by MrBill » Mon 26 Mar 2007, 10:00:56
IEA chief says oil prices are too high? Tell that to Iran and the fifteen British servicemen being held captive there!
Oil hits 2007 high near $63 on Iran tensions
GS 1: MS 0
$this->bbcode_second_pass_quote('', 'A') warm winter in Europe and Asia is heating up the US LNG market
April WTI contract exits weak, but May WTI contract comes in strong
The April and May WTI contracts parted ways this week as the winter turned to spring. The price of the April WTI contract collapsed to $56.73/bbl on March 20, a $2.52/bbl discount to the May WTI contract. While the April WTI contract made an extremely weak exit, the May WTI contract had an impressive debut as the prompt WTI crude oil contract, gaining $2.44/bbl over the next two days and closing at $61.69/bbl on Thursday.
While the extremely weak exit of the April WTI contract reflected regional pressures at its delivery point in the US mid-continent, including the extended outage following a fire at Valero's McKee refinery, the strength of the May WTI contract is reflecting the continuing tightening of the US oil market.
US motor gasoline demand remains up 124 thousand b/d over year-ago levels over the past 4 weeks at a robust 9.2 million b/d. This strong demand produced a draw on US motor gasoline inventories for the sixth consecutive week.LNG flows into the United States have surged as US natural gas prices remain well above Europe
US natural gas prices closed at $7.27/mmBtu last Friday, up 5% on the week. However, the strength in US natural gas prices belies the weakening fundamentals. Current US weather forecasts call for a 35% warmer-than-normal final week of March. The unseasonably warm March temperatures have been sharply curtailing US heating-related demand over the past two weeks. This depressed heating-related demand combined with a surge in LNG flows to the United States driven by the surplus of global LNG created by the exceptionally warm winters in Europe and Asia and exacerbated by the additional liquefaction capacity coming online in the Atlantic basin has contributed to the earliest build on record in US natural gas inventories.
Source: GS, March 26th
Brent continues to outperform WTI $64.35 to $63.30 in what I have identified before as a well-supplied US domestic market (at least in unrefined crude) compared to geo-political supply uncertainties (such as Iran) that are supporting international prices. Hey, it works for me! ; - )
UPDATE on Brent/WTI:
$this->bbcode_second_pass_quote('', 'T')he U.S. benchmark crude, called West Texas Intermediate, is cheaper than European benchmark Brent oil because of increased supplies from Canada and disruptions in Nigeria, analysts said.
West Texas Intermediate, or WTI, which is priced in Cushing, Oklahoma, traded at an average discount of 12.8 cents a barrel to Brent, which is pumped in the North Sea, in the last 12 months. The discount rose to as much as $3.93 a barrel on March 19, according to Bloomberg data. Before the end of 2005, WTI prices were higher than Brent on average so far this decade.
``Some traders are not looking at WTI prices'' because they are ``no longer representative of the U.S. market,'' said Ehsan Ul-Haq, head of research at PVM Oil Associates GmbH in Vienna. ``I don't see WTI strengthening too much'' in the longer term, because more and more crude from Canada is becoming available in the U.S. Midwest, he said.
Canadian, Nigerian Oil Keep WTI Cheaper Than Brent
Driving the price of crude and oil company shares higher, especially oil service companies and refiners, are wide crack margins. Starting the year in the $8-9 per barrel range we are now almost twice that level.
Heating oil $10 per barrel
RBOB gasoline $20
Crack spread $15
321 spread $16.65
Which is why SUN, VAL & SLB have in my opinion outperformed XOM, COP or even LKOD. The wide contango is still a real threat to long only funds & ETF investors, but the physical players are getting well paid to store oil, and the tightness in the gasoline market mean they can now earn a dime refining it into product.
The GSPE or S&P Energy Index has now taken out its previous high of $457.77 after touching its low of $423.04 and is now trading at $463.89. That compares for example to the resource heavy RTS that touched a low of 1701.80, but is currently at 1923.98 still below its previous high of 1971.35. Ominously the Shanghai index took out its previous high before it plunged 9% in one day and now is trading at an incredible 40X earnings. Clearly, the Chinese love to gamble it seems, and a lack of investment alternatives in China mean that Chinese share valuations are quite divorced from P/E ratios.
