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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
No votes
 
Total votes : 188

Re: Trader's Corner 2006

Unread postby MrBill » Tue 12 Sep 2006, 08:46:57

Essential reading on the IOB.

$this->bbcode_second_pass_quote('', 'I')nterview with Chris Cook, Originator of the Iranian Oil Bourse
Posted by Chris Vernon on Sunday August 20, 2006 at 2:20 PM EST
Topic: Economics
Tags: Iran, Oil Bourse, Chris Cook, OPEC (all tags)


Chris Cook, former director of the International Petroleum Exchange and an energy consultant, is the originator of the Iranian Oil Bourse project.

Cook's involvement in the Iranian Oil Bourse project stemmed from work he did in the late nineties on manipulation of the oil market by the intermediaries. As a result of the realisation of how the intermediaries were making the market more volatile than it needed to be, making money at both the producer and consumers expense, Cook wrote to the governor of the central bank of Iran proposing the creation of a Middle Eastern Exchange with its own benchmark price.

The Iranians liked the idea, the Saudis however couldn't support it due to US connections. After 9/11 the Saudi's withdrew their objections and in May 2004 Cook was invited to Iran's central bank to give a presentation setting out how an oil exchange might operate. Cook and his consortium got the contract to put it together. Difficulties arose however since the Oil Ministry didn't want transparency in the oil market, the current system not withstanding its flaws was making the Iranian elite lots of money.

Cook understands Peak Oil, and following his brief but highly informative off-the-cuff talk at the PowerSwitch Peak Speak 2 conference in the UK, Julian Jackson of PowerSwitch interviewed him about the Oil Bourse, and also his ideas for using a new form of business organisation, the Limited Liability Partnership as a vehicle for investment in renewable energy technologies.

I think it's interesting that Cook says nothing about the Oil Bourse being based on the Euro. In fact he actually says the Euro isn't practicable. In most peoples minds Iranian Oil Bourse = Euro, but after talking with Cook I just don't think that's the case.
The Oil Drum

Sorry to post twice, but my comments.
$this->bbcode_second_pass_quote('', '
')“What we are looking at is a political problem: all that has been done is a building has been bought, a legal entity has been put together, but all the nuts and bolts, the elements of an exchange, essentially there is nothing behind it at all which is worthy of the name of an exchange.”


MrBill: My point all along! Thank you very much.
$this->bbcode_second_pass_quote('', '
')“If I can go back to the beginning, in June 2001, when we wrote to the Governor of the Central Bank of Iran, pointing out that the market was being routinely manipulated by intermediaries, such as investment banks and oil traders, and this had an adverse effect on producers and consumers, particularly on countries like Iran -the big producers.”

MrBill: Naturally he does not say how? Also neglects to say that OPEC selling price is fixed by OPEC based on an OPEC basket. Prices can vary. One price to Asia, one price to Europe, one price to USA for example. And they are not at a fixed spread to either Brent or to WTI benchmark contracts, but generally track them in a band of prices. $this->bbcode_second_pass_quote('', ' ')
“Unfortunately this new management is taking the less transparent option. Certainly ignoring everything we have said. They are in line with Oil Ministry orthodoxy. We thought that's as far as we can go here. So we appealed in writing to the President Ahmadinejad to put the project back on track, because at the moment it is being driven into the sidings.
All we're looking at is a new sales office for the Iranian National Oil Corporation and it will lack any sort of credibility as a result.
It might have a minute domestic application, it will have no international credibility at all... and it's not intended to.”


MrBill: No [s]fucking[/s] wonder! Transparency is the cornerstone of international credibility. Again what I said all along.
$this->bbcode_second_pass_quote('', '
')“Yes, the logic of the internet is to cut out unneccessary intermediaries - disintermediation - and to connect the ultimate buyer and the ultimate seller more directly. At the moment the middlemen own the market, and set the rules to suit themselves. Profits are far higher by the middlemen than they need to be. They are making super-profits because of the way the market is. I don't begrudge intermediaries a return on capital, but I do begrudge them a ridiculous return on capital, particularly when they are using unfair or inequitable ways of trading, abuse of market information, that sort of thing, which is definitely what goes on now.”


