/23/broad-side-effects-to-oil/

by steven | 27th Dec 15, 8:43pm 1451202213

Yes....it has so many effects, not just this.

by profile | 28th Dec 15, 9:01am 1451246506

Oh doomsters cheer up!!! The average punter is saving $70-$110 per barrel on doomsters woeful predictions endured 7+ years on this site. And as for peak oil predictions give it a break in the New Year!

"Based on EIA data for September, America’s combined output of natural gas and crude oil (measured in BTUs) is on track to set a new production record this year of 52 quadrillion BTUs, an increase of 6.4% above the previous record set last year of 49.1 quadrillion BTUs, and 16.5% above the previous peak natural gas and oil production in 1971 of 44.86 quadrillion BTUs."

http://www.aei.org/wp-content/uploads/2015/12/oilgas.png

by bender | 28th Dec 15, 10:14am 1451250869

So the resulting global heating will continue unabated. Yesterday's doomsters become today's realists.

by profile | 28th Dec 15, 11:37am 1451255856

Oh go check the two satellites data sets and rest easy in the fact a planet warms in an interglacial. So what if global heating continues - far better than an ice age! Yesterdays doomster is tomorrows doomster just with a different hair split. Population bomb but... y2k but... club of rome but... ice age coming but... peak oil but... melting ice caps but...

by steven | 28th Dec 15, 6:40pm 1451281222

The warming by itself is no biggee, no except for the record floods, droughts, storms, crop failures, social collapse, yeah no biggee.

by profile | 29th Dec 15, 9:17pm 1451377069

Yeah right those crop failures that gave us the the greatest ever global cereal production is 2014... and even the IPCC can't find any record floods/droughts... etc. but you knew that.

http://faostat3.fao.org/compare/E

by steven | 28th Dec 15, 6:42pm 1451281340

There you go cherry picking again. Peak oil is nothing to do with gas which is almost a waste product. So the fact gas is up and extremely cheap is of no consequence. Oh except for the bankruptcies, loss of capital, loss of jobs etc.....

by profile | 29th Dec 15, 1:24pm 1451348663

The point is Steven there no shortage of energy supplies. And as for the multi billion dollar gas "which is almost a waste product" comment where does one start! The latest IEA energy forecasts has gas out stripping oil for energy production. Perhaps gas will do to oil what is is currently doing to the coal industry.

Your gleefully anticipated US shale oil fail is looking even further out.

"In its latest outlook, OPEC said it expects U.S. crude oil production from shale deposits to increase from 3.8 million barrels per day in 2014 to 4.9 million bpd by 2023. By 2040, the trend will start to reverse as U.S. shale output falls to 4.2 million bpd."

by steven | 29th Dec 15, 8:42pm 1451374958

Again you mis-direct, I didnt say energy, I said peak oil. Different energy sources are not equal. The looming shortage that is peak oil which is a liquid transportation problem so a) sure no shortage today, the point is tomorrow ie we are like the banks borrowing short when the game is long. 1 or 2 years no biggee, 10 or 20 years huge problem. b) Ngas is not transport fuel hence it does not matter. I dont gleefully anything, I simply follow the numbers that show that a finite resource will deplete and in US shale oil's case this is finite and will deplete and soon. OPEC is indeed making an educated guess one of a few and many dont see US shale oil doing this well. So the Q is do you trust the vested interests who want to keep you hooked on oil? or the independent analysts, that is your choice. Indeed if you think its 2040 then invest in that market, your retirement is then assured.

Lets just say 4.2mbpd in 2040 is indeed true (I dont agree) so what happens after 2040? Today demand is around 92mbpd, rising by 2mbpd in the next year or so. So after 25 years we will have needed to get 2~4mbpd more per year to grow at the rate we want, 140mbpd. Meanwhile 4.9mbpd to 4.2 is essentially flat, plus all the other fields depleting. There is no country that is on line to produce that sort of extra let alone allowing for depletion of old fields.

I dont know what you are quoting as you did not provide a URL, but here is a pretty modern one,

http://www.bloomberg.com/news/articles/2015-09-14/opec-trims-2016-estim…

OPEC trims its "estimates"....

by profile | 30th Dec 15, 6:46am 1451411207

OPEC trims is growth estimate. Note the word growth. Perhaps reading the bloomberg article would help?

"OPEC revises U.S. shale durability upward
by Daniel J. Graeber
Vienna (UPI) Dec 23, 2015

"Although the updated forecast for the 2015 outlook shows that U.S. tight crude [oil production] will decline gradually over the long-term to 4.2 million bpd in 2040, in the 2014 outlook, it was projected at only 2.8 million bpd in 2040," the report said."