As expected the market via bond yields is reconsidering their sudden euphoria that the FED would start slashing interest rates anytime soon. Yields on the 10year UST have climbed back-up above 4.615% today after compressing to under 4.50% in the past week.
As with bond yields the USD has bounced back against the EUR and the JPY and is now $1.3265 and 118.25 yen. The US dollar has some serious resistance above $1.3400 against the euro. Each time above that level it has been beaten back under into the range. Officially, resistance for the EUR/USD is $1.3411 (recent), $1.3478 and $1.3667 going back to 2006/2005. I think it is reasonable to say that the USD is under pressure vis a vie the EUR, but that in order to take out $1.3667 or even $1.3478 that this would be a combination of further tightening from the ECB while the Fed actually cuts as opposed to just staying put. Never the less, that is the risk. A weaker US dollar would add support to the precious metals.
On the credit side Freddie Mac has indicated it will cut back their exposure (still minimum at the present) to the sub-prime mortgage market after some market losses in its lower quality debt. This will further starve the lower end of the credit curve and eventually feed through into overall tighter credit conditions as well as all consumer purchases.
The markets seemed to have stabilized a great deal in the past two weeks, and some major losses have been absorbed without too much contagion or fallout. That is the good news. The rush back into risky assets classes is not quite as comforting. Certainly the Iran factor is helping crude and by default oil service company & refining shares. That is where I prefer to be at the moment. But the question has to be where would physical supply & demand fundamentals be without that external threat? And therefore using this rally to lighten-up on exposure may be wise this time around. Cheers.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
by MrBill » Wed 28 Mar 2007, 08:56:27
A new dawn for OPEC as non-OPEC growth in supply shrinks and as the group finds new found discipline.
$this->bbcode_second_pass_quote('', 'O')PEC's clout is increased by shrinking production from non- OPEC nations such as Mexico and Norway. Output from Mexico's Cantarell field, the largest in the Western Hemisphere, was 25 percent lower in December than it was in January 2006, government data show. Petroleos Mexicanos, the third-largest oil supplier to the U.S., says output will slide further this year.
Oil production in Norway is forecast to drop 5.6 percent this year, according to the nation's petroleum directorate, after sliding 7.8 percent in 2006. Exports from Norway peaked in 2001.
Demand Increases
Demand is rising as the world economy is forecast to grow 5 percent this year, capping the biggest five-year expansion in three decades, the International Monetary Fund said Jan. 16. China, the fastest-growing major economy, has more than doubled oil imports in a decade, boosting purchases 14.5 percent last year even as prices averaged a record $66.27
OPEC Dictates Higher Prices, Scarcity as Crude RisesI have used this most recent spike up to lighten-up on some oil company shares and to take profit on parts of my euro denominated stocks that have outperformed. That means I am now over-weight in cash, but still currency hedged with more euros than US dollars.
I cannot help but shake the thought that ex-Iran we would be a good $5 lower in crude prices easily and with a soggy stock market to boot that it was time to simply take some money off the table.
Especially in Europe where the stocks have rallied on the back of a strong US dollar making euro exports more competitive in the past, but they are also up this year even though the euro is markedly stronger against the US dollar and especially the yen and yuan. Yes, growth is strong in the core EU countries for a change, but one has to get the feeling that the best news is already priced into shares as the ECB prepares the ground for even higher euro interest rates. So time to take profit.
There are simply too many prophets of doom not to at least listen to some of their more dire predictions. What did it for me is private equity groups like Blackstone Capital going public, and other 11th hour IPOS and debt issues to tap capital markets, after the most recent market wobbles. If these guys are bailing this late in the game, why should I still be buying?
This sums up all the arguments better than I can.
$this->bbcode_second_pass_quote('', 'O')ne by one, the big companies of
the alternative investment industry are selling.
Blackstone Group LP, the leveraged buyout firm that has
spent $160 billion taking companies private in the past two
decades, has just announced its initial public offering.
