Energy and Natural Resources Market Radar (January 13, 2013)
Strengths
- The U.S. Department of Commerce reported on Tuesday that the U.S. trade deficit narrowed 12.9 percent to $34.3 billion in November. The surprisingly positive figure is a result of exports hitting a record high, boosted by increased sales of oil, and a substantial reduction in demand for foreign oil.
- The weekly change in U.S. natural gas storage was a withdrawal of 157 billion cubic feet (Bcf), exceeding analysts’ expectations amid the coldest weather in 20 years. The current storage level is 16 percent below this time last year, and 10 percent lower than the five-year average.
- The Kurdistan Regional Government has given public notice of the commencement date of exports from the region, marking a milestone for stocks in the area such as Genel Energy. Crude oil is being exported via pipeline to Turkey. Producers in the region are expected to reach full pipeline export capacity of 300,000 barrels per day (bpd) by December.
Weaknesses
- The price of crude oil hit an eight-month low this week of $91.66, continuing the downward trend established in the prior week.
- Natural gas prices pulled back 6 percent this week after a strong move towards the $4.50 level on record low temperatures.
- BNP Paribas sees more downside potential in spot coal prices in the near term on stable inventory at Qinhuangdao Port, in addition to sufficient supplies at independent Chinese power producers, and is expected to last two to three weeks.
Opportunities
- China’s copper demand could surprise to the upside on China’s State Grid forecast for a 13 percent increase in 2014 spending. The State Grid Corporation of China provides power to 80 percent of China. The power sector accounts for more than 40 percent of Chinese copper demand. Outsized spending in 2013 helped tighten the Chinese market for most of the year. However, the new target exceeds Barclay’s forecast and suggests that copper demand from the power sector could stay as strong, if not stronger, in 2014.
- UBS reports U.S. gross fixed investment has fallen to 13 percent of GDP, on par with Greece, and well below the 16 to 21 percent range of the last six decades. The trend may be about to reverse, and the resulting rise in investment demand could provide a strong boost to energy and materials, especially at a time when U.S. corporations are sitting on $1 trillion of cash.
- Senator Lisa Murkowski, the leading Republican on the Energy and Natural Resources Committee, called for President Obama to end the ban on crude oil exports, as U.S. crude production hits a 25-year high. Big oil is in favor of repealing the ban, which could allow producers of sweet crude to obtain better prices in the international market, while gulf refiners could import cheaper heavy crude suitable for their refineries.
Threat
- Mortgage rates in the U.S. hit the highest since September, with the average 30-year fixed rate climbing to 4.54 percent this week. The sustained rate increase is likely to stifle demand for housing and home builders, as well as lowering demand for lumber.
- Aluminium prices fell 11.6 percent year-on-year to the lowest quarterly average since 2009. Near record inventories at the LME warehouses have been blamed on an estimated 1.8 percent global oversupply. The pressure on producers is expected to increase as new warehousing rules at the LME are expected to lower physical delivery premiums.
