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Trader's Corner 2006

Discussions about the economic and financial ramifications of PEAK OIL
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Where will the price of WTIC oil be on December 29, 2006?

Less than $50
3
No votes
Around $55
4
No votes
Around $60
7
No votes
Around $65
15
No votes
Around $70
58
No votes
More than $80
101
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Total votes : 188

Re: Trader's Corner 2006

Postby MrBill » Thu 11 May 2006, 08:52:23

$this->bbcode_second_pass_quote('Chaparral', 'I')nteresting chart action. HUM6 rallied to 20900 and puttered around there and then jumped to 21400 and dithered a little before finally shooting up to reach 21700 whereabouts. It kind of looks like about three "tsunamis" piled on top of each other as the big longs came out to play.

I guess this weekly demand spike along with the ethanol prices and those two refinery glitches were enough to bring them out. Ok now hurry up and take profits already :twisted:


Still headed higher. The gasoline story and also a headline about three kidnapped Italian oilmen in Nigeria from Saipem (not that I have ever heard of them either).
$this->bbcode_second_pass_quote('', 'C')rude for June delivery was up 34 cents at $72.47 a barrel in early electronic trade. On Wednesday, the contract closed at a one-week high after government data showed crude supplies at an eight-year high, but gasoline supplies below the year-ago level.
What's more, "while yesterday's weekly U.S. inventory data revealed that gasoline stocks had risen by double expectations, it also showed demand for the motor fuel was rising ahead of the peak driving season (which begins in two weeks)," said economists at research firm Action Economics.
"News of refinery outages, including the closure of Valero Energy Corp's Texas City refinery also suggests potential for draw on inventory levels in processed energy products in the weeks ahead."
[url=http://www.marketwatch.com/News/Story/Story.aspx?guid={59819C29-C4F9-4374-9E70-7C2E0AFF4E1D}&siteid=mktw&dist=nbi]Crude extends gains as supply concerns weigh[/url]

Do not know where to put resistance now, so best to buy on dips and remain with the trend. Sorry my advice is so feeble these days. Hard to stay on the back of this bucking bronc lately. The two days off just put me behind the curve (excuses, excuses, excuses...)
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Re: Trader's Corner 2006

Postby MrBill » Thu 11 May 2006, 09:40:16

Comments from NYMEX floor broker in response to yesterday's rally lead by unleaded.
$this->bbcode_second_pass_quote('', 'H')ear majors the big buyer of front end CL and prod. Did see a Wall St'er buying HU just about the time the Valero news hit. Also told funds back in on the buy side in prod. 75 bcf build expected in NG. Yesterday would make sense if news comes out that our government has relaxed HU specs. NU crude trading 143 on ACCESS.


What About “BOB”?
$this->bbcode_second_pass_quote('', 'N')ot to be confused with the 1991 movie starring Bill Murray and Richard Dreyfuss, the “BOB” of most relevance to petroleum markets today is RBOB, an acronym for Reformulated Blendstock for Oxygenate Blending. First introduced in 1994 as an element of the reformulated gasoline (RFG) program, RBOB grew out of suppliers’ inability to ship ethanol, or gasoline containing ethanol, through pipelines. Now that nearly all RFG, which makes up about one-third of U.S. gasoline consumed, contains ethanol, the supply, demand, and prices of RBOB are a key to U.S. gasoline markets.

In recent weeks, a major concern in U.S. gasoline markets has been the changeover from MTBE to ethanol in RFG sold in much of the Northeast and parts of Texas, the last remaining MTBE RFG markets. While issues regarding ethanol, including supply adequacy and the logistics of transportation, storage, and blending, have attracted more attention, the supply of RBOB is also being watched to determine if supplies are adequate. Tight specifications for RBOB, especially Reid Vapor Pressure (RVP) limitations, make it more difficult and costly to produce, and some refineries in the U.S. may find it difficult to produce as much RFG when ethanol is used as they formerly made when MTBE was used. While this doesn’t necessarily mean that RFG supply will be reduced, it does imply that there will be a change in the pattern of supply. The winter-summer transition and the continuing effects of last fall’s hurricanes on refinery operations have further exacerbated the situation. As this week’s data show, RBOB inventories are now increasing, but remain an area of concern with only weeks to go before the start of the peak driving season that runs from Memorial Day through Labor Day.

This Week In Petroleum
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Re: Trader's Corner 2006

Postby Chaparral » Thu 11 May 2006, 12:16:04

$this->bbcode_second_pass_quote('MrBill', ' ')so best to buy on dips and remain with the trend. Sorry my advice is so feeble these days. Hard to stay on the back of this bucking bronc lately. The two days off just put me behind the curve (excuses, excuses, excuses...)