Fortress Investment Group LLC, which manages hedge and private-
equity funds, listed its shares in February and the stock
almost doubled on the first day it was traded.
In Europe, booming hedge funds are queuing up to go
public. Polar Capital Holdings Plc did so last month, and
Marshall Wace LLP raised 1.5 billion euros ($2 billion) through
an IPO for one of its hedge funds late last year.
Yet if Blackstone, Fortress and other alternative-
investment managers are selling their shares, should you be
buying?
Probably not.
The managers of those firms are better at calling the top
of the market than most of us. The rush of share sales suggests
the boom in alternative investments may be ending.
It would be better to sit out the IPOs, wait for the share
prices to drop, and then buy them.
``There is a fin-de-siecle feel to many of the IPOs,'' Tim
Price, investment strategist at Union Bancaire Privee in
London, said in a telephone interview. ``These worlds are
mashing into each other at extreme speed. Alternative
investments are not really alternative anymore.''
Source: Bloomberg, March 27th
Also, I have no faith whatsoever in Bernanke or any other central banker alive today (except maybe Canada's Dodd) to stay the course on inflation at the expense of growth. The Fed's Moskow has already been discounting future inflation expectations while predicting 3% growth in US GDP in 2007. What's with that? I am thinking more along the lines of stagnation in the US economy while strong growth elsewhere makes sure underlying inflation remains strong.
A factor also noted in the upwards price trend in the TIPS market. Not to mention a lower US dollar against the euro, higher crude and precious metals prices as well as US treasury yields creeping up again. In other words stagflation! Probably a central banker's worse nightmare. Forget deflation. It is the double cocktail that makes all policy decisions bad ones. I guess in fiction they call it a dilemma? So let's face reality. Although the Fed would probably like to establish their credibility as an inflation fighter, when growth goes to zero in the US domestic economy they will oblige by cutting rates despite what is happening in the ''outside dollar zone" including commodities, base metals, energy and other currencies pegged or linked to the US dollar.
I guess that is why they are called The U.S. Federal Reserve Bank and not The World Bank? They are going to choose local issues over international ones when push comes to shove. Helped along by a Congress that never met a reckless speculator that they did not feel compelled to bail-out at taxpayer's expense (or should I rephrase that and say at an unborn generations expense as well as sharing the pain with the US' foreign creditors?).
$this->bbcode_second_pass_quote('', ' ') Congress is making noises about
doing something to help homeowners who can't meet their mortgage payments hold on to their slice of the American Dream.
Democratic presidential frontrunner Hillary Clinton,
senator from New York, wants even lower mortgage rates for
homeowners facing foreclosure. Senate Banking Committee Chairman Chris Dodd, Democrat of Connecticut, and House Financial
Services Chairman Barney Frank, Democrat of Massachusetts, are
holding hearings to determine Congress's legislative options.
As a sideshow, our elected representatives will probably
spank regulators for not doing more to curb deceptive lending
practices and hang executives of subprime lenders out to dry for
presiding over the boom-bust cycle.
While lawmakers' intentions may be noble, it's a pretty
safe bet that, left to their own devices, they will muck things
up even more.
Just to summarize the storyline to date: During the housing
boom of the last five years, people with bad credit histories,
many of whom lied about their income and nature of employment,
got mortgage loans they weren't qualified for to buy homes they
couldn't afford. Now that home prices have stopped rising, and
the house can't be refinanced or sold at a profit, Congress
wants the taxpayer to subsidize the mortgages so these folks can
remain in their unaffordable homes.
What's wrong with this picture? Surely there were plenty of
cases of fraud, as there always are during extended periods of
rising asset prices. (The bodies of both victims and perpetrators generally float to the surface when the bubble bursts.) The legal system is capable of prosecuting loan fraud, a federal crime, be it on the part of the borrower (lying about his income) or the lender (misrepresenting the terms of the loan).
