Brent - WTI price differential tops $ 20..!
By Mr. Ajay Makan in London
The price differential between Brent crude, the global benchmark, and West Texas Intermediate of the US has reached its widest so far this year as concerns grow about bottlenecks in North American oil pipeline systems.
ICE Brent March climbed to a 4 month high of $ 117.23 a barrel as risk assets rallied after losses on Monday that had followed renewed concerns about eurozone growth. Nymex March West Texas Intermediate oil, the US benchmark, also climbed, but by only 0.6% to $ 96.81 shortly after midday in New York.
WTI price differential..!
That pushed the discount Brent -WTI price differential above $ 20 for the first time since December, 2012. The spread had narrowed sharply in January, 2013 to as little as $ 14.40, the lowest since July, 2012 after the owners of a key pipeline said they had completed work to expand its capacity to 4 lakh barrels a day from 1.5 lakh b / d.
The Seaway pipeline moves oil from Cushing in Oklahoma, the pricing point for WTI & a region where supplies are plentiful, to refineries on the Gulf of Mexico.
Oil traders have bet that the expansion would reduce the glut of WTI, bringing its price in line with Brent. But crude oil stocks at Cushing actually climbed to 51.7 m barrels last week, up from 49.8 m barrels at the end of last year.
Impact of rising stocks..!
The impact of rising stocks was compounded by news that Enterprise Product Partners, the operator of the pipeline, would not be able to run the line at full capacity because storage at the end of the line in Jones Creek near Houston was full.
The rise in stocks and the pipeline setback has led some investors to bet that the spread would remain wide for longer.
“The market got tremendously excited about the Seaway expansion, but it has become apparent that the Jones Creek bottleneck will continue to keep flows well below the 4 lakh bpd” said Michael Wittner, head of Americas commodities research at Société Générale in New York.
But other market participants said the market response to the Seaway delay was excessive.
“We see the widening of the Brent WTI spread as a short-term phenomenon, which might be related to technical trading and headline trading,” said David Welch, an analyst at JBC Energy consultants in Vienna.
JBC still expects sufficient pipeline infrastructure to come online this year to fully relieve the glut at Cushing. Mr Welch expects the Brent-WTI spread to stablise at about$6 by the end of 2013, sufficient only to cover the cost of tranporting oil from Cushing to the Gulf Coast.
ENERGY Monthly Report - FEBRUARY 2013
HIGHLIGHTS OF JANUARY
The House of Representatives approved a Senate bill on Jan. 1, 2013 protecting 99% of U.S. households from higher income taxes.
The premium of Brent oil to WTI narrowed early in the month as Enterprise Products Partners LP and Enbridge Inc. prepared to resume service on the 500 - mile (805-kilometer) Seaway link at full rates after more than doubling the line’s capacity to 4 lakh barrels a day from 1.5 lakh.
European Central Bank President Mr. Mario Draghi said the euro-area economy will gradually recover, and Japan announced a 10.3 trillion yen ($ 116 billion) stimulus package.
Japan’s stimulus package announced will increase gross domestic product by about 2 percentage points and create nearly 6 lakh jobs, according to a statement released by the Cabinet Office.
Economic growth in the U.S..!
The World Bank cut its projection for economic growth in the U.S., the world’s biggest crude consumer, by 0.5% point to 1.9% in its twice-yearly report. It reduced its forecast for Japan, the third-biggest crude user, to 0.8% from 1.5%, predicted a second year of contraction in the euro region and lowered its estimates for emerging markets led by Brazil, India and Mexico. China, the second-biggest oil consumer, was cut to 8.4% from 8.6%.
China’s gross domestic product rose 7.9% in the 4th quarter from a year earlier, compared with 7.4% in the previous period, the National Bureau of Statistics said in Beijing.
It’s the first increase in 2 years, after the government implemented policies to revive domestic demand.
Chinese imports of crude..!
