INFORMATION DECK ABOUT YOUR KNOWLEDGE: Fundamentals

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Monday, March 25, 2013

Weekly Fundamentals - Brent Crude Extended Decline on Easing Iranian Tensions

ONG Focus | Insights | Written by Oil N' Gold | Sat Mar 02 13 04:19 ET

Early last week, the market attention was mainly on the hung parliament formed after the Italy election. Sentiment was also damped by Moody’s downgrade of UK’s triple A credit rating. Later in the week, investors’ risk appetite improved after Italy’s bond auctions and ECB President Draghi’s Assurance that the central bank would not exit monetary easing soon. Another focus was the US sequester, i.e. about $85 billion in spending cuts, that began on March 1. Negotiation on Friday between Obama and congressional leaders failed to reach an agreement to avoid the reductions.

Crude Oil: Brent crude plunged last week with the front-month contract reverting back to the 110 level as geopolitical tensions eased for the time being. The P5+1 negotiation about Iran’s nuclear development was held last week in Almaty. While the meeting, the first time since last June in Moscow, has not made any deal yet, it is deemed to be a more constructive one as all parties agreed to hold a new round of talks in Turkey on March 17-18 March and then more high-level talks in Kazakhstan on April 5-6. Moreover at the meeting, the Western allies agreed to offer Iran limited sanctions relief if it stops its output of 20% enriched uranium. Iran stated that it would consider the offer. Yet, Tehran’s Interim Friday Prayers Leader Hojjatoleslam Kazem Seddiqi stressed that “any proposal which denies the people their rights is dismissed by the nation and no official has the right to compromise in this regard”.

Natural Gas: The DOE/EIA reported a -171 drop of gas storage to 2 229 bcf in the week ended February 22. Stocks were -307 bcf less than the same period last year and -308 bcf above the 5-year average of 1 921 bcf. Separately, Baker Hughes reported that the number of gas rigs fell -8 units to 420 in the week ended March 1. Oil rigs increased +4 units to 1 333 and miscellaneous rigs remained unchanged and the total number of rigs fell -4 units to 1 757. Directionally oriented combined oil, gas, and miscellaneous rigs slipped -12 units to 185 units while horizontal rigs added +1 unit to 1 141 units and vertical rigs added +7 units to 431 during the week.

Precious Metals: Despite a modest rebound earlier in the week, selloff resumed with the benchmark Comex gold contract losing -0.03% on weekly basis. In the complex, the decline in PGMs prices was more severe with platinum and palladium losing -2.11% and -2.03% respectively. South African government has proposed measures to allow more institutions to provide exposure to commodity ETFs, in particular gold and platinum.

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Gold Weekly Technical Outlook (Saturday, 16 March 2013 10:05 ET)Silver Weekly Technical Outlook (Saturday, 16 March 2013 10:05 ET)Crude Oil Weekly Technical Outlook (Saturday, 16 March 2013 10:05 ET)Natural Gas Weekly Technical Outlook (Saturday, 16 March 2013 10:04 ET)Weekly Fundamentals - WTI- Brent Spread Narrowed o... (Saturday, 16 March 2013 02:38 ET)Strong US Data Sent Shares to New Highs (Friday, 15 March 2013 01:03 ET)Economic Calendar 3/15/13 (Thursday, 14 March 2013 22:13 ET)IEA Lowered Global Oil Demand Growth Forecast for ... (Thursday, 14 March 2013 08:50 ET)Crude Weakened on Inventory Increase (Wednesday, 13 March 2013 23:14 ET)Economic Calendar 3/14/13 (Wednesday, 13 March 2013 23:12 ET)

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Saturday, March 23, 2013

Weekly Fundamentals - Commodities Weakened amid Speculations of Fed's Early Exit

ONG Focus | Insights | Written by Oil N' Gold | Sat Feb 23 13 03:56 ET

Last week began with further weakness of Japanese yen as G-20 statement largely shrugged off concerns over competitive currency depreciation in major economies. Release of the FOMC minutes caught most attention towards the end of the week. The minutes for the January FOMC meeting indicated that policymakers were more upbeat on the US economic outlook as driven by improved business confidence and household consumption. They acknowledged better employment conditions but stressed that 'the recovery in the labor market was far from complete'. The debate on additional QE remained rigorous but balanced. The focus was on the benefits and costs of additional asset purchases. While some suggested asset purchases to end 'well before the end of 2013', others warned of the 'significant' costs of ending purchases prematurely. Rigorous discussions about continuation of QE have triggered speculations of an early exit which sent the US dollar higher but risky assets including commodities and stocks lower.