Source: Bloomberg, March 28th
Which reminds me of a humorous anecdote I heard today, which naturally I cannot substantiate, but it is funny in any case. Apparently, undocumented borrowers in the UK face the risk that they declare their official income on their tax return as say GBP 50.000, but on their mortgage application lie and say it is say GBP 100.000 to qualify for a bigger mortgage and/or better conditions. Okay, so far so good, until Her Majesty's Revenue & Customs Service comes along and does an audit on those loan applications. Apparently, they have been sending a bill for unpaid taxes based on the declaration of higher income on the loan application. And they have not been accepting, 'but, I don't actually earn that much money' as an answer either. Okay, true or not, I think it is a great story! : - )
As a taxpayer, home owner and mortgage payer I do not have a lot of sympathy for those who lie on their mortgage applications to speculate in real estate and then blame everyone but themselves when it all goes pear-shaped. I assume (correctly) they are perfectly happy when they make a handsome profit!
However, back to central banks and governments. Despite what the IRS or HMR&C may or may not think of all these hyjinxes, I think it is a safe assumption to believe that Congress or the Fed or whomever in power will try their best to help those zero downpayment, adjustable rate mortgage takers out of their dire straits? That is either lower interest rates and/or increased money supply. Against an external infationary environment (Chindia, faster growth in Europe, etc.) that just spells more asset price inflation. Just another bad policy choice. But hey, why change now? Why even try to learn from Japan's policy blunders? Low, slow, no growth is such a non-starter. No votes there! ; - )
UPDATE: I bloody well hate writing my own ideas down and then reading another similar piece somewhere else, like I ripped it off or something? Oh well, I post it here for completeness in any case.
$this->bbcode_second_pass_quote('', 'G')lobal worries
There are some worries weighing on the minds of Tiger 21 members: Terrorism and globalization.
"Our members have a general sense of long-term optimism, based on America's traditional capacity to create value, but are deeply concerned about the risks of terrorism and America's competitiveness," Sonnenfeldt says. Specific to globalization, Tiger 21 members expressed concern over "Chindia" and the value of the U.S. dollar.
These may be macro issues that most investors don't consider for the long-term health of their portfolios, but maybe they should.
Clearly, as we've seen this month, the overseas markets can drag the U.S. market along with them.
"Stock Market Whiplash?," a Tiger 21 report, says members with the most direct and long-term experience in the markets often cite the historically low credit spreads and growing convergence of returns between different asset classes as underlying concerns for the future.
Most members cite fixed income, cash, and diversification as the elements of their portfolios which give them most comfort.
"On that score, the wealthy may have something in common with the average investor," the Tiger 21 report says.
That is, if the average investor is moving away from investing in stocks.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
by MrBill » Fri 30 Mar 2007, 03:13:45
$this->bbcode_second_pass_quote('dohboi', 'm')r. bill wrote:
"The move from $49.80 to $64.10 represents a rise of +28.7% in a few months..."
Sure, some financial-speak can be hard to follow (Greenspan made something of an art of financial obscuritanism), but this is screamingly clear--the highest oil has been in a half year--and this before the driving season starts. Sure there is usually a bump in prices this time of year as refineries are closed down for maintenance. But given all the other signals and the SA data, this looks a bit ominous to me.
But volitily being what it is, it could easily drop 10% in the next week.
Well, I certainly got the slump or maintenance season wrong a few weeks ago. The technicals were above support levels, and I noted that there was not much resistance on the topside, but I fretted about mild weather and sloppy supply & demand fundamentals that would undermine the physical market.
But then consistant drawdowns in the gasoline inventories over the past 7-weeks or so turned that picture around as refining margins improved and here we are. Unleaded gasoline at $2.15, as you said, before the summer driving season even gets underway, and an active hurricane season being (once again) predicted by AccuWeather and other forecasters.
Iran is just the icing on the cake as far as this rally in crude is concerned. However, the Brent is responding more to these potential supply disruption threats more than WTI, which leads me to think that the US market is still afterall rather well supplied with unrefined crude in any case. But we will have to see how long the strike in France drags on as well.
