Posted: Fri Jun 06, 2008 12:55 am Post subject: Re: Trader's Corner 2008
cube wrote:
I think corn and soybeans look hot.
The media is blaming it on wet weather delaying planting.
What the heck happened? The market jumped after I went home. S&P Energy Index up 4.5%. Crude up $6. The S&P 500 up almost 2%. I am still trolling for answers, which is not easy, as last night was Boys' Night Out! ; - ))
Quote:
The contract was up $6.08 to $128.38 in after-hours trading on Thursday in the U.S., its largest outright gain on record and erasing two days of sharp losses triggered by worries that high oil prices were starting to dent demand.
UPDATE: If you say,fortyfivetrilliondollars, fast enough it hardly sounds like much at all!
Quote:
World governments must quickly start a $45 trillion "energy technology revolution" that could drive up the cost of producing carbon ten-fold, or risk emissions surging by 2050, the West's energy watchdog warned on Friday.
The world would need to build dozens of nuclear power plants a year and bury carbon emitted from dozens more gas and coal plants, plus cutting the carbon intensity of cars, trucks, buses and planes eightfold, to halve emissions by mid-century, the International Energy Agency said in a new report.
Without taking action on government policy, emissions would surge by 130 percent and oil demand would rise by 70 percent by 2050, the IEA said, far beyond the level that many experts believe the world is capable of sustainably producing.
Posted: Sat Jun 07, 2008 7:39 pm Post subject: Re: Trader's Corner 2008
.
There has been some delays in planting the spring wheat in the midd-west but so far the prediction is for a good harvest , weather permitting .
Australia and Europe are having cool cloudy weather too .
coarse grains are a bit of worries ,the diesel fuel rise are going to keep prices up and the total grain ending stocks are not going to be replenished much .
Posted: Mon Jun 09, 2008 8:57 am Post subject: Re: Trader's Corner 2008
Quote:
THE biggest investment boom in history is under way. Over half of the world's infrastructure investment is now taking place in emerging economies, where sales of excavators have risen more than fivefold since 2000. In total, emerging economies are likely to spend an estimated $1.2 trillion on roads, railways, electricity, telecommunications and other projects this year, equivalent to 6% of their combined GDPs—twice the average infrastructure-investment ratio in developed economies. Largely as a result, total fixed investment in emerging economies could increase by a staggering 16% in real terms this year, according to HSBC, whereas in rich economies it is forecast to be flat. Such investment will help support economic growth this year as America's economy stalls—and for many years to come.
Oil prices rose sharply on Thursday and Friday last week, scoring the largest daily price move on record and reaching new all time highs, now close to the $140/bbl mark. The rally was underpinned by a sharp rebound in timespreads, which drove the shape of the forward curve back towards a degree of backwardation more in line with the tight underlying fundamentals of the oil market.
Risks to timespreads still to skewed to the upside
We believe that prior to last week, timespreads had weakened excessively relative to the underlying fundamentals, as concerns over a deterioration in US oil demand had likely translated into significant short selling and a liquidation of net speculative length. The rapidity and strength of the rebound suggests that the recent price move was due in large part to short covering of these positions as US and global fundamentals continue to tighten on the back of declining supply and supportive non-OECD demand. Despite the rapidity and magnitude of the adjustment, we believe that the risk to timespreads is still skewed to the upside. Current timespreads are still likely too low relative to the 15% front-to-back backwardation suggested by current low inventories and stocks could further tighten. As a consequence, if long-dated oil prices were to remain at or above current levels, the oil price could reach our $149/bbl year-end target by this summer.
Structural supply declines contribute to tighten fundamentals
Evidence of a structural decline in supply are mounting. Mexican decline rates are confirmed to be very strong as production in May has likely remained flat from April, averaging almost 13% below year-ago levels; Russian production continues to show strong signs of weakness, while Venezuelan and North Sea production continue to decline structurally.
source: Goldman Sachs Commodities Research
June 9, 2008 _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Tue Jun 10, 2008 12:45 am Post subject: Re: Trader's Corner 2008
BigTex wrote:
From today forward, which has more room to run in the next 12-36 months, oil or natural gas?
I'm thinking natural gas.
I think natural gas, too, because it was everyone's Plan B, and now there is not enough free supply to go around at cheap prices. Plus nat gas surpluses are held in fewer hands with stronger control over supply and distribution creating a captive market as nat gas is always on and not stored in bulk.
Is it just me or does anyone else think LNG is at best a false dawn and at worst a white elephant? Will the volumes ever be there to make much of a difference?
I think Chinese demand is here to stay. I am less convinced about India that relies on expensive imports of energy plus runs a current account deficit already that will be stretched by a slowdown in exports as well as subsidies for food and energy to their own citizens. Fiscally they are not as well off as China or as well organized.
Still, there is enough turmoil in Asia that after the Beijing Olympics there may be a deep pause as everyone asks themselves, "okay, what now?" Just my feeling. For example, I think those airline projections are quite rosy, and may not be built on realistic assumptions surrounding energy costs and therefore ticket prices.
I know what it is going to cost me this week to fly to Vienna, and if it were not for the Euro2008, I certainly would not be paying that kind of money. There is a big difference between cheap, discount tickets and full fares.
That is the problem with economic projections in the first place. They are based around what seem to be realistic assumptions, but once prices start to rise parabolically then there is a built-in feedback loop that everything else starts to rise at a quicker pace as well. If you are looking at long-run (recent) historical averages on which to make those projections then they can fall quite wide of the mark as everything doubles and triples in price.
