Energy and Natural Resources Market Cheat Sheet (November 14, 2011)

Energy and Natural Resources Market Cheat Sheet (November 14, 2011)

Copper Imports to China

Strengths

  • The International Energy Agency monthly report indicated that Organisation for Economic Co-operation and Development (OECD) oil inventory data fell by 800,000 barrels per day in September and October which is more than twice the normal rate and implies a fundamentally tight oil market.
  • Monthly data released by the Chinese government showed copper imports rose to the highest level in 17 months in October.
  • West Texas Intermediate (WTI) crude oil has been among the best-performing commodities over the past week and month, up 4 percent and 19 percent respectively. Analysts at Deutsche Bank observed that unlike industrial metals, the energy sector, and specifically crude oil, WTI has been resilient to heightened levels of equity market volatility and disruption risk and instead focused on physical fundamentals which have been tightening.  This has seen U.S. inventories decline in Petroleum Administration for Defense Districts (PADD) 2, which has encouraged the forward curve to move into backwardation and contributed to a narrowing in the WTI-Brent spread.  Brent is likely being constrained somewhat by a better-than-expected recovery in Libyan oil production.
  • The Global Resources Fund has had good relative performance versus its peer group median over the trailing month.

Weaknesses

  • The Global Resources Fund underperformed its benchmark this week mostly attributable to stock selection within the energy sector.
  • In spite of some supportive supply side news and positive Chinese import data, copper prices have continued to slide since the end of October and fell 3 percent this week to $3.46 per pound on the COMEX.
  • A leading indicator for Chinese steel demand, October data for residential floor space under construction fell 6.1 percent year-over-year and sales fell 9.9 percent year-over-year, while starts also slowed sharply.

Opportunities

  • In its World Agriculture Supply and Demand Estimates report, the U.S. Department of Agriculture cut its forecast for U.S. corn and soybean yield, with the decline in corn production larger than anticipated by the market.  Low inventories and lower production should support higher corn prices and, by extension, higher fertilizer prices.
  • According to IEA, Libya’s crude oil production is expected to rise to 700,000 barrels per day by the end of 2011.
  • China’s Ministry of Industry and Information Technology (MIIT) has announced its expectation that China’s annual crude steel consumption will be on the order of 750 million tons per year by 2015, as part of the five-year plan for the sector.

Threats

  • Downside volatility could refocus if an agreement is not reached regarding Congress’ efforts to pass the budget next week, and later concerning the U.S. super-committee deadline on November 23.
Total
0
Shares
Previous Article

Emerging Markets Cheat Sheet (November 14, 2011)

Next Article

Gold Market Cheat Sheet (November 14, 2011)

Related Posts
Subscribe to AdvisorAnalyst.com notifications
Watch. Listen. Read. Raise your average.