WTI is in over-bought territory above the $66.35 area by looking at RSI & trading envelopes*, and we might expect a pullback after the weekend. As mentioned yesterday the target of this move is now $69.31 in the WTI, but Brent at a $2 premium will likely get there first. That represents a 0.618 retracement of the move from $78.40 down to $49.80.
$this->bbcode_second_pass_quote('', 'R')SI = relative strength index. 73.10 at yesterday's close. Over 70 is over-bought. Under 30 is over-sold.
My trading envelopes simply measure the daily price movements against their 21-day moving average, and based on historical volatility they move within one, two or three standard deviations 68, 95 & 99% of the time. I find 2-standard deviations a good measure for predictive purposes. The spike earlier this week to $68.15 in the WTI future was a 4-standard deviation move. Outside of normal probability, but what is called 'a fat tail'. Or in plain language when that steamroller catches-up to you.
Common Fibonacci retracements are
0.382 (38.2%)
0.500
0.681
there are others, like 0.236, but I ignore them as I find them less predictive and can be mistaken for random noise. Afterall the real probability at any price of the market going up or down is 50%. So fibonacci retracements are not hard fast rules, but rather price targets to be used as a guideline.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
by MrBill » Thu 05 Apr 2007, 02:58:03
$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('MrBill', '.')..
Commodity, precious metal and base metals prices all are strong on the back of demand
...
after about 2 weeks of consolidation it looks like today was a breakout for gold. Is there enough momentum to push it up further?....time will tell....until then.
The market as well as time always teach us humility if nothing else!
I took two stop losses yesterday. Once on my short in the morning as the crude pushed higher on a weaker US dollar. And the second in the afternoon as I sold aggressively into the news that Iran would release the British sailors. There was simply no follow through selling, and once NY came in the market ground relentlessly higher after the large, unforecasted 5 million barrel draw in the unleaded gasoline stocks.
So much for the $5 Iran risk premium that would dissolve as soon as the crisis reached a peaceful conclusion. I was targeting a pullback as far as $62.50. This was a classic case of sell the rumor and buy the fact. It certainly screwed me up!
I am tempted to stay short now just out of spite. But heading into a long Easter weekend perhaps discretion is the better part of valor and I should keep my head low?
UPDATE on gold supply & demand fundamentals:
$this->bbcode_second_pass_quote('', '[')b]World gold investment falls in 2006
Meanwhile, world investment in the gold market declined by 13% to 743 metric tons in 2006, according to GFMS' gold survey report released Wednesday.
World investment comprises of implied net investment, bar hoarding and coin fabrication demand, the report said. But in "approximate value terms, the figure was up by 18% year-on-year to $14.4 billion.
"Dollar weakness, geopolitical tensions and other commodity prices remained important drivers of investment demand over much of last year," it said. And "after years of lackluster performance, 2006 saw investment in physical metal experience somewhat of a comeback."
World jewelry fabrication fell by 428 metric tons in 2006 vs. a year ago to a 15-year low of 2,280 metric tons, GFMS said.
The report is "a decent summary of conditions that could lead to higher prices, but the overall picture still points to lessened investment demand in 2006 and declining jewelry offtake (very price sensitive)," said Kitco.com's Nadler.
Central bank sales upIn other related news Wednesday,
central banks have sold massive amounts of their gold reserves over the last three weeks, according to Donald Doyle, Jr., chief executive of Blanchard.
But considering that investment demand consumed that supply increase and prices held steady, it's actually a bullish sign for the precious-metals markets, he said in a press release Wednesday.
About 45.5 metric tons of central bank gold flooded the market over the last three weeks, vs. about 7 metric tons total during the three weeks before that, he said.
"To see prices hold steady and today make significant gains despite the massive selling pressure is a sign that parabolic upward price moves could be right around the corner as these banks have probably reached a point at which they don't have many more reserves they are prepared to sell," he said.
Inventories and indexesOn the supply side, gold warehouse stocks fell 98,676 troy ounces to stand at 7.47 million troy ounces as of late Tuesday, according to Nymex data. Silver supplies rose 624,779 troy ounces to stand at 126.5 million troy ounces, while copper supplies were unchanged at 36,386 short tons.
World gold investment falls in 2006
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