Heh, you and me both have been thrown off this bronc. It hit 22500 a short while ago at the open and now it's down to 21875 and falling. I'll stick with my short positions for now but let me tell you, my ass is sore from hitting the ground so hard. To rub salt in my wounds, I failed to get back on the gold & silver bandwagon on yesterday's dip.

It is interesting to note that the May 5th COT shows the commercials to be on the short side of average...nothing earthshaking like being 5 yr record short mind you but interesting nonetheless. The big funds are on the long side of the equation and the small specs (which is us, I assume) have the highest proportion of longs. The commercials are now short 88000 +/- contracts for CL. I really fear going long on CL when they hold that position. The large funds are collectively long 94000 CL. This seems to portend lower crude prices given historical data in nearly any commodity/FX. The one thing that gives me pause is that in recent times, the commercials seem to have been caught off guard themselves by such things as hurricanes and refinery difficulties. Tomorrow will be interesting.
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Re: Trader's Corner 2006

Postby Chaparral » Thu 11 May 2006, 12:23:59

Whoops! I forgot to clarify for those without access to COT data that the commercials have a 5 year record short position and the big funds playing with OPM have a 5 year record long positon. This tends to result in uhhh, a derivitave equivalent of a massive cloud to ground lightning stike; electrons or dollars change positons and quite a few unfortunate speculators are vaporized in the resulting action. I put my money where my mouth is and shorted CL-M06 at 7320; it seems to have fallen off the day's high of 7390 and one can only hoard so much of it against future requirements unlike those shiny noble metals.
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Re: Trader's Corner 2006

Postby truecougarblue » Thu 11 May 2006, 12:28:55

FWIW my model is shaping up for a decent correction in the metals. I'm going to cash today.
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Re: Trader's Corner 2006

Postby Chaparral » Thu 11 May 2006, 12:42:18

$this->bbcode_second_pass_quote('truecougarblue', 'F')WIW my model is shaping up for a decent correction in the metals. I'm going to cash today.


I agree. I exited june gold at 7023 and silver at 14430. The lease rates for gold converged yesterday but today they've spread out again. It's unbelievable.
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Re: Trader's Corner 2006

Postby smiley » Thu 11 May 2006, 17:27:30

$this->bbcode_second_pass_quote('', 'F')WIW my model is shaping up for a decent correction in the metals. I'm going to cash today.


I would be careful. I think the only thing which can trigger a sell off at this moment is stabilization of the dollar.

I expect the trade deficit to come in quite bad ($70-72 B) so I don't see that happening in the short term.

That is what these markets are about. People want protection from inflation and a declining dollar value. The stocks don't offer that protection, bonds not, and real estate surely not at this moment. Only commodities do.
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Re: Trader's Corner 2006

Postby MrBill » Fri 12 May 2006, 02:06:52

$this->bbcode_second_pass_quote('smiley', '')$this->bbcode_second_pass_quote('', 'F')WIW my model is shaping up for a decent correction in the metals. I'm going to cash today.


I would be careful. I think the only thing which can trigger a sell off at this moment is stabilization of the dollar.

I expect the trade deficit to come in quite bad ($70-72 B) so I don't see that happening in the short term.

That is what these markets are about. People want protection from inflation and a declining dollar value. The stocks don't offer that protection, bonds not, and real estate surely not at this moment. Only commodities do.


Thanks for the comments guys. Appreciate the sentiment about the dollar. I am pretty sure the ECB is going to hike rates here, so that will be euro supportive/negative the dollar which will also be supportive for the commodities. However, having said that, have to think that at these stratospheric levels that most of the positives are already priced in?

I have noted in this earning season that even mining companies and those that would normally benefit from higher commodity prices are posting lower profits/losses due to higher production costs. That is when the cycle comes full circle and bites you in the arse. Those funds have had a terrific run, but it is a truism that when markets stop rising, they tend to fall.

This commodity rally in all shapes & forms is built on new money coming into the asset class. If I compare it to the dot.con bubble where are the similarities. The Internet succeeded beyond many people's dreams back in the late 90's, but where are the valuations today of Intel, Microsoft, Nortel, Sun Microsystems? Well, below their peaks despite being the building blocks on which the rally was built.

There is no denying that commodities have come back to the forefront due to growth, especially in Asia, and supply bottlenecks or the threat of supply interuptions, but that still may not justify these levels in absolute terms. Therefore, any upset in the demand side of the equation may have an equal and opposite upset to the price too.

