Energy and Natural Resources Market Radar (December 30, 2013)
Strengths
- Crude oil (West Texas Intermediate) finished the weak higher as well as implied demand in the U.S. remains strong and drove prices near two-month highs of $100 per barrel.
- The CRB Raw Industrials Index broke out to an eight-month high as global economic indicators continue to point towards expansion.
- Metals prices have been strong in December with copper prices gaining three percent this week to $3.44 per pound and hit an eight-month high price. Zinc prices also rallied for a fourth straight week and have broken out to nine-month highs.
Weaknesses
- After closing at a multiyear high price earlier in the week, natural gas futures in New York eased about one percent this week as expectations of milder weather weighed on prices.
- The U.S. Farmland Price Index compiled by Creighton University weakened to 47.0 this month, indicating the first contraction since December 2009 amid recent concerns of asset bubbles forming in the farming sector following a period of heavy investment in land and equipment. "This is the first time in four years that the farmland-price index has moved below growth neutral," Creighton Economist Ernie Goss said. A reading above 50 indicated expansion while below 50 marks a contraction. The index stood at 54.3 in November and compares with 82.5 in December 2012. The apparent decline in farmland prices reflects a similar decline in confidence amongst U.S. farmers, who until recently enjoyed a boom period, bolstered by record crop prices and a surge in exports.
Opportunities
- The United States’ average daily oil production is on track to surge by one million barrels per day this year, the biggest one-year jump in the nation’s history, according to federal data. The country has pumped an average of 7.5 million barrels of crude per day in 2013, up from 6.5 million barrels per day in 2012. That breaks last year’s record, when oil production jumped by 837,000 barrels per day between 2011 and 2012. The U.S. Energy Information Administration projects that oil production will jump by another one million barrels per day in 2014, largely buoyed by drilling activity in Texas’ Eagle Ford Shale and Permian Basin regions, as well as North Dakota’s Bakken Shale. The Gulf of Mexico also is seeing a boost, with oil production expected to grow to 1.4 million barrels per day in 2014, up by 100,000 barrels. The data is evidence of the astonishingly rapid turnaround in the nation’s energy story. Oil production declined in 29 of the 40 years between 1971 and 2011. In total, oil production fell by about 40 percent during that time, from 9.5 million barrels per day in 1971 to 5.6 million barrels per day in 2011. While the U.S. oil boom has sparked conversation of energy independence, Americans consume about 18 million barrels of liquid fuels per day, far more than is produced domestically. Still, the production surge has caused oil imports to drop considerably. The nation shipped in an average of 7.9 million barrels per day of crude in September, the most recent period for which import data is available. That’s a significant drop from the peak in 2005, when the nation imported an average of 10.1 million barrels per day.
- China’s fixed-asset investment in road and waterway infrastructure is estimated to hit 1.53 trillion yuan in 2013, an increase of 5.56 percent from the previous year, said Yang Chuantong, Minister of Transport, at a conference on Friday. According to the minister, China is expected to complete construction of 8,260 kilometers of new expressways, and rebuild 339 kilometers of expressways and 28,600 kilometers of national and provincial trunk highways in 2013. The country will also rebuild 210,000 kilometers of rural roads, complete construction of 110 berths of 10,000 deadweight tonnage and bigger tonnage, and add and renovate 289 kilometers of fairways in the year.
Threat
- Indonesia's production of metal ores is expected to fall "drastically" due to a ban on unprocessed mineral exports set to begin in January, a government official said, as there is insufficient smelting capacity to absorb the volumes of base metal ores the country produces. From January 12, mining companies must process their ore before shipping it overseas under a measure which aims to boost the value of exports from Indonesia, the world's top exporter of nickel ore, thermal coal and refined tin. "Ore production will fall drastically next year due to this ore export ban," Sukhyar, the country's newly appointed director general of coal and minerals, told reporters in Jakarta on Friday.
