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News – Price

Let’s take a look on this article and understand the consequence of the tropical cyclone in Australia for Australia and Asia :

http://www.mining.com/cyclone-damage-causes-bhp-to-declare-force-majeure-in-australia/

The graph above illustrate the increase in price (USD per metric tonne) of the australian thermal coal FOB Newcastel due to the cyclone.

Coking coal increased by more than 15% to 175 USD on Monday 3rd April 2017

Left : price of coal in USD/MT

Right : price of natural gas in USD/MMBtu

When it comes to energy, natural gas is an alternative to coal. The rise in natural gas production resulted to a fall in prices. This energy is cleaner and more competitive than coal so it normally gain market shares over coal in the electricity production.

In the graph below, we can notice the impact in the increase of natural gas’ price in 2017 which lead to an increase in coal’s market shares.

Futures

ICE offers futures and options based on the world’s most important international coal hubs, including Newcastle (Australia), Richards Bay (South Africa) and Rotterdam (Europe), as well as the emerging markets of South China and Indonesia.

  • Globalcoal Newcastle Coal Futures :

The contracts are financially settled according to the price of coal loaded at the Newcastle Coal Terminal. The units of trading is 1’000 metric tonnes of thermal coal. The minimum trade is of 1 lot (1’000 metric tonnes) and they are quoted in USD and in USD cents per tonne. The trade period is up to 84 consecutive month contracts.

  • Powder River Basin Coal Futures :

Contracts are financially settled based upon the FOB price of coal delivered via the Western Rail network from the southern Powder River Basin mining region. The contract is cash settled against the monthly average for the corresponding month of the Platts Powder River Basin 8,800 OTC assessment published in Platts Coal Trader.Same other specs that the Globalcoal Newcastle Coal Futures. The trading period is up to 60 consecutive months and the units of trading is 1’000 short tons of thermal coal. The minimum trade is of 1 lot (1’000 short tons) and they are quoted in USD and in USD cents per ton.

(100 short tons = 90.71 metric tonne)

Sources

http://www.tradingeconomics.com/commodity/coal

http://www.marketwatch.com/story/price-of-australian-coking-coal-skyrockets-after-cyclone-2017-04-03

http://www.mining.com/coking-coal-price-surges-15/

https://www.theice.com/products/1137/globalCOAL-Newcastle-Coal-Futures/specs

Authors

Hedi, Ricardo & Nicolas

Renewable Energies – 07.04.2017

Renewable energies are free and infinite but they need to be collected, processed and transported to customers – which are costly. These costs are generally higher than the costs from fossil fuels energies. Moreover, strong investments are needed as these types of energies are relatively new and can be highly enhanced and expended.


By nature, electricity is not storable in large quantities, therefore, capacity must always be higher than consumption to avoid power outage. Other factors influencing demand (weather, time of the day etc…) and supply (such as quantity of wind or sun in the case of renewables) make the spot price of electricity one  of the most volatile in a free market economy.

Trading of electricity/renewables :

Electricity is traded on wholesale markets that are fragmented. In the US, these markets are operated by Independent System Operator (ISO) or Regional Transmission Organization. These ISO and RTO’s are responsible for coordination, control and monitoring of the operations of the electrical power system. These markets are the link between the providers (power plants) and buyers (electricity companies). Electricity is traded on the market on spot contracts as well as futures or options, allowing electricity retailers to hedge their price like any other commodity.

Price is fixed according to a “marginal price” basis in an auction process: Every producer can offer a specific amount at a specific price. Then, the operator (ISO or RTO) sorts the offer in ascending order (from the cheapest to the most expensive) and selects the cheapest one until demand is met. The most expensive of the “winning” bids will then be used as clearing price.

Unfortunately, as the price are highly volatile and the electricity market opaque, we were not able to find any information about price forecast or historic

You can find below the different costs of energies. How are calculated these figures?

It is all costs such as initial capital, continuous operation, maintenance, return on investment and fuel. The time required to build a plant and its expected lifetime is also considered. This measure is called LEC.

US average electricity cost (LEC) in dollars per kilowatt-hour for both non-renewable and renewable in new power plants.


Figure 1 adapted from US DOE 2014

These prices can vary drastically depending of government incentives. For instance, a government that wants to reduce CO2 emissions will push the price of coal higher.

News:

As we have seen the cost of renewable energies is strongly correlated with government incentives or policies.

UN renewable energy report forecasts the future

Per a recent report made by the United Nations, the cost of Renewable energies could become cheaper than fossil fuels within a decade from now. Effectively, more and more countries, industries and corporation are investing into renewable energy products for their own generating capacity. This can be seen in the report made by the Renewable Energy Policy Network for the 21st Century (REN21) which says that even though the global economy has been increasing by 3% per year for the past three years, the emission related to the energy sectors have decreased and that it is mainly due to the increasing use of renewable sources. On the top of that 20% of the world’s final consumption of energy come from renewables.