So I am still mindful of those US deficits and the global imbalances that need to unwind that are sure to undermine support the dollar and high commodity prices that are creeping into secondary inflation and therefore keeping central banks on their tightening bias. But if the Fed pauses now, it does not mean they are not going to stop tightening altogether. I still favor higher rates in the US as well this year.

Being a Friday, I am not sure what to do at these levels in the crude? Also, I am in London next week, so any positions I open today, I have to close ahead of the weekend in any case. Maybe just some opportunistic day trading and call it a week? Good luck and have a nice weekend. Speak to you next Friday. Cheers.

$this->bbcode_second_pass_quote('', 'I')nflation Pressures

The U.S. Federal Reserve on May 10 warned higher energy costs and raw-material consumption ``have the potential to add to inflation pressures.'' Surging consumer prices erode the value of assets such as bonds, making precious metals more attractive. Gold has surged almost 73 percent in the past year. Silver has more than doubled while platinum has jumped almost 54 percent.

Gold may surpass $850 an ounce this year, Yu forecast. ``It's a distinct possibility. See how gold has gone from $600 to above $700 in less than a month.''

By the end of 2007 bullion may surpass $850 as oil climbs to $100 a barrel, said Quinton George, managing director of Cape Town-based Trinity Holdings Ltd., South Africa's second-largest gold fund.

Hedging Against Further Dollar Weakness
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Re: Trader's Corner 2006

Postby truecougarblue » Fri 12 May 2006, 13:21:24

My model is still tracking pretty close. I wouldn't be suprised to see AU fall off through Tuesday next before recovery. Below 690 I'm a buyer again. Too bad I didn't have the nuts to short the miners. I trust my model but maybe sometimes not quite enough.

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Re: Trader's Corner 2006

Postby MrBill » Fri 12 May 2006, 14:47:54

$this->bbcode_second_pass_quote('truecougarblue', 'M')y model is still tracking pretty close. I wouldn't be suprised to see AU fall off through Tuesday next before recovery. Below 690 I'm a buyer again. Too bad I didn't have the nuts to short the miners. I trust my model but maybe sometimes not quite enough.

Cougar


Wie Die sagen, vertrauen ist gut, kontroller ist besser!

Check your models, but if you don't follow them, using them is a waste of time!

Everytime I back test my models I am richer than I am! ; - )
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Re: Trader's Corner 2006

Postby truecougarblue » Fri 12 May 2006, 15:24:35

Very true Mr. Bill, very true.
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Re: Trader's Corner 2006

Postby Chaparral » Sat 13 May 2006, 03:53:06

Whoops! I'm going to have to use a pair of bifocals and a ruler when reading the ungodly tiny print on that COT report. May 5th shows the commercial hedgers at a THREE YEAR record short positon, NOT A 5yr record.

WRT faith in one's model, I didn't have the nerve to short the metals either. I simply closed out my longs and like TrueCougarBlue will wait to see what Monday or Tuesday brings. I guess that is the less aggressive trading strategy. I tend to hedge things somewhat by being long in metals and short in energy or long in corn and short soybeans etc with a few forex positions thrown in as well.

I am wondering exactly WHAT sort of correction we might see. Would it be three weeks of sideways trading after a modest retracement like we had last March when gold hit 578 and then dropped to 534 and immediately bounced around a few times? Could we see one of those nasty 10% corrections like what happened in 2003 and 2004? 6900 is a nice 1st fib # at any rate and I've a hunch we might only see it hit that level for a few minutes when the NYMEX opens. I'll probably set some limit orders just in case. What of copper? Apparently deliveries are starting to diminish as industry finds substitutes? Corn deliveries remain strong despite the increasing prices. Unleaded worries me. I see fewer cars on the road and my realtor has noticed the same. Might we see a significant reduction in deliveries in energy? Does anyone think HU and CL will test their second Fib retracements? They sure are showing some serious chart weakness right now.

I'd love to short copper but everyone else has gotten their balls squeezed out their eyesockets doing so. What to do....what to do...
Last edited by Chaparral on Sat 13 May 2006, 04:44:08, edited 1 time in total.
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Re: Trader's Corner 2006

Postby Chaparral » Sat 13 May 2006, 04:37:48

dbl post, sorry.
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Re: Trader's Corner 2006

Postby MrBill » Sat 13 May 2006, 10:39:54

$this->bbcode_second_pass_quote('Chaparral', 'd')bl post, sorry.


RE demand destruction from higher prices. I do not want to put too much faith in just one number, but Germany's use of unleaded and diesel are down between 10-14% year on year, although due to a harsh winter, their use of heating oil was up over the same period. Keeping in mind that a stronger euro is absorbing some of the price increase in energy imports in dollars. Very interesting, if this turns into a pattern. Germany uses less energy per unit of output than the US and if the euro continues to rise then they will get a double fill-up in their competitiveness over the US. Germany exports mainly within the eurozone and to Asia, so the weaker dollar is not as big a deal for Europe's largest economy accounting for one third of the eurozone's output.

