Israel Syria attack: Why current surge in Crude Oil could be short lived

Last Updated : 06 May 2013 at 06:15 IST

Israel has attacked Syria on Friday last week as well as Sunday this week in an apparent bid to stop the Iran-made Fateh-110 precision missiles from getting into the hands of Lebanon’s Hezbollah. While Israeli officials on condition of anonymity have confirmed the attack, no political leader in Israel would do the same.

Israel had launched a similar attack in January as well; at that time to block the SA 17 anti-aircraft missiles from falling into the hands of Hezbollah. 

This attack was met with sound and fury, but the consequences were muted. The scenario could not be different this time as well as Assad may want the words to be louder than actions this time too as his position is severely compromised and his regime is deeply mired in the civil war against rebels who seek to oust him.

The Financial Times reports: 

Speaking to CNN, Faisal al Mekdad, Syria’s deputy foreign minister, described the attack as a “declaration of war” and said it would retaliate in its own time and way. Syria had the right “to defend its people by all available means”, said Omran al Zoubi, information minister, adding that the attacks were a “flagrant violation of international law” and made the Middle East “more dangerous”.

No wonder, crude oil prices have climbed on the Globex platform of NYMEX.

As of 05.53 AM IST, WTI crude oil for delivery on June 13 was seen trading at $96.88 registering a gain of $1.27 or 1.33%. Brent crude oil on the same platform for the same date was spotted trading at $105.35 a barrel, providing for a gain of $1.22 or 1.17% as of 05.56 AM.

The futures began to climb on Friday when the US jobs data said hiring by firms in US picked up in April more than anticipated and unemployment rates dwindled.

So, will there be a war?

The same Financial Times report adds: “analysts said that, while escalation was possible, neither side had much interest in launching a full-scale war against the other. A broader conflict with Israel would open a dangerous new front for the Assad regime at a time when it is already stretched by a two-year-old armed rebellion”

Chances are miniscule that Syrian rebels would join Assad in a fight against a foreign enemy that is Israel:

“We call on the Syrian people to hold steadfast onto the revolution, and to reject the regime’s consistent aggression against the interests of the country and its people. We ask the Syrian people to continue working towards our goal of ridding the country of the destruction and chaos created by the Assad ruling family, who has consistently allowed its interests to take precedent over national interests,” statement released by Syrian Coalition Media Office , the media wing of Syrian rebels said, subseqent to the attacks. 

While Middle East ideologically has become more dangerous and the scenarios there much more uncertain, on a functional level, the status quo would be maintained as an otherwise-scenario would be chaotic to the core. In times of uncertainty chaos is at best avoided and nobody knows this better than Israel helping them take a calculated risk.

The current fillip to the crude oil futures could thus be short lived. The futures would be much more sensitive to data from Eurozone and Europe in the days ahead at least in the medium term. 

As published here: http://www.commodityonline.com/news/israel-syria-attack-why-current-surge-in-crude-oil-could-be-short-lived-54277-3-54278.html 

Charts say India Crude Oil may have a bullish week ahead of it

Last Updated : 04 December 2012 at 16:20 IST

The morning saw crude oil prices trading a bit low on the international markets. But on India's MCX, crude oil for December delivery was a tad up and was seen trading at Rs.4885, a gain of 0.14% as on 10.19 am IST. The commodity has remained range-bound since and as on 03.51 PM was seen trading at Rs.4884 a barrel, a gain of 0.12%.

Economic activity in the manufacturing sector in US contracted in November following two months of modest expansion, while the overall economy grew for the 42nd consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

The PMI registered 49.5 percent, a decrease of 2.2 percentage points from October's reading of 51.7 percent, indicating contraction in manufacturing for the fourth time in the last six months.

This had made the commodity to trade low in the international markets.

Also, the US fiscal cliff issue is plaguing the markets:

"If the U.S. enters a recession, the critical question is how the impact of a U.S. slowdown filters into the relatively oil-intensive emerging market economies that drive global oil demand growth," JP Morgan said in a note which was reported by the Wall Street Journal.