MrBill: This is where I definitely do not agree! Oil markets are not like Napster. It costs you virtually nothing to share your music on Napster, and you still have your music to use for yourself after you share it. That is completely different than a commodity like oil, which unlike gold, is consumed to create energy!!

Futures markets were set-up in the first place to allow intermediation between producer and final consumer to smooth out prices and bring buyer and seller together through a series of intermediaries who had different views on prices.

If I may use the case of natural gas pipeline between Iran and India and Pakistan you have your disintermediation exactly. Iran sells natural gas directly to India and Pakistan via a pipeline. However, Iran wants $7 per mmbtu versus India and Pakistan who want to pay less than a third of that. Also, Iran wants to link the price to the price of crude. Normally, natural gas trades off of coal spreads. The so called sparks and darks spreads for electricity generation. As natural gas is typically used not as a transport fuel, but as a stationary fuel.

So whereas futures markets bring buyers and sellers together even though they have different ideas about price through a series intermediaries who are speculators willing to assume price risk, disintermediation has none of these advantages. He should know better as former Head of the IPE who have so-called market counterparts for trading electricity and emissions, and only so-called market counterparts can participate in these futures markets, unlike crude futures where non-market counterparts can also participate.

But let us say, he is now a consultant, and it is a consultant’s job to sell new ideas and solutions to new customers. They do not do it out of ideology.
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Re: Trader's Corner 2006

Unread postby CARVER » Tue 12 Sep 2006, 11:14:23

$this->bbcode_second_pass_quote('MrBill', '"')routinely manipulated by intermediaries"

MrBill: Naturally he does not say how?


Any ideas what he means? How can they manipulate the market and for how long?

Congratulations, you were right about the IOB, and it seems there is no discussion about it anymore. So you may claim victory and move on to more important things, like what you think is going to happen next with the global economy, commodities and the dollar (money supply). The IEA just reduced their global oil demand estimates for 2006 and 2007:

2006: 84,7 mbd, down 100,000 barrels a day
2007: 86,2 mbd, down 160,000 barrels a day

August 06: 85,8 mbd, down 400,000 barrels a day compared to the previous month.
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Re: Trader's Corner 2006

Unread postby MrBill » Wed 13 Sep 2006, 03:25:00

$this->bbcode_second_pass_quote('CARVER', '')$this->bbcode_second_pass_quote('MrBill', '"')routinely manipulated by intermediaries"

MrBill: Naturally he does not say how?


Any ideas what he means? How can they manipulate the market and for how long?

Congratulations, you were right about the IOB, and it seems there is no discussion about it anymore. So you may claim victory and move on to more important things, like what you think is going to happen next with the global economy, commodities and the dollar (money supply). The IEA just reduced their global oil demand estimates for 2006 and 2007:

2006: 84,7 mbd, down 100,000 barrels a day
2007: 86,2 mbd, down 160,000 barrels a day

August 06: 85,8 mbd, down 400,000 barrels a day compared to the previous month.



There are several possible ways that oil markets may be 'manipluated' by insiders. By I say manipulate, not illegally, but they have superior inside information from their own supply & demand analysis; they have deep pockets to fund their trading ideas, they can publish research to get other investors to go their way; and in the case of oil companies as opposed to investment banks, they own the pipes and the storage facilities, so they can play in both the physical or cash market and in the futures markets. They deal from both sides of the deck. That is one reason commodity markets are considered more risky than exchange traded equity markets.

I think that Chris Cook in his role as Consultant to Iran (we do not know who else he made his sales pitch to?) as opposed to his role as Head of the IPE means is that investment banks, hedge funds and oil companies seem to be making money from futures exchanges, and his sales pitch is to these oil producers is 'hey, let's cut out the middlemen and capture those returns ourselves.'

