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    Market Outlook Report 10 December 2012

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    zenergynz
    The oil market has weakened in recent weeks due to uncertainty around the US fiscal cliff negotiations. Brent crude is expected to trade between $105-115 per barrel absent any major economic developments. US crude stock levels were flat, while gasoline and diesel stocks rose. Refining margins for gasoline and diesel remain high, around $9 and $19 per barrel respectively. The New Zealand dollar has been range bound between $0.81-0.835 due to competing fundamental and sentiment factors. It risks moving higher to $0.845 based on global currency moves and offshore demand, though appears overvalued on local economic conditions.

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    Market Outlook Report 10 December 2012

    Uploaded by

    zenergynz
    230 views4 pages
    The oil market has weakened in recent weeks due to uncertainty around the US fiscal cliff negotiations. Brent crude is expected to trade between $105-115 per barrel absent any major economic developments. US crude stock levels were flat, while gasoline and diesel stocks rose. Refining margins for gasoline and diesel remain high, around $9 and $19 per barrel respectively. The New Zealand dollar has been range bound between $0.81-0.835 due to competing fundamental and sentiment factors. It risks moving higher to $0.845 based on global currency moves and offshore demand, though appears overvalued on local economic conditions.

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    Market Outlook report 10 December 2012

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    Market Outlook report 10 December 2012

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    The oil market has weakened in recent weeks due to uncertainty around the US fiscal cliff negotiations. Brent crude is expected to trade between $105-115 per barrel absent any major economic developments. US crude stock levels were flat, while gasoline and diesel stocks rose. Refining margins for gasoline and diesel remain high, around $9 and $19 per barrel respectively. The New Zealand dollar has been range bound between $0.81-0.835 due to competing fundamental and sentiment factors. It risks moving higher to $0.845 based on global currency moves and offshore demand, though appears overvalued on local economic conditions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    230 views4 pages

    Market Outlook Report 10 December 2012

    Uploaded by

    zenergynz
    The oil market has weakened in recent weeks due to uncertainty around the US fiscal cliff negotiations. Brent crude is expected to trade between $105-115 per barrel absent any major economic developments. US crude stock levels were flat, while gasoline and diesel stocks rose. Refining margins for gasoline and diesel remain high, around $9 and $19 per barrel respectively. The New Zealand dollar has been range bound between $0.81-0.835 due to competing fundamental and sentiment factors. It risks moving higher to $0.845 based on global currency moves and offshore demand, though appears overvalued on local economic conditions.

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    of 4

    10 December 2012

    Market Outlook Issue # 13

    Oil Market Factors Factors Affecting Crude Oil and Refined Product Markets Overall Trend: The market has weakened in the last few weeks due to the continuing talks on the US Budget (Fiscal Cliff). If agreement is not reached by 1 January 2013 the US will see tax increases and spending cuts. We expect Brent crude to continue to trade in the US$105-115/bbl range absent of any major economic or political developments. Crude Oil M Over the last two weeks Brent crude prices have fallen by over US$3/bbl and finished last week at $107.20. According to the latest statistics US crude stocks were flat over the last two weeks. The Brent forward price curve has continued to be backwardated in the near term with January contracts trading US60c below December. Prices further out drop by around $4/bbl by end 2013. Products F US product stocks revealed that Gasoline and Gasoil (Diesel) stocks had risen by 8 million barrels and 3 million barrels respectively which cleared any remaining concerns about supplies from Hurricane Sandy. No change to the demand for high octane gasoline in Asia so the significant premium for 95/97 octane gasoline continues over the base grades. The forward price curve for gasoline continues to be backwardated for the next few months. With near month refining margins for gasoline staying at US$9/bbl versus Dubai though it is expected to drop to US$6/bbl by mid-2013. Likely Impact on prices

    10 December 2012

    Market Outlook Issue # 13


    F Kerosene supplies are still ample with subdued Asian demand. Though this should be temporary as market is expected to tighten as we head towards the northern winter. Late last week Jet versus Dubai was slightly stronger (US$17/bbl) than previously reported and it is expected to strengthen further by early 2013. Gasoil (diesel) refining margins versus Dubai continue to remain at high levels of around US$19/bbl with margins expected to increase in early 2013 to US$20/bbl.

