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Most Energy Commodities Sans Natural Gas Catch Downtrend
Niteen M Jain, Senior Analyst, Dept. of Research & Strategy, Multi Commodity Exchange of India Ltd and Nazir Ahmed Moulvi, Senior Analyst, Dept. of Research & Strategy, Multi Commodity Exchange of India Ltd Optimism on global economic recovery built through the month of April waned quickly on election results in Europe, thus pushing down energy commodities prices in the first half of May 2012 except for natural gas. While gasoline futures prices on the NYMEX (CME) platform fell the most in the period under review i.e. since April 2012 till May 14 by 12.7 percent, on the other hand NYMEX natural gas futures prices rose by more than 14 percent during the same period.

Releases of positive economic data from the US near the start of the month of April such as jump in consumer spending for February, the highest consumer sentiment in a year resulted in improved demand sentiments for crude oil. As a result, NYMEX (CME) crude oil (light sweet) futures started the month of April at US$ 105.23 per barrel up by more than 2 percent from the previous month's close. Later, news that Iran has agreed to resume its nuclear talks with US and its allies, easing the supply worries and release of unfavourable inflation data from China creating demand concerns for crude oil, disrupted oil price rally. By the end of April, weekly report showing more than expected decline in US gasoline and distillate inventories coupled with some dovish comments by couple of US Federal Reserve officials helped the recovery in oil prices. Also helping the rise in oil prices was hints by US Fed Chairman Ben Bernanke more accommodation if needed to boost the U.S. recovery, during subsequent news conference after FOMC meeting and release of Institute for Supply Management‘s index that showed expanding U.S. manufacturing expanding in April. Consequently, NYMEX oil futures moved to the period high of US$ 106.43 on May 1.

Thereafter, a report showing slower hiring in the U.S. private sector and weekly U.S. supply report showing a sixth consecutive increase in inventories, triggered the fall in oil prices. Later, unfavourable economic data from the Euro Zone front, data showing that the U.S. economy created fewer jobs than expected in April, adding to worries about the health of the recovery. Furthering accelerating the decline in oil prices were the election results from Europe that saw voters reject established leaders, with Socialist challenger François Hollande defeating incumbent French President Nicolas Sarkozy and Greece locked in political turmoil after parliamentary elections left the country’s parties struggling to form a government. Later, comments from Saudi Arabia’s oil minister that oil prices currently are too high and European benchmark Brent crude (currently at around US$ 112) should trade at $100 a barrel, pushed NYMEX oil futures prices to the period low of US$ 93.65 on May 14, before closing the period at US$ 94.78. Overall, NYMEX crude oil futures prices saw a fall of 8 percent during the period under review (i.e. from onset of April 2012 to May 14, 2012). The fall in crude oil prices also led to the fall in the prices of its derivates. For instance, futures prices of both gasoline and heating oil fell by 12.7 percent and 7.5 percent respectively in the period under review.

Among other energy commodities, ICE Rotterdam monthly coal futures prices saw a fall of 11.3 percent largely due to oversupply of stocks in physical markets. As such, some power plants across Europe i.e. in Germany, the UK, Spain, Portugal and Italy, running at high capacity are already carrying high inventories and are unlikely to return to the spot market in 2012. The other set of energy commodities from emission market i.e. namely CERs (Certified Emission Reduction) and EUAs (European Union Allowance) also saw their futures prices decline by 6.2 percent and 6.4 percent respectively during the period on ICE-ECX platform. Softer energy and stock markets hit by a weak euro amid concerns about political deadlock in Greece along with lackluster UK permit auction were some of the key reasons for fall in emission commodities prices.

Natural gas was the only major energy commodity that bucked the falling price trend seen in other energy commodities. NYMEX natural gas futures prices moved up by 14.4 percent since April 2011 till May 14, 2012. Significantly, Natural-gas futures moved up from a more than 10-year low level of US$1.902 recorded on April 20. Bargain hunting at low levels and a monthly production report for US showing a decline in production in February led the revival in gas prices from multi-year low levels.