A 1% decline in US growth figures may translate into 0.7% decline in economic growth for the rest of the world. And if the catastrophe occurs and US does go off the cliff, oil demand growth would be curtailed by 580,000 barrels a day, JP Morgan added.

The fiscal cliff is deemed as a slew of spending cuts and taxes to the tune of $600 billion that would automatically kick in, if Democrats and Republicans fail to clinch a budget deal aimed at reducing deficits.

MCX crude oil technical aspects

Meanwhile, on India's MCX, crude oil for December delivery is looking bullish for this week as it made a double bottom support around 4790 and as long as the level acts as a firm support, prices would remain bullish, according to Ankush Kumar Jain, Manager-Research, Metals-Energy; Commodity Online.

“Traders are advised to take a long position on every dip for this week and I expect Rs.5000-5050 levels by the end of this week. Short term traders may take a long position around 4860 with stop loss of Rs 4780 for the target near Rs 5050.” he concluded.

WTI crude oil futures on ICE Exchange Europe for January delivery is seen trading at $89.11 a barrel,a gain of 0.01% as of 4.17 PM IST. Brent crude for January delivery was seen trading at $110.58 a barrel, a loss of 0.31% compared to previous close.

As published in: http://www.commodityonline.com/news/charts-say-india-crude-oil-may-have-a-bullish-week-ahead-of-it-51651-3-51652.html

If you were a Commodity, you should have born Gold

Last Updated : 04 December 2012 at 13:35 IST

Given below is a table of average prices of gold, silver and crude oil in US Dollar:

 

2001 and 2002 were turning points for gold, silver and crude oil prices. In 2001, gold prices began a trend in which the commodity mounted a rocket headed towards north; that rocket is still being propelled and viewed in the current light, gives one the impression that it is a rocket that would be fired for perpetuity. Gold prices dating before 2000 had its share of ups and downs in contrast.

Silver too began on an upward journey in 2002 along with crude oil. However, they had to retreat in 2009 as the economic slow-down bit. Please note that silver and crude oil are having industrial use, while gold has no other use except for investment. And 2009 being the year of QE1 could still not keep silver and crude oil on a high pedestal as enjoyed by gold.

If you were a commodity, you should have born gold. Gold or nothing!

Meanwhile, reports suggest that US dollar as a percentage of global holdings of reserve assets has seen a decline from 36.6% in 2006 to 28.7% in 2012.

Invariably, these investments got into gold, silver, crude oil and other asset classes as reflected in their prices. 

As published in: http://www.commodityonline.com/news/if-you-were-a-commodity-you-should-have-born-gold-51645-3-51646.html

Volatility, thy name is Crude Oil

Last Updated : 18 October 2012 at 14:40 IST

Crude oil prices invariably hinge on two factors for the medium term: Turkey-Syria relations or the lack of it and the Iran issue.

EU leaders think that Iran has enhanced its Uranium-enrichment capabilities apparently setting the latter in a position from where it could pluck a bomb from the blue. The fruit is increasingly becoming low-hanging, it has to be assumed.

Now, chances are more that a surgical strike targeting Iran nuke facilities is in the pipeline. But, the possibility of a glitch in this particular pipeline exists as Presidential elections in US looms.

It is clear and apparent that Israel will not be that audacious to launch a strike on its own on Iranian facilities without the blessings of Uncle Sam.

And as long as the US President is elected to the Oval Office for a fresh new term, political acumen of the basic degree suggests that nothing, one may repeat, nothing is going to happen that would considerably set a wave of unpredictability marching on to the shores of political landscape in US. No strikes would be carried out, as such an initiative may severely affect the US public opinion and set it up for an an insane roller-coaster ride. This is an anathema in election times.

Even the British PM David Cameron has hinted that it would be an inauspicious time to hit Iran as Iran could still get away with the image of a victim.

