Energy Chamber: Commodity prices rebound in March

Energy commodities account for 90 per cent of T&T’s exports, over 45 per cent of gross domestic product and the bulk of our foreign exchange receipts. Any peaks and troughs in these prices impact on the Government, business and the wider population.  Keeping track of the changes in energy commodity prices help guide both companies and the Government to plan their expansion priorities and determine their operating strategies in the short-, medium- and even long-term. Recently, there has been a reversal—for the better—in the country’s energy commodity prices. Between February and March 2012, the value of the Energy Commodity Price Index (ECPI) increased marginally, ending three consecutive months of decline in the prices of T&T’s major energy exports.

 

 

The ECPI’s value rose by 2.64 per cent from 138.23 in February to 140.87 in March 2012 (See Chart 1 and Table 1).

The rise in the ECPI’s value was driven by robust oil and other petro-product prices as well as growth in urea prices. 

Oil prices have remained at their highest level since 2008. The embargo on Iranian crude has helped fuel higher prices amidst concerns over supply shortages. However, OPEC has increased its output to make up for any supply issues and last week the cartel’s output was roughly 38 million barrels per day—the  highest ever. Urea prices increased by US$120 between February and March: a 30 per cent jump. While US farmers have delayed buying fertiliser as part of protest action on high fertiliser prices, urea is used in the last cultivation before new planting begins. With the spring planting season already underway the move by US farmers has significantly affected ammonia prices as roughly 80 per cent of ammonia is used in fertiliser. 

 

 

Ammonia fell by approximately ten per cent and methanol prices declined only marginally by US$3 per metric tonne.

One other commodity, LNG, registered a decline and the price of natural gas has been falling consistently and is at its lowest level in more than a decade. It is important to note the ECPI’s LNG prices are based on Henry Hub prices—a US benchmark—and may not best represent the value this country receives from the commodity. T&T now exports less than 35 per cent of its LNG to the US and our LNG fetches higher prices in both European and Asian markets. 

While there is an oversupply of LNG on the market, other economic indicators can lend to the volatility of gas and other energy commodity prices. Only last week, there was a rise in US jobless claims, yet the demand for housing improvedand the US Federal Reserve has not closed the door on another round of stimulus measures. 

 

 

In Europe, fears over Eurozone economies slipping into recession are continuous and the European Central Bank is expected to create rescue packages for Spain and, possibly Holland, within the coming months. All these factors can weigh on energy commodity price trajectories and year-on-year, the value of the ECPI weakened when compared to its value of 147.64 in March 2011, a downturn of 6.77 per cent (See Figure 1). The ECPI is a summary measure of the price movement of T&T’s top ten energy-based commodity exports, weighted by each commodity’s relative share of its value. The commodities and their weights are: US natural gas (40.0 per cent); oil (16.6 per cent); ammonia (11.8 per cent); methanol (9.4 per cent); diesel (7.0 per cent); msotor gasoline (4.3 per cent); natural gasoline (3.5 per cent); jet fuel (2.7 per cent); propane (2.4 per cent); and urea (2.3 per cent).  The ECPI is a joint collaboration between the Central Bank of T&T and the Energy Chamber.

 

ENERGY CHAMBER