Energy and Natural Resources Market Diary (July 12, 2010)
Strengths
Crude oil futures (NYMEX) gained over 5 percent this week to close above $76 per barrel, the best rise since May, on a rebound in risk assets and a larger than expected 5 million barrel draw from inventories reported by the U.S. Dept. of Energy this past week.- U.S. distillate demand measured on a 4 week average is up 16 percent year-over-year.
- German industrial production rose by 2.6 percent month-over-month in May, much higher than consensus estimates of 0.6 percent, with year-over-year growth of 12.4 percent still solid. If production is flat in June, output will be up 5.8 percent quarter-over-quarter in 2Q, much stronger than the 1.0 percent quarter-over-quarter rise in 1Q.
Weaknesses
- Natural gas futures (NYMEX) fell 6 percent this week on lower expectations for demand and a larger than expected build in inventories in the U.S.
- Norway's oil production fell to a preliminary 1.52 million barrels per day on average in June from an actual production of 1.85 million in May, the Norwegian Petroleum Directorate said today. Gas production fell to a preliminary 8.5 billion standard cubic meters in June from 9 Bcm in May. Statoil is the largest oil and gas producer on the Norwegian continental shelf.
- Power-station coal prices at Australia’s Newcastle port, a benchmark for Asia, fell 1.3 percent, declining for the second week in three. The index for coal prices at the New South Wales port fell to $97.06 a metric ton in the week ended today from $98.29 the previous week, according to the globalCOAL NEWC Index.
Opportunities
- The International Monetary Fund raised its 2010 world growth forecast to 4.6 percent from 4.1 percent in April and boosted estimates for the United States and China.
- The U.S. government’s request to reinstate the deep-water oil-drilling moratorium while it challenges a lower court order rejecting the ban was denied by a federal appeals panel yesterday in Louisiana. This was, however, on the basis that the request did not show any likelihood of drilling activities being resumed pending the appeal. The actual appeal will be heard during the week of August 30.
- Total said that it has signed an agreement with Canadian oil sands developer UTS Energy to acquire UTS Corporation with its main asset, a 20 percent interest in the Fort Hills mining project in the Canada’s Athabasca region, for C$1.5 billion.
- According to Upstreamonline, China National Petroleum Corporation (CNPC) is planning to produce 500 million cubic metres of shale gas by 2015. However, Liao Yongyuan, CNPC’s Deputy General Manager, said that China does not have any shale gas production and evaluation of the potential resources is only at a preliminary stage.
- Lloyd's of London will not insure or reinsure petroleum shipments going into Iran, the insurance market said on Friday. U.S. President Barack Obama signed into law last week far-reaching new sanctions that aim to squeeze the Islamic Republic's fuel imports and increase its international isolation. "The U.S. is an important market for Lloyd's and, in recognition of this, the market will not insure or reinsure refined petroleum going into Iran," Lloyd's General Counsel Sean McGovern told Reuters in a statement. "Lloyd's will always comply with applicable sanctions," McGovern.
Threats
- The Chinese government is looking to extend the resources tax on extraction of oil, gas and coal in order to fund development of resource rich areas. The tax will be set at a benchmark of 5 percent and will vary across commodities, according to Du Ying, Vice Chairman of the National Development and Reform Commission.
- Mohammad Ali Khatibi, Iran's OPEC governor, said that OPEC has surplus capacity of 4-6 mbpd, which is keeping the crude prices low. He said that "Right now, because of the economic crisis, OPEC is facing a 4-6 million barrel surplus capacity". And "This will be having a psychological effect on the oil price," he added. He stated that "Because of the problems happening in the Gulf of Mexico, it is predicted that the production cost of crude oil in deep waters will increase." And "It is unlikely from now on that they will permit exploration in sensitive areas," he added.
- China, the world’s largest rare-earths producer, cut export quotas for the minerals by 72 percent for the second half of 2010, raising the possibility of a trade dispute with the U.S. Shipments will be capped at 7,976 metric tons, down from 28,417 tons for the same period a year ago, according to data from the Ministry of Commerce
- China’s grain production this year may decline by 1 percent to 2 percent on excessive flooding in southern areas the Institute of Agriculture Resources and Regional Planning at the Chinese Academy of Agricultural Sciences said.