Of course, that is not really true. As futures trading means one investor's gain is another's loss as it is a zero sum game. And secondly, much of the oil that OPEC or other oil producers trade never gets traded on the futures markets (IPE/NYMEX), but sold directly from producer to end user, but using the futures price as a reference price.

However, another area where there is basis risk between the futures price and the cash price is the so-called grade differential. There is less and less light sweet WTI and less Brent, so these markets do not necessarily accurately reflect the real grades that are changing hands in the physical market. But to that effect, the Dubai exchange has introduced a heavier, sour grade contract in the Gulf. There are plans to offer a new Urals grade contract for oil coming out of Russia and the CIS for delivery to ARA. And there are plans to introduce a Buzzard contract on the NYMEX, which is again heavier and more sour.

But these are just changing contract specifications. It is easier for an established exchange to add contracts, the ICE has successfully added NYMEX WTI, heating oil and RBOB contracts in parallel with their own Brent and Gasoil contracts. And it is not necessary to open a new exchange just to start trading a new contract.

However, if you read the article by Chris Cook he implies that Iran did not want more transparency, but less. Why? Less transparency means that they can manipulate the market to their own ends. I fail to see how that benefits end users? Whereas exchange traded futures are more transparent and allow for buyers and sellers to meet on fair terms. If you are a producer perhaps you feel you deserve a larger piece of the pie? If you are an end user, you need security of supply and need to know your final price. Some in OPEC may not like that idea (the hawks), but others in OPEC see the need to ensure both sides reach a fair deal.

RE IEA. Yesterday was a pretty big down day on forecasts of increased supply and decreased demand creating more of a supply cushion, so I think this will continue today as well. I am long and wrong at the moment. Tried to play the bounce. Worked for a while, but at the end of the NYMEX session they pushed through all the support and closed it lower. Let us see what happens today, but it does not look good for the bulls.
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Re: Trader's Corner 2006

Unread postby MrBill » Wed 13 Sep 2006, 10:53:34

Nothing in today's DOE/IEA numbers to get bullish about. We needed a sharp drop in imports or a draw in distillates/heating oil to get the market nervous about winter, but the numbers are anything but.

Crude -2.9 mio bbls to 327.7 mio bbls
Gasoline +100k bbls to 207 mio bbls
Distillates +4.7 mio bbls to 144.6 mio bbls
Heating Oil supplies +1.4 mio bbls to 60.7 mio
Refining runs -0.6% to 93%

Product imports +156k bpd to 3.49 mbpd
Crude imports +232k bpd to 10.6 mbpd
Gasoline demand +2.4% to 9.54 mbpd
Distillate demand +3.2% to 4.14 mbpd
Total demand +0.9% to 21.22 mbpd

so at least demand is strong despite high prices, which leads some to believe that as prices come off, that it will lead to an uptick in US economic activity in Q4'06 averting a slowdown leading to a recession in 2007?

The market's first reaction is down touching $63 in the Brent and $63.50 in the WTI, while HU has been as low as $1.5520 and heating oil $1.7400 as we speak. No large rush to cover short positions and the bulls must be losing hope too.

I cut half my long on a rally this morning. I am still long the other half at a loss, but unwilling to cut it as feel we are technically oversold and due for a bounce. I may be too early, but in the meantime I will try to trade in and out from the longside and improve my overall average.

Wish me luck. I have an evening of French chamber music ahead of me, but I have been to the gym twice today, so I should have burned enough energy that I can sit still for a few hours. Someone text me if this thing falls out of bed in the meantime. G'nite.
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Re: Trader's Corner 2006

Unread postby cube » Wed 13 Sep 2006, 17:11:18

$this->bbcode_second_pass_quote('MrBill', '.')...
I am still long the other half at a loss, but unwilling to cut it as feel we are technically oversold and due for a bounce. I may be too early, but in the meantime I will try to trade in and out from the longside and improve my overall average.
....
No you're not early. I think you've just picked the perfect bottom!