OPEC reduced output by 4.65 lakh barrels a day in December, 2012 to 30.4 million a day, the lowest level since October 2011, led by a reduction in Saudi Arabia, the group said in a January, 2103 report.
Chinese net imports of crude oil were a record 5.4 million barrels a day in 2012, customs data showed. The nation, which gets about half its crude from overseas, will boost oil consumption by 4% to 9.98 million barrels a day this year, the International Energy Agency (IEA) forecast in its monthly oil market report. U.S. demand will be unchanged at 18.7 million barrels a day, the IEA said.
By the end of the month, oil in New York posted the longest run of weekly gains since April 2009, lifted by speculation that a global economic recovery would boost fuel demand.
The Federal Reserve maintained an asset-purchase program to boost the U.S. economy and said that it would keep buying securities at a rate of $ 85 billion a month.
INDUSTRY AND MARKET NEWS
International Energy Agency (IEA) boosts demand forecast
The IEA raised forecasts for global oil demand this year because of stronger growth expectations for China and said that world consumption will increase by 9 lakh barrels a day, or / 1%, this year to average a record 90.8 million.
Saudi Arabia, the world’s largest exporter, reduced production from its highest in 30 years, and inventories in developed economies are contracting after accumulating in much of 2012, according to the IEA.
Even after the drop, OPEC is producing nearly 6.5 lakh barrels a day more than the average of 3 crore it will need to provide in 2013, the IEA said.
OPEC’s 12 members pumped an average of 31.4 million barrels last year (2012), the highest annual level in its history.
Producers outside of OPEC such as the U.S., Canada and Brazil will increase supplies this year by the most since 2010, the IEA said.
Source: Bloomberg
China's Dec. 2012 crude oil imports rise 8% on year to 5.6 mil b/d
China's Dec. 2012 crude oil imports rise 8 % on year to 5.6 mil b / d China's crude oil imports in December 2012 rose 8 % year on year to 23.67 million mt, or an average of 5.6 million b / d, according to preliminary trade data released by the General Administration of Customs.
The volume is 1.9 % lower than November 2012 imports of 5.71 million b / d but similar to the October volume. The 8 % growth rate in December outstripped the 5.1 % expansion in crude imports seen during the same month in 2011.
China's total 2012 crude oil imports rose 6.8 % year on year to 271.02 million mt or / 5.43 million b/d, the data showed.
Crude imports in the 4th quarter of 2012 averaged 5.63 million b / d, up 8.1 % year on year. They were also higher than second & third quarter imports, which averaged 5.59 million b / d and 4.81 million b / d, respectively.
Chinese refiners had been expected to import more crude oil in Q4 than in Q3 in preparation for peak winter demand, as well as to keep pace with refining capacity expansions scheduled to come online by early 2013.
Source: Platts
Indian Government may re-impose duty on crude oil ..!
Indian Government may re-impose duty on crude oil. The finance ministry has begun discussions on reinstating import duty on crude oil in next month's Budget as part of measures to shore up revenues to meet its stiff fiscal deficit target & stave off a threatened sovereign downgrade.
Two government officials familiar with the matter said restoring the import duty had figured in Budget planning discussions.
"Various options including re-imposing customs duty on crude are on the table," said one of them. However, a final decision on the issue will be part of a wider framework on the pricing of petroleum products.
In 2010-11, import duty on crude oil fetched the government revenues worth around Rs 26,000 crore. This fell to nearly Rs. 20,000 crore in the following fiscal year. Bringing back duties at even half the earlier level could yield substantial revenues to the government. A higher duty will inevitably increase the price of oil and could leave the government with a higher subsidy bill if pump prices are not raised commensurately.
A higher duty on crude could raise revenues and if the resultant price increase is passed on to consumers, it will send a strong signal to ratings agencies that the government is serious about fiscal consolidation and product pricing reforms.
