Close High Low Daily change Change (%) Cash Settle

Transcription

1 : Daily Focus: Structural shifts in the US oil market 7 February 2012 Focus: The US consumes over one-fifth of global petroleum production, more than twice as much as that of the second-largest consumer, China. For many years, the strength of the US oil market has been the barometer of the health of the global oil market. However, two major shifts have taken place in the US oil market, which should reduce the influence of the US on the global oil market. A modest IMF downgrade to China s growth outlook and concerns over the pace of global industrial output from the Chinese Ministry of Industry and Information Technology weighed on much of the base metals complex during overnight trade. The base metals have continued to come under pressure ahead of US trade with Greece again the main focus of the markets. Until there is clarity regarding the debt situation, the metals are likely to remain nervous, something underscored by the relatively light turnover seen this morning. Strategists Walter de Wet, CFA* Walter.DeWet@standardbank.com Leon Westgate* Leon.Westgate@standardbank.com James Zhang* Jinzhong.Zhang@standardbank.com Marc Ground, CFA* Marc.Ground@standardbank.com After initially dropping, yesterday saw gold and silver trade relatively range-bound. The oil market was firm again yesterday, but not the WTI market. Brent rallied $1.35/bbl on the day, while WTI lost 93c/bbl. The spread between the two benchmark widened further this morning, exceeding $20/bbl. Commodity price data (6 February 2012) Base metals LME 3-month Open Close High Low Daily change Change (%) Cash Settle Change in cash settle Cash - 3m Aluminium 2,255 2,223 2,258 2, % 2, Copper 8,549 8,500 8,571 8, % 8, Lead 2,225 2,181 2,237 2, % 2, Nickel 21,287 21,695 21,672 21, % 21, Tin 24,300 24,500 24,500 23, % 24, Zinc 2,150 2,131 2,167 2, % 2, Energy Open Close High Low day/day Change (%) ICE Brent % NYMEX WTI % ICE Gasoil % API2 Q2' % Precious metals AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFP's Gold 1, , , , , /2.7 Silver /0.0 Platinum 1, , , , , /3.5 Palladium /1.0 Sources: Standard Bank; LME; BBG Please refer to the disclaimer at the end of this document.

2 Focus: Structural shifts in the US oil market Figure 1: US implied demand for gasoline on 4-week average The US consumes over one-fifth of global petroleum production, more than twice as much as that of the second-largest consumer, China. For many years, the strength of the US oil market has been the barometer of the health of the global oil market. However, two major shifts have taken place in the US oil market, which should reduce the influence of the US on the global oil market. 10,000 9,600 9,200 kbd Firstly, US oil consumption, led by gasoline, has declined materially, and will fall further due to high prices and improved vehicle fuel efficiency. As shown in Figure 1, US demand for gasoline during 2011 was tracking the bottom end of its fiveyear range or setting record lows for most of last year. For January of this year, gasoline demand in the US was setting news seasonal record lows again. Although the weekly data is subject to revision, it is clear that the declining trend in US gasoline demand continues. Secondly, US oil imports have also been falling materially. Figure 2 shows total net oil imports, including both crude and products, into the US for the last five years. During 2010, US oil imports have been less than its five-year average levels, and 2011 saw the imports dropped further to set a new low levels for the past five years. Again, in the past month, the import levels set new seasonal record lows. This shift has been driven by a combination of declining oil demand and rising domestic crude oil production. We expect the two structural shifts in the US oil market declining demand and falling imports to continue. Consequently, oil exporter and oil prices will have to rely more on the demand growth from emerging market economies, which are inherently more volatile. By James Zhang Base Metals 8,400 Jan Mar May Jul Sep Nov Figure 2: US total net oil imports Sources: DOE; Standard Bank Research A modest IMF downgrade to China s growth outlook and concerns over the pace of global industrial output from the Chinese Ministry of Industry and Information Technology weighed on much of the base metals complex during overnight trade. The metals have continued to come under pressure ahead of US trade with Greece again the main focus of the markets. Until there is clarity regarding the debt situation, the metals are likely to remain nervous, something underscored by the relatively light turnover seen this morning. Copper cancelled warrant activity in the US continues to be a feature of the market. Assuming some metal is destined to cover shorts from the temporarily shuttered Pasar smelter in the Philippines, and assuming some is for LME-Comex arbitragerelated activity, the key will be how much metal is actually exported. Delivering into Asia doesn t make any sense financially at the moment but could be part of a longer game. That said however, with some newswire reports suggesting Chinese smelters are looking to export metal owing to weak domestic demand, it could be a very long game indeed and remains unlikely in our view. The other potential, or rather additional, reason behind the cancellations could be that given the queue situation at many LME warehouses, the metal moves location so as to become more readily accessible in the future, but doesn't leave the US. This has the side-effect of flattering LME stocks, while at the same time helping firm up regional premiums. We will keep a keen eye on Chinese and US trade data and Chinese bonded stockpiles over the coming weeks and months to see how this situation evolves. 8,800 14,000 12,000 10,000 8,000 kbd 5-yr Range yr Average 6,000 Jan Mar May Jul Sep Nov 5-yr Range yr Average 2 Price-wise, copper has fallen below $8,400 ahead of US trade, with the metal dragging lead, nickel and zinc down with it. Aluminium has managed to tread water, with the recent capacity closure announcements perhaps insulating the metal from the more bearish elements of the market. By Leon Westgate

