07-Feb-12
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A Resource-Paved Road toward Economic Growth and Consumption
Our strategic long-term view of the capital markets is rooted in structural themes. Sometimes these themes converge, raising the long-term investment potential. This is the case with two of our investment themes: "Commodities – A Structural Imbalance" and "The Changing Consumer." Similar to the BRICs, we believe resources will play a transformative role in determining the next generation of developing economies that have the potential to spur development and invigorate the consumer sector.
As part of our "Beyond the BRICs" series, we have undertaken a data-driven view of the developing world with the goal of generating what we see as a compelling list of potential next-generation resource players. Argentina and South Africa scored highest in our analysis. Other interesting names include Indonesia, Iran, Kazakhstan, the Ukraine and Venezuela.
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23-Jan-12
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Shale-Capped Natural Gas Prices
The North American shale boom was heralded as a game-changer for natural gas. It was and still is. Shale gas production has reinvigorated natural gas production growth, transforming gas into a real, viable alternative to fossil fuels. What the boom has not been good for is natural gas prices.
Shale production and warmer weather have yielded a supply imbalance in natural gas, causing prices to plunge to a 10-year low. Without a magnitude of coal-to-natural gas fuel switching, production curtailments, and/or plunging temperatures, working gas inventories could end the season at record levels and put enduring pressure on prices.
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11-Jan-12
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Copper -- Refining the Future
While maintaining a keen eye on headline risks, we recommend an allocation to the metals in 2012, particularly copper, as part of our “Commodities – A Structural Imbalance” investment theme.
Copper still has the strongest fundamentals among the metals, despite current macro conditions. Tighter physical markets are the result of de-stocking, as evidenced by shrinking LME inventories and supply disappointments. The latter means that if demand fails to falter in the face of a slowing global economy, then supply dislocations will create risks of price spikes.
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10-Nov-11
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The Flow of Oil South
Total petroleum consumption is running under 19 mln bpd with gasoline demand continuing to trend downward, reflecting the economic realities of a low-growth environment. While consumption has peaked for the medium term, the U.S. has the potential to become a key regional petroleum product exporter, leveraging the new wave of production growth to serve the high-growth economies of Latin and South America.
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09-Sep-11
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Q3 2011 Commodity Views
There has been much written about the expanding financial interest in commodities in the latter part of this decade. But viewing the commodity complex only through the lens of the speculators under appreciates the change that has occurred both fundamentally in terms of supply and demand and financially as investors flock to hard assets. The net result is commodities as an asset class have matured and become more established.
Our vantage point has changed little over the last decade. We continue to argue that the supply-demand fundamentals remain constructive for commodities and will so through this decade, providing an attractive investment prospect.
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26-Aug-11
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A Crisis Growing Down on the Farm
For sale: land with pristine views, a charming residence, close to nature and outdoor activities, low taxes, and animal friendly. Sound like a home buyers' dream? Maybe except the fact prices are up 200-300% over the last 15 years and...it's farmland in the middle of Iowa.
The shocking growth in farmland values has the look and feel of a bubble, especially considering that growth rates have exceeded the most speculative areas of the housing bubble. However, farmland values are in-line with current crop prices. If crop prices suddenly fall, farmland values should tumble along with it. But unlike the 1980s, farmers are better positioned. Investors are betting structural demands will keep price levels elevated to keep them in the green.
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16-Jun-11
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A Fracture in the Fertilizer Backbone
For an inherently cyclical industry, visibility has improved considerably over the last two years for U.S. agricultural chemical producers. Demand for their product is benefiting from structural changes in consumption, magnified by a strained global agricultural market, while their primary feedstock -- natural gas -- is experiencing a supply renaissance that could alter their cost curve.
The net effect has altered the outlook for U.S. fertilizer producers, who have reaped the benefits of rising global demand for their product and now could potentially see their cost advantage improve dramatically, putting them on equal footing with swing producers, particularly those in Eastern Europe.
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02-May-11
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Summer Gas Prices Go Back to the Future: 2008 vs. 2011
With oil and gas prices moving back toward prior peaks, it is natural to compare the current period with the summer of 2008. There are some similarities, but while price levels are following the same trajectory, fundamentals are not.
It was not until the summer of 2008 that we witnessed real demand destruction. For the first time in history, Americans drove less. There is a risk that we could see the same demand destruction this summer with gasoline prices expected to jump 40% from last year.
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04-Apr-11
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China -- A Coal-Fired Secular Growth Story
China is completely reliant on one energy source: coal. More than 3 bln tonnes are consumed per year, three times the rate of the U.S. with half the reserves. Coal accounts for 70% of China's primary energy consumption and has sustained its rapid economic growth for the last three decades.
Coal will be the primary energy source of its future as well. The Chinese coal sector is in the midst of a major transformation as the government attempts to clean up the country's skies and mines. Asian coal demand, led by China, has sapped global supplies, causing the PRC to seek out supply from the most unlikely of places... the U.S.
