Tuesday, December 8, 2015

Oil producers brace for $20 a barrel; Anglo American to cut 85,000 jobs in restructuring; Eurozone grows 0.3% in Q3

1 Oil producers prepare for $20 a barrel (Larry Elliott in The Guardian) The world’s leading oil producers are preparing for the possibility of oil prices halving to $20 a barrel after a second day of financial market turmoil saw a fresh slide in crude, the lowest iron ore prices in a decade, and losses on global stock markets.

Benchmark Brent crude briefly dipped below $40 a barrel for the first time since February 2009 before speculators took profits on the 8% drop in the cost of crude since last week’s abortive attempt by the oil cartel Opec to steady the market.

But warnings by commodity analysts that the respite could be short-lived were underlined when Russia said it would need to make additional budget cuts if the oil price halved over the coming months. Alexei Moiseev, Russia’s deputy finance minister, said: “If oil goes to $20, we will need to do additional [spending] cuts.”

Russia and Saudi Arabia – the world’s two biggest oil producers – both increased spending when oil prices rose to well above $100 a barrel. The fall from a recent peak of $115 a barrel in August 2014 has left all Opec members in financial difficulty, but Saudi Arabia has refused to relent on a strategy of using a low crude price to knock out US shale producers.

Hopes that Opec would announce production curbs to push prices up were dashed when the cartel met in Vienna last Friday, triggering the latest downward lurch in the cost of oil. Lord Browne, the former chief executive of BP, refused to rule out the possibility that oil could halve again in price. 
Asked if oil could hit $20 a barrel, Browne – who ran BP from 1995 to 2007 during a period when the cost of crude rose from $10 to $100 a barrel – said in the short term nothing was impossible.

2 Anglo American to cut 85,000 jobs in restructuring (BBC) Shares in mining firm Anglo American have fallen to a record low as the company said it would sell huge chunks of its business and shrink its workforce by nearly two-thirds. The changes will see the workforce drop by 85,000, from 135,000 to 50,000.

The group has been forced to restructure after the collapse of commodity prices slashed profits. Anglo will also suspend dividend payments for a year, and consolidate from six to three businesses. All the world's big mining companies have seen profits tumble along with plunging commodity prices as demand from China has slowed.

The price of oil is at seven-year lows, as is copper, and on Tuesday the price of iron ore tumbled to a 10-year low of $39.60 a tonne, after reaching a peak near $200 in 2011.

As part of the restructuring, Anglo American's diamonds business will be run by its De Beers subsidiary, its platinum and base metals operations will come under Industrial Metals, and its Bulk Commodities division will concentrate on coal and iron ore.

A company spokesperson said the JOB cuts would be made through asset sales and internal cuts: "Bear in mind that these include assets that we will sell, so the 85,000 jobs don't [all] disappear as many will be employed by new owners of those mines that we sell."

3 Eurozone grows 0.3% in Q3 (Gulf News) Euro-area growth in the third quarter was bolstered by private consumption and government spending as exports suffered from a slowdown in global trade. Gross domestic product in the 19-nation bloc rose 0.3 per cent in the three months through September after expanding 0.4 per cent in the prior quarter, the European Union’s statistics office said.

The data come less than a week after the European Central Bank cut one of its main interest rates to a record low and expanded its asset-purchase program to at least 1.5 trillion euros ($1.6 trillion) to shore up the region’s muted economic recovery and bring inflation closer toward 2 per cent. While domestic spending is benefiting from lower oil prices, exports are damped by an economic slowdown in emerging markets.

“The recovery remains very much a consumption-driven story going into 2016, and the external side should turn from neutral to slightly positive next year,” said Holger Schmieding, chief economist at Berenberg Bank in London. “We have a dent caused by emerging markets, but the risk has lessened over the last two months.”

The ECB presented fresh economic projections on Dec. 3 that were largely unchanged from September, even as ECB President Mario Draghi pointed to downside risks emanating from “heightened uncertainties regarding developments in the global economy as well as to broader geopolitical risks.”

The central bank kept its growth forecast for next year at 1.7 per cent, and revised a 2017 projection to 1.9 per cent from 1.8 per cent. The inflation outlook for 2016 was cut to 1 per cent from 1.1 per cent, and lowered to 1.6 per cent from 1.7 per cent for the following year.

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