Fund Managers Add To Bets Oil Will Go Higher

SAN FRANCISCO – Fund managers beefed up their exposure to bets oil will go higher, or long positions, on the week to Aug. 28, data from the Commodity Futures Trading Commission showed late Friday. That has made oil the most overbought since May 1, said in a note to clients Tim Evans, an analyst with Citigroup's Citi Futures Perspective. Money also flowed to gasoline long positions, the most since May as well and "unusually overbought for this late stage of the U.S. driving season," Evans said. Oil futures rallied Friday, up 2% to $96.47 a barrel and notching gains of nearly 10% for the month.

Gold and Silver OUTPERFORM After Bernanke’s Speech

On Friday, gold (NYSEARCA:GLD) futures for December delivery jumped $30.50 to settle at $1,687.60 per ounce, while silver (NYSEARCA:SLV) futures surged $1 to close at $31.44. It was gold’s highest close since March, and silver’s best level since April.
Both precious metals finished August on a high note as Ben Bernanke delivered his highly anticipated speech at the Federal Reserve Bank of Kansas City’s meeting in Jackson Hole, Wyoming. Although the Fed Chairman did not specifically name another quantitative easing program, he reiterated that the central bank “will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
Don’t Miss: Are Central Banks Still Hoarding Gold?
Furthermore, Bernanke heavily defended the Fed’s prior monetary actions, signaling to some that more easing may be on the way. He said, “And despite periodic concerns about deflation risks, on the one hand, and repeated warnings that excessive policy accommodation would ignite inflation, on the other hand, inflation (except for temporary deviations caused primarily by swings in commodity prices) has remained near the Committee’s 2 percent objective and inflation expectations have remained stable.”
As the chart below from FINVIZ shows, it was a very impressive month for precious metals. The price of silver led all other investments with a 12.5 percent gain, while gold logged a 4.4 percent.

In afternoon trading, the SPDR Gold Trust (NYSEARCA:GLD) increased 1.95 percent, while the iShares Silver Trust (NYSEARCA:SLV) surged 3.75 percent. Gold miners (NYSEARCA:GDX) such as Barrick Gold (NYSE:ABX) and Goldcorp (NYSE:GG) both jumped more than 4 percent. Meanwhile, Endeavour Silver (NYSE:EXK) and First Majestic Silver (NYSE:AG) popped 8.40 percent and 5.85 percent, respectively.

Fed Flub on MBS 'Guaranty' Fixed Hours Later

Was it wishful thinking by the Federal Reserve?


Federal Reserve Chairman Ben Bernanke's Jackson Hole speech caught the eye of J.P. Morgan Chase & Co.'s (JPM) mortgage strategists, but not only because of quantitative-easing talk.
Matthew Jozoff zeroed in on a footnote in the text with a curious description of the agency mortgage-backed securities that the Fed has been stocking up on for years. There, the Fed initially described the MBS and debt of the government-sponsored enterprises as "explicitly guaranteed by the U.S. government" since August 2008.
The problem was that MBS of the GSEs, or Fannie Mae (FNMA) and Freddie Mac (FMCC), have never been explicitly guaranteed, even after the two companies were seized by the government in 2008, and backed with capital from the Treasury. It's more than just semantics to the $5 trillion market, where many investors--especially foreign ones--will only buy MBS issued by the Government National Mortgage Association, known as Ginnie Mae, for their "full faith and credit guaranty of the United States government."
"GSE MBS have not been explicitly guaranteed. If that were the case, it would be a big deal, but it's not happening," said Mr. Jozoff, who expected that the Fed would revise the footnote.
Fed officials apparently noticed the flub, and within hours replaced the footnote in the speech posted on the Fed's website with: "Since August 2008, Fannie Mae and Freddie Mac have been in government conservatorship with capital support provided by the U.S. Treasury."
A Fed spokesman wasn't immediately available to comment.
MBS are a significant part of the Fed's fattened balance sheet. It has amassed a portfolio of more than $850 billion of MBS through multiple rounds of quantitative easing, a program that traders expect will be expanded after Mr. Bernanke noted an accommodative stance in Friday's speech. It currently reinvests proceeds of its MBS back into that market, focusing primarily on Fannie Mae and Freddie Mac securities over higher priced Ginnie Mae bonds that securitize loans made through Federal Housing Administration and Veterans Administration programs.
Buying MBS helps keep mortgage rates low because the lion's share of all U.S. residential loans are ultimately funded through investor purchases of the securities.
Prices on Ginnie Mae securities are near record highs relative to other agency MBS, partly due to the government guarantee. Ginnie Mae 3.5% MBS trade at 108-3/32 cents on the dollar, compared with 105-29/32 on the similar Fannie Mae bonds, according to Credit Suisse.

