Energy and Natural Resources Market Radar (March 24, 2014)

Energy and Natural Resources Market Radar (March 24, 2014)

 

Relative Valuation of Energy Sector Back at 1999 Levels When Oil Was $10 per Barrel
click to enlarge

Strengths

  • Agriculture and livestock have been the strongest performers so far this year within the commodities complex. Returns in these areas are on target to post their strongest quarterly performance since the four quarter of 2010 and the second quarter of 1987, respectively.
  • Wholesale prices for milk, cheese and other dairy products hit all-time highs early in the week on soaring global demand and tight domestic supplies.
  • Ethanol prices gained 14 percent this week on concerns that colder temperatures and possible snow could worsen a shortage of rail cars to move ethanol to consumer markets.
  • The oil rig count in the U.S. reached a record this week as producers ramped up horizontal drilling activity in the prolific Eagle Ford shale formation.  Oil rigs increased by 12 to 1,473, with the Eagle Ford gaining the most, adding nine oil rigs for a total of 200.  Meanwhile natural gas rigs fell to a 19-year low.

Weaknesses

  • Natural gas futures fell to a two-month low, marking a second-weekly decline, as meteorologists predicted mild weather this spring that would limit demand for the heating and power-plant fuel.
  • The price of zinc has fallen by 5 percent over the prior two weeks on expectations that China’s domestic zinc supply is set to rise as smelters ramp up production.  Additionally, galvanizers are sitting on growing stockpiles and demand from construction remains muted.

Opportunities

  • On top of strikes in South Africa, the Ukraine crisis is further exacerbating fears of constrained platinum group metals supply as Russia and South Africa supply around 80 percent of the market. A curtailment of supply would tighten the market significantly.
  • Total proposed North American liquefied natural gas (LNG)/petrochemical development projects now total approximately $250 billion.  Engineering and construction contractors should benefit from the surge in shale gas-related development activity in the U.S. Roughly one-third of these projects could move forward through 2018.
  • While new pipelines and gas processing facilities will enable strong growth in U.S. gas production, new gas-fired capacity will add to utility demand, leaving pre-winter natural gas storage at lower levels than in previous years.  This should support natural gas prices over the balance of the year.

Threats

  • Ukraine is at risk of seeing a food "crisis" emerge from its political turmoil.  The Ukrainian Agribusiness Club warned that 20 percent of the land allocated to spring grain and oilseed plantings may go unseeded this year.
  • An El Niño weather pattern probably will develop by July, according to forecaster MDA Weather Services. The chances of El Niño emerging later in the northern hemisphere summer are 75 percent, said Donald Keeney, senior agricultural meteorologist at Gaithersburg, Maryland-based MDA. El Niños affect weather worldwide and can roil agricultural markets as farmers contend with drought or too much rain.
Total
0
Shares
Previous Article

Emerging Markets Radar (March 24, 2014)

Next Article

Gold Market Radar (March 24, 2014)

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