References

ENERGY. [online]. 2017 [Consulted on 02.04.2017]. Available at: https://energy.gov/

RENEWABLE-ENERGY SOURCES. [online]. 2017. [Consulted on 03.04.2017]. Available at: http://www.renewable-energysources.com/

COSTING.IRENA. [online]. 2017 [Consulted on 03.04.2017]. Available at: http://costing.irena.org/

UN renewable energy report forecasts the future. [online]. 2017. [Consulted on 05.04.2017]. Available at: https://www.esi-africa.com/news/un-renewable-energy-report-forecasts-the-future/

Renewable Energies – 07.04.2017

Renewable energies are free and infinite but they need to be collected, processed and transported to customers – which are costly. These costs are generally higher than the costs from fossil fuels energies. Moreover, strong investments are needed as these types of energies are relatively new and can be highly enhanced and expended.

By nature, electricity is not storable in large quantities, therefore, capacity must always be higher than consumption to avoid power outage. Other factors influencing demand (weather, time of the day etc…) and supply (such as quantity of wind or sun in the case of renewables) make the spot price of electricity one  of the most volatile in a free market economy.

Trading of electricity/renewables :

Electricity is traded on wholesale markets that are fragmented. In the US, these markets are operated by Independent System Operator (ISO) or Regional Transmission Organization. These ISO and RTO’s are responsible for coordination, control and monitoring of the operations of the electrical power system. These markets are the link between the providers (power plants) and buyers (electricity companies). Electricity is traded on the market on spot contracts as well as futures or options, allowing electricity retailers to hedge their price like any other commodity.

Price is fixed according to a “marginal price” basis in an auction process: Every producer can offer a specific amount at a specific price. Then, the operator (ISO or RTO) sorts the offer in ascending order (from the cheapest to the most expensive) and selects the cheapest one until demand is met. The most expensive of the “winning” bids will then be used as clearing price.

Unfortunately, as the price are highly volatile and the electricity market opaque, we were not able to find any information about price forecast or historic

You can find below the different costs of energies. How are calculated these figures?

It is all costs such as initial capital, continuous operation, maintenance, return on investment and fuel. The time required to build a plant and its expected lifetime is also considered. This measure is called LEC.

US average electricity cost (LEC) in dollars per kilowatt-hour for both non-renewable and renewable in new power plants.

Figure

• We use mostly US stats from EIA because we did not find more rich and complete source of information.
• Nothing special on prices, production and forward curves in comparison to two weeks ago
• Situation in the US, Europe and China
• Below uniformization in gallon (1 US gallons = about 3.78L)

1. OVERVIEW PRICES + the US situation
On the picture below, we can see how much of each component we pay in a gallon of regular Gasoline and Diesel. Last year, about 143 billions of gallons of finished motor gasoline were consumed in the US, which represent about 391 million gallons per day. This was the record of all time motor gasoline consumption.

Both prices of Gasoline and Diesel are strongly correlated to Crude oil price. The curves evolved related to the Crude oil events and decision. Thee production sees some seasonality as car users need gasoline/diesel to travel (especially over the summer). Another use of the commodity is the heating oil, the demand was high over the winter months last year due to the cold weather especially in west Europe, so it makes sense to re-stock the commodity as prices are low now.

Th US retail gasoline prices averages $2.14 per gallon in 2016, this represent the lowest annual average since 2004. The low crude oil price has been the major factor of this result. The rest of the price is directly controlled by gasoline specifications, taxes and S&D balances in regional markets.

2. CHINA… CHINA… CHINA…
The use of methanol in liquid fuels has grown rapidly in China since 2000.

China is the world leader in the methanol use, they recently expanded its production to reach an estimated of 500,000 barrels per day (b/d) (= ~ 15’750’000 gallons) in 2016. Methanol is like ethanol. It can be blended with gasoline.
Ethanol is blended into motor gasoline in the US. Methanol is blended into gasoline in China. China has a national quality standard for methanol blends of 85%, and a national standard for a 15% blend of methanol in gasoline according to EIA.

3. No diesel for green-EUROPE
The situation in Europe remains stable over the last years. The crude oil price accompagned to the stricter European emission normes, record of electric cars sales and VW emissions scandals have put a huge impact on the Gasoline and Diesel prices, making the curve decreasing from 3$/Gallon to 1.50$ per Gallon.

4. FORWARD CURVES
We can expect the forward curves moved into a flatter structure, as there is expectations that supplies will tighten because of summer demand for diesel in Europe. The July contract traded at 1.71$

5. Recommendation
Consumer re-stocking and all refineries run cuts due to narrow profit margins. This trend could support higher prices. And again, in backwardation, it’s open season, go and short some Diesel and Gasoline!