U.S. Crude Posts Biggest Monthly Gain Since October 2011

Oil rose above $114 a barrel in volatile trading on Friday, taking gains in August above 9 percent, after U.S. Federal Reserve Chairman Ben Bernanke stopped short of signalling extra monetary easing was imminent but kept the door open for action.
Crude initially pulled back after Bernanke's address at a central bankers' symposium in Jackson Hole, Wyoming. As traders parsed the details, prices were quick to move higher, supported by stronger-than-expected U.S. economic data.
Figures released on Friday showed U.S. factory orders posted the biggest rise in 12 months in July, jumping 2.8 percent, while the Thomson Reuters/University of Michigan survey of consumer sentiment showed the index rising to 74.3 in August from 73.6 in a preliminary August report.
"There was no announcement about if more stimulus was coming immediately, but he (Bernanke) said the Fed was ready to act if necessary so that was supportive," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
"Along with the factory orders and consumer sentiment data, the (market) longs are in control."
Brent crude settled up $1.92 at $114.57 a barrel, having earlier reached a session peak of $114.78. Brent gained 9.2 percent in August, the biggest monthly percentage rise since prices jumped by 10.5 percent in February, and added to a 7 percent rally in July.
U.S. crude rose $1.85 to settle at $96.47, having earlier risen briefly above the 200-day moving average at $96.68, a key technical resistance level closely watched by traders. U.S. crude gained 9.6 percent in August, the biggest percentage gain since October 2011.
Quantitative easing is viewed by many investors as likely to boost the price of commodities and other hard assets as it tends to depress the value of the dollar.
The euro rose against the dollar on Friday, boosted by signs of progress toward a deal to tackle the euro zone debt crisis.
Trading volume was relatively buoyant ahead of a long weekend in the United States, with Brent turnover 6 percent over the 30-day average. U.S. crude volume lagged its 30-day average by 5 percent at 3 pm in New York.
U.S. markets will be closed on Monday for the U.S. Labor Day holiday.
STRATEGIC RESERVES IN FOCUS
Crude prices were further supported by reports Germany and Italy remain opposed to a release of emergency consumer oil stocks, which created further uncertainty about the timing of any possible release as sanctions on Iranian exports have tightened the market and boosted prices.
Since mid-June Brent prices have risen by more than 25 percent, from below $90 a barrel to near $115 now.
Meanwhile, the Department of Energy loaned 1 million barrels of light sweet crude oil to Marathon Petroleum Corp from the U.S. Strategic Petroleum Reserve (SPR) due to short-term supply problems created by Hurricane Isaac.
"This emergency loan from the Strategic Petroleum Reserve will help ensure Marathon's refining operations have the crude oil they need to continue operating," Energy Secretary Steven Chu said.
The DOE added it continues to "keep all options on the table to address additional or sustained oil supply issues."
Overall, however, the Gulf of Mexico oil and gas industry has so far reported little major storm-related damage to infrastructure although one Louisiana refinery had flooding. Energy production is expected to start ramping up again over the weekend.
Traders said oilfield maintenance in the North Sea was also boosting prices, with a potential strike by Norwegian oil workers looming just weeks after a walkout lasted 16 days and stopped 13 percent of Norway's oil production.
Norwegian oil drilling workers may strike on Sunday at installations operated by KCA Deutag in two North Sea fields, but production will not be affected, a union leader said Friday.