Precious Metals: The complex declined last week with gold and silver losing -2.26% and -4.63% respectively. For PGMs, platinum and palladium plunged -4.19% and -2.16% respectively. The hot topic for precious metals is whether gold’s long-term uptrend has ended. The yellow metal made a record high above US$ 1900/oz in September 2011. Since then, price has been range-bounded with 1500 being the lower boundary. After failing to re-test the record high in October, gold price has since then declined -12%. A close look as the correlation between gold, US real interest rates and the USD should give us some insight on the issue.

Traditionally, US real interest rates are negative correlated with gold price, i.e. it is positive for gold as real rates are low and/or negative, as lowest interest rates reduce the opportunity cost of owning the precious metal. The following chart shows that the Fed’s QE programs have driven real rates lower in the past few years. However, recent FOMC meetings signaling that the central bank might terminate QE sooner than previously anticipated have lifted real rates. This has in turn put pressure on the yellow metal. While unstable, gold is conventionally believed to be trading in opposite direction as the greenback. The strength of the USD index in recent weeks has given additional pressure to gold.

It appears that these two indicators have been negative for gold’s outlook. Yet, investment demand has remained firm. Despite outflows, the size has remained modest. Data from SPDR Gold Trust suggested that ETF gold holdings have declined only -4% since October 2012 when gold price has dropped more than -10%. Indeed, although it is likely that downside risks to gold remains, whether there is a structural change in the price trend depends on further weakness in economic data from the US and China.

Natural Gas: The DOE/EIA reported that natural gas inventory fell -127 bcf to 2400 bcf in the week ended February 15. Stocks were -242 bcf less than the same period last year and -361 bcf above the 5-year average of 2 039 bcf. Separately, Baker Hughes reported that the number of gas rigs added +7 units to 428 in the week ended February 21. Oil rigs decreased -8 units to 1 329 and miscellaneous rigs remained unchanged and the total number of rigs fell -1 unit to 1 761. Directionally oriented combined oil, gas, and miscellaneous rigs added +3 units to 197 units while horizontal rigs added +1 unit to 1 140 units and vertical rigs slid -5 units to 424 during the week.

Crude Oil: Crude oil prices showed a reverse of the rallies over the past weeks with ease in geopolitical tensions and Saudi Arabia’s potential increase in output being the key factors. After cutting production in 4q12, the world’s largest oil producer is expected to rise exports in 2Q13 so as to meet demand in countries such as China. The front-month contract for WTI crude dropped -2.85% while the Brent crude contract fell -3.035. The WTI-Brent spread was narrowed modestly.

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Weekly Fundamentals - Widening of WTI-Brent Spread Persists

ONG Focus | Insights | Written by Oil N' Gold | Sat Feb 16 13 12:35 ET

Crude Oil: Events happened in recent weeks delayed the expected narrowing of WTI-Brent spread. First, capacity of the Seaway crude oil pipeline running from Cushing Oklahoma to the US Gulf was forced to be scaled back to 175K bpd by Enterprise after the operator expanded its capacity to 400K bpd from 150K bpd earlier in January. The reason given was "unforeseen constraints in outbound takeaway… the Jones Creek delivery point has reached maximum capacity"Another issue was the delay of the start up of BP’s Whiting, Indiana unit to July. The unit with expected capacity of 260K bpd has been closed since last November and was scheduled to commence operation in April-May.

Meanwhile, Brent crude has remained firm and has gained +4.45 since the beginning of the year. The Brent forward curve has been in backwardation since July 2012 with the front-month contract being supported by decline in non-OPEC supply shortfalls and steady growth in global demand.

Natural Gas: The DOE/EIA reported that gas inventory fell -157 bcf to 2527 bcf in the week ended February 8. Stocks were -270 bcf less than the same period last year and +348 bcf above the 5-year average of 2179 bcf. Separately, Baker Hughes reported that the number of gas rigs slipped -4 units to 421 in the week ended February 13. Oil rigs increased +7 units to 1 337 and miscellaneous rigs remained unchanged and the total number of rigs gained +3 units to 1 762. Directionally oriented combined oil, gas, and miscellaneous rigs added +9 units to 194 units while horizontal rigs dipped -4 units to 1 139 units and vertical rigs slid -2 units to 429 during the week.