SOURCES

https://www.eia.gov/outlooks/steo/report/us_oil.cfm

https://www.eia.gov/todayinenergy/detail.php?id=29452

U.S. Energy Information Administration, Gasoline and Diesel Fuel Update

https://www.eia.gov/todayinenergy/detail.php?id=30072

https://www.eia.gov/tools/faqs/faq.php?id=23&t=10

U.S. Energy Information Administration, based on Argus Media Group

https://www.ft.com/content/b7d0c024-be1e-11e6-8b45-b8b81dd5d080

http://marketqview.com/forwardcurvechart.php?ID=83&TYPE=Price

Nigeria crude oil production

The year 2016 was a bad year for the Nigeria in term of production. It is mainly due to several terrorist attacks in the Niger Delta. For example, the decrease between July and August is an illustration of oil companies struggle to revamp pipelines in Niger Delta following severe attacks by militant groups.

Since then the recovery leads to an increase in term of production helps by the exemption of crude oil cut decision following the OPEC meeting.

Angola crude oil production

Regarding the Angola production. It was a good year for the country. The big decrease of October is due to a planned maintenance in the Dalia crude oil stream, more precisely in the block 17 operate by Total. After November there is a decrease due to the OPEC meeting.

Bren Spot Price (Price in $/barrel)

source: Bloomberg

On April 5th, 2017 The Brent spot price stood at 54.77$/barrel.

In march a 3 months’ low decrease in Oil price was due to the crude inventories rise in US. They rose by 8.2 million barrels in comparison with the 2 million barrels of the “Analyst” expectations. The surging Us oil supplies dealt a blow to OPEC’s plan to erode global oversupply of crude. At the end of march, Oil prices rebounded on news that a growing number of OPEC countries are supporting an extension of their cuts for another six months. Of course, the official decision won’t come until May but the market is growing confident.

Differentials

January 2017

  • Nigeria’s Bonny Light /Brent = + 0.4$/b – Premium
  • Angola’s Girassol/Brent = – 0.17$/b – Discount

February 2017

  • Nigeria’s Bonny Light/Brent = +0.18$/b – Premium
  • Angola’s Girassol/Brent = +0.15$/b – Premium

News: The Kwanza Basin Tender

In December 2015, Sonangol was supposed to award exploration right to onshore concession in the Kwanza River Basin and three in the Congo River. Sonangol has announced significant discoveries in the Kwanza basin. The basin has a proven reserve of 2 billion barrels. Today there is a completion between the different major to have the opportunity to operate this fields. Regarding the kwanza Basin Sonangol has seven oil rights contracts to deliver. Let me explain you the process and the story behind that.

Sources

http://peakoilbarrel.com/opec-crude-oil-production-charts/

http://www.brecorder.com/2016/08/16/314268/

http://www.reuters.com/article/us-opec-oil-survey-idUSKBN13U245

http://www.vanguardngr.com/2016/09/nigerias-crude-oil-production-drops-130-000-bpd/

http://www.total.com/fr/expertise-energies/projets/petrole-gaz/offshore-profond/kaombo

http://oilprice.com/Energy/Energy-General/Oil-Prices-Rise-Above-50-On-Outages-OPEC-Expectations.html

Freight Market

Bullish Freight Rates

In fact, shippers are in a shortage situation of capacity from Europe to Asia and vice versa. Freight rates was multiplied by 3 or even 4 and during the latest week, there was the impossibility to make the goods leaves before 4 to 6 weeks.

Consequences:

-       No guarantee of boarding

-       Important delays

-       No respect of the contract and deadlines

The shortage began in February just after the Chinese New Year.

Reasons:

-       The closing of plant in China -à 30 % of capacity was taken off from Asia

-       Weather problem, which have caused operational difficulties

-       The reorganization of services concerning new alliances, 60% of the global capacity of container transport is concerned.

Normally, capacities supposed to arrive at the end of April or mid-May. The freight market need to have regularity and reliability. Actually, there is no solution, companies and shippers have to be patient for the moment.

  • Price report

-Iron ore import increased :Iron ore has witnessed a surge in worldwide consumption mainly do to increased demand in developing countries. China, whose Iron ore imports have seen a decline in the past few months has been reverted to show a bullish face for march. Subsequently, Capesize vessel have reached freight rates not seen since 2015.

-Coal:  has had a surge in demand (Trump tries to override climate change treaties to start using coal again) The second most chartered for dry bulk has finally seen its price remaining steady for the past week after a 12 consecutive week decline. Despite Trump overriding all the treaties concerning global warming to boost the coal market up.

-Current fleet market : order book has heavily been diminished, orders were cancelled and many ships have been sent to scraping diminishing global deadweight tonnage available => Now we need to see a increase in demand

  • Cape Size Volatility

We can observe a price increase starting from the beginning of the year with pretty volatile index for Capesize.

