Market Update & Important Indicators
The S&P 500 has closed at a fresh record high, while the Dow ended above 18,000 for the first time in 2015 following good economic data out of Germany. The broad-based S&P 500 gained 8.51 points (0.41 per cent) at 2,096.99, almost 6.5 points above the prior record set December 29. The Dow Jones Industrial Average rose 46.97 (0.26 per cent) to 18,019.35, while the Nasdaq Composite Index advanced 36.22 (0.75 per cent) to 4,893.84.
Asian markets mostly rose after European leaders and Russia agreed a plan to end Ukraine's 10-month war, while confidence Greece would reach a debt overhaul deal with its creditors boosted the euro. Seoul climbed 0.82 per cent, or 15.87 points, to close at 1,957.50 and Shanghai jumped 0.96 per cent, or 30.41 points, to 3,202.83. Hong Kong added 1.07 per cent, or 260.39 points, to 24,682.54. But Tokyo retreated from a seven-year high, slipping 0.37 per cent, or 66.36 points, to close at 17,913.36.
The Australian market looks set to open higher following rises on international markets. At 0807 AEDT on Monday, the March share price index futures contract was up 29 points at 5,851. In local economic news on Monday, the Australian Bureau of Statistics releases new motor vehicle sales figures for January. The benchmark S&P/ASX200 index was up 133.9 points, or 2.33 per cent, at 5,877.5. The broader All Ordinaries index was up 127.8 points, or 2.24 per cent, at 5,835.5, according to preliminary figures.
Base metals on the LME finished mostly higher. Gold up at US$1,227/oz and Brent crude gained 2.24% to US$61.51/bbl. The AUD is buying US$0.778.
Thought for the Day
World Oil Markets: Fundamentals, physical and financial
For many years, oil has been the world’s most important source of energy, meeting ~33% of global energy needs in (natural gas 24% and coal 30% are its nearest rivals). This has resulted in the oil becoming the world’ largest traded commodity, whether measured by value or volume. The physical crude oil market would be worth some ~USD$1.65 trillion per year assuming a constant reference price of USD$50/bbl applied to global demand of ~90m bbl/d.
Unsurprisingly for a market of this global reach and physical/financial size the price reflects the interaction of myriad considerations around supply/demand fundamentals and risk factors. Furthermore it is probably fair to assert that in recent times the market has become increasingly complex, leading to debate about the relationship between the commodity prices and physical fundamentals.
Key exchanges and benchmarks
The main international exchanges for the trading of oil and oil products (both physical and financial) are the New York Mercantile Exchange (Nymex) and the Intercontinental Exchange (ICE, formerly the International Petroleum Exchange in London). Both exchanges trade spot contracts for immediate delivery and future contracts for delivery at a later date, providing hedging, speculating and price discovery opportunities.
Given the large number of crudes and the difficulty in following them all, two benchmark crudes are widely used; West Texas Intermediate (WTI) on Nymex and Brent crude on ICE. While these are used as indicative oil prices, most other crudes will trade at a discount or premium depending on their gravity and sulphur content. Turning to products, the key pricing benchmarks are US RBOB gasoline, US heating oil and European gasoil.
WTI is the largest exchange-traded commodity, with traded volumes often being four times that of Brent. However, WTI is primarily consumed by refineries situated in the US mid-continent and as a consequence price is very dependent upon regional supply/demand dynamics, something that has become increasingly apparent in recent years with the renaissance of North America supply driving WTI to a substantial price discount to comparable seaborne crudes.
As such, WTI is a relatively weak barometer of prevailing fundamentals in seaborne crude markets meaning that very little of the world’s physical volumes are actually priced against it. Nonetheless, in recognition of the liquidity of the contract and the importance of the US as the largest global consumer of crude, WTI remains an important and closely watched point of reference. Another interesting point to bear in mind with WTI is that it is settled physically with delivery taking place at Cushing, Oklahoma.
Brent futures are tied to the North Sea physical market and comprise four key crude streams: Brent, Forties, Oseberg and Ekofisk (BFOE). Unlike WTI, Brent is settled financially (i.e. there is no physical delivery upon contract expiry). Instead, the value upon expiry is equivalent to the Brent Index, which is set on a daily basis by the exchange and is the weighted average of all trades in the physical market for the month in question for each of the four crude streams.
Brent is a far more complex financial instrument than WTI in that not only is it comprised of futures and a physical forward market (BFOE), there is also a physical spot market, Dated Brent. This sets the price for most of the global physical market and as such is of huge importance. The value of Dated Brent is set every day at 16:30GMT and is assessed by Platt’s as the value of the cheapest crude in the BFOE group on that day.
In This Issue
Recent Contacts & Presentations
ABM Resources (ABU), Northern Star (NST), Doray Minerals (DRM), Troy Resources (TRY), Kingsrose (KRM), Red 5 (RED), Otto Energy Limited (OEL), Peninsula Energy Limited (PEN), Sandfire Resources NL (SFR), Atrum Coal (ATU), Empired (EPD), DTI Group (DTI), Austal (ASB), TFS Corporation (TFC), Pioneer Credit (PNC), IMF Bentham (IMF), Sino Gas & Energy (SEH), Orbital Corporation (OEC)