We’ve argued before that the 2005-2007 commodity bull-run could have been the product of an unwitting self-manufactured squeeze, as the industry rushed to monetise as much inventory as possible to benefit from higher than usual interest rates and as inventory levels dropped. (All pretty much unwittingly, of course.)
As prices increased, the economy choked. Read more
Here to explain why refiners in Asia aren’t getting giddy about the Iran deal are some analysts accompanied by an angry Congress, angry Israel, angry Saudi, OPEC, existing sanctions, such as the ban on exports to the EU, and a large implicit counterfactual – without a deal, sanctions would have tightened further. Read more
Oil prices continue to decline, with WTI currently leading the charge:
A tale of Reliance. Or of cracks. Or of regulation. Take your pick but this is simply pointing out that global refining margins are still in the doldrums (with recent GRMs low even by post-2008 standards) and that Europe’s refiners are likely to take the biggest kicking. Read more
Take yourself back to the heady oil price days of early 2008. Imagine a rogue voice reassuring the market to “fear not, one day soon the US will be saturated in the black oozey stuff”.
What would the market have made of such a concept? Would such a voice have been dismissed as a loon? Very possibly.
And yet, less than six years later comes the following warning from Goldman Sachs: Read more
This is painfully ambiguous parsing of doctrine. Still, it is the Church of England.
We think this statement is the Church moving a bit closer to supporting fracking in Britain (as Cuadrilla scales back drilling in leafy Balcombe)… Read more
Much hoopla on Monday from the FCA, Britain’s newly-fashioned regulator, as it meted out a $903,176 fine to Michael Coscia, a dirty HFT operator caught manipulating crude oil futures back during the autumn of 2011.
We learn that…
Between 6 September 2011 and 18 October 2011 Coscia used an algorithmic programme of his own design to instigate an abusive trading strategy known as “layering”. During this time, Coscia placed thousands of false orders for Brent Crude, Gas Oil and Western Texas Intermediate (WTI) futures from the US on the ICE Futures Europe exchange (ICE) in the UK.
Full details are available in the final notice, but you’ll want to click on the image below for an “animated example of Mr Coscia’s trading…” Read more
Hooray, the final version of the Iosco ‘Principles for Financial Benchmarks’ is out. It’s dull.
At least given the stakes: moving Libor — and a great deal of basic pricing in finance beyond it — towards a basis in actual transactions. Read more
The fixed income team at Credit Suisse have a good note talking about what’s really driving WTI backwardation. Small hint, they don’t think it’s much to do with Egypt.
They put the backwardation down to three things. Read more
… and it’s all because, the lady loves shale oil.
Well, what we mean is that finally, the surplus stock of crude trapped in America is having a price effect beyond borders because logistical constraints have been removed and storage incentives have started to disappear. Also, because graphs like these can no longer be ignored.
The result: a major narrowing in the WTI-Brent spread. Read more
It’s been our mantra at FT Alphaville for a while, but finally someone from the ‘serious’ analyst space seems to agree with our hypothesis that commodity collateralisation — incentivised by low rates and excess liquidity — is having a larger impact on inventories and commodity prices than most people appreciate.
Here’s an extract from one of oil market veteran Philip K. Verleger’s recent articles on the relationship between interest rates and inventories (our emphasis): Read more
FT Alphaville was cordially invited to talk about the collateralisation of commodities at two separate conferences this past month. We thank IHS Global and the Association des Economiste Quebcois for the opportunity.
The crux of our argument was that you can’t really understand what’s going on in commodity markets unless you appreciate that commodities are no longer a pure consumption-based market. Read more
John Kemp at Reuters has been following the interesting case of light sweet fatigue in the oil market.
As he first noted on Tuesday, a surge in shale oil production alongside a big increase in modern refinery capacity is increasingly undermining the value of sweet crude in the market. Read more
We suggest watching this story…
It looks like EU competition regulators paid some unannounced visits to oil company offices around Europe on Tuesday — note the reason: Read more
WTI crude prices are on the rise, but only at the expense of Brent’s premium. The spread between the two crude grades shrank below $8 this week, its lowest since January 2011.
But what’s really striking is the rise in US crude output, which has risen 57,000 barrels a day to 7.37m — its highest level since February 1992.
If one chart speaks a thousand words in this regard, it’s the following one from the American Enterprise Institute’s Carpe Diem’s blog, charting data from the US Department of Energy:
According to the EIA, the definition of “spot market” is:
The price for a one-time open market transaction for immediate delivery of a specific quantity of product at a specific location where the commodity is purchased “on the spot” at current market rates. Read more
An interesting chart from the American Enterprise Institute showing to what degree oil shipments by rail have risen in the last two years:
When it comes to commodities everyone understandably likes to focus on supply and demand. However, there is another important driver for commodity prices that’s sometimes overlooked.
The real interest rate. Read more
A small selection from our inbox the last few weeks.
First, this from Barclays on Friday, about copper: Read more
Something is fundamentally changing in the oil market. To explain, consider the following.
The first chart for your consideration is the current Brent price (a reasonably large fall this week): Read more
Okay. This is weird.
Perhaps the analysts in Citi’s commodities team headed by Seth Kleinman (which includes the inimitable Ed Morse) didn’t get the memo? You know, the one about needing to talk up the old carbon complex as much as possible?
After all, how else do you account for the disruptive tone of the following summary points: Read more
Nymex WTI futures trade experienced somewhat of a wobble on Wednesday.
As Stephen Schork highlights in his chart of the day: Read more
Philip K. Verleger, veteran independent energy consultant, has been doing some sleuthing concerning some of the more opaque areas of the oil market.
What he’s unearthed is interesting, to say the least. Read more
A strange thing is happening in commodity markets.
As we already commented on Twitter, what the physical supply and demand situation is telling us is getting increasingly disconnected from what the forward and futures markets are saying.
The curve, in short, is feeling mispriced. Read more
How much of the oil and gas sector’s asset valuations could be at risk from climate mitigation policy?
The International Energy Agency’s latest annual World Energy Outlook, released in November, followed the popular practice in long-term forecasts of using several scenarios. One involves global policymakers moving to limit atmospheric CO2 concentration to 450 parts per million, in order to limit to 50 per cent the probability of average temperatures rising 2 degrees or more.
The problem for fossil fuel companies is that could limit their ability to utilise all their reserves. Read more
Remember the whipsawing days of 2008? The days when commodity prices couldn’t get crazier?
Some excellent market commentary from Olivier Jakob at Petromatrix on Friday morning regarding the current state of oil market (dis)equilibrium and the potentially precarious position of Saudi Arabia. Read more
Veteran economist and oil analyst Phil Verleger in his latest note has roundly criticised everyone who forecast in recent years that oil prices would keep rising forever; which he says includes just about everyone who has an opinion about oil prices.
He highlights the work of Morris Adelman, an MIT economist who’s little known these days — unjustly, according to Verleger: Read more
First there was plain old commodity inventory.
Then “in-the-ground” inventory — funded by pre-pay deals — started to make an appearance. Most recently, there’s even been the tendency towards “just-in-time” inventory in energy markets. Read more
When the International Energy Agency’s big annual report came out last week there was a big top line story picked up nearly everywhere: that US oil production will overtake Saudi Arabia by about 2020.
This is due to projected rises in oil being wrung from the sort of shale formations that have been the source of vast new supplies of natural gas in the past few years. Read more