Oil, Gas Firms Restaff U.S. Gulf Platforms, Refineries

The U.S. Gulf Coast's energy producers moved to restart refineries and restart platforms Friday as Tropical Depression Isaac petered out over the Mississippi River Valley.
Nearly all of the oil production in the U.S. Gulf of Mexico's federal waters remained offline, however. Production of 1.3 million barrels a day of oil, or 95% of the region's total, was shut in, a level similar to the one seen Thursday, the U.S. Bureau of Safety and Environmental Enforcement said Friday. Offshore natural-gas outages decreased slightly to 3.1 billion cubic feet a day, or 68% of the region's normal production, down from 3.3 billion cubic feet a day on Thursday.
Producers are expected to bring significant amounts of production back on-line by the end of the long weekend. Royal Dutch Shell PLC's (RDSA, RDSA.LN) U.S. unit, which began fully restaffing all of its central U.S. Gulf of Mexico operations on Friday and will continue in other areas on Saturday, said going back to the production levels seen before the storm would take between three and five days, depending on the readiness of processing and transportation infrastructure.
With early reports indicating the storm caused little major infrastructure damage, the storm "should be a one-week blip in terms of products and crude numbers," said Kyle Cooper, managing director of IAF Energy Advisors in Houston.
BP PLC (BP, BP.LN), the Gulf's largest energy producer, said it is redeploying staff to offshore facilities, and will start producing oil and gas there in the coming days. The company said aerial surveys showed no damage from Isaac, but crews will perform closer inspections when they return.
Chevron Corp. (CVX) began redeploying personnel offshore and restoring production "where it is safe to do so," the company said in a statement.
Anadarko Petroleum Corp. (APC) said it has started the process of restaffing platforms in the eastern and central Gulf of Mexico that were evacuated ahead of Isaac. Employees will conduct on-site inspections at five platforms Friday, after remote-monitoring systems indicated all the company's facilities were intact.
The company said it expects to restart production as pipeline and infrastructure availability allows.
BHP Billiton Ltd. (BHP, BHP.AU) unit BHP Billiton Petroleum said it began restaffing its Gulf of Mexico production platforms Friday. "Production will resume as soon as possible," a spokesman said.
The U.S. Department of Energy said Friday some 878,000 barrels of refining capacity remained shut down, as four refineries in the area remained closed and five were operating at a reduced rate. Two refineries--Motiva Enterprises LLC's 235,000-barrel-a-day Convent, La., refinery and Placid Refining's 57,000-barrel-a-day facility in Port Allen, La., were in the process of restarting, the DOE said.
Also, the DOE said Friday that it provided an emergency loan of one million barrels of sweet crude oil to Marathon Petroleum Corp. (MPC) to address the short-term impact of the hurricane on its refining capacity. The crude oil will come from the Strategic Petroleum Reserve's Bayou Choctaw site in Louisiana, and will be repaid with interest in three months, the DOE said. Energy Secretary Steven Chu said the loan, requested by Marathon Thursday, is part of a "broader federal effort to respond to those impacted by Hurricane Isaac."
Marathon said Friday its Garyville, La., refinery suffered no significant damage and has continued to operate at reduced rates. The facility, however, "did receive a large amount of rainfall," the company said.
Marathon plans to operate the facility at a reduced rate until "the normal crude supply logistics return," a spokesman said in a statement.
Valero Energy Corp. (VLO) said maintenance crews are in the process of assessing the Louisiana refineries it had shut down, but the facilities aren't yet up and running.
Employees will return over the weekend to begin the process of restarting operations at the 125,000-barrel-a-day refinery in Meraux and the 205,000-barrel-a-day refinery in Norco, in St. Charles Parish. Valero spokesman Bill Day said there isn't yet a timetable for restarting work.
"We should have a better idea this weekend," he said. Mr. Day had said Thursday that initial inspections didn't reveal anything more than minor wind damage to the refineries.
Valero's 180,000-barrel-a-day refinery in Memphis, Tenn., which had to reduce its rates due to the closing of the 1.2-million-barrel-a-day Capline Pipeline bringing crude oil from the Gulf Coast, will now ramp up to planned rates because the pipeline reopened.
Phillips 66's (PSX) Alliance refinery in Belle Chasse, La., remained shut down and without power. The 247,000-barrel-a-day facility had some floodwater, though it is receding, a company spokesman said.
Chevron's Pascagoula refinery in Mississippi continues to operate, running at reduced rates "for precautionary reasons only," waiting for the nearby ship channel and maritime transportation to return to normal, Chevron said.
The DOE Friday said about 638,617 electricity customers were without power in Arkansas, Louisiana and Mississippi.

