Daniel Lacalle

Commodities … Weakness despite Ukraine

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Brent -0.6% MTD, WTI -1.1%. Brent-WTI spread +8.2% MTD. In the US, DOE data showed crude built 1.43 MMBbls vs. expectations for a 1.08 MMBbl build. Cushing crude inventories were down 2.67 MMBbls on the week and now stand at 32.1 MMBbls vs. approximate capacity of 66 MMBbls. Gasoline drew 1.60 MMBbls vs. expectations for a 0.88 MMBbl draw and distillates built 1.41 MMBbls vs. expectations for a 1.03 MMBbl draw. All products built 0.03 MMBbls. Refinery utilization was down 0.6% vs. expectations for a 0.3% decrease. Refinery utilization stands at 87.4% vs. a 5-year average of 82.4%. The 4-week average gasoline demand was down 0.9% YoY, and 4-week average distillate demand was up 1.0% YoY.
Japanese growth was revised down 30% to 0.7% in 4Q 2013. Aramco reduced Arab Light premium to Asia 20 cts/bbl, to $1.55 over average of Oman/Dubai grades; also cut Extra Light 20 cents, to $3.50/bbl; both had been expected to rise 15 cts. Shows how well supplied the market is. China’s overseas shipments declined by 18.1 percent in February from a year earlier, the biggest drop since August 2009, the General Administration of Customs reported on March 8. A median 7.5 percent increase was projected in a Bloomberg News survey of 45 economists.
Escalation of the conflict in Libya, as the country’s PM ordered an attack on a North Korean tanker which reportedly loaded $36m of crude from the rebel-controlled Es Sider terminal, if the tanker leaves the port. The rebels said any attack on the tanker would be interpreted as a declaration of war.
Coal down 0.43% MTD. China’s Premier Li Keqiang said at the National People’s Congress that the government would ‘declare war’ against pollution. Part of the effort includes eliminating outdated capacity from heavy industries. China’s aluminium smelters are likely to cut 2Mt of capacity in the coming months as Chinese authorities want to force high cost producers out. This policy could shave up to 1% of global coal demand.
US gas +1.1% MTD. Weekly natural gas storage withdrawal of 152 Bcf was higher (bullish) than the consensus median withdrawal estimate of 139 Bcf. Total working storage is now at 1,196 Bcf, 908 Bcf below last year’s 2,104 Bcf and 758 Bcf below the 5-year average of 1,954 Bcf.
Floating LNG: Another 10 major floating liquefaction projects could be brought to fruition over the next decade on the back of burgeoning global gas demand, with “huge” upside potential for supply of liquefied natural gas. (Upstream)
CO2 -3.6% MTD as backloading euphoria meets the reality of a chronically oversupplied market. Generators and refiners stop putting excess EUAs in the market, with hedging at these levels acceptable for industries.
UK gas +3.9% MTD as re-stocking and high LNG prices (above $20.5/mmbtu) help price on concerns about Russia cutting supplies to Ukraine as the debt with Gazprom rises to $1.9bn.
Weak industrial demand, added to poor coal prices and lower CO2 have made power prices fall further in Europe:
German power is down 55bps MTD (-2.7% YTD) and Nordpool down 1.9% MTD (-5.94% YTD).

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