In the space of 12 months the output forecast for 2040 has doubled. Who knows what the next 12 months will bring. The doomsters have been flat wrong for 150 years on oil so I know who I'm backing. Innovation and doers - not hand wringers.
http://www.oilgasdaily.com/m/reports/OPEC_revises_US_shale_durability_u…

by profile | 30th Dec 15, 7:52am 1451415121

That "waste product" you speak of is not looking too shabby in latest forecasts.

"By 2040, natural gas is expected to have the largest share, making up close to 28% of global energy demand with both oil and coal having lower shares by then.”

Yep peak oil alright.

http://www.opec.org/opec_web/static_files_project/media/downloads/publi…

by steven | 30th Dec 15, 2:23pm 1451438626

Again, "Peak oil" is OIL not gas or other energy. Oil is for liquid transportation fuels, ngas, coal is not.

I can certianly agree oil will have a lower share simply because by 2040 it will be significantly down on today's output.

by Ergophobia | 28th Dec 15, 10:57pm 1451296652

There is no threat to worry about from anthropogenic "climate change" ( if ye must have something to worry about, try the Last Four Things - Death, Judgment, Heaven and Hell); the cause of recent natural disasters is intensive development (there are just more "things" in the way of floods and hurricanes etc) and modern media magnifies the effect. Localised terrestrial reports of warming are also largely due to developments such as airports with enormous areas of concrete and tarmac, storing heat. Much recording is also taken in conjunction with aviation.
Here is NASA's explanation before all the PC loonies took over: http://science.nasa.gov/science-news/science-at-nasa/1997/essd06oct97_1/
Ergophobia

by steven | 29th Dec 15, 9:04am 1451333094

Well apart from death which is unavoidable, the other three do not exist except in your head. But math and science do exist and show global warming and climate change is occurring. I find it interesting that you would worry about "judgement" yet ignore CC which is very much a moral issue.

The piece you quote is from 1997 so almost 20 years old and has been shown to be incorrect in later research.

As an example,

https://www.skepticalscience.com/satellite-measurements-warming-troposp…

"Previously reported discrepancies between the amount of warming near the surface and higher in the atmosphere have been used to challenge the reliability of climate models and the reality of human-induced global warming... This significant discrepancy no longer exists because errors in the satellite and radiosonde data have been identified and corrected. New data sets have also been developed that do not show such discrepancies."

by profile | 29th Dec 15, 12:20pm 1451344858

So what are these "new data sets" that the photo shopping SS boys speak of? RSS and UAH satellite data sets, updated monthly, are warming at a slower rate than GISS etc. All data sets are currently warming at a slower rate than 1910-1940/pre-industrialisation. Satellite data good enough for the IPCC but not good enough for Skeptical Science?

by Ergophobia | 29th Dec 15, 12:29pm 1451345371

It is revisionism, pure and simple. The PC Brigade do the same thing with history - NZ's classic case of it is the Waitangi Tribunal. They're like rust, never sleep, till they get the answers that fit their case.

by steven | 29th Dec 15, 8:55pm 1451375734

Yet the academic papers showing the improved methods are freely available, by all means go look and publish a refuttal.

by steven | 29th Dec 15, 8:43pm 1451375024

The satellite data has been corrected, simple.

by profile | 30th Dec 15, 7:03am 1451412191

Ah the scientific method at work. Orbital decay error sorted out over a decade ago wasn't it? Rest easy it is corrected.

by steven | 30th Dec 15, 2:19pm 1451438379

Not to mention orbital timing, instrument deterioration...etc, sure is.

by tim12 | 30th Dec 15, 7:55am 1451415303

I a quite comfortable with "climate change". "Climate staying the same" would be alarming. The idea that we think we can control the climate is far fetched. Do our leaders believe thay are gods?

by steven | 30th Dec 15, 2:21pm 1451438463

It is basic science and math, not dogma, ergo not "gods" which as far as i am concerned do not exist. I fail to see why climate staying the same is alarming when as a human species we have setup our agricultural systems and society more or less based on that fact. An example is Syria, after CC has collapsed their agriculture then sure if you are happy to accommodate 10 Syrians in your house because they have to move to where the food is, then OK.

by Ergophobia | 30th Dec 15, 4:02pm 1451444533

That's right tim, the climate is always changing (there was great warming, I think C12th, when England suffered terribly with malaria and then in the 17th lamp oil froze, it got so cold for a few decades); light takes but 8 minutes to come from the sun - surely solar activity trumps all? But for the PC lot to ordain that we mortals are responsible for it, viz., climate change, puts them in the company of King Cnut.