Now, this situation would have some vital consequences as far as the crude oil prices are concerned.

Given the lack of stability in the Middle East, the presidential candidates especially Mitt Romney may come up with ugly comments on the unstable landscape there: he already has. This, in effect may prompt reactions from the current US President that may be used as cues by crude oil futures.

Naturally, volatility in futures would be the rule.

Now when it comes to Turkey-Syria relations, things could turn out to be worse. Turkey is confidently firing across the Syrian border on two accounts:

1. Syria is already mired in a civil war. Hence Assad will not be in a position to be aggressive beyond a point as he is already busy with his 'home-works' and head aches.

2. Turkey, unlike Syria has NATO support. If Syria decides to attack Turkey by firing all cylinders, in an either-me-or-you-war, NATO can chip in. Specifically, this is the factor that gave Turkey the courage to ground a Syria bound civilian air craft from Russia and come up with the news that the plane had carried ammunition.

Now, Syria cannot be lame when Turkey attacks it and in order to maintain good humor amongst his dwindling base of supporters, Assad will continue with attacks although on a subdued scale.

Another factor is that Turkey too would no want a full-blown war with Assad as that may help Assad to rally all domestic support and help him be friends with the current rebels in Syria and fight the war against Turkey—foreign enemy--shoulder rubbing against shoulders between erst while rebels and Assad's soldiers. This would be the most disgusting outcome of a potential war as far as Turkey is concerned.

This situation of semi-war too smacks of uncertainty and holds prospects of conflict escalation making crude oil prices highly volatile. Add to this, the consequences effected by data releases every week on economies including Eurozone, China and US and the picture becomes clear.

One may have to say: Volatility, thy name is Crude Oil. 

As published in: http://www.commodityonline.com/news/volatility-thy-name-is-crude-oil-50935-3-50936.html

2) http://oilprice.com/Geopolitics/Middle-East/Iran-Turkey-Syria-increasing-the-Volatility-of-Oil-Markets.html

Crude Oil futures and the paradigm shift in economic power

Last Updated : 04 October 2012 at 11:40 IST

The Asian Development Bank (ADB) is significantly scaling back 2012 and 2013 growth forecasts for developing Asia, saying that after years of rapid growth, the region must brace for a prolonged period of moderate expansion amidst an ongoing slump in global demand.

This has not spared the global crude oil markets in terms of price fluctuations and a downward revision in prices. Crude oil futures fluctuated after dipping 4.1% yesterday, the most since June, reported Bloomberg. Brent crude for November delivery too fell $3.40 to $108.17 a barrel.

For India, GDP growth will slow to 5.6% in 2012, down from 6.5% in 2011. The downward revision in India’s prospects, due in significant part to weak investment demand, is expected to slow South Asia‘s growth to 5.6% and 6.4% for 2012 and 2013, respectively, according to ADB.

The People’s Republic of China (PRC) is forecast to grow 7.7% this year and 8.1% in 2013, a dramatic drop from the 9.3% posted in 2011. The slowdown in the PRC is having a knock-on effect elsewhere in East Asia, with diminished demand for intraregional exports, the report read.

India and China are heavy consumers of crude oil. China is the second biggest consumer in a list topped by the US.

The ADB report along with the inventory climbing in US by 11,000 barrels a day to 6.52 million last week, according to EIA, dragged the markets down.

Ironically positive data from US in terms of PMI data and job data have not given fillip to the crude oil markets.

The PMI data from US as well as the job data released by ADP portrayed positive image of US markets which strengthened the USD.

US private-sector employment increased by 162,000 from August to September on a seasonally adjusted basis, according to the latest ADP National Employment Report released Wednesday. The forecast was that US economy would add 150,000 jobs in September.

The purchasing managers' index by ISM climbed to 55.1 in September from 53.7 in August. A figure below 50 indicates contraction and above 50 expansion.

