Bonds, Currencies & Commodities
Natural gas plunges amidst record supplies, uncertainties and weak demand

Natural gas, which had risen recently due to a hot summer in America, has crashed on reports of record reserves in the US, increased supplies, weak demand and economic uncertainties

The US Energy Information Administration (EIA) recently reported that the US natural gas stocks rose by a total of 28 billion cubic feet (bcf). Working gas in storage was 3,217 bcf according to EIA estimates, which is above the five-year historical range. This represents a net increase of 28 bcf from the previous week. Stocks were 472 bcf higher than last year at this time and 407 bcf above the five-year average of 2,810 bcf. What more, the “proved reserves” of US oil and natural gas in 2010 rose by the highest amounts ever recorded since they began publishing proved reserves estimates in 1977, said EIA, on 1 August 2012.

However, demand was weak enough to absorb the excess supply as the Federal Reserve remained tight-lipped about future monetary and fiscal measures to boost supply. This failed to act as a counterbalance to increasing supply. The spot price of natural gas, on MCX,  tanked by 8% yesterday to Rs162.9 per mmBtu, while MCX August futures contract dipped 2.81% to Rs175.6 per mmBtu.


According to EIA, the net additions to proved reserves of crude oil plus lease condensate in 2010 totalled 2.9 billion barrels, surpassing the previous high of 1.8 billion barrels added in 2009 by 63%, according to the press statement. Net additions of wet natural gas in 2010 totalled 33.8 trillion cubic feet (tcf), nearly 5 tcf (17%) higher than the previous record of 28.8 tcf, also added in 2009. The data is for 2010 though since it takes time to evaluate “proven reserves”, is different from supply data released every week, by the same agency. The next release of “proven reserves” will be January 2013.

Earlier, natural gas prices had risen as more people, especially in America, draw more energy to cool themselves down in what is termed as a record summer, in terms of soaring temperatures. This had led to a drought and fears of a next food crisis in the agricultural commodities segment.

According to the energy agency, the markedly increase in reserves was due to advances in technologies as well as the expanding application of horizontal drilling and hydraulic fracturing in shale and other ‘tight’ (very low permeability) formations. Another important factor for each fuel—particularly oil—was a higher price used to assess economic viability relative to the prices used for the 2009 reporting year.


Monsoon expected to be 15% deficient this season

The country, as a whole, has received 378.8 mm rainfall as against the normal of 471.4 mm—a deficiency of 20%

New Delhi: India’s crucial monsoon is expected to be 15% deficient this season—the weather office said today—the first indication of a drought in three years, reports PTI.
The country has received 20% less rains than normal since the delayed onset of monsoon in June. Till yesterday, the country had received 378.8 mm rainfall against the normal of 471.4 mm.
“We expect monsoon to be 15% deficient than the long period average (LPA) which is 89cm,” Laxman Singh Rathore, director general, India Meteorological Department (IMD), told reporters.
A country-wide drought is declared when the monsoon rains are less than 90% of the LPA and at least 20% area of the country experiences deficient showers of 25% or more.
On the impact of failed monsoon on agriculture, Mr Rathore said that paddy cultivation would not be affected but conditions were worrisome for production of coarse cereals.
However, monsoon in August is expected to be normal, but a question mark looms over rainfall in September as El Nino conditions (warming of central Pacific Ocean) appear set to turn unfavourable for the country, IMD said in an update to the monsoon forecast.
“In August, we are hoping for a better rainfall scenario, but there will be some problem in the terminal part of the monsoon,” Mr Rathore said.
He apprehended poor rainfall in September on account of the warming of the central Pacific Ocean, known as the El Nino phenomenon.
The central Pacific Ocean is expected to experience a warming of the sea surface temperature by 0.5 to 0.7 degrees Celsius.
In recent times, the country faced drought in 2009 and 2002.
In 2002, rainfall deficiency for June-September season was 19% while in 1918 it was 28%.
Since its delayed onset in June, southwest monsoon has been 11% deficient in the northeast, 36% deficient in the northwest, 15% deficient in central India and 24% deficient in the southern peninsula.
The country, as a whole, has received 378.8 mm rainfall as against the normal of 471.4 mm, a deficiency of 20%.
In terms of areas covered, monsoon has been deficient or scanty in 63% regions of the country and normal in 37% regions.
Officials said Haryana, Punjab, Gujarat, Madhya Pradesh, Maharashtra, Marathwada and interior Karnataka would be areas of concern where deficient rainfall has been recorded.
Earlier this week, the government had rolled out contingency plans to tackle a drought-like situation faced by several states owing to a weak monsoon.
An IMD statement said El Nino conditions were building up in the equatorial Pacific with sea surface temperature (SST) rise of 0.5 degrees Celsius observed over much of the recent two weeks.
The latest forecasts from a majority of the dynamical and statistical models indicate strong possibility (with a probability of about 65%) for weak to moderate El Nino conditions to emerge in the next two months, it said.
“The El Nino conditions are likely to have adverse impact on the rainfall over the country during the second half of the monsoon season,” the statement said. 


Commodities under pressure as Draghi disappoints

Mario Draghi, the European Central Bank chief, failed to live up to his promises which has sent select commodities, especially natural gas reeling in disappointment

European Central Bank (ECB) chief Mario Draghi has disappointed investors yesterday despite all the bold talk of doing “whatever it takes” to keep the Euro alive. In fact, he kept rates stable and has decided to purchase sovereign bonds to support governments as measures to ensure the ‘stability’ of the Euro. However, the markets were not impressed and certain commodities such as copper and crude oil fell on the news.
The markets had risen in the days prior to the ECB decision to keep rates stable, when the markets had perceived his talk of doing “whatever it takes” would have actually meant a whole different thing altogether and it looked certain that he would bring interest rates down. Unfortunately, as the D-Day arrived, he kept rates stable and decided to buy sovereign bonds, much to the dismay of Berlin, where Angela Merkel is reluctant with the plan of dipping into the ECB coffers to bail out beleaguered economies such as Greece, Italy and Spain (and possibly Cyprus). Moreover, the details, as usual, are sketchy. The details, or lack of it, has only increased uncertainty and made the markets nervous. The only aspect that was available was that the ECB would buy sovereign bonds at lower costs. Even the US Federal Reserve decided to keep mum after its meeting that concluded on Wednesday. All this collectively have dampened investors’ expectations in risk assets such as commodities and emerging markets. If at all, it also points out to the fractures in political relationships between the Euro signatories, especially between Berlin and the rest of the region. 
With the rates kept stable, dollar looked stronger putting pressure on commodities. Hence, the markets saw commodity prices fall. Likewise, taking cue from commodities, stocks too fell at the end of yesterday’s close. Crude and silver were down 2% from the high of the day as was copper.  Natural gas fell much more for a different reason.



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