Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Friday, August 18, 2006

The Outlook for Commodities, Part 2

By Yaser Anwar, CSC of Equity Investment Ideas

The International Energy Agency’s initial 2007 oil market forecast calls for global oil demand to accelerate to 1.9 percent growth from 1.4 percent in 06.

Despite high storage levels for natural gas and recent price weakness, the EIA stated that future supply tightness and continued high oil prices could drive natural gas prices to over $9 per million cubic feet in the December-January time frame.

After years of low prices primary producers failed to put much capital investment in to bring on new supply & didn't realise the stellar demand from BRIC, especially India & China. For the next couple of years there’s tremendous growth in China where there’s a lot of investment into infrastructure, especially ahead of the Beijing Olympics.

Royal Dutch Shell PLC said that it has signed an agreement with a unit of Shenhua Group Corporation to conduct a joint study for a coal-to-liquids project in northwestern China, a move to push forward the country's ambition to produce oil from its abundant coal resources.
Barclays Bank recommended this week that investors sell U.S. and Japanese government bonds and buy commodities in the third quarter as global growth and inflation concerns accelerate.
Senate leaders reached a long-awaited deal on an offshore drilling bill that opens up part of the Eastern Gulf of Mexico known as the Lease Sale 181 area to oil and gas leasing, but throws a protective buffer of 125 miles along Florida's coast.

The Indonesian government plans to spend $22 billion over the next five years to promote ht output and use of alternative fuels using crops such as palm oil.

In the past year, U.S. refining companies have revealed plant expansion plans totaling around 1 million barrels per day, adding to some 355,000 barrels per day of expansion projects already on the books.

U.S. Energy Secretary Sam Bodman said the U.S. oil industry could boost expansion plans to 2 million barrels per day, the equivalent of 10 mid-sized refineries, within the next few years. Experts say the planned expansions, however, will not be enough to keep pace with demand growth, leaving the United States increasingly dependent on fuel imports.
The EIA in its short term Energy Outlook expects crude oil prices to average $69 per barrel in 2006-2007 driven by continued limited spare capacity. Although higher prices have dampened demand growth, it is anticipated to remain strong at 1.6 million barrels per day in 2006 and 1.8 million barrels per day in 2007

China customs data released two weeks ago indicates that Chinese steel net exports increased 40 percent in June versus May. Net exports were 3.8 million tons versus 2.7 million tons in May and 120,000 tons in June 2005. Chinese steel net exports have increased every month sequentially since September 05.

The Canadian Province of Alberta has already earned C$2.31 billion (US$204.2 billion) from oil and gas exploration licenses granted this year, topping the C$2.26 billion earned over the full year in 05.

The Beijing-based Customs General Administration website today revealed that China's 1H06 oil imports increased to over 73 million tons, up 16 percent over 1H05.

Copper prices gained 5 percent this week as exchange inventories in London, New York and Shanghai have declined to just three days supply.

Unlike other commodities, grain prices are stuck in a 10 year trading range. When adjusted for inflation, grain prices are at their lowest point in history. Meanwhile, the costs of farming, gasoline, equipment, fertilizer, land prices, water supply are all soring. Hence the squeeze in farm profits.

Additionally, nickel prices continue to make new highs on strong demand and very low exchange inventories, which are down 51 percent over the past month.Click here for Part 1

Sources: IEA, Reuters, RI & CN

Powered by Blogger