The data may have capped further downside in crude oil prices. Nevertheless, it is indicative of a novel geopolitical trend in the making wherein the center of gravity in terms of economic power is shifting to Asia.

ADB projects the region’s gross domestic product (GDP) growth dropping to 6.1% in 2012, and 6.7% in 2013, down significantly from 7.2% in 2011. The markets stressed on this aspect more than the US factor which resulted in a downside in crude oil prices.

As published in: http://www.commodityonline.com/news/crude-oil-futures-and-the-paradigm-shift-in-economic-power-50684-3-50685.html

'South China Sea dispute unlikely to hurt Indian energy goals'

Quoting relevant sources, Teshu Singh, Research Officer at IPCS (Institute of Peace and Conflict Studies) has commented that India has not violated any sovereign rights of China by taking up exploration in South China Sea.

Recently, China has objected to Indian exploration initiatives in two Vietnamese oil blocks in the South China Sea to which Beijing lays claim. But India was quick to respond that India’s position was guided by international laws.

Teshu Singh said: “India has not violated any sovereign right of China by taking up exploration the SCS –Defense Minister George Fernandes in April 2000, while launching of INS Brahmaputra asserted that India’s maritime “area of Interest …extends from the north of the Arabian Sea to the SCS”.”

IPCS, a New Delhi based think tank, conducts independent research on conventional and non-conventional security issues whose voice is highly respected in policy circles.

According to media reports, China has pitted itself against offshore Block 127 and Block 128, for which ONGC Videsh –State owned Oil and Natural Gas Corporation’s foreign arm—entered into deal with Vietnam.

Block 128 is an offshore deepwater Block, located at water depth of more than 400 metres with 7,058 sq km area in Vietnam. In September 2009, ONGC Videsh had deployed drilling rig on Block 128; however, the well could not be drilled with the rig as it had difficulty in anchoring at the location due to hard sea bed.

“The drilling activity was terminated and it is planned that the location shall be drilled in 2012 subjected to successful field testing of anchors.” ONGC Videsh Annual Report for last fiscal said.

ONGC Videsh has invested approximately $46 million till 31st March, 2011 in the block. In fact, the total investments by ONGC Videsh in Vietnam total to $225 million.

Besides ONGC Videsh, Indian private firm, Essar Exploration and Production has also been allocated an oil block in Vietnam.

India has Vietnam support

Asked what is the stand taken by Vietnam on the issue and given the geopolitical realities, will Vietnam stay on Indian side in the event of a crisis, Teshu Singh responded:

“Vietnamese government stands in support of the Indian Government. With the ongoing developments where the two countries are adding greater content to their bilateral relations in defense and security, education, trade and investment, culture and other areas one can affirm that Vietnam will stay on Indian side.”

She is of the opinion that, “the face off should not have any negative effect on the pursuit of Indian ambition in securing resources in the SCS (South China Sea); official spokesman of India’s External Affair ministry, Vishnu Prakash, has said “Our cooperation with Vietnam or any other country for that matter in the world is always as per as international; law, norms and convention”.”

With India and China growth stories assuming legendary dimensions, the colossal needs of both nations in energy have pushed the countries into fighting verbal wars that may gain din in coming years.

As published in: http://www.commodityonline.com/news/South-China-Sea-dispute-unlikely-to-hurt-Indian-energy-goals-42421-3-1.html

FMCG stocks: Time to jump in if crude oil prices stay low

Last Updated : 12 August 2011 at 13:10 IST
With energy prices climbing and recession reportedly looming, the Western nations, that thrived on cheap oil is now finding it difficult to make both ends meet.

Research reports suggest that the recession of 2008 has altered consumption patterns in developed markets. Consumer spending in these markets has come down significantly.

But in growth markets, the scenario is different.

People in BRICS with their purchasing power supported by stable economies, are already living a new consumption scenario. Products like meat and other poultry commodities have gained currency and with oil prices coming down can witness further movement.

