Crude Rises on U.S. Supply Outlook, Russia Sanctions

By Mark Shenk  Apr 30, 2014 2:17 AM GMT+0530  

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Brent oil rose as sanctions against Russia over the Ukraine crisis were strengthened and gunmen opened fire in Libya’s parliament. West Texas Intermediate advanced before a U.S. government inventory report.

The European benchmark grade climbed 0.8 percent to expand its premium to WTI. The U.S. and European Union widened sanctions against Russia yesterday. Libya suspended a vote on the country’s premiership after the shooting at the parliament in Tripoli. The Energy Information Administration will report tomorrow that U.S. crude supplies rose 2.2 million barrels to 399.9 million, the most since 1931, a Bloomberg survey showed.

“We’re trying to make sense of the latest headlines from Ukraine and Libya,” said Michael Wittner, the head of oil market research at Societe Generale (GLE) in New York. “The risks in both countries should keep a floor under the market, even when there are no new headlines.”

Brent for June settlement climbed 86 cents to close at $108.98 a barrel on the London-based ICE Futures Europe exchange. Trading was 12 percent above the 100-day average at 4:36 p.m. in New York.

WTI for June delivery advanced 44 cents, or 0.4 percent, to settle at $101.28 a barrel on the New York Mercantile Exchange. Futures climbed to $102.20 in intraday trading. Volume was 4.5 percent below the average. The U.S. oil closed at a $7.70 discount to Brent, compared with $7.28 yesterday.

API Report

Prices retreated from the settlement after the American Petroleum Institute reported U.S. crude inventories rose 3 million barrels last week. WTI futures fell 2 cents to $100.82 at 4:36 p.m. in electronic trading. Prices were $101.07 before the report was released at 4:30 p.m.

The U.S. yesterday added Igor Sechin, chief executive officer of Rosneft, to its sanctions list along with six other individuals and 17 companies linked to Putin’s inner circle such as InvestCapitalBank and Volga Group. The European Union put 15 individuals on its list, including Russian Deputy Premier Dmitry Kozak.

The EU and the U.S. say Russia hasn’t lived up to an accord signed April 17 in Geneva intended to defuse the confrontation between the Ukrainian government and pro-Russian separatists supported by the authorities in Moscow. They’ve both warned that they’ll levy penalties on Russian industries if Putin escalates by sending troops into Ukraine.

Russian Economy

“Russia needs to pump increasing amounts of oil to support its economy and needs our technology to do it,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $115 billion of assets. “If the Ukraine crisis continues to drag on, their production may get less robust. This may add to upward pressure on prices later this year.”

About 25 armed protesters attempted to storm the Libyan parliament building, fired at windows after they were blocked by guards, lawmaker Mohammed Ali Abdullah said.

Libya’s Zueitina port will load 600,000 barrels of oil May 1-3 for shipment to Europe, Mohamed Elharari, spokesman of state-run National Oil Corp., said by phone from Tripoli. It would be the first cargo to leave the port since July. Hariga harbor is loading its second cargo since reopening on April 16, state news agency Lana said, citing Yasin Hammad, the port’s director.

Rising Stockpiles

U.S. crude supplies climbed to 397.7 million barrels in the week ended April 18, the EIA said April 23. It was the highest stockpile level in weekly data that began in 1982 and the most since 1931 in monthly government figures going back to 1920.

Supplies on the Gulf Coast, known as PADD 3, increased to 209.6 million in the week ended April 18, the most since EIA began recording that data in 1990.

“It’s hard to maintain rallies in WTI because of the glut in supply along the Gulf and the near-record levels seen nationwide,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The Brent-WTI spread won’t narrow much as long as this is the case.”

Crude inventories at Cushing, Oklahoma declined 788,000 barrels in the same period to 26 million, the lowest level since October 2009. Supplies at the storage hub have tumbled since the southern portion of the Keystone XL pipeline began moving crude in January to the Texas Gulf Coast from Cushing.

The EIA will probably report that U.S. gasoline stockpiles dropped 900,000 barrels last week to 209.1 million, according to the median of eight analyst responses in the Bloomberg survey.

Implied volatility for at-the-money WTI options expiring in June was 17.6 percent, down from 17.9 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 415,217 contracts at 4:37 p.m. It totaled 447,235 contracts yesterday, 17 percent below the three-month average. Open interest was 1.64 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Richard Stubbe, Charlotte Porter

Commodities take a breather as Crimea tensions ease, Buy signal in Gold, Sell Oil

Commodity complex took a breather on Monday and early Tuesday trading as Crimean vote to rejoin Russian federation went off peacefully and caused safe haven demand for gold to wane while Oil that was buoyant on geo-political worries also eased falling into sell territory on an intra day basis.

Commodity prices especially gold prices dipped in Asia on Tuesday as the impact of Western sanctions on Russia over the annexation of the Crimean region of the Ukraine were seen as mild and a sign that tensions remain in check

US Gold futures for April delivery has fallen from a high of $1391 to $1361.1 in electronic trading on Tuesday while US WTI crude oil has fallen to $97.95 per barrel.

"On Gold charts, an RSI of 61.70 is quite bullish for godl and MACD is slightly in positive territory. But price are still comfortably above the 200 day moving average of $1324.56 indicating markets have only taken a breather and watching further developments to unfold. Gold could rebound again after hitting $1350 levels," accorinding to Sreekumar Raghavan, Chief Strategist at Commodity Online Group.

WTI crude oil on the ohter hand is trading below 200 day EMA of $98.48 a barrel and RSI at 40.27 indicates the market is still bearish.

