Monday, 02 April 2012: China reported positive news on their industrial production over the past weekend, which should give some positive support for global markets and commodities. The current Crude oil price of $105 is about $30 more than its 5 year futures, which indicates that crude oil prices can come down if favorable political events take place to reduce middle-east geo-political tensions, but the chances of such positive events is slim, so we will have to work with constant upward movement in crude oil prices till some event creates genuine risk to crude oil prices.
As of now, a significant amount of risk capital has moved into crude oil, because global economic growth scenario looks more likely than global recession. Meanwhile, Natural Gas prices have been hitting 8 year lows, and huge price variations from $2 per mmbtu in USA to $8 per mmbtu in India/Asia because it is not mobile like crude oil.
Spot LNG prices have even touched $14-15 per mmbtu in parts of Asia during the last 3 months. The buyers are mostly gas-fired power plants who can’t afford fuel shortage because of penalty clauses from their customer contracts.
The global energy puzzle holds the key to major wealth creation in our lifetime. At some point, the renewable energies will have to break-out with new level of innovation that for the first time threatens the conventional crude oil regime firmly in place today. It still seems 10+ years away but we never know with new technologies.
While all this happens, Natural Gas remains one of the cheapest sources of energy, especially in North America, and its prices should recover once again to above $5-8 per mmbtu in the next 2-3 years.
The demand for lower cost energy is so huge that any genuine innovation will be lapped up by private investors and governments for various reasons. On a related note, nobody fears energy innovation more than the middle-east countries like Saudi Arabia, Iran, etc, and hence they are clearly looking to fund as much innovation inhouse as possible. I am exploring various options/scenarios and will share with you when I have more clarity.
Meanwhile, here is the economic events calendar for April 2012.