Today looks like a pivot point....or I could be wrong? Tomorrow will give more conformation. until then...

I'm still sitting on the sidelines waiting for the right moment 8)
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Re: Trader's Corner 2006

Unread postby Micki » Wed 13 Sep 2006, 19:50:38

MrBill, do you want us to text you something "urgent" so you get a reason to rush out of the chamber music concert? :P

Good luck with the longs. I am actually quite uncomfortable myself with the dropping oil price. Not sure if I should prepare myself for months of lower prices or if it really will bounce from here.
Yesterday resource stocks and silver miners however bouced nicely here in Oz, so still thinking that we may have bottomed out for this time. Got to try to keep the hands off for another day to see the action. Tell myself: don't get greedy.
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Re: Trader's Corner 2006

Unread postby MrBill » Thu 14 Sep 2006, 02:45:56

Actually got lucky last night. It was not French chamber music, but an orchestra from Montpellier, France, who played a selection of classical music including Beethoven's 9th symphony and some Russian composer that I cannot remember. So it was not half bad to sit back and relax for a while. Afterwards the bottle of wine in the courtyard was also nice. The temperature here has finally dropped back into the living, breathing zone, so we can go outside without our shirts sticking to our backs in the evenings! ; - )

Looks like a pretty constructive bottom forming on the hourly, but same pattern we saw several days ago, so too early to say anything definitively, but have to jump on it from an interday point of view. $64.25 should be the support on the hourly in the WTI.

I am trying not to have a flat price point of view. I was the biggest bear on the way up, and was waiting for this huge shake-out to occur and now that we are down $16, 16%, the biggest drop in 16-years, I feel that I have been sleeping through history!! Getting stopped out several times at the absolute highs in the evening also did not do me any favors. I know all about discipline, but it is mentally hard to come in the office in the morning and immediately sell 150-200 points below where I was stopped out of my short the night before, and then you miss another 150-200 points! So in any case, now that we are down here, I am trying not to turn bullish when the fundamentals argue against it.

Although from a technical perspective, if this is the 3rd leg down of a 1.2.3.4.5 move from the top at $78.40, then the 4th leg would be a tidy pullback, stopping under $70 in the WTI. If we were just in an A.B.C correction then we should have completed the C wave now, at least we are in oversold territory, and have completed the leg being longer than the A wave. In any case, both scenarios would argue towards a corrective rally in the direction of $70 to at least take us out of this oversold territory. Even if I suspect we are eventually heading towards $60 where I expect major buying/short covering to emerge.

You should prepare for a major move at the end of next week. Thursday or Friday.
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Re: Trader's Corner 2006

Unread postby TheGiantWave » Thu 14 Sep 2006, 02:52:28

Nat gas stocks today... the build could be chunky for this time of year.
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Re: Trader's Corner 2006

Unread postby MrBill » Thu 14 Sep 2006, 02:57:47

$this->bbcode_second_pass_quote('TheGiantWave', 'N')at gas stocks today... the build could be chunky for this time of year.


Based on yesterday's heating oil stocks, I would say so as well. Looks like Hurricane Gordon is in the wrong part of the Atlantic to lend any support to nat gas, although he may touch land near Come by Chance, Newfoundland. But who cares about Canada? ; - )
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Re: Trader's Corner 2006

Unread postby Micki » Thu 14 Sep 2006, 03:09:16

Aahh. Old Ludwig Van....

MrBill - what are your thoughts on massive shorting/price surpression conspiracies?

Perhaps slightly off the topic but the following article in Safehaven.com showing how JPM increased their derivat positions with 5Trillion in one quarter and that was the same time Natgas started tanking. Wonder if that is was a coincidence?
Safehaven

End of work now so I will go home and read this carefully again.
Could hardly believe my eyes when I saw the full derivate business figures. Talk about weapons of financial mass destruction. I had no idea it was this big.
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Re: Trader's Corner 2006

Unread postby MrBill » Thu 14 Sep 2006, 03:24:51

$this->bbcode_second_pass_quote('Micki', 'A')ahh. Old Ludwig Van....