This is mainly due to the fact that Capesize is the biggest dry bulk vessel in terms of deadweight. Moreover, this ship is mainly positioned for a few business’ i.e. coal, iron ore and other metals. It means that the slightest change in terms of supply/demand, commodity price/availability will have a direct impact on the freight price for dry bulk.

  • Managing the risk

With this unforeseen surge in prices charterers will tend to manage their risk:

a) Physical

TC Out/TC IN : A TC In Contract can be defined as a contract of hire of a vessel for a specified period of time, whilst a TC Out Contract handles the letting of a vessel for a particular time period. Under both, the Charterer will decide route and ports, pay a daily hire, all port charges and fuel consumption whilst the Vessel Owner remains in control of the vessel.

COA (Contract of Affreightment):The vessel owner undertakes to provide cargo-space (at a specified time, and for a specified freight) to the merchant who is liable for payment whether or not the cargo is ready for shipment.

b) Paper

Hedge against the index (Futures). The futures are standardized.

Examples of standards:

Types of vessels : All boats do not fit to the standard (Made for bigger vessels such as Capesize, Vlcc’s)

Shipping routes: Only few routes are in the standards (usually those used by big vessels Continental/Far East)

The papers are fit for big companies such as BHP Billiton and Cargill. Cargill has more than 40% of all FFA agreements.  The advantages of FFA’s is that when you hedge you don’t manage the boats anymore. They do not exist for offshore and containers markets.

Thes are the FFA’s of Dry Bulk Carries for the next 24 Months (From Handysize to Capesize)

  • Spot Prices

Bibliography:

http://confluence.dataloy.com/display/VMSKB/Time+Charter+Contracts

http://www.dailymail.co.uk/news/article-148066/Stricken-tanker-splits-sinks.html

https://www.flexport.com/blog/why-are-ocean-freight-rates-so-low/

Market Report. 1st ed. New York, Park Avenue 230, USA: Capital Link Shipping, 2017. Print.pdf

Hellenic Shipping News Worldwide

Russia Crude Oil Production


Russia crude oil production remains at 11’100 MMbpd that is only a compliance of one third with the OPEC agreement. Compliance with the supply-cut deal was 94 percent in February among OPEC and non-OPEC oil producers combined. According to Russian Energy Minister Alexander Novak, Russia is committed to cuts of 300,000 bpd by the end of April.

Russia Imports


Russia imports of crude oil were last predicted on Wednesday, March 29, 2017.

Imports of Crude Oil is expected to reach 96.76 USD Million at the end of March. Analysts estimate imports of crude oil in Russia to stand at 156.51 in 12 months time.

Prices


A perfect correlation b/w Urals & Brent prices. Decrease in Oil prices on March 13th because of US oil rigs reaching 617 most since October 2015 bringing U.S. crude inventories at a record of 528.4 MMbbl. March 20th 2017 Oil falls down to its lowest level after November 2016 because of number of US oil rigs at its highest level since September 2015 counting 631. US oil output at its highest level since June 2015 reaching 9.1 MMbbl/d.

News
Meeting b/w Russia’s & Iran’s president last week-end followed by a discussion b/w Opec and Non-Opec members resulted in a slight increase in oil prices on 27th as Iranian oil minister announced that oil production cut is likely to be extended.

Forward curve

Russia launched Urals crude oil future trading in November 2016.

Forward curve is Contango. Except in June – July 2017, curve is not reacting a lot. A slight variation of 0 – 0.50 USD/Bbl can only be explained by incentive to store.

Urals-Brent differential explained

Pointing out the obvious, we know generally that Urals.Price = Brent.Price – Discout due to blend quality.

A glance at historical prices of the two indexes show that they are correlated, which indicates that they move in tandem with geopolitical events and situations which typically affect prices on the basis of fundamental economics. In theory, commodities such as oil are near homogeneous goods that are priced at almost the same equilibrium.

However, the Urals-Brent differential challenges this.

Baring changes in blend quality, the Urals-Brent differential remains too volatile to be dismissed.

Volatility of spread: what is going on?

By studying the highest and lowest peaks of the differential, We can attempt to understand the interplay of the two indexes by guessing at the reactions of the two indexes with

In order of the peaks we have:

  • 2012 US oil production rose, coupled with the Iran sanctions and oil supply disruption in Yemen, Sudan and , putting pressure on the US oil market and possibly making Brent the cheaper alternative.
  • 2013 Mayflower incident, Somehow Brent became cheaper than Urals.
  • 2014 Drop in oil prices globally. Keeping 2008 in mind, this was about the time people were getting excited over the idea of a second Super Contango. Why Urals was hit harder than Brent is unclear.
  • End of 2015 Super Contango and an industry downturn, apparently caused by Opec, a strong U.S. dollar, oversupply, declining demand and the Iran nuclear deal. The strength of the US dollar at the time may indicate why Urals took the fall harder than Brent at the time.

