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Mark-to-market 1Q 2011
Oil and natural gas prices diverge
Oil markets break to new highs; Nat gas remains low
Oil prices picked up momentum at the end of 4Q 2010, but broke upward in
February 2011 as several crises erupted in countries in Northern Africa and the
Middle East. Fears of supply disruption turned real as Libya broke out in Civil War.
We forecast that even with a cease fire, the country’s production will remain at
least 25% below prior levels of 1.6 mb/d for the remainder of 2011. Crude oil
fundamentals have provided a floor for prices, with demand increasing in nearly
all regions, and helping to draw global inventories down to normal levels—or even
below in many cases. Continued strengthening in OECD economies has kept
demand buoyed as many emerging markets attempt to control inflation through
tightening measures.
Consequently quarterly average prices came to US$105.52/b for Brent and
US$94.42 for WTI futures, US$0.58 and US$0.42 higher than we forecast. Tapis
prices diverged the most, topping our target by US$0.78, while Dubai ended the
quarter US$0.58 from our forecast. As a result, our 2011 annual targets shift
marginally higher as well (see table on p2 below). Quarterly prices jumped some
10-20% from our 4Q2010 mark-to-market.
Natural gas continues to trade in a narrow range. Rig counts have not fallen, and
weather patterns remain the primary driver behind price movements. The
quarterly bid week average for Nymex Henry Hub in 1Q2011 was US$4.14/mbtu,
some –12% below our forecast for US$4.70/mbtu. As a result, our year-end target
shifts lower to US$4.26/mbtu, a -3% drop from our prior forecast of
US$4.40/mbtu. Of notable mention, though our bearish outlook remains, this
quarterly average was almost +9% higher than 4Q2010.
If not just a spike, how high can economies handle?
We are not changing any part of the oil price forecasts that were hiked +20%
higher on 14 March, other than simply marking 1Q to market.
Oil prices have been volatile in the last two months, but we do not believe these
higher prices are a spike; rather, we have entered a new trading range that marks
not only the shifts in politics of oil exporting countries, but also improving oil
demand fundamentals.
Positive macro sentiment remains, despite the MENA turmoil and the Japanese
earthquake with its associated nuclear concerns. The S&P 500 gained +5.4%
over the first quarter, and the days of easy monetary policy are coming to a close
(excl. Japan) as economies gain momentum. This is supportive for oil prices to a
degree, though the debate surrounding ‘demand destruction’ will gain traction as
we inch closer to levels deemed detrimental for further strengthening. (We think
this level has shifted higher, closer to US$140/b.)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mark-to-market 1Q 2011
Oil and natural gas prices diverge
Oil markets break to new highs; Nat gas remains low
Oil prices picked up momentum at the end of 4Q 2010, but broke upward in
February 2011 as several crises erupted in countries in Northern Africa and the
Middle East. Fears of supply disruption turned real as Libya broke out in Civil War.
We forecast that even with a cease fire, the country’s production will remain at
least 25% below prior levels of 1.6 mb/d for the remainder of 2011. Crude oil
fundamentals have provided a floor for prices, with demand increasing in nearly
all regions, and helping to draw global inventories down to normal levels—or even
below in many cases. Continued strengthening in OECD economies has kept
demand buoyed as many emerging markets attempt to control inflation through
tightening measures.
Consequently quarterly average prices came to US$105.52/b for Brent and
US$94.42 for WTI futures, US$0.58 and US$0.42 higher than we forecast. Tapis
prices diverged the most, topping our target by US$0.78, while Dubai ended the
quarter US$0.58 from our forecast. As a result, our 2011 annual targets shift
marginally higher as well (see table on p2 below). Quarterly prices jumped some
10-20% from our 4Q2010 mark-to-market.
Natural gas continues to trade in a narrow range. Rig counts have not fallen, and
weather patterns remain the primary driver behind price movements. The
quarterly bid week average for Nymex Henry Hub in 1Q2011 was US$4.14/mbtu,
some –12% below our forecast for US$4.70/mbtu. As a result, our year-end target
shifts lower to US$4.26/mbtu, a -3% drop from our prior forecast of
US$4.40/mbtu. Of notable mention, though our bearish outlook remains, this
quarterly average was almost +9% higher than 4Q2010.
If not just a spike, how high can economies handle?
We are not changing any part of the oil price forecasts that were hiked +20%
higher on 14 March, other than simply marking 1Q to market.
Oil prices have been volatile in the last two months, but we do not believe these
higher prices are a spike; rather, we have entered a new trading range that marks
not only the shifts in politics of oil exporting countries, but also improving oil
demand fundamentals.
Positive macro sentiment remains, despite the MENA turmoil and the Japanese
earthquake with its associated nuclear concerns. The S&P 500 gained +5.4%
over the first quarter, and the days of easy monetary policy are coming to a close
(excl. Japan) as economies gain momentum. This is supportive for oil prices to a
degree, though the debate surrounding ‘demand destruction’ will gain traction as
we inch closer to levels deemed detrimental for further strengthening. (We think
this level has shifted higher, closer to US$140/b.)
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