3 Precious metals After initially dropping, yesterday saw gold and silver trading relatively range-bound. PGM managed to get some lift at the start of New York trading hours, although momentum did not carry over into Asian markets. This morning we ve seen little interest in the complex, despite a relatively steady dollar and indications of rising risk aversion (Asian equity markets ended down and European stock indices are currently trading in the red). After Greek leaders postponed yesterday s meeting, markets have grown anxious that agreement and the resolve to adopt the required austerity measures is lacking. The EU has suggested a deal should be reached by 15 February to ensure that the necessary arrangements are made before Greece makes a critical bond payment on 20 March. Eventually this concerns should see renewed interest in precious metals. However, any upside could be dampened if the dollar should push higher owing to the same concerns. Bringing PGM supply concerns back in to focus, Anglo Platinum announced today that production at its Khomanani mine in South Africa has been suspended after a fatality occurred. As yet no more details have been released as police investigate the matter. However, these concerns appear to be outweighed by the threat of falling demand out of Europe, as German industrial activity slows. Industrial production grew only 0.9% y/y in December analysts were expecting a much more robust 4.3% y/y. Gold support is at $1,705 and $1,695. Resistance is $1,732 and $1,749. Silver support is at $32.89 and $32.52, resistance is at $33.75 and $ Platinum support is at $1,603 and $1,591, resistance is at $1,629 and $1,642. Palladium support is at $692 and resistance at $707. Energy By Marc Ground The oil market was firm again yesterday, but not the WTI market. Brent rallied $1.35/bbl on the day, while WTI lost 93c/bbl. The spread between the two benchmark widened further this morning, exceeding $20/bbl. ICE gasoil gapped up on Monday and again this morning, giving a strong bullish signal, driven by cold weather in much of Europe, which propelled Brent up. By contrast, gasoline crack was squeezed as it failed to keep up with the rally in Brent or middle-distillates. The term structure of WTI at the front end of the curve fell hard, while the Brent structure held firm and the gasoil time spread jumped. Price actions in Brent during the last few days, particularly actions around market close windows, suggest an influx of investment flow into the Brent market. We believe there have been new money being allocated and invested into the market at the beginning of the month, which should be become evident in the upcoming weekly ICE commitment of traders report due for early next week. The new investment flow has been driving the prices, while brushing aside most of other factors in the market, which we expect to continue this week. It was reported this morning that China will raise its domestic prices for gasoline and diesel from tomorrow/wednesday and for the first time in 10 months. This should incentivise higher run rates from domestic refineries, thereby boosting crude oil imports. The flip-side of the price increase is that it will push up inflation, which the government has been fighting against during the last year, and high prices will inevitably slow down demand growth. Therefore, we see this as a short-term bullish news for the Brent market. As we noted in the Focus section, China will be increasingly important to the global oil market, as the US s influence is diminishing. German industrial production data for December released this morning was very soft, at -2.9%, supporting the view that German economy might have contracted in Q4. However, forward-looking indicators, such as IFO and ZEW surveys suggest that activity might have picked up since December, and the Eurozone economy might have been stabilising, which could persuade the ECB to keep from further policy easing this Thursday. We maintain our risk-on bias for Brent during the monthly commodity index roll-over period occurring over the next few days. The gasoil crack also has some upside in the next couple of trading sessions, on technical signals. However, Brent appears to be overbought technically, and caution will be required when the current apparent wave of investment influx ends. By James Zhang 3