MrBill - what are your thoughts on massive shorting/price surpression conspiracies?

Perhaps slightly off the topic but the following article in Safehaven.com showing how JPM increased their derivat positions with 5Trillion in one quarter and that was the same time Natgas started tanking. Wonder if that is was a coincidence?
Safehaven

End of work now so I will go home and read this carefully again.
Could hardly believe my eyes when I saw the full derivate business figures. Talk about weapons of financial mass destruction. I had no idea it was this big.


I wrote this yesterday in another post, so why write it again? ; - )
$this->bbcode_second_pass_quote('', 'B')ut as you can see by the $16 dollar collapse in the price of crude, most the trading world simply does not see that happening.

Although I do not believe in conspiracy theories, I do recognize the connections of the powerful and the power of connections. Obviously, someone in the State Department, or who is in the know, has quietly informed the investment banks like Goldie Sachs that there will be a political solution.

We all knew that supply and demand favored oil much lower. We thought there was at least $20 in Iran risk premium in the price. The rhetoric out of Iran has not changed much up until a few days ago. Therefore, this agressive selling in the futures must have come from those who were assured a political deal was taking place behind the scene.

Timing is everything. That is my take on it in any case.


We do not trade commodities. We trade information. He who has the better information wins. That is why trading on insider information is a crime. However, if you're an investment banker and your college roommate just happens to work in the State department. His opinion of events in the ME may give you enough courage to lean against the wind and increase your short position even though in the popular media the headlines look like there has been no change.

Really no different than working in Chicago and getting a call from your older brother in Des Moines who says, "well, looks like the corn crop is toast this year. No decent rains since weeks now and almost too late. Oh well, at least I have my job in town to fall back on." Well, that just may influence your decision to buy corn futures or not? And if you just happen to work for ADM? ; - )
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Re: Trader's Corner 2006

Unread postby MrBill » Thu 14 Sep 2006, 03:48:42

$this->bbcode_second_pass_quote('Micki', 'A')ahh. Old Ludwig Van....

MrBill - what are your thoughts on massive shorting/price surpression conspiracies?

Perhaps slightly off the topic but the following article in Safehaven.com showing how JPM increased their derivat positions with 5Trillion in one quarter and that was the same time Natgas started tanking. Wonder if that is was a coincidence?
Safehaven

End of work now so I will go home and read this carefully again.
Could hardly believe my eyes when I saw the full derivate business figures. Talk about weapons of financial mass destruction. I had no idea it was this big.


I dunno Micki I am a little sceptical? I deal with good ol' JPM and their credit officers. I am not a hedge fund. Just $2 billion in assets and $500 million in debt mostly secured by fixed income and equity backed repos that is invested in plain old vanilla stocks and bonds with some futures and options for hedging purposes. Proprietary trading is a very small part of our business.

We are on everyone's A-list except for some notable exceptions. One of them is JPM despite 3-years of trying to establish a trading relationship together. The reason is that JPM does not understand our business, despite audited annual reports, a Moody's credit rating, mouth watering returns, and being a licensed investment firm regulated by the CySEC, which by the way gives us an EU wide investment passort to conduct business anywhere in the EU. They seem to believe we are going to implode at any moment despite using over-collateralizing loans with 2X pledged high quality assets and implementing scale down margin calls.

My experience is a lot of these swash buckling, take no prisoners Top Tier investment banks want their money for nothing and no risk either. If a bank is not going to intermediate risk, what good are they?