China Still Working on Property Tax Trial Expansion - Report

China's top tax bureau hasn't worked out details about an expansion of a property tax trial to include all cities across the country, state media reported Saturday.
The Chinese government has repeatedly said it would expand property taxes, which were initiated under a trial reform program in Shanghai and Chongqing last year, to include other cities. But the process has been slow due to the complexities of structuring such a tax in the various cities.
"The tax bureau, together with the Ministry of Finance and the Ministry of Housing and Urban-Development, is working on the program that will expand the trial to include all the cities," the China Securities Journal reported, citing the State Administration of Taxation.
"Details about how to implement the property tax trial on a nationwide basis haven't been decided. [But] tax breaks will be offered to meet the basic need for housing," the report said.
The comments are also published by other major Chinese newspapers, such as the Shanghai Securities News and the Securities Times.
Currently, Shanghai imposes the property tax on homes bought on January 28, 2011 and afterwards by local families who already have more than one house. Chongqing's tax targets newly bought high-end houses only.

Gold Jumps 3% as EU Summit Lifts Confidence

Gold prices rallied 3 percent on Friday and were on track to end June with their first monthly rise in five as a deal to shore up banks and cut borrowing costs at a European Union summit sparked a surge in assets seen as higher risk.
Euro zone leaders agreed to take emergency action to bring down Italy's and Spain's spiralling borrowing costs and to create a single supervisory body for euro zone banks by the end of this year, a first step towards a European banking union.
The news sparked a sharp rally in European shares, a 1.9 percent jump in the euro versus the dollar, and a near $4-a-barrel gain in oil prices. Spanish and Italian government bond yields fell, and safe-haven German Bunds slid.
"The news has been positive for the euro and positive for confidence in general, which means that equities and commodities, including gold for the time being, have all received a shot in the arm," Simon Weeks, head of precious metals at the Bank of Nova Scotia, said.
Spot gold was up 3 percent at $1,596.76 an ounce at 1303 GMT, while U.S. gold futures for August delivery were up $47.40 an ounce at $1,597.70.
Still, the metal stayed on track for its biggest quarterly drop since the three months to Sept. 2008, down 4.3 percent since end March. In that period, the dollar rose and hopes faded that the Federal Reserve would unveil further monetary easing.
After a widely celebrated 11-year bull run, which took gold prices to a record $1,920.30 an ounce last September, it is now little better than flat on the year and has averaged just over $1,650 an ounce in the first half.
"After 11 years it is only natural that gold stops and pauses for breath before taking the next step higher," Saxo Bank vice president Ole Hansen said. "The worry is obviously that momentum has been completely lost and leveraged players (such a hedge funds) have left the building."
"They will come back, but the market needs to reassert itself before that happens, as they are more followers than instigators of trends."
"The event that could trigger the spark that puts some life back into gold is however difficult to find at the moment, so before we move higher, there is a risk that we need to clear the table, which could be triggered by a move below $1,500."
INDIAN BUYING PICKS UP
Physical gold buying in major consumer India picked up a little on Friday. Weakness in Indian demand has undermined spot prices this year, with Indian gold prices near record highs due to rupee weakness.
Traders in India are waiting for monsoon rains to pick up, which is vital to farm productivity and profits. Rural areas account for about 60 percent of gold imports.
Quarterly sales of gold American Eagle coins by the U.S. Mint also fell to their lowest in four years at 127,500 ounces, down more than 39 percent from the previous quarter and by more than half year on year.
Silver was up 5.1 percent at $27.67 an ounce.
That helped pull the gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, back from its highs of the year to 58.5.
Spot platinum was up 2.8 percent at $1,422.25 an ounce, while spot palladium was up 2.6 percent at $575.69 an ounce. Both have fallen to their lowest this year in recent days, at $1,378 and $556 respectively.
"Overall, the market's behaviour was not all that different from what we've seen all week: price action comes in sweeps, mostly on Comex, and stops get triggered along the way, amplifying the move," UBS said in a note. "Today, it's no great surprise that silver and PGMs are leading the move higher, with both easily outpacing the euro move."