Many years ago, jade used to travel to China along the Silk Road. Today, more and more jade is being shipped across the Pacific Ocean from British Columbia.

China is the epicenter of jade demand and culture, and today’s infographic shows how jade is formed, the rush for BC jade, and how jade gets from the boulder to the market.

HOW JADE IS FORMED

Finding high-quality jade is extremely difficult, which is part of the reason it is so valuable. Jade is created in areas of the world that have subduction zones, such as around the Ring of Fire.

Subduction occurs when two tectonic plates collide and one is forced under the other. The elements are carried deep into the earth, where immense heat and pressure creates the necessary conditions for the formation of jade. This process takes 60 million years.

Most of the world’s jade forms in areas with this kind of intense geological activity. Xinjiang, home to China’s most important nephrite jade deposits, his near where the Indian plate is colliding with the Eurasian plate. 

In British Columbia, the conditions are similar, and jade can now be found throughout Canada’s westernmost province. Specifically, there are three areas where today jade is mined: Dease Lake, Mount Ogden, and Cassiar.

THE JADE MARKET

The global market for jade is dominated by Myanmar (formerly Burma) where the majority of jadeite is produced. The size of the reported jade market is largely dependent on data from Myanmar. Before conflict and mine shutdowns resumed in the country in 2011, jade sales were estimated to be $3.5 billion per year. 

These shutdowns led to a supply gap in jade, and that is where British Columbia comes in: the production of BC jade has increased from 1.7% to 8.3% from 2011 to 2014.

A 2013 Harvard report put out a more in-depth assessment of the global jade market, and estimated it to be $8 billion.

THE BC JADE MARKET IS BOOMING

Demand for the most desired jade, which comes in an emperor green colour, has put significant price pressure on BC jade. Production of BC jade has doubled, and prices for gem quality jade have jumped to $200-$1,000 per kg.

FROM SOURCE TO MARKET

BC jade can be found in hard rock deposits or in alluvial boulders that have been moved by glaciers over time.

“New mine jade” refers to jade found in hard rock deposits. This is typically more weathered and more susceptible to cracking.

“Old mine jade” is jade that has been dragged by glaciers in boulder form. Only the best boulders survive, and typically these are of high quality.

Jade is similar to gold in that it can be found in a pure form in nuggets in streams and rivers. Often, the most ambitious Chinese buyers may fly in via helicopter to the northern jade sites to buy jade “off the bucket” in cash. This ensures the best quality jade and miners also benefit.

The jade then typically makes its way to a hub like Vancouver to get shipped overseas to China. China is by far the world’s largest market for jade, where it is considered a hard asset and a symbol of wealth, purity, and spirituality. China is also home to the most brilliant jade craftspeople in the world.

Finally, after sometimes years of intricate carving, the jade is sold in major retail centers like Hong Kong or Beijing. Once a finished product, the jade can sell for up to 10x its original price, creating wealth throughout the value chain. 

As an example: the Polar Pride Boulder was carved into a massive Buddha and sold for $1 million in 2004.

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Commodities and Emerging Markets have been crushed over the past 15 months by the dollar’s strong rally. It therefore follows that if the dollar starts down again, they are going to rally, and this will happen regardless of the state of economies. The dollar should start down again if the Fed fails to raise interest rates tomorrow, and maybe even if they do, as the ensuing chain of interest rate rises cannot extend far because of the magnitude of debt.

We have already seen how commodities have fallen steeply back to strong long-term support, where a cyclical low is likely to occur…

There was a surprise sharp rally in this commodity index late in August which was contained by resistance near to its falling 50-day moving average…

Commodities remain deeply unpopular with the normally wrong Rydex traders, as the following charts makes plain. In itself this is a positive sign for the sector…

This sharp rise in the commodity index was largely accounted for a sharp $10 rise in the oil price, which seemed to come “out of the blue” but was due to a combination of extreme negative sentiment and an announcement by the Saudis that they will scale back production. Both the commodity index and the oil price look have stalled out in recent weeks and backed off beneath their respective 50-day moving averages, but with the volume dieback in oil, the pattern in both is starting to look like a bull Flag/Pennant.

Meanwhile copper has firmed up, broken out of its downtrend and has gone on to break out above its 50-day moving average on strong volume, and is thus looking a lot more positive…

Emerging Market Chile, whose fortunes are highly dependent on the copper price, is showing signs of completing a skewed base pattern beneath its 50-day moving average. On its 6-month chart we can see a possible final low in August when a giant bull hammer occurred, followed by some large white candlesticks, with its Accum-Distrib line shown at the top of the chart advancing. This is positive action that points to a breakout above the 50-day moving average soon. Working this back it implies that copper will continue to improve, and that won’t happen unless commodities in general advance, and if they do, it means the dollar is set to drop. Working this in the opposite direction, it further means that gold and silver, which have been dragging their hind quarters along the ground like a dog with a problem, are also going to advance, and since no-one but a few die-hard battle scarred goldbugs expects that to happen, the rally in gold and silver will come out of left field, catch most everyone by surprise and be big and fast.

So we are going to keep a close eye on this in coming days, on the lookout for the first signs of a blistering recovery rally in gold and silver.

The party is over for tight oil.

Despite brash statements by U.S. producers and misleading analysis by Raymond James, low oil prices are killing tight oil companies.

Reports this week from IEA and EIA paint a bleak picture for oil prices as the world production surplus continues.

EIA said that U.S. production will fall by 1 million barrels per day over the next year and that, “expected crude oil production declines from May 2015 through mid-2016 are largely attributable to unattractive economic returns.”

IEA made the point more strongly.

“..the latest price rout could stop US growth in its tracks.”