Well, in any case, I am skeptical. Goldie Sachs is rumored to take more risks than anyone, but they make more money than anyone too. The ascertains of the article, which I cannot doubt without my own set of facts, just do not seem to jive with my own personal experience with US investment banks. They hate to risk their own capital. Some are just now re-opening offices in Moscow that they shutdown after the Russian currency crisis in 1998. Talk about coming late to the party? All the best looking girls are taken, rents have sky rocketed, and all the easy, low hanging fruit has been picked over by the early birds. Now they will have to actually work for their money! ; - )
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Re: Trader's Corner 2006

Unread postby MrBill » Thu 14 Sep 2006, 04:29:20

$this->bbcode_second_pass_quote('Micki', 'A')ahh. Old Ludwig Van....

MrBill - what are your thoughts on massive shorting/price surpression conspiracies?

Perhaps slightly off the topic but the following article in Safehaven.com showing how JPM increased their derivat positions with 5Trillion in one quarter and that was the same time Natgas started tanking. Wonder if that is was a coincidence?
Safehaven

End of work now so I will go home and read this carefully again.
Could hardly believe my eyes when I saw the full derivate business figures. Talk about weapons of financial mass destruction. I had no idea it was this big.


Micki, just stumbled across this post also questioning some of SAfe Haven's posts for what it is worth?

$this->bbcode_second_pass_quote('', 'H')ow big is China?
Felix Salmon | Sep 13, 2006
Safe Haven today:

The situation in China reflects a global economic landscape that has undergone a seismic shift in the last decade, and is echoed by the fact that the combined economies of China and India are now greater than the United States.

Nominal GDP figures from the World Bank:

China $1,955.3 bn
India $731.0 bn
United States $12,408.5 bn


So "greater than" now means "about one fifth the size of"?

Presumably Safe Haven's Davide Accomazzo is thinking in PPP terms or something along those lines. But you can't monetize PPP. China might be at the forefront of everybody's mind, but its GDP is still smaller than that of France.

Statistics and Data Revision in China

How big is China?
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Re: Trader's Corner 2006

Unread postby cube » Thu 14 Sep 2006, 14:41:28

I've been wrong so many times in trying to guess the bottom of this downtrend I give up. At least I didn't have any money in. Smartest thing I did for the past 2 weeks. :wink:

until next week...
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Re: Trader's Corner 2006

Unread postby rwwff » Thu 14 Sep 2006, 15:23:18

JPM got pinged a bit during the Enron thing, didn't they? Maybe their paranoia is reasonable given their recent experience.
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Re: Trader's Corner 2006

Unread postby drew » Thu 14 Sep 2006, 18:56:16

Well, I went for the 3 peat. Let's see how it pans out. Cry.....

Seriously though, I almost wish I had a crackberry so I could trade more easily during the day.

The bastards at work took away my internet priveledges, so I have to place my orders in the morning and hope for the best.

Mayhaps I've been bragging a bit much at work-they can't have the lumpen proletariat truck driver kicking their investment asses can they?

I got the Nexen at 58, and of course by close it was down a dollar fifty.

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Re: Trader's Corner 2006

Unread postby MrBill » Fri 15 Sep 2006, 03:34:04

$this->bbcode_second_pass_quote('drew', 'W')ell, I went for the 3 peat. Let's see how it pans out. Cry.....

Seriously though, I almost wish I had a crackberry so I could trade more easily during the day.

The bastards at work took away my internet priveledges, so I have to place my orders in the morning and hope for the best.

Mayhaps I've been bragging a bit much at work-they can't have the lumpen proletariat truck driver kicking their investment asses can they?

I got the Nexen at 58, and of course by close it was down a dollar fifty.

Drew


Well, good luck. You're probably better off trading less often and leaving your orders ahead of time. I wish I would have given myself firm stop loss orders here on the way down. I am now long and under water with no fixed level at which I say I am wrong and cut my losses. OCT Brent went off the board last night, so on the hourly it looks like a breakout on the continuation chart, but that is just the roll to the NOV contract.

Have to wait until next week for the OCT WTI to roll-off. Hard to believe we will continue to see major weakness until the end of next week, but we may well? Besides, I am away next Thursday and Friday (to Oktoberfest), and the start of big moves ALWAYS start while I am out of the office. I try not to be paranoid, but just because you think the world is out to get you, doesn't mean it isn't. Perhaps I should have become a Priest like I promised?

