Energy and Natural Resources Market Radar (September 2, 2012)
Strengths
- The U.S. oil-rig count rose for the first time in three weeks as crude futures breached $95 a barrel. The oil count increased by 11 to 1,419 rigs.
- International oil companies and sovereign wealth funds continue to see opportunities in the North American oil patch. The Globe and Mail reported that the Kuwait Petroleum Corporation may invest as much as C$4 billion for a joint venture to develop Athabasca Oil’s assets in Alberta.
- Despite a sluggish domestic economy, the Department of Energy’s latest report showed that June 2012 implied demand for gasoline and distillate were revised up 1.3 percent and 1.2 percent, respectively.
Weaknesses
- Rusal announced it would be cutting 150,000 metric tons of capacity in light of continued pressure on aluminum prices and company performance. The cut represents roughly 4 percent of expected 2012 output and comes as part of a larger review of 275,000 metric tons of high-cost capacity. Further cuts could potentially be made in stages over the next several years and replaced with lower-cost capacity currently under construction in Siberia.
- Returns for very large crude carriers (VLCC) for the industry’s busiest trade route stayed negative for an eighth week as a lack of cargoes continues to persist. VLCCs are losing $6,389 daily from the Middle East to Asia route. Returns have now been negative since July 5.
- Iron ore prices fell to their lowest levels since 2009 on Thursday as a slowdown from top-consumer China dampens demand for the steel-making ingredient.
Opportunities
- Increased activity in the exploration and production (E&P) sector will be the primary driver in pushing oil and gas capital expenditure (capex) to an enormous $1,039 billion for 2012, states the latest report by GlobalData. The new report predicts that the total oil and gas capex will increase by 13.4 percent this year over the 2011 total of $916 billion, as oil companies intensify upstream operations across locations as diverse as offshore Brazil, the Gulf of Mexico and the Arctic Circle.
- Royal Dutch Shell will be allowed to begin some "limited" drilling in Alaska's Chukchi Sea, the U.S. government said on Thursday, a move the company hailed as a step forward in its long-delayed effort to tap Arctic oil.
Threats
- Morgan Stanley says iron ore could decline as much as 16 percent from its lowest price in more than 2 years on slowing demand and rising stockpiles. Iron ore with 62 percent iron content was at $99.40 per ton on August 24.
- Downgrades to Chinese economic growth may bias oil demand growth prospects to the downside, which could weigh on crude oil prices.