Source: Economic Times
India to end Euro payments for Iranian crude oil imports
India will this week end an 18-month old arrangement of paying for Iranian crude oil imports through a Turkish bank as a new set of US sanctions against the Islamic nation comes into force from February 6.
"For sure we will have to end paying for Iranian imports through third country from February 6," an Oil Ministry official said. The new US Treasury sanctions, which go into effect from February 6, bar banks from transferring Iran's oil revenues from importing nations to Tehran.
This means Iran would be forced to keep its oil revenues in local bank accounts in countries purchasing its oil. It can only use those oil earnings to purchase "permissible" services and goods, such as food, medicine and basic medical equipment, from those oil customers as imports back into the Islamic Republic.
After March, India will have to pay for entire crude oil purchase from Iran in rupees. And ways will have to be found on how Tehran can use that revenue either by increasing import of food grains or tools and machinery including cars and tractors.
Source: NDTV Profit
INVENTORY REVIEW
U.S. crude oil inventory rose by 2.53% by the end of Jan 2013 over end of Dec 2012.
U.S. Crude oil stocks
U.S. Crude oil stocks (million barrels)
12/28/12 1/04/13 1/11/13 1/18/13 1/25/13
359.9 361.3 360.3 363.1 369.1
U.S. Crude Oil Production and Imports (Million Barrels per Day)
Week Ending 1/11/13 1/18/13 1/25/13
Crude Oil Production 7.041 6.989 6.993
Crude Oil Imports 8.030 7.730 8.068
CFTC REPORT
The Feb. 1, 2013 CFTC’s Commitments of Traders (COT) report showed that money managers increased wagers on rising prices and decreased bets on falling prices in the seven days ended Jan. 29, 2013 in U.S. crude-oil futures.
(Figures in Lots) 1/29/2013 1/22/2013 1/15/2013 1/8/2013
Total OI 1553636 1491867 1495149 1477695
Long Non - Commercial 378904 366484 354130 347860
Short - Non-Commercial 110915 120381 127379 133082
Long Commercial 540734 536150 564730 574621
Short - Commercial 816465 788559 804346 793007
SPOT MARKET OVERVIEW
Spot price of WTI Cushing crude oil averaged US$94.74 per barrel in January 2013, higher compared to US$88.18 per barrel in December 2012. It was US$93.12 per barrel at the start of the month, with a high of the month at US$97.94 per barrel and closed the month at US$97.49 per barrel.
The Indian crude oil basket made a high of US$114.27 per barrel in January 2013 that was also the close of the month with an average rate for the month was US$110.97 per barrel.
INDIAN CRUDE OIL BASKET
MCX crude oil contract aggregate volumes for January 2013 averaged daily 18.37 mn barrels and aggregate average daily open interest for the month was approximately 3.93 mn barrels compared to 4.31 mn barrels in December 2012.
NYMEX Light Sweet Crude Oil futures aggregate volumes averaged daily 0.57 mn lots in January 2013. Highest volume for the month was 0.95 mn lots. Aggregate average daily open interest for the month was 1.50 mn lots.
Source: Bloomberg
FUTURES TRADING OVERVIEW
Weekly crude oil inventory data every Wednesday and weekly U.S. Jobless Claims every Thursday
PRICE MOVING FACTORS IN FEB, 2013
Weekly crude oil inventory data every Wednesday and weekly U.S. Jobless Claims every Thursday
U.S. January Industrial Production & Capacity Utilization Rate on Feb. 15
China HSBC Flash Manufacturing PMI, German and French Flash Manufacturing PMI, U.S. PMI
Manufacturing Index Flash on Feb. 19
German ZEW Economic Sentiment on Feb. 20
German Ifo Business Climate on Feb. 22
U.S. February CB Consumer Confidence on Feb. 26
U.S. January Durable Goods m/m on Feb. 27
U.S. December 2012 GDP q/q, Feb. 28
Source: Sucden
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