Needless to say, processed foods, and FMCG sector at large would thrive in this scenario.

“If Crude Oil prices remain low, stocks like ITC (BSE: ITC: 500875, NSE: ), Nestle India (BSE: NESTLE: 500790, NSE: NESTLEIND), Dabur(BSE: DABUR : 500096, NSE: DABUR) and even Marico(BSE: MARICO : 531642) can do better.” said Avinash Gorakshakar Research Head, Edelweiss.

[For information: Fundamentals and sell-offs withstanding, Nestle India stocks surged to 4177 on Thursday from a 4125 on Monday. ITC opened at 193.25 on Monday and reached 198.35 on Thursday.]

But a surge in oil prices can upset the apple-cart.

“Crude oil prices move in tandem with equity markets” says Renisha Chainani, Manager, Research Edelweiss.

“I expect the Crude Oil prices to maintain $85-$87 for the near term.” she added.

“But the equity markets have registered some gains lately.” Renisha pointed out.

So, if the crude oil prices can stay low for a while, then FMCG stocks would enhance performance.

As published in: http://www.commodityonline.com/news/FMCG-stocks-Time-to-jump-in-if-crude-oil-prices-stay-low-2011-08-12-41614-3-1.html

How crude oil rally can kill a poor drunkard

Crude oil prices are playing see-saw these days. Analysts are divided when it comes to predicting the prices of crude oil, linking it to a host of factors.

But I can tell you something: Crude Oil rally can kill a poor drunkard.

Let me explain. But take some background information first.

Ethanol fuel is widely used in Brazil and in the United States, and together both countries were responsible for 88 percent of the world's Ethanol fuel production in 2010. Most cars on the road today in the U.S. can run on blends of up to 10% ethanol, and the use of 10% ethanol Gasoline is mandated in some U.S. states and cities.

Since 1976 the Brazilian government has made it mandatory to blend ethanol with gasoline, and since 2007 the legal blend is around 25% ethanol and 75% gasoline.

In this context, the India government has been receiving requests, particularly from Sugar industry, to increase the percentage of Ethanol blending in petrol up to a limit of 10%.

So what has it got to do with spirit consumption?

Ethanol—obtained from molasses-- has dual use: It can be used as a bio-fuel and it can also be used in making liquor.

In the current scenario, India’s ethanol prices are pegged to fuel prices. When petrol prices go up, ethanol prices can also go up.

This is invariably good for sugar industry players who dominate the value-chain all the way from field to spoon. They can crush sugar cane and extract molasses, which can be used to make ethanol and get it sold to Oil Marketing Companies (OMCs) like Hindusthan Petroleum for Rs.27-30 a litre.

This is not good news for liquor industry: Once the OMCs start paying this kind of price, these liquor barons too have to pay this heavy price for ethanol. Invariably, their input costs can go up and they will be forced to pass on their burden to their dearest spirited consumers.

And if some of those customers are from the lower economic strata, the so called aam aadmi, how long will they be able to pay high prices for that peg?

Naturally, they may turn to clandestine local liquor producers operating in make-shift set up and would consume some hooch. The rest, I need not say.

India government had decided on August 16, 2010 to implement Ethanol Blended Petrol (EBP) Programme up to a limit of 10%. However, as per availability of supply of ethanol, presently only 5% EBP Programme is under implementation in 13 States and 3 UTs, out of the notified 20 States & 4 UTs.

However, due to non-supply of Ethanol in requisite quantity even for 5% blending level, OMCs or Oil Marketing Companies are unable to raise the implementation level.

Against an annual requirement of 105 crore litres of ethanol for blending upto 5% in the entire notified area, only 55.87 crore litres of ethanol could be contracted in 13 States and 3 UTs. Out of this, only 28.79 crore litres could be procured up to 31 July 2011.

Yes, deciphering this, one can say that bio-ethanol is scarce in supply. But still, the demand exists. And this means that many hooch brewers may end up in jail.

So, is there any solution?