A timing factor

Beyond the classical explanations of the spread, another factor that may be interesting to study is the time-factor of the spread. More specifically the speed and capacity of the two markets to react to world events. Some studies indicate that, while Brent behaves according to fundamental market theory, Urals seems to be lagging behind and may be affected by other factors beyond pure market influences. Instead of fixating on what affects both markets and how they interact, we must take into account how quickly they can adjust and (in the case of Urals) how deeply is the market tweeked.

Sources:

http://www.topoilnews.com/

https://www.investing.com/news/commodities-news/oil-off-as-u.s.-drilling-activity-continues-apace-467401

http://spimex.com/en/derivatives/products/instruments/info.php?code=U67

https://www.researchgate.net/publication/284154160_The_causal_relationships_between_Brent_and_Urals_oil_price_benchmarks

Price in USD/MT

Coca futures price have been rising this last bulletin which is not what futures price curve was indicating. In fact, it has been going reversely to what the ICCO has been saying. I.e. that the prices are going down due to oversupply.

Price in USD/Mt

What the ICCO does not mention as a reason that might increase the price of cooca is that Ivory Coast (largest Cocoa producer) is lacking fund and struggling to support its farmers. From January to March short traders were selling Cocoa due to its constant price fall. If forward curve is looking contango it is probably due to the two reasons above but also because demand might be increasing.

Ghana is looking to increase its production to over 1 million mt in its plan of overtaking Ivory Coast’s leader place. Still, this operation is not likely to compensate for the loss resulting from the price decrease between 2016 and 2017 but on the contrary making it falling even more as the market is already oversupplied.

A new organization to promote the sustainable production of Cocoa: The World Cocoa Foundation

The 12 largest companies involved in cocoa Callebaut; Blommer
Cargill; Cemoi; Ecom; Ferrero; Hershey; Mars, Mondeley, nestle; Olam, and Touton have agreed to join the WCF to work with local government in order to end deforestation. A problem that mainly arises from poverty as farmers are looking for a more decent livelihood and expand their activities in forested areas to increase their yield. Even though we know that nobody benefits from low prices here we don’t know if this is going to impede governments from increasing production.

Sources:

https://seekingalpha.com/article/4057870-weighing-cocoa?page=2#

https://www.bloomberg.com/news/articles/2017-03-22/cocoa-slump-threatening-top- producer-is-deja-vu-for-80s-traders

http://www.agrimoney.com/news/cocoa-better-bet-than-coffee-sugar-says-commerzbank– 10572.html

http://www.marketqview.com/forwardcurvechart.php?ID=14&TYPE=Price

http://www.thestatesmanonline.com/index.php/business/3328-we-must-see-change-in- cocoa-sector-president-charges-new-board http://www.supplychaindive.com/news/big-cocoa-deforestation-solution- partnership/439181/

Strikes at the world’s two biggest copper mines

Inventories


The copper inventories are higher than the previous years, almost as high as in 2013. The inventories tend to rise at the beginning of each year, before being consumed, particularly in China, where the industrial activities run at full speed in the middle of the year.

In the LME warehouses, the inventory level is at around 800,000 metric tons, while it was at around 550,000 metric tons a year before at the same period, which is an increase of more than 40%.

Price of LME Copper

We discovered in our Market overview variable affecting the copper price. This bulletin will focus on variable such as inventories level, production, currency and china demand.

Stoppages at the world’s two biggest copper mines affected price positively (up to 6000$) in the beginning of March. Element related to this stoppage have regulate price movement throughout March.

March 7th, stocks levels and currency are putting pressure on prices. The U.S. job report telling an increase may strengthen the dollar, hitting copper, which is denominated in dollars.

Price recovered after China issued data on the 11 march showing a strong start to 2017, supported by strong bank lending, government infrastructures and the need in resurgence in private investment, plus the fact spot processing fees in Asia for copper concentrate have slid to their cheapest in four years which encourage Chinese production and increase demand for copper ore.

March 15, decrease in price caused by a rise in USD currency. The Federal funds rate is expected to raise interest rates for the second time in three months on Wednesday, encouraged by strong monthly job gains and confidence that inflation is finally rising to its target.

March 21, London copper prices dropped after unions and miner BHP Billiton further talks that could lead to the restart of production at the world’s biggest copper mine.

Forward Curve

-        Due to Trump’s arrival not only negative things have been recorded, a trade deficit decrease seemed to appear. This leads to the confidence of people who are willing to enter in the futures market increasing demand.