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25-Feb-11
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Turm-Oil in the MENA Region
The growing unrest in the MENA region is the most significant geopolitical event in the oil markets in decades. The pro-democracy movements are occurring at a time when global oil supplies are ample and OECD demand has peaked. But risks of production disruptions narrowing the margin between supply and demand will support a higher oil price deck until the region's transformation materializes.
Given the broad implications, we consider the effects from the unrest with regard to its impact on oil, economic growth, inflation, and risk assets.
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09-Feb-11
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Crude Oil Outlook -- 2011 and Beyond
2010 was the year of recovery for global oil markets. 2011 will mark the resumption of the multi-year crude oil upcycle as global economic growth gains momentum. By the latter part of the year, and into 2012, supply constraints could start to increase as inventories tighten, thereby leading to a constructive environment for oil prices.
Our focus, as always, remains on the trend. Barring a global economic reversal, the trend over the medium to longer term remains decidedly higher.
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15-Dec-10
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Agriculture - A Rationale for a Market in Transition
A strained global agricultural market over the past few years has culminated in sharp increases in soft commodity prices. While periods of high prices are not remarkable, the concurrent escalation underscored a global agricultural market in the midst of a transformation influenced by population growth and global economic and policy shifts. Population growth, greater calorie and protein consumption, and biofuels production together are increasing global demand for agricultural commodities and food products.
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29-Oct-10
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The Ripple Effects from Structural Changes in Corn
The agricultural sector made headlines this summer after a record-setting drought in Russia disrupted global wheat and barley supplies. The event served as a catalyst for the recalibration of fundamentals in a market that had become beset by complacency. Structural demands including socioeconomic-supported dietary changes, ethanol production and expanding retail gasoline blends in the U.S. and Europe, coupled with near-term supply stresses will remain constructive for agricultural prices over the near to medium term.
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21-Sep-10
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The Economics of Commodity Price Shocks
The rapid price appreciation in agricultural commodities this summer triggered concerns that commodity inflation could lead to broader inflation. At the same time, there was also a belief that the price appreciation in agricultural commodities could temper deflationary forces. The data suggest neither connection is valid.
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13-Aug-10
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The Shale Rush -- An Investment Framework
There is a paradigm shift taking place in natural gas. Abundant supplies from unconventional resources, and near- and medium-term carbon dioxide emission policies, imply greater gas usage and an increased share of the energy mix. Shale gas has the potential to be game changing. The resource will continue to be the single largest contributor to production growth in natural gas over the next decade -- more than offsetting declines in other production. The risk is that the shale boom turns into a bust. There is considerable uncertainty surrounding the marginal costs of supply, well economics, production rates, and the environmental impact and potential regulations.
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19-May-10
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Deepwater Horizon Disaster - Recovering from the Unthinkable
The Deepwater Horizon catastrophe and oil spill will rank as one of the worst blowouts on record in the U.S. and in the world. Until now, deepwater platform drilling has been without incident for nearly twenty-five years. The disaster will serve as a cautionary event for the industry and will result in regulatory consequences. It will alter offshore drilling, however, not limit it. Rising production from the Gulf of Mexico has been the key driver of increased U.S. oil output and a renewed energy policy. (Republished due to minor change.)
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11-Mar-10
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Crude Oil Outlook -- March 2010
The global economy is gradually recovering, but demand growth remains beset by structural hurdles in developed countries. Oil demand growth in the West is stagnant. The burden of future consumption falls squarely on the shoulders of Asia, led by China and India, and the Middle East.
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28-Sep-09
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Crude Oil Outlook -- Bearish Fundamentals Remain
Our target range for the year is set at $60-80 per barrel based on expectations that third quarter gross domestic product data will support higher prices, coupled with a weaker dollar and strong non-OECD secular demand growth.
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12-Aug-09
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China's Booming Auto Market; Its Implications on Oil Demand
Americans may love their cars but China is the hottest automotive market in the world today. The country's urbanization and the rising standard of living over the last decade have created millions of new car owners, the impact of which is being manifested in many ways.
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26-May-09
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Peak Oil -- Mexico's Economic Reality
Peak oil is a highly controversial and hotly-debated subject that was amplified last year by record oil prices... Peak oil theorists may garner all the headlines, but resource nationalism has been a much more destructive force in the sustainability of natural resources and economic welfare. One country already suffering the harsh economic reality of peak oil is Mexico.
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04-May-09
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Crude Oil Outlook -- May 2009
Oil is a boom/bust business. We are in the latter phase and it did not take long to get there.
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19-Dec-08
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The Drybulk Industry
A comprehensive view and outlook.
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21-Aug-08
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The Commodity Reckoning
Analysis of the 2006 and 2008 commodity corrections.
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