Precious Metals: Despite the decline last week, PGMs continued to outperform gold and silver with platinum widening its premium to gold to above $75/oz, levels last seen in August 2011. . It was reported that the Zimbabwean government will seize nearly 28 hectares of land leased by Zimplats Holdings Ltd for reallocation of assets for local business. Yet, the move is expected to disrupt production of PGMs. Platinum is expected to continue to outperform gold with the platinum-to-gold ratio currently at a 17-month high. Meanwhile, production reports from miners indicated weakness output in the 4th quarter. Impala Platinum, the second-largest platinum producer, reported that its platinum output dropped -10% both q/q and y/y, to 411K oz in 4Q12. Total output for the calendar year 2012 was 1.46M oz, down -15.2% y/y.

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Wednesday, March 20, 2013

Weekly Fundamentals - Upbeat US Job Data and Uneventful Central Bank Meetings Caught Investors' Attention

ONG Focus | Insights | Written by Oil N' Gold | Sat Mar 09 13 02:13 ET

Central bank meetings occupied the headlines last week. Although none of the banks announced policy change, the market was somehow moved by policymakers’ comments. Both the ECB and the BOE left their monetary stance unchanged. The ECB left the main refinancing rate unchanged at 0.75% and did not announce new quantitative easing measures. The central bank saw downside risks to economic developments. These risks include "the possibility of weaker than expected domestic demand and exports" and "slow or insufficient implementation of structural reforms" in the bloc. Meanwhile, the need to cut costs would delay recovery. President Draghi expected the Eurozone should return to growth in 2014 with the forecast range between 0- 2%. Inflation next year would range from 0.6% to 2%. The BOE announced to keep the Bank Rate at 0.5% and the asset purchases at 375B pound. The committee only released a short statement and details of the discussion should not be disclosed until release of the minutes on March 20. The BOC left the overnight rate at 1%, with the Bank Rate at 1.25% and the deposit rate at 0.75%. The policy statement was dovish as policymakers saw less urgency in rate hike than previously. The tone of the statement was similar to the previous one with the broad outlook for the Canadian economy similar to January's. Policymakers expected domestic growth would gain momentum through 2013 amid better household spending and business investment and exports. The RBA left the cash rate unchanged at 3% for a third consecutive in March. While the policy outlook would remain accommodative, the central bank paused this month as recent economic data suggested that Australia's economic growth was close to trend with the help of increase in resources sector investment. The central bank statement showed few changes from the previous month, signaling that policymakers were holding more or less the same views as last month's concerning the economic outlook. Masaaki Shirakawa also kept the overnight cash rate at 0.1% and held fire on asset purchases expansion at his last meeting in the capacity of the BOJ Governor.

In the US, the employment report for Februayr came in better than expected. Non-farm payrolls increased +236K, compared with consensus of 158K and a downwardly revised 119K in January. The jobless rate was lowered to 7.7% from 7.9% in January.

Crude oil: Although WTI-Brent spread narrowed and Brent crude price added less than 1% last week, the benchmark contract had a volatile week due to supply disruption in the North Sea. Production at the North Sea Buzzard oil field was suspended for 4 days until March 4. Last month, Buzzard also had an outage which brought loadings from 160K bpd to 80K bpd. Its operator, Nexen, was only able to restore slightly more than 100K bpd February 20. Yet the maintenance this time was more successfully. Not only was the work completed 10 hours earlier, but Nexen also stated that production is increasing after the maintenance. Buzzard produces about half of the crude steam for Forties, one of 4 grades that make up Dated Brent. The other blends are Brent, Oseberg and Ekofisk. The Brent crude pipeline system was shut for 5 days from March 2 due to the leak discovered on the Cormorant Alpha platform over the weekend. The pipeline system came back into service on Thursday and helped compress the time differential.

Natural Gas: The DOE/EIA reported a -146 drop of gas storage to 2 083 bcf in the week ended March 1. Stocks were -361 bcf less than the same period last year and -269 bcf above the 5-year average of 1 814 bcf. Separately, Baker Hughes reported that the number of gas rigs fell -13 units to 407 in the week ended March 8. Oil rigs increased +8 units to 1 341 and miscellaneous rigs remained unchanged and the total number of rigs fell -5 units to 1 752. Directionally oriented combined oil, gas, and miscellaneous rigs added +10 units to 195 units while horizontal rigs dropped -11 units to 1 130 units and vertical rigs slid -4 units to 427 during the week.