-        Another problem rose for copper from the world’s largest copper mine : Minera Escondida. Workers have been striking during 43 days has been decreasing their production. The company said that they were looking at ways to restart production and maybe require temporary workers to do it. This could explain the flat curve in March until April.

-        Regardless of the negative reasons mentioned above, 2017 is said to be a game-changing year for copper, due to Trump’s $500-billion infrastructure plan, booming Chinese demand for copper which could have encountered the shape that the forward curve should have had.

Recommendation

Our recommendation would be to go long. The reason is that we are expecting the price to go up due to an increasing demand in China and also in USA with the investments that the new President Trump wants to make in the infrastructures, in the following weeks.


Romain Boissenot, Luljeta Musli, Cynthia Yougang

References

Fickling, D. (2017). Floating Copper Looks Frothy. [online] Bloomberg Gadfly. Available at: https://www.bloomberg.com/gadfly/articles/2017-03-24/copper-s-tireless-bulls-are-looking-the-wrong-way [Accessed 29 Mar. 2017].

Ft.com. (2017). LME copper inventories at 10-year high. [online] Available at: https://www.ft.com/content/1227afe0-9251-11e2-a6f4-00144feabdc0 [Accessed 29 Mar. 2017].

markets.businessinsider.com. (2017). Stock Market News | Financial & Business News | Markets Insider. [online] Available at: http://markets.businessinsider.com/news/stocks/r-metals-london-copper-bides-time-near-8-day-top-demand-hopes-underpin-2017-3-1001875865 [Accessed 29 Mar. 2017].

Reuters UK. (2017). METALS-Copper firms on supply outages ahead of Trump speech. [online] Available at: http://uk.reuters.com/article/global-metals-idUKL3N1GC1UU?rpc=401& [Accessed 28 Mar. 2017].

Reuters UK. (2017). METALS-London copper edges up as supply worries simmer. [online] Available at: http://uk.reuters.com/article/global-metals-idUKL3N1GC1G0?rpc=401& [Accessed 30 Mar. 2017].

Reuters UK. (2017). METALS-London copper sinks to seven-week low on dollar, Escondida talks. [online] Available at: http://uk.reuters.com/article/global-metals-idUKL3N1GM1EK?rpc=401& [Accessed 28 Mar. 2017].

Reuters. (2017). METALS-London copper hits highest in more than a week, demand hopes underpin. [online] Available at: http://www.reuters.com/article/global-metals-idUSL3N1H61BO [Accessed 28 Mar. 2017].

Romandie.com. (2017). Chili : fin de la grève à Escondida, 1e mine de cuivre au monde. [online] Available at: https://www.romandie.com/news/Chili–fin-de-la-greve-a-Escondida-1e-mine-de-cuivre-au-monde/782831.rom [Accessed 29 Mar. 2017].

The Economic Times. (2017). Commodities wrap: Nickel futures rise 0.36%; Copper futures down. [online] Available at: http://economictimes.indiatimes.com/markets/commodities/news/commodities-wrap-nickel-futures-rise-0-36-copper-futures-down/articleshow/57868561.cms [Accessed 28 Mar. 2017].

1. News over US vs. China

The US Aluminium industry filed in March 2017 dumping action against China. They claim that the aluminium foil that China is importing to the US is killing the domestic market. The US aluminium foil producers want trade laws that support them domestically because the increasing volumes of low-priced imports from China have injured them until now (The Aluminum Association, 2017). More details on this action at: http://www.aluminum.org/news/us-aluminum-industry-files-dumping-action-against-china

On one hand, the share of China in US demand for aluminium foil has increased over the twelve years as it is shown on the graph below. It counted for 0% in 2004 and for 22% in 2016. On the other hand, the share of the rest of the world has continuously decreased over the time.

Future trend between the US and China: as the current US President famously said, “China is killing us”, we expect to see the relationship between the two countries negatively change in the future having an impact on the aluminium trade between them, which would be interesting to have a look at. We may assume that the flow of exports from China to the US will be lower in the future.

*RoW=Rest of World

2. London Metal Exchange Aluminium prices – 26.03.2017

1st Bulletin: Price as of 28.02.2017

2nd Bulletin: Price as of 26.03.2017


We saw in our previous bulletin that the aluminium price reached the highest level for the past year due to the decreasing stocks and bauxite mining banning.

We can see that we have a small decrease in price during the next days but the price has started to go up again following the continuation of the Malaysian banning.

The price on 26th March 2017 was USD 1’918.00 per tonne.

3. LME Warehouse Stocks – 1-Year overview

We can see on the graph below that the stocks level are continuously decreasing. The aluminium market is however known to be well-supplied, which is still the case as it will be later shown in the slope of the forward curve.