    F: Fundamentals (supply & demand) / M: Momentum (sentiment)

    Figure 1: Brent Oil & Gas Oil month average and futures contracts
    $135 $130 $125 U S D / b b l $120 $115 $110 $105 $100 $95 $90 $85

    Brent Oil (Mth Average) Gas Oil (Mth Average) Source: Bloomberg & Production.investis.com

    Brent Oil Futures Gas Oil Futures

    10 December 2012

    Market Outlook Issue # 13


    Macro-Economic Indicators The US Economy added 146,000 jobs in November, beating expectations. The unemployment rate decreased to its lowest level in 4 years to 7.7%. The ECB has forecasted the Eurozone will stay in recession next year with negative growth of 0.3%, versus an earlier forecast of 0.5% growth. Italian prime minister Mario Monti has announced he will resign after the next budget is agreed, giving concern to financial markets. Results out from the Chinese statistics bureau quote industrial production increased 10.1% in November compared to same period prior year. Retail sales growth also rose to 14.9%. Inflation was 2%. Currency Factors The NZD/USD has been range bound between .8100-.8350, and is currently .8340. The two competing themes continued this month: Global growth momentum remains weak, which suggests NZD should be weaker. Fundamental currency valuations suggest NZD should be weaker due to lower world growth outlooks from weaker US recovery, Australia reducing interest rates, parts of Europe in recession, and Chinese economic activity falling below market expectations NZD strength based on investor perceptions around the holding of commodity currencies like the NZD, to participate in being linked to a higher growth Asia/Pacific region, currency diversification, higher relative interest rates and higher food commodity prices Factors Affecting NZD/USD Overall: The NZD has been stronger, based on market perception that the global financial crisis risks have decreased over the last month. The NZD is at a crossroads, being at the top of recent monthly ranges of .8350, and risking going higher to .8450. The NZD appears overvalued on local economic conditions, but the risk is the NZD/USD will move higher based on global currency moves and offshore buying of NZD. Based on the external trade balance the structural fair value estimate is that the long term NZD/USD is lower. Fair value factors (interest rates, commodities & economic growth) suggest NZD/USD fair value is below current levels.
    Likely Impact

    Fair value long term Fair value short term

    10 December 2012

    Market Outlook Issue # 13


    Interest Rates NZ has higher interest rates relative to rest of world which creates demand for the NZD. Offshore investors are buying NZ bonds to diversify part of their investments into higher interest rate economies (such as NZ and Australia). The Reserve Bank (RBNZ) has signalled that the OCR (Official Cash Rate) which is currently 2.5% will not go lower unless overseas economic risks deteriorate. Commodities NZ commodity prices have been trending lower, especially dairy prices. A wide spread drought in USA has increased grain and corn food prices. This has stabilised the fall in NZ export prices, and will continue to provide a boost to NZD sentiment due to being a food exporter. Risk aversion Current market sentiment is neutral to weak. Markets are focussed on three key areas of risk: US political negotiations on government spending (Fiscal Cliff) European sovereign debt issues and banking system, and Chinese economic data and flow on effect to commodity prices.

    The NZD usually has a year-end affect in December, where it is usually stronger, due to lack of trading flow. Monetary Policy Stimulus packages from world Central Banks (in the form of Quantitative Easing) have been launched. Further stimulus from China, in the form of greater government spending will add further support for economic growth. This stimulus will provide short term support for investor sentiment and provide a boost to the NZD. NZD/USD has moved to top of recent ranges to .8350. NZD has support at .8060/.8130, so if it remains above this level, the risk is that the NZD will move higher to .8450/.8800. If the NZD/USD rate drops below .8060 then it is likely to move lower to .7850

    Technical Analysis

    Disclaimer: This publication has been provided for general information only and we recommend you seek professional advice before acting on this information. The information presented has been obtained from original and published sources believed to be reliable, but its accuracy cannot be guaranteed and are subject to change without notice. Actual events may differ materially from those reflected in this document. This document has been prepared by Z Energy Ltd, 3 Queens Wharf, Wellington 6140, New Zealand. http://www.z.co.nz

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