In other words, outside of the very best areas of the Eagle Ford, Bakken and Permian, the tight oil party is over because companies will lose money at forecasted oil prices for the next year.

Global Supply and Demand Fundamentals Continue to Worsen

IEA data shows that the current second-quarter 2015 production surplus of 2.6 million barrels per day is the greatest since the oil-price collapse began in 2014 (Figure 1).

Figure 1. World liquids production surplus or deficit by quarter. Source: IEA and Labyrinth Consulting Services, Inc.

EIA monthly data for August also indicates a 2.6 million barrel per day production surplus, an increase of 270,000 barrels per day compared to July (Figure 2).

Figure 2. World liquids production, consumption and relative surplus or deficit by month. Source: EIA and Labyrinth Consulting Services, Inc.

It further suggests that the August production surplus is because of both a production (supply) increase of 85,000 barrels per day and a consumption (demand) decrease of 182,000 barrels per day compared to July.

The world oil demand growth picture is discouraging despite an increase in U.S. gasoline consumption (Figure 3).

Figure 3. World liquids demand growth. Source: EIA and Labyrinth Consulting Services, Inc.

World liquids year-over-year demand growth has fallen by almost half from 2.3 percent in September 2014 to 1.2 percent in August 2015. This is part of overall weak demand in a global economy that has been severely weakened by debt.

The news from both IEA and EIA is, of course, terrible for those hoping for an increase in oil prices.

U.S. production has fallen 510,000 barrels of crude oil per day since April 2015 while OPEC production has increased 1.2 million barrels per day since the beginning of the year (Figure 4). U.S. production increases in the first quarter of 2015 were partly because of an oil-price rally that ended badly this summer, and because of new projects coming on-line in the Gulf of Mexico.

Figure 4. OPEC and U.S. crude oil production. Source: EIA and Labyrinth Consulting Services, Inc.

It appears that OPEC is winning the contest with U.S. tight oil producers to see which can continue to over-produce oil at low prices. IEA ended its September Oil Monthly Report saying,”On the face of it, the Saudi-led OPEC strategy to defend market share regardless of price appears to be having the intended effect of driving out costly, “inefficient” production.”

In other words, tight oil and oil sands production.

With Iran poised in early 2016 to add almost as much oil as the amount of the U.S. production decline to date, the outlook for tight oil producers could not be worse. And yet, the sell-side analysts and investment bank research groups continue to chant the refrain of logic-defying hope for tight oil producers in the face of crushingly low oil prices.

Party On, Dude!

This week, Raymond James joined the chorus with its bewildering “id=james.halloran@pnc.com&;source=mail”>Energy Stat: U.S. Operators’ Response to Low Oil Prices? Get More Efficient!”

The message is all about rig productivity and drilling efficiencies. I showed in my post last weekthat these measures are nothing but red herrings to distract from the unavoidable truth that all tight oil companies are losing money at current oil prices.

I would like to say that Raymond James is simply repeating the shop-worn and illogical cliché that “We’re losing money but making it up on volume” but it’s much worse than that.

There is no mention of money in the report. There is not a single dollar sign ($) in the text or figures nor are there are there any costs, prices or cash flows mentioned. That seems odd since Raymond James is, after all, a financial advisory company.

Raymond James presents 30-day IP (initial production rate) data to show that everything is fine and getting better in the tight oil patch.

Really guys? Is that why oil companies are laying off staff, cutting budgets and selling assets?

Besides, everyone knows that IPs are a practically meaningless predictor of EUR or profitability, and something that producers often manipulate to create press releases in order to satisfy investors.

Nonetheless, they forecast “2015 to be a banner year for both oil/gas well productivity gains.” Interesting but irrelevant since it’s going to be an atrocious year for profits.

Here is my table from last week’s post for the best of the tight oil companies in the best parts of the plays.

Table 1. First half (H1) 2015 cost per barrel of oil equivalent summary for Pioneer, EOG and Continental. Source: Company SEC filings and Labyrinth Consulting Services, Inc.

EOG, Pioneer and Continental lost between $10 and $24 per barrel in the first half of 2015 but Raymond James says, “Never mind and party on, Dude!”

This report by Raymond James is both misleading and clearly out-of-touch with the price and investment environment that the International Energy Agency and the Energy Information Administration describe.

Conclusions

ExxonMobil CEO Rex Tillerson summarized the situation this week in an interview with Energy Intelligence:

“It [tight oil] will compete. Will all of it compete at all pricing? No.”

For the next year or so, tight oil wells will not be commercial except in the best parts of the best plays. Tight oil companies will lose money. For the most part, the efficiency gains are behind us.

Until market fundamentals of supply and demand come into balance, prices will remain low. Goldman Sachs predicted yesterday that U.S. oil prices through the first quarter of 2016 will be “low enough to discourage investment in new oil production and shrink the global glut of crude.”

Clearly for now, the party is over for tight oil.

By Art Berman for Oilprice.com

Why would oil find a bottom here?  Because everyone thinks it’s going lower, is one answer.  We could conjecture till the cows come home on rationales, but we would fast run out of paper and time.  So I won’t.  But interestingly, the move has met a symmetrical wave low (5-waves down to complete larger C) in distance and time…no guarantees.  Note the divergence in the Relative Strength Index (RSI) at the bottom pane of the chart, i.e. price made and new low but RSI didn’t confirm.   Of course implications for CAD here (see page 3).

Please click on the link below to view:
https://gallery.mailchimp.com/dcfeb4b3bc5ba9ed1d447e92e/files/091615_oil_and_cad.pdf

Regards,

Jack Crooks
Black Swan Capital