4. Forward curve

The forward curve is (unsurprisingly) in contango which shows that the supply-demand relationship does not match; the market is still oversupplied. This market structure is an incentive to store the commodity. The only change from our last bulletin is the cash price which has increased by 3.18% (from $1856 per tonne to $1915 per tonne) over the two periods.

Stefan Zgraggen, Justin Nangmo, Agron Etemi

Sources

Kitco. (2017) Kitco – Spot Aluminum Historical Charts and Graphs – Aluminum charts – Industrial metals. [Online] Available from:

http://www.kitcometals.com/charts/aluminum_historical_large.html

[Accessed: 28 March 2017]

London Metal Exchange. (2017) London Metal Exchange: Aluminium. [Online] Available from:

http://www.lme.com/metals/non-ferrous/aluminium/

[Accessed: 28 March 2017]

London Metal Exchange. (2017) London Metal Exchange: Aluminium. [Online] Available from:

http://www.lme.com/en-gb/metals/non-ferrous/aluminium/#tab2

[Accessed: 28 March 2017]

Reuters. (2017) Aluminum sector seeks way to tackle China – induced instability: Andy Home / Reuters. [Online] Available from:

http://www.reuters.com/article/us-china-aluminium-home-idUSKBN16U380

[Accessed: 28 March 2017]

The Aluminum Association. (2017) U.S. Aluminum Industry Files Dumping Action China. [Online] Available from:

http://www.aluminum.org/news/us-aluminum-industry-files-dumping-action-against-china

[Accessed: 28 March 2017]

History of Gasoline and Diesel

Edward Drake was the first man to discover oil in Pennsylvania in 1859 and transformed it into kerosene for lighting. He then found many other products by distilling the oil and notably gasoline. However, at first gasoline was completely useless and valueless as there was no product that needed gasoline to work. It is only when automobiles were first introduced to the public that gasoline started to be valuable. Nowadays, gasoline can be used for cars, motorcycles, light trucks, boats, small aircraft, equipment and tools used in construction, farming, forestry and landscaping, and also for electricity supply. Gasoline comes to the end consumers in different types from standard to premium (based on its octane rating). The higher the rating is the higher are the anti-knocking properties.

Diesel was invented by Rudolf Diesel (hence the name) in 1893. After that Mr Diesel disappeared mysteriously, Mercedes-Benz launched the first diesel passenger car in 1936. Diesel cars were then developed essentially by European manufacturers. It is now used for trucks, buses, trains, boats, barges, farm and construction engines, military use and electricity generators.

Production & Consumption

For personal and environmental safety reasons, it is preferable to not transport gasoline and diesel in big quantities therefore they usually come in form of crude oil and then are refined in the country where they will be used. In 2015, the US had the largest refinery capacities with 18’315 thousand barrels1 per day and throughput with 16’207 thousand barrels per day. They were followed by China with refinery capacities of 14’262 thousand barrels per day and throughput of 10’661 thousand barrels per day. The largest refinery in the world is however in Jamnagar, India with a production capacity of 1.24 million barrels per day. In 2015, gasoline accounted for about 42% and diesel for about 27% to 29% of the total petroleum products refined in the US. If we compare by continent, Asia Pacific had actually the largest refinery capacities in 2015 with 32’554 thousand barrels per day and throughput with 26’802 thousand barrels per day. North America followed with refinery capacities of 21’883 thousand barrels per day and throughput of 18’976 thousand barrels per day.

1. 1 barrel = 42 US gallons = about 159L

The US is also the biggest consumer of gasoline in the world with 385 million gallons of gasoline used per day in 2015. The US is the largest consumer of light distillates1 as well with 9’395 thousand barrels consumed per day in 2015. The US consumption of light distillates in 2015 was higher than the light distillates consumption of South & Central America, Europe & Eurasia, Middle East and Africa combined, which accounted for 9’385 thousand barrels per day.

In term of Middle Distillates2, the US is also the country with the highest consumption with 5’627 thousand barrels per day. On the other hand, all the other continents consume more Middle Distillates that Light Distillates products. Asia Pacific is the largest continent consuming Middle Distillates with 11’338 thousand barrels per day. Europe & Eurasia follow with 9’098 thousand barrels per day. In general, until 2012 the world consumption road gasoline was still higher than road diesel but since 2000 the ratio road Gasoline/road diesel was decreasing. The US represented about 38% of the world road gasoline consumption and about 16% of the world diesel consumption in 2012. OECD Europe countries accounted for about 9% of the world road gasoline consumption and about 25% of the world diesel consumption in 2012.

1. Light Distillates: Aviation and motor gasoline and light distillate feedstock

2. Middle Distillates: jet and heating kerosene and gas and diesel oils

It is also interesting to see that in 2014 there was more demand than supply in the refined products market. Only Russia had a positive balance at that time. This reason is probably because the market uses surplus to compensate the imbalance, considering that none of the country fully uses the capacity of its refineries. Our theory is confirmed by looking at the US ending stocks of Motor Gasoline and Distillate fuel oil from 2011 to 2016 (Obviously it is only one country among the others but as the major player in the market it remains a good reference). 