Speaking of statistics, just wading through The Skeptical Environmentalist, which is good reading against a backdrop of rising commodity and energy prices due to supply concerns. Also, a good contrast to my other favorite books, Guns, Germs & Steel and Collapse by Jarrod Diamond and The Wealth & Poverty of Nations.

Essential reading. Just took me a long time to get around to The Skeptical Environmentalist, who's message seems to be so far, we can disagree or come to different conclusions using the same data, for instance, his prediction of $20-25 oil looks pretty rosy now, but let's agree on the data and put our assumptions to the test (i.e. backtest our models). Just a recommendation for evaluating today's high energy & commodity prices and projecting them far into the future based on 3-5 years' worth of spectacular returns. When will we see the inevitable regression to the mean and will commodities as an asset class look as attractive when they decline and stocks take off again?

Once again, have a nice weekend. Speak to late next week. Cheers.
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Re: Trader's Corner 2006

Postby mefistofeles » Sun 14 May 2006, 06:07:52

$this->bbcode_second_pass_quote('', 'J')ust a recommendation for evaluating today's high energy & commodity prices and projecting them far into the future based on 3-5 years' worth of spectacular returns. When will we see the inevitable regression to the mean and will commodities as an asset class look as attractive when they decline and stocks take off again?


I just read an article in the Financial Times saying that one reason copper prices are exploding is guess what:China? Surprise, surprise. The article mentioned how China's power capacity increased form 300,000 to 400,000 megawatts from 2000-2004. However from 2004-2005 China's power capacity jumped by 100,000 megawatts. Adding four years worth of power capacity in one year could certainly add some volatility to copper prices.

Also the copper inventories are suppose to be quite low.

I don't think this is a commodity bubble per see, merely a strange confluence of factors.

1. Too many dollars in the global economy. Those dollars have to find a home somewhere (i.e. high metal prices).

2. Increased global demand for copper.

I think the era of commodity stability during the 90's will go out the window in major way during this decade.

Too many dollars means too much inflation and we are simply seeing the 70's era run up in commodities prices repeating itself now.
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Re: Trader's Corner 2006

Postby truecougarblue » Mon 15 May 2006, 16:43:27

Now that it looks like we're through 690 I'm looking to 650-ish on the AU. Mining stocks are really taking a beating, and it seems like they forecast this correction a week ahead.

I'll be taking a reading at noon NY tomorrow and that will decide which way I go. Today it was to0 weak to get back in.

Anyone have a take on what the big players are thinking?


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Re: Trader's Corner 2006

Postby rwwff » Mon 15 May 2006, 17:02:32

$this->bbcode_second_pass_quote('truecougarblue', '
')Anyone have a take on what the big players are thinking?


Oooh, ahhhh, look at all the little speculators getting hosed.... :P

Sorry, couldn't resist
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Re: Trader's Corner 2006

Postby drew » Mon 15 May 2006, 18:38:41

How far will things drop? What will I buy next? And when, exactly?
I've been sitting on the sidelines for a few weeks now due to responsibilties at home, and haven't watched or traded at all since my stupid stop loss trigger of my cef. Ready, as usual, to put my feet in the fire again.

It is way too much fun not to!

Oil 68, au 670, ag 13...

What did you say Mr. Bill?? ' it has a 50/50 chance of moving one way or the other......'

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Re: Trader's Corner 2006

Postby truecougarblue » Mon 15 May 2006, 19:33:32

You should buy at the exact bottom of this correction.

But seriously, this could go for a while. If AU passes 650 tomorrow I'll be standing by looking for 590 again. I'm interested to see what Hong Kong brings to the table this evening.

If New York opens fairly steady in the morning I may take a serious look at getting back in, but probably not "all in".

Oil? Mr. Bill sounded like he's not around this week, I'd be very interested in his take. I'll be standing on the sidelines at least through the next inventory report on Wed.
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Re: Trader's Corner 2006

Postby Chaparral » Tue 16 May 2006, 20:02:04

Still short CL and HU. Went long on gold at 6900, 6850 and 6790. Went long on silver at 13080.

I notice that the gold lease rates are waaaay down and the USD is heading back down again. I'm bullish on the metals for the next few hours to days at least and bearish on energy for a few more hours anyhow. I'll set some limits and then see what the supply/demand estimate have to say. The price movements in HU are ungodly violent these days. Excellent for playing around during the pit session but bad for us longer term position guys.
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