Precious Metals: Palladium surged last week after a report from China’s NDRC that the government would strive to lower carbon emission and improve energy efficient this year. China’s plan to implement China VI standards in 2016 and its bias toward gasoline-fueled vehicle would raise demand for palladium as auto-catalyst. Indeed, China’s imports of the metal rose to a 6-month high in January. Strike in South African mines has also raised concerns over future outputs.

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Monday, March 18, 2013

Weekly Fundamentals - WTI- Brent Spread Narrowed on Divergent Movements of Two Benchmarks

ONG Focus | Insights | Written by Oil N' Gold | Sat Mar 16 13 02:38 ET

Crude Oil: WTI and Brent crude moved in different direction last week with the former for April delivery adding +1.60% while the latter slipped -1.29% during the week. This has further narrowed the WTI-Brent spread to $16.7/bbl, the lowest level since mid-January, and the 1Q13 average to $19/bbl. The WTI crude contract was supported by the EIA report that Cushing inventory slipped-1.53 mmb to 49.32 mmb, a level not seen since December last year. Brent crude time-spread also slumped during the week as a result of 2 incidents. First, a crude oil loading program for April in the North Sea is expected to raise supply by +150K bpd to the highest levels since June 2012. Output is also expected to stabilize in the Buzzard field while the Elgin field would also resume operation. Second, the South Korean government is proposing to cancel tax rebate on imported crude from the EU from April 1. This would likely reduce demand for North Sea crude by Korean refineries.

In China, the report from National People’s Congress suggested that the government forecast the economy to grow +7.5% this year with M2 money supply and fixed asset investment rising +135 and +18% respectively. Despite concerns over measures to curb property prices, oil demand would remain well-supported by resilient manufacturing activities. Meanwhile, the NRDC has planned to increase the transparency and responsiveness of domestic fuel prices adjustment so as to reflect changes in international oil benchmarks more instantly. There have been proposals to remove the 4% crude price change threshold and the observation period of 22 working days. The last time the NDRC adjusted fuel prices was February when gasoline and distillate prices were raised by +3.2% and +3.4% respectively. Over the past 12 months, it has raised fuel prices 4 times and cut them 4 times.

Natural Gas: The DOE/EIA reported a -145 drop of gas storage to 1 938 bcf in the week ended March 8. Stocks were -440 bcf less than the same period last year and -198 bcf above the 5-year average of 1 814 bcf. Separately, Baker Hughes reported that the number of gas rigs added +24 units to 431 in the week ended March 15. Oil rigs stayed unchanged at 1 341 while miscellaneous rigs remained unchanged and the total number of rigs gained +24 units to 1 776. Directionally oriented combined oil, gas, and miscellaneous rigs added +14 units to 209 units while horizontal rigs climbed +1 unit to 1 131 units and vertical rigs added +9 units to 436 during the week.

Precious Metals: gold price gained last week but remained capped below 1600 at close. Although macroeconomic fundamentals should be able to drive prices higher, near-term catalysts lack in the near-term. In China, deputy Governor of the PBOC, Yi Gang, stated that the government would limit its gold holdings to 2% of total reserve amid concerns that additional buying would drive up prices and hurt consumer demand. That said, China would remain a key gold importer as its domestic production is not sufficient to meet domestic jewelry demand.

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Gold Weekly Technical Outlook (Saturday, 16 March 2013 10:05 ET)Silver Weekly Technical Outlook (Saturday, 16 March 2013 10:05 ET)Crude Oil Weekly Technical Outlook (Saturday, 16 March 2013 10:05 ET)Natural Gas Weekly Technical Outlook (Saturday, 16 March 2013 10:04 ET)Strong US Data Sent Shares to New Highs (Friday, 15 March 2013 01:03 ET)Economic Calendar 3/15/13 (Thursday, 14 March 2013 22:13 ET)IEA Lowered Global Oil Demand Growth Forecast for ... (Thursday, 14 March 2013 08:50 ET)Crude Weakened on Inventory Increase (Wednesday, 13 March 2013 23:14 ET)Economic Calendar 3/14/13 (Wednesday, 13 March 2013 23:12 ET)Gains in Oil Limited as OPEC Suggested Downside Ri... (Wednesday, 13 March 2013 00:11 ET)

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