: 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 +44-20-31456821 Leon Westgate* Leon.Westgate@standardbank.com +44-20-31456822 James Zhang* Jinzhong.Zhang@standardbank.com +44-20-31456824 Marc Ground, CFA* Marc.Ground@standardbank.com +27-11-3787215 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 2,210-32 -1.42% 2,175.50 17-40.75 Copper 8,549 8,500 8,571 8,428-49 -0.57% 8,463.00 143-25.75 Lead 2,225 2,181 2,237 2,177-44 -1.96% 2,165.50 19-35.75 Nickel 21,287 21,695 21,672 21,025 408 1.92% 21,105.00 325-91.00 Tin 24,300 24,500 24,500 23,935 200 0.82% 24,375.00 375-50.00 Zinc 2,150 2,131 2,167 2,119-20 -0.91% 2,120.00 32-16.00 Energy Open Close High Low day/day Change (%) ICE Brent 116.64 115.72 116.70 115.67-0.21-0.18% NYMEX WTI 97.13 96.83 97.44 96.75-0.08-0.08% ICE Gasoil 994.00 989.75 994.00 989.75 1.50 0.15% API2 Q2'12 105.70 105.00 - - -0.70-0.67% Precious metals AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFP's Gold 1,717.00 1,719.00 1,738.00 1,713.00 1,722.00-15.70 2.3/2.7 Silver - 33.62 33.77 33.02 33.74 0.02-2.0/0.0 Platinum 1,610.00 1,609.00 1,622.00 1,620.00 1,609.00-21.00 1.5/3.5 Palladium 694.00 696.00 705.00 704.00 696.00-15.00 0.0/1.0 Sources: Standard Bank; LME; BBG Please refer to the disclaimer at the end of this document.
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 2010 2011 2012 5-yr Average 6,000 Jan Mar May Jul Sep Nov 5-yr Range 2010 2011 2012 5-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
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 $34.23. 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
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 1,067,225 21.26 327,107 Copper 323,150 326,100 0 2,950-2,950-47,750 90,200 27.91 169,272 Lead 374,800 375,300 100 600-500 21,725 42,525 11.35 53,100 Nickel 94,518 94,524 252 258-6 4,470 2,970 3.14 30,936 Tin 9,400 9,240 185 25 160-2,790 1,435 15.27 4,356 Zinc 838,700 839,700 0 1,000-1,000 17,000 13,750 1.64 98,048 Shanghai 3-month forward prices Energy COMEX active month future prices Metal Open Last 1d Change Open Close Change Change (%) Aluminium 16,200 16,175-65 Ali Mar'12 - - - - Copper 60,490 60,090-560 Cu Mar'12 386 384.20-2.25-0.58% Zinc 16,175 15,985-195 ZAR metal prices Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 16,595 64,556 16,518 160,989 185,933 16,171 7.6280 3-month 17,185 65,709 16,860 167,713 189,397 16,470 7.7305 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) 131.61 2.81 131.64 3.20 131.05 3.11 129.65 2.85 - - Gasoil 0.1% Rdam ($/mt) 989.75 1.50 989.25 1.25 983.75 1.00 973.75 2.00 965.00 20.00 NWE CIF jet ($/mt) 1,046.84 18.77 1,053.36 22.79 1,054.88 22.98 1,054.19 21.69 1,055.79 19.63 Singapore Kero ($/bbl) 130.61 2.36 131.06 2.82 130.40 2.62 129.31 2.32 128.33 2.09 3.5% Rdam barges ($/mt) 680.75 19.00 672.75 18.00 666.75 17.50 651.75 16.25 628.25 14.50 1% Fuel Oil FOB ($/mt) 704.00 19.00 700.25 17.75 697.50 16.50 691.50 15.50 Sing FO180 Cargo ($/mt) 724.25 15.25 713.25 17.50 705.75 17.50 688.50 17.25 Thermal coal Q2-12 Q3-12 Q4-12 Cal 13 Cal 14 API2 (CIF ARA) 105.00-0.70 108.50-0.45 112.00-0.50 116.10-0.40 120.80-0.40 API4 (FOB RBCT) 105.15-0.35 106.75-0.45 109.20-0.40 112.60-0.20 115.55-0.25 Precious metals Forwards (%) 1 month 2 months 3 months 6 months 12 months Gold 0.52633 0.56000 0.58917 0.61283 0.64000 Silver 0.52500 0.48167 0.44333 0.41833 0.35833 USD Libor 0.25975 0.38425 0.52325 0.76875 1.08275 Technical Indicators 30-day RSI 10-day MA 20-day MA 100-day MA 200-day MA Support Resistance Gold 55.14 1,730.88 1,693.18 1,678.45 1,654.94 1,705.00 1,732.00 Silver 55.79 33.62 32.20 31.77 34.98 32.89 33.75 Platinum 58.39 1,613.58 1,566.63 1,543.06 1,665.52 1,603.00 1,629.00 Palladium 57.74 697.25 678.52 641.95 702.36 692.0 707.0 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 1,723.90 33.6250 706.00 1,629.80 1,721.20 4,258.00 1,724.80 Open Interest 434,971 104,540 20,626 44,443 3,856 121,888 1,630 Change in Open Interest 1,599 1,131 514-252 0 0 0 Sources: Standard Bank; LME; Bloomberg 4
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