Meanwhile, Crimea did not have a bearish impact on Natural gas futures as it shot up on Monday after updated weather forecasting models called for a cold snap to sweep across the U.S. in the coming days and hike demand for heating in its wake.Natural gas prices shoot up on chilly spring forecast
On the New York Mercantile Exchange, natural gas futures for delivery in April traded at $4.554 per million British thermal units during U.S. trading, up 2.90%. The commodity hit session high of $4.585 and a low of $4.484.

Mixed trends were seen in dollar index on global developments. US Copper futures for May delivery is trading slightly positive at $2.98 after closing at $2.95 a pound on Monday although the underlying sentiments are bearish on China data.

Falling Gold/Copper ratio raises concerns about global economic growth

The falling Gold/Copper ratio indicates that global economy may not be growing as expected, according to a weekly report from ETF Securities Ltd.

Weaker than expected US and China ecnomic data and the growing Russia-Ukraine crisis apear to have changed investor riks perceptions, ETFS said.

More recently a China corporate bond default has raised concerns about a possible unwinding of copper collateralised financing deals. The combination of these factors has driven the copper/gold ratio sharply lower. Copper/gold ratio is sometimes viewed as a leading global economic indicator.

The question now is whether continued strong
consensus global growth forecasts are now going to need to be scaled back, ETFS said.

The present scenario seems to be vastly different from the beginning of 2014 when higher stock prices, strong economic growth, higher bond yields, a stronger dolar and lower gold rices were some of the key consensus expectations.

Nat Gas sees end of peak winter buying in US, fundamentals bearish in Europe: PIRA Energy

Ukrainian crisis or not, gas fundamentals are becoming more bearish by the day. The one-day rally on Ukraine may well be repeated in the weeks to come with additional one-day rallies, according to PIRA Energy

NYC-based PIRA Energy Group believes that peak winter buying has been wrapped up. In the U.S., Appalachian shale bottlenecks are increasingly visible. In Europe, gas fundamentals becoming more bearish. Specifically, PIRA’s analysis of natural gas market fundamentals has revealed the following:

Peak winter buying has been wrapped up
In Europe and Asia, peak winter buying has been wrapped up, with the recent Ukraine crisis having little impact. South American and Mideast counter-seasonal buyers are entering the scene, but it appears that in Brazil at least buying will not be as strong as last year.

Appalachian Shale bottlenecks increasingly visible
With rapidly increasing gas processing capacity set to unleash more production from the Utica Shale, existing pipeline takeaway options may prove insufficient given the growing needs of Marcellus producers. Diminishing remaining options to nearby markets have kept producers busy making financial commitments to underwrite projects that would gain access to other markets. The next major round of development is primarily aiming to reach markets in the Midwest and South — almost entirely via backhauls and/or flow reversals — as well as greater access to eastern Canada. Yet, this very large-scale future expansion of take-away capacity will not be ready until late 2015 / early 2016.

Gas fundamentals becoming more bearish
Ukrainian crisis or not, gas fundamentals are becoming more bearish by the day. The one-day rally on Ukraine may well be repeated in the weeks to come with additional one-day rallies, but it is clear to PIRA that no one wants Europe to be deprived of Russian gas flows on either side of this dispute. And when neither side benefits from a cut-off, it is exceedingly unlikely that one will occur. The goal here is not to ignore the significance of the Russia-Ukraine relationship on European gas markets, but to understand it in the commercial realities of the broader current supply/demand balances. The Ukrainian corridor for Russian gas exports is not as important as it used to be, but still plays a central role in European gas supply. PIRA's analysis of pipeline flows shows that Russia can divert a little over half of the gas it moves through Ukraine to locations all over Europe. A special feature published earlier this week on the ENG portion of the website details the pipeline flows at risk.

NYC-based PIRA Energy Group reports that large oversupply in electricity markets will further squeeze dark spreads. In the U.S., while the gas storage deficit continues to expand, and regional gas prices oscillate, the 12-month strip stands at $4.67/MMBtu. Specifically, PIRA’s analysis of electricity and coal market fundamentals has revealed the following:

Large oversupply in electricity markets will further squeeze dark spreads
2013 financial results being announced so far are illustrating the deep crisis of conventional generation across Europe. While lignite and coal are joining gas in no longer being immune from surges in renewable output, generators are also admitting that lower fossil fuel utilization is an irreversible trend. Considering that a solution to the large oversupply in the major European power market is not in sight, why are the German clean dark spreads not narrowing even further down to pre-Fukushima levels?

A stout storage withdrawal
An astoundingly stout withdrawal of 152 BCF was reported in today’s EIA update, a figure coming in at the highest end of a market range expecting a draw in the mid-to-high 130s. Besting both the year-ago (149 BCF) and the five-year average pull (105 BCF), the report stoked some bullish enthusiasm in the nearby NYMEX contract, which has otherwise been anemic at best of late. The April contract jumped by more than a dime on the news and managed to finish the session with a gain of ~12¢.

Headwinds abound for Global Thermal Coal pricing
Coal pricing was mixed last week, with prices for FOB Newcastle (Australia) and API#4 (South Africa) falling, while API#2 (Northwest Europe) rebounded somewhat. The strength in API#2 was likely largely due to the escalation of tensions in Ukraine and worries that Russian gas volumes to Europe would be curtailed. With South African coal supply returning to normal and Colombian exports headed that way in the next month; it will be hard for coal prices to appreciate rapidly.