4 Base metals Daily LME Stock Movement (mt) Metal Today Yesterday In Out One day change YTD change (mt) Cancelled warrants (mt) Cancelled warrants (%) Contract turnover Aluminium 5,019,525 4,989,000 35,375 4,850 30,525 49,125 1,067, ,107 Copper 323, , ,950-2,950-47,750 90, ,272 Lead 374, , ,725 42, ,100 Nickel 94,518 94, ,470 2, ,936 Tin 9,400 9, ,790 1, ,356 Zinc 838, , ,000-1,000 17,000 13, ,048 Shanghai 3-month forward prices Energy COMEX active month future prices Metal Open Last 1d Change Open Close Change Change (%) Aluminium 16,200 16, Ali Mar' Copper 60,490 60, Cu Mar' % Zinc 16,175 15, ZAR metal prices Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 16,595 64,556 16, , ,933 16, month 17,185 65,709 16, , ,397 16, Energy futures pricing Price Change Price Change Price Change Price Change Price Change 1 month 2 month 3 month 6 month 1 year Sing Gasoil ($/bbbl) Gasoil 0.1% Rdam ($/mt) NWE CIF jet ($/mt) 1, , , , , Singapore Kero ($/bbl) % Rdam barges ($/mt) % Fuel Oil FOB ($/mt) Sing FO180 Cargo ($/mt) Thermal coal Q2-12 Q3-12 Q4-12 Cal 13 Cal 14 API2 (CIF ARA) API4 (FOB RBCT) Precious metals Forwards (%) 1 month 2 months 3 months 6 months 12 months Gold Silver USD Libor Technical Indicators 30-day RSI 10-day MA 20-day MA 100-day MA 200-day MA Support Resistance Gold , , , , , , Silver Platinum , , , , , , Palladium Active Month Future COMEX GLD COMEX SLV NYMEX PAL NYMEX PLAT DGCX GLD TOCOM GLD CBOT GLD Apr'12 Mar'12 Apr'12 Apr'12 Feb 12 Dec'12 Apr'12 Settlement 1, , , , , Open Interest 434, ,540 20,626 44,443 3, ,888 1,630 Change in Open Interest 1,599 1, Sources: Standard Bank; LME; Bloomberg 4