Sources:

-https://www.fuelseurope.eu/uploads/Modules/Resources/fuelseurope-statistical-report-2015.pdf

- https://www.eia.gov/energyexplained/index.cfm?page=gasoline_history

-https://www.eia.gov/energyexplained/index.cfm?page=gasoline_use

-https://www.eia.gov/energyexplained/index.cfm?page=gasoline_home

-http://www.telegraph.co.uk/sponsored/motoring/diesel-performance/11956048/diesel-fuel-history.html

-https://www.eia.gov/energyexplained/index.cfm?page=diesel_use

-http://www.miningoilgasjobs.com.au/oil-gas-energy/hydrocarbons-and-energy/hydrocarbons/oil-and-gas/downstream/gasoline.aspx

-https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-full-report.pdf

- https://www.eia.gov/energyexplained/index.cfm?page=diesel_home#tab2

- http://www.hydrocarbons-technology.com/features/feature-top-ten-largest-oil-refineries-world/

-https://www.eia.gov/energyexplained/index.cfm?page=gasoline_use

-https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-full-report.pdf

-https://www.fuelseurope.eu/uploads/Modules/Resources/fuelseurope-statistical-report-2015.pdf

-https://www.eia.gov/dnav/pet/pet_stoc_wstk_dcu_nus_a.htm

Trade Flows:

Europe refineries are more configured for gasoline. Since early 2000’s climate awareness push Europeans to consume more diesel where the flow of gasoline to the US due to excess of production. The VW diesel scandal made a perceivable change.

Price & stock

Some quick facts:

  • We use mostly US stats from EIA because we did not find more rich and complete source of information.

  • According to EIA statistics, gasoline inventory in the US reached a record high of 259.1 million bbl on February 10 but goes down to 246.3 March 10.

  • Gasoline consumption in the US is characterized by seasonality. Diesel is more linear.

  • Since 1990 there is a mandatory mixed 10 to 15% of ethanol into the diesel so it is interesting to look at the correlation between ethanol and diesel prices

Future

Sources

https://www.eia.gov/todayinenergy/index.php?tg=gasoline

https://www.bloomberg.com/search?query=diesel&endTime=2017-03-22T19:34:06.996Z&page=3

https://www.wsj.com/articles/plenty-of-cash-lies-buried-on-canadas-oil-sands-1490021777

https://www.wsj.com/news/business/energy-oil-gas

http://www.zerohedge.com/news/2017-02-07/goldman-stunned-collapse-gasoline-demand-would-require-us-recession

http://www.cnbc.com/2017/03/17/russia-cutting-output-by-300000-barrels-per-day-by-end-of-april.html

http://www.cnbc.com/oil-gas/

http://www.globalization101.org/the-evolving-concept-of-energy-security/

https://dtntradingblog.com

Factors that move the prices

  • The crude oil effect
    Prices of Gasoline is heavily influenced by the crude oil market. And more precisely by the global market not only a specific crude oil market price. So the price of gasoline move in the same circumstances as the price of crude oil (WTI, Brent), they are all strongly correlated.
  • The ethanol market
    The price of Ethanol count for approximately 10% of the total volume of gasoline sold at the pump. So the price of Ethanol influenced a lot the price of Gasoline, even when the price of crude oil is stable.

  • The production environment
    The refiners activities also influenced the price of gasoline. Especially for the events below:
    • OPEC production
    • Non-OPEC production
    • Domestic production

The OPEC influenced a lot the price of crude oil and by some extent the price of gasoline. The surplus production drops reflects on the crude oil price, will also be visible on the gasoline price.

  • Economic and foreign exchange factors
    Gasoline is an important component of the economy. The gasoline price has been heavily impacted by the global crisis of 2008. Further on, the economic improvement of the situation in 2010, contributed to increase the crude oil and gasoline prices.

Gasoline News

  • Oil prices turn lower as focus returns to oversupply
  • The Oil Price Rally Is Stumbling at the Worst Possible Time
  • Oil prices edge higher amid Decline in US Gasoline Stocks

Sources:

https://www.futuresknowledge.com/news-and-analysis/energy/top-factors-that-move-the-price-of-gasoline/

http://www.4-traders.com/WTI-2355639/news/Oil-Prices-Edge-Higher-Amid-Decline-in-U-S-Gasoline-Stocks-24090920/

http://www.marketwatch.com/story/oil-prices-lifted-by-drop-in-us-gasoline-stocks-2017-03-23

https://www.bloomberg.com/news/articles/2017-03-22/oil-s-bad-timing-puts-pressure-on-drillers-as-banks-review-loans