Energy and Natural Resources Market Radar (January 14, 2013)
Strengths
- Crude oil gained for the fifth consecutive week in New York, the longest stretch since August, as Saudi Arabia cut production and investors speculated that a global economic recovery will boost fuel demand. At $93.66 per barrel, futures were near their highest level in almost four months. Saudi Arabia, the world’s largest crude exporter, cut output in December to the lowest in 19 months, according to a Persian Gulf official with knowledge of the kingdom’s energy policy. Oil rose this week as Chinese exports accelerated, European Central Bank President Draghi said the euro-area economy will gradually recover, and Japan announced a $116 billion stimulus package.
- Natural gas futures rebounded from a mid-week low after a government report showed that U.S. stockpiles declined by the most in almost two years. Gas prices closed the week up 1 percent at $3.33 per mmbtu
Weaknesses
- Base metals were mixed this week with copper and aluminum both down 0.8 percent. Over the week as a whole, tin, silver and platinum all gained by more than 4 percent, while lead, zinc and copper all fell.
Opportunities
- China’s apparent crude oil consumption may increase 5.3 percent year-over-year to 502 million tonnes in 2013, the China Petroleum and Chemical Industry Federation said.
- China’s iron ore imports increased to 71 million tonnes, the second monthly increase in a row. Commodities analysts at Deutsche Bank expect that iron ore imports could continue to grind higher as inventory levels have dropped to a 12-month low and China has tended to restock at the beginning of the year.
- Analysts at Macquarie noted that commodity markets started the year emerging from the heavy destock seen in 2012, with first China then other countries running down metals inventories through the value chain as profitability suffered. They see upside opportunity for industrial metals through early 2013 as ex-China buyers return, inventory availability is limited, high Chinese infrastructure spend continues and supply suffers seasonal weakness. Sequential supply-demand looks better in many cases, and more aggressive restocking provides potential upside.
Threats
- Gross natural gas production in the lower 48 states climbed to a record high in October, gaining 0.4 percent from upwardly revised September output, data from the U.S. Energy Information Administration showed on Monday.
- Following closely behind Zambia's state owned utility asking miners to reduce power consumption by 100MW due to shortages, local press has reported that concern is growing in Brazil regarding potential power rationing. According to commodity analysts at Macquarie, hydropower output is set to fall due to low water levels, putting further pressure on thermal generation. With excess thermal capacity currently in the system, Macquarie does not believe rationing is probable, however additional coal imports and rising power prices will more than likely be needed through early 2012