5 Disclaimer if you would like to receive Standard Bank research. Please supply your -address in the body of the . Certification The analyst(s) who prepared this research report (denoted by an asterisk*) hereby certifies(y) that: (i) all of the views and opinions expressed in this research report accurately reflect the research analyst's(s') personal views about the subject investment(s) and issuer(s) and (ii) no part of the analyst s(s ) compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed by the analyst(s) in this research report. Conflict of Interest It is the policy of The Standard Bank Group Limited and its worldwide affiliates and subsidiaries (together the Standard Bank Group ) that research analysts may not be involved in activities in a way that suggests that he or she is representing the interests of any member of the Standard Bank Group or its clients if this is reasonably likely to appear to be inconsistent with providing independent investment research. In addition research analysts reporting lines are structured so as to avoid any conflict of interests. For example, research analysts cannot be subject to the supervision or control of anyone in the Standard Bank Group s investment banking or sales and trading departments. However, such sales and trading departments may trade, as principal, on the basis of the research analyst s published research. Therefore, the proprietary interests of those sales and trading departments may conflict with your interests. Please note that one or more of the analysts that prepared this report sit on a sales and trading desk of the Standard Bank Group. Legal Entities To U. S. Residents Standard New York Securities, Inc. is registered with the Securities and Exchange Commission as a broker-dealer and is also a member of the FINRA and SIPC. Standard Americas, Inc is registered as a commodity trading advisor and a commodity pool operator with the CFTC and is also a member of the NFA. Both are affiliates of Standard Bank Plc and Standard Bank of South Africa. Standard New York Securities, Inc is responsible for the dissemination of this research report in the United States. Any recipient of this research in the United States wishing to effect a transaction in any security mentioned herein should do so by contacting Standard New York Securities, Inc. To South African Residents The Standard Bank of South Africa Limited (Reg.No.1962/000738/06) is regulated by the South African Reserve Bank and is an Authorised Financial Services Provider. To U.K. Residents Standard Bank Plc is authorised and regulated by the Financial Services Authority (register number ) and is an affiliate of Standard Bank of South Africa. The information contained herein does not apply to, and should not be relied upon by, retail customers. To Turkey Residents Standard Unlu Menkul Degerler A.S. and Standard Unlu Portfoy Yonetimi A.S. are regulated by the Turkish Capital Markets Board ( CMB ). Under the CMB s legislation, the information, comments and recommendations contained in this report fall outside of the definition of investment advisory services. Investment advisory services are provided under an investment advisory agreement between a client and a brokerage house, a portfolio management company, a bank that does not accept deposits or other capital markets professionals. The comments and recommendations contained in this report are based on the personal opinions of the authors. These opinions might not be appropriate for your financial situation and risk and return preferences. For that reason, investment decisions that rely solely on the information contained in this presentation might not meet your expectations. You should pay necessary discernment, attention and care in order not to experience losses. To Singapore Residents Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report. Important Regional Disclosures The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company(ies) within the past 12 months. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-u.s. analyst and is made available in the U.S., the following are important disclosures regarding any non-u.s. analyst contributors: The non-u.s. research analysts (denoted by an asterisk*) are not registered/qualified as research analysts with FINRA. The non-u.s. research analysts (denoted by an asterisk*) may not be associated persons of Standard New York Securities Inc. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Each analyst (denoted by an asterisk*) is a Non-U.S. Analyst. The analyst is a research analyst employed by The Standard Bank Group Limited. General This research report is based on information from sources that Standard Bank Group believes to be reliable. Whilst every care has been taken in preparing this document, no research analyst or member of the Standard Bank Group gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy or completeness of the information set out in this document (except with respect to any disclosures relative to members of the Standard Bank Group and the research analyst s involvement with any issuer referred to above). All views, opinions and estimates contained in this document may be changed after publication at any time without notice. Past performance is not indicative of future results. The investments and strategies discussed here may not be suitable for all investors or any particular class of 5

6 investors; if you have any doubts you should consult your investment advisor. The investments discussed may fluctuate in price or value. Changes in rates of exchange may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Members of Standard Bank Group may act as placement agent, advisor or lender, make a market in, or may have been a manager or a co-manager of, the most recent public offering in respect of any investments or issuers referenced in this report. Members of the Standard Bank Group and/or their respective directors and employees may own the investments of any of the issuers discussed herein and may sell them to or buy them from customers on a principal basis. This report is intended solely for clients and prospective clients of members of the Standard Bank Group and is not intended for, and may not be relied on by, retail customers or persons to whom this report may not be provided by law. This report is for information purposes only and may not be reproduced or distributed to any other person without the prior consent of a member of the Standard Bank Group. Unauthorised use or disclosure of this document is strictly prohibited. By accepting this document, you agree to be bound by the foregoing limitations. Copyright 2012 Standard Bank Group. All rights reserved. 6