Friday afternoon bounce on position covering ahead of the weekend? Hurricane worries in Mexico? Terrorist attacks in Yemen? All sounds like too little too late now that the Bears have come out to enjoy the Indian Summer and gorge themselves on easy pickings given to them by the Bulls bailing-out. Then they can lay back relax ahead of Winter well fed and content! ; - )
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Re: Trader's Corner 2006

Unread postby CARVER » Fri 15 Sep 2006, 11:38:32

More downward revisions: $this->bbcode_second_pass_quote('MarketWatch', '[')b]Crude sinks to year's low
SAN FRANCISCO (MarketWatch) -- Crude-oil futures dropped Friday to their lowest level of the year, touching $62.45 a barrel and extending a week-long slide on speculation that oil demand is weakening.

The Organization of Petroleum Exporting Countries cut its 2006 crude-oil demand forecast to an average of 28.9 million barrels a day, down 200,000 barrels a day from last month. The cartel said it expects demand to average 28.1 million barrels a day in 2007, which is expected to be 800,000 million barrels a day below 2006.

The prediction followed one released by the Energy Information Administration, the reporting arm of the Energy Department, which said world petroleum demand is expected to grow by 1.2 million barrels per day in 2006 and by 1.7 million barrels per day in 2007. The estimates reflected a second-straight monthly downward revision because of "slower-than-expected demand growth in the Organization for Economic Cooperation and Development countries," it said. ...
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Re: Trader's Corner 2006

Unread postby MrBill » Mon 18 Sep 2006, 03:58:46

Mining's nightmare scenario
$this->bbcode_second_pass_quote('', 'T')HERE is a nightmare scenario for the resources industry, which has mining companies commissioning their sparkling new expansion projects next year as the US economy plunges into recession.

Investors got a taste of what it might look like this week as commodity prices plunged and resource stocks were belted lower on concerns about the slowing US housing market, which has been one of the engines of global economic growth.

While markets calmed themselves by week's end, the nightmare scenario remains a possibility. It worries Brian Fisher, who stepped down yesterday after 18 years as the government's chief commodity market forecaster.

Australian Bureau of Agriculture and Resource Economics tracking shows that three years into the commodity boom, mining companies are still struggling to raise their production levels.

"What everyone is frightened about is the lags in the system and the uncertainty on the demand side."
Mining's nightmare scenario

But Goldie Sachs is more bullish than that...
$this->bbcode_second_pass_quote('', 'T')ime spreads are likely to ease on a cyclical easing in demand

Slower economic growth is likely to moderate the pace of metals demand growth, which should allow backwardations to ease on a temporarily easier physical market.

Secular support for prices remains intact

Long-dated prices will likely remain well supported, as producers continue to struggle with higher costs against a backdrop of a higher long-term demand growth from emerging markets.

Uncertainty over the pace of the economic slowdown is the main risk

The slowdown in the US and policy tightening in China could slow global demand by more than expected; conversely, a more modest slowdown could leave metals in deficit and thus avoid a significant correction.

Aluminum has weakest current fundamentals, but that may soon change

Excess smelting capacity and a surge in alumina supply are currently pressuring the market, but this overhang will likely disappear over the next few years.
Source: Goldman Sachs Research, September 16, 2006

Of course, as we have seen, investors have been very hard on companies that miss earnings forecasts, so although demand may remain brisk and prices stabilize, in the short-term mining stocks may get punished just because the outlook is uncertain.


$this->bbcode_second_pass_quote('', 'F')undamentals remain supportive despite sell-off
Data point to strong demand, especially in the United States and China

The sell-off in energy prices continued this week; however, the sell-off broadened to include many of the non-energy markets, such as base metals and gold, as concerns over an economic slowdown continued to bring into question the sustainability of the five-year bull market in commodities. Nonetheless, the data this week actually pointed to very strong energy demand growth in both the United States and China, as weaker prices continue to stimulate demand.