Let the oil prices climb and attain a peak oil level, when blending ethanol too would prove to be too expensive. The government would then de-couple Crude Oil prices and ethanol prices and subsequently, ethanol prices would hit the ground with a thud.

Then, it would be party time, yet again!

As published in: http://www.commodityonline.com/news/How-crude-oil-rally-can-kill-a-poor-drunkard-41802-3-1.html

Crude oil rally may be sweet news for sugar industry

Sugar, the sweetener king, often trades on a sour note. The ‘problem’ is often attributed to surplus. But crude oil and sugar prices are related in a twist of developments. It is highly likely that sugar prices can go up as crude breaks the charts.

The reason is that, when crude oil prices go up, ethanol demand also heats up in the planet. Ethanol can be produced by fermenting the juice that is produced by crushing sugar-cane. Once can also crystallise the sugar cane juice to produce sugar.

But here lies the incentive:

“Currently, the industry in Brazil is finding it much more profitable to produce ethanol over sugar, with realisations of around 2,381.5 real or $ 1,470 on every cubic metre (kilo-litre) sold domestically.” --writes Harish Damodaran in an analysis in The Hindu.

Brazil is the biggest producer of sugar in the world.

In Brazil, sugar output forecast to the tune of 34.6 million tons may be missed.

For the April-March 2010-11 period, around 55% of cane crushed was used for ethanol production. In the new season, a whopping 65% of the cane crushed has been diverted to ethanol production.

In the past two weeks, global sugar prices plunged almost one-fifth attributed to Thailand’s production surplus of 2.6 million tons pegging the output at 9.8 million tons when compared to last year’s (2009-10; October-September) 7.2 million tons.

However it would be simplistic to assume that the sugar prices would continue to stay low:

“India sugar futures on Monday witnessed corrections on profit selling on early gains for the day. Steady spot market activity due to increased supply resulted in the fall at futures. However, overall positive trend is still intact.” said a report from Karvy Comtrade Tuesday.

If this be the case in India, where domestic surplus is failing to keep sugar trading on a depressed note, global scenario cannot be different.

There are also reports that China is scouting for sugar as domestic demand surge.

In the year ending September 30, 2011, China’s output may rise to 12 million tons from the present 11.3 million tons, says USDA. But consumption in China would be to the tune of 13.6 million tons as per revised estimates.

This would cause imports by China—the second biggest consumer of sugar after India—to jump 35%, said a Bloomberg report citing Australia and New Zealand Banking Group Ltd.

According to expert estimates, Chinese reserves of sugar are close to exhaustion. China is expected to source sugar from Thailand and Brazil for about 25 cents a pound(inclusive of an import tariff of 50 percent).

India’s output of sugar—second biggest in the world-- has jumped by 25% to touch22.6 million tons in the first seven months of sugar season which marked its beginning in October 2010, said a recent report in the Bsuiness Standard citing Indian Sugar Mills Association (ISMA) Director General Abinash Verma.

The surplus is attributed to good monsoons of the previous year.

Sugar production in Maharashtra, India’s biggest sugar producing state jumped to 8.3 million tons for the period ending April in comparison to 6.77 million tons for the same period last year.

Sugar production in Uttar Paradesh that closely trails Maharashtra climbed to to 5.9 million tons from 5.17 million tons. Kanataka too witnessed a jump in output from from 2.4 million tons to 3.45 million tons.

For the season ending 2011, ISMA projects India’s sugar output at 25 million tons. Government estimates show that the output may be at 24.5 million tons.

Last year, the output figures read 19 million tons.

But with inflation concerns on the anvil, India’s sugar surplus is not expected to reach the international markets, other than the 5 lakh tons that has already been approved by the EGoM (Empowered Group of Ministers).

Can we say a sugar bull is in the offing?

As published in: http://www.commodityonline.com/news/Crude-oil-rally-may-be-sweet-news-for-sugar-industry-38881-3-1.html