Energy and Natural Resources Market
Quick Thoughts on the Oil Market
Commercial oil inventories fell another 5.1 million barrels last week as demand outpaced new supply 4-to-1. Overall stocks are now down 38 million barrels over the last five weeks and end-use product stocks down 44 million barrels, the largest decline over the past five years, according to PIRA Energy Group. PIRA reports that overall inventories are now virtually flat, the first time this has happened since July 2010.
Oil prices have been resilient following the tragedy in Japan and continued unrest in the Middle East-North Africa region. Increased oil demand will likely result from an aversion to nuclear power but the biggest driver will be any good news that the Japanese situation is under control. Once this happens, we could see a strong move upward in oil prices, PIRA says.
Strengths
U.S. steel production continues to advance, with the latest American Iron and Steel Institute release reporting production of over 87 million tons per year at a utilization rate of 75.5 percent. As a result, year-to-date production through mid-March is up 9.6 percent on a year-over-year basis.- U.S. aluminium orders (excluding can stock) rose by 0.9 percent month-over-month in February, a strong outturn given that orders seasonally fall roughly 7.3 percent month-over-month during February. Year-over-year orders were 15.3 percent higher in February and 18.2 percent higher year-over-year over the first two months of 2011. The rise was driven by strong increases in extruded products, drawing stock and bare wire, and electrical conductors sectors.
Weaknesses
- Indonesia may revise its 2011 oil output target to 945,000 to 952,000 barrels per day from 970,000 under the state budget, the countryâs finance minister said.
- Weighed by curbs and a four-fold rise in export tax, iron ore exports from India, the worldâs third-largest exporter, are likely to fall 5 percent to about 58 million tons in the next fiscal year, a trade body official said.
- Crude exports from Libya fell âwell belowâ 500,000 barrels per day as fighting intensified in North Africaâs largest oil producer, the International Energy Agency (IEA) said.
- With some of the worldâs top auto makers forced to stop vehicle production because of the nuclear crisis in Japan, demand for platinum, used mainly in auto catalysts has fallen; the metal has recorded its biggest two-day loss in four months.
- The uranium spot price has been in freefall in recent days and was reported to have traded in the high $40s per pound earlier this week, down by over 30 percent from its recent peak of $73 per pound. Analysts at Macquarie Bank say the continued declines reflect a lack of resolution on the problems at Fukushima Daiichi nuclear facility. The announcement that Germany will shut 8.34 Gigawatt-electric of nuclear capacity for at least three months and the news that China is temporarily halting new nuclear projects in order to review the safety of its nuclear build plans added to the selloff.
Opportunities
- China, which controls about 95 percent of global shipments of rare earths, may start importing some of the material to meet rising domestic demand. There is a âstrong possibility of importing heavy rare earthsâ in the next three to four years, an industry official said.
Threats
- A massive earthquake off of the east coast of Japan and ensuing tsunami has caused significant damage. Nearly 20 percent of the countryâs nuclear power capacity has been shut down and the potential for a dangerous meltdown at one facility remains high.
- Canadian oil sands producers face hyperinflation as higher oil prices have prompted several new projects in the region, the head of Total SAâs Canadian unit said.
- The King of Bahrain declared martial law as his government struggled to quell an uprising by the island countryâs Shiâite Muslim majority that has drawn in troops from fellow Sunni-ruled neighbor Saudi Arabia.
- German Chancellor Angela Merkel announced this week that German nuclear plants commissioned before 1980 will be shut down for three months, pending the result from an in-depth safety review of all German nuclear plants.