El ninos increase weather volatility

History shows that only strong el ninos are associated with warmer-than-normal winters and weak el ninos are more likely associated with colder-than-normal winters.

Distillate builds distorted by October 15 spec change

Although US transportation demand remained robust, the distillate and US natural gas markets saw significant inventory builds, which created further selling pressures. While the build in natural gas was mostly the result of extremely mild weather across the United States, the build in distillate was likely exacerbated by the October 15 switch over to ultra-low sulfur at the retail level as retailers must empty and clean the tertiary tanks backing up distillate inventories to the primary level.

A 3.5% colder-than-normal winter needed to erase the distillate overhang

Our estimates show that a normal winter combined with 2.5% non-weather-related demand growth (which is a return to trend) would leave the market with 118 million barrels in storage at the end of the 2007 winter. We estimate that we would need a 3.5% colder-than-normal winter to completely erase the overhang relative to the five-year average.

Time spreads have likely been oversold

Much of the recent decline in prices has been in the spot prices relative to the forward prices, as the contango in the market has increased significantly as time spreads have weakened. We believe, much like in March of this year, that the time spreads have been oversold, particularly relative to fundamentals. As a result, we would recommend being long December 2006 against a short December 2007 position, as such a large contango has opened up a significant storage arbitrage.


And of course if you're not buying into these resource companies, I do know someone who is? The question remains is the price they're willing to pay too high or too low?

$this->bbcode_second_pass_quote('', 'T')HE focused, energetic drive of Chinese corporations to take over or build stakes in Australian resource companies is not a one-off.
It's part of a concerted move by China Inc to deploy some of its huge foreign exchange reserves - heading for $US1 trillion - to tie up entire industrial processes.

China has no problem with the concept of vertical integration. It has no competition authority with a capacity to outmuscle the state-owned giants.

Its planned anti-monopoly legislation will benefit domestic businesses in their tussles with foreign competitors, but won't trouble state-owned monopolists.

Beijing certainly wants to build Chinese global champions, so the Government applauds when its corporations contrive to tie-up their key sources of supply.
China Inc's global hunt
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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Amaranth Losses trading energy..........

Unread postby TheGiantWave » Mon 18 Sep 2006, 11:08:51

$this->bbcode_second_pass_quote('', 'B')N 10:31 Amaranth Says Funds May Have Lost 35% on Natural Gas

Sept. 18 (Bloomberg) -- Amaranth Advisors LLC, a hedge-fund
manager with $9.5 billion in assets, said last week's plunge in
natural-gas prices left its two main funds with year-to-date
losses that may exceed 35 percent.
``We are in discussions with our prime brokers and other
counterparties and are working to protect our investors while
meeting the obligations of our creditors,'' Nick Maounis, founder
of the Greenwich, Connecticut-based firm, said in a letter to
investors obtained by Bloomberg.
The decline came after the Amaranth funds had gained almost
30 percent through August. Gas prices fell 12.2 percent last week
as the U.S. Energy Department reported its first triple-digit
inventory increase in more than a year. Demand for the power-
plant fuel usually declines after summer air conditioner use
slows and before heating needs pick up.
Amaranth was ``near the end of our disposition of natural-
gas exposure,'' the letter said, adding that Amaranth had met
every margin call. Steve Bruce, a spokesman for Amaranth,
declined to comment.
The firm has an energy trading desk of more than 20 people.
Brian Hunter, who works in Calgary, Canada, is Amaranth's head
energy trader.
Maounis spun his firm off from Greenwich-based Paloma
Partners in 2000. A convertible-bond specialist who worked at
Paloma for 10 years, Maounis started Amaranth with 27 investment
professionals and about $450 million in assets. The firm's
initial strategies included trading convertible bonds and the
stocks of merging companies.


Source... Bloomberg
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