As China both depends on imported inputs of materials and exported manufactured outputs that have to find a market they are certainly not immune from the cost-price squeeze. Never the less even if we knock headline growth from 10-11% p.a. down to 8-9% p.a. it still overwhelms tepid growth elsewhere in the world. And I am affraid that the secret (and threat) of resource depletion and the implication of long-term access to natural resources is well out of the bag, so that those that can afford to lock-in assured supply will. China is certainly in the league.
UPDATE:
Quote:
World oil demand will rise at its slowest pace in six years during 2008 as a recent raft of subsidy cuts in several developing countries cuts into oil demand, the International Energy Agency said on Tuesday.
Global consumption will rise by 800,000 barrels per day (bpd) this year, 230,000 bpd less than the previous forecast, the IEA said in its monthly Oil Market Report.
The adviser to 27 industrialized economies also cut its forecast for non-OPEC supply growth to 460,000 bpd, against 680,000 bpd in its previous report.
It raised its expected demand for OPEC oil for the year by 300,000 bpd to 31.6 million bpd.
Source. www.reuters.com _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Last edited by MrBill on Tue Jun 10, 2008 2:28 am; edited 2 times in total
Posted: Tue Jun 10, 2008 2:01 am Post subject: Re: Trader's Corner 2008
MrBill wrote:
...
I think natural gas, too, because it was everyone's Plan B, and now there is not enough free supply to go around at cheap prices.
MrBill wrote:
...
Plus nat gas surpluses are held in fewer hands with stronger control over supply and distribution creating a captive market as nat gas is always on and not stored in bulk.
Over 50% of the world's supply of proven natural gas reserves are in only 3 nations: Russia, Iran, Qatar. source
I think it is highly unlikely that natural gas will ever evolve into a fungible commodity like crude oil.
Posted: Tue Jun 10, 2008 2:41 am Post subject: Re: Trader's Corner 2008
.
All true but a small correction , natural gas can be stored in underground storage ,
There is one of 10.000 tons a few miles from my place , I believe Germany has some big ones too , a couple of weeks supply I would guess ,no ideas about the U.S.
It's quite safe and from the outside it looks like a lawn
Posted: Tue Jun 10, 2008 2:50 am Post subject: Re: Trader's Corner 2008
sparky wrote:
.
All true but a small correction , natural gas can be stored in underground storage ,
There is one of 10.000 tons a few miles from my place , I believe Germany has some big ones too , a couple of weeks supply I would guess ,no ideas about the U.S.
It's quite safe and from the outside it looks like a lawn
I'll do some searching and give you the juice .
.
yes, sorry, you are correct, but what I meant is that nat gas is usually always on, so it is connected to a physical network of pipelines. control the pipelines and you control supply. whereas oil can be sourced easily from different suppliers. and the options for distribution are more numerous.
UPDATE: the linkage between cash and futures prices. I think the second point is the most important one.
Quote:
How does demand for futures contracts impact prices in the physical markets? Because the index investors do not take physical delivery of the commodities, many have been too quick to dismiss their profound impact. While it is true that over the very long term, physical supply and demand will determine the outcome, futures investors are an inflationary force in shorter time frames. This is particularly true of markets like energy, where neither supply nor demand is very responsive in the short term to higher prices.
There are three mechanisms by which the order imbalance created by commodity futures investors can drive prices higher in the physical market:
1. Higher futures prices directly impact those who contract to buy or sell on a forward basis (e.g., airlines which contract for future fuel needs, either directly through futures hedging or through physical sellers who price on the basis of the futures market).
2. When futures prices are bid up independent of the physical market, this stimulates an arbitrage trade, where cash goods are purchased and futures are sold, locking in price differentials but driving up cash prices.
3. The imbalance within the futures markets disrupts traditional cash/futures relationships which ultimately adds risk, uncertainty and cost along the commodity supply chain. This is ultimately reflected in higher prices to the consumer.
In addition to these direct influences, there is also a case to be made that the higher futures prices support an inflationary psychology. We all face the bombardment of news of higher prices in energy, food and precious metals. It may be that this increases the willingness of commodity users to pay higher prices, and of commodity users to demand increases as well.
Posted: Tue Jun 10, 2008 6:53 am Post subject: Re: Trader's Corner 2008
BigTex wrote:
So, MrBill, you think that the situation you describe with respect to natural gas is not reflected in the current price?
It is such a regional market that you would have to look at each one on its own merits. The move from $5.20 to $12.80 for the benchmark Henry Hub NYMEX contract is impressive, but still well below the price spikes related to Katerina/Rita.
Whether nat gas will outperform crude or not I think it will be more volatile. The price elasticity for heat and electricity is lower than for gasoline or diesel over the one-year time horizon. In the very short-term there is almost no discernable price elasticity for heat and electricity. Only possible supply disruptions from rolling brown-outs in response to peak demand periods.
But it really is a regional market for power, so if I read something I am happy to pass it along, but I am not privy to any inside information. Platt's is a good source. You can sign-up free to their periodic updates.
Quote:
Commodity Watch
Lowering returns forecast on recent gains, but risk is skewed up
We are lowering our returns forecast for the S&P GSCI Enhanced Commodity Index on recent gains to 9.0% from 17.5% previously, but believe risks to this forecast are skewed to the upside.
Fundamental tightness prompts short covering and surging returns in energy and agriculture
Commodity returns performed well in May and have surged so far in June driven by gains in energy and agriculture, with WTI crude oil prices recording the two largest one-day dollar moves to the upside on record late last week and corn prices setting new nominal highs. In both the energy and agriculture markets, we believe that concerns over demand destruction caused by higher
prices and the notion that high commodity prices are the result of a
"speculative bubble" had led speculators to liquidate long positions and build short positions in recent weeks. But as fundamentals moved in the opposite direction, these shorts were forced to cover, generating the explosive price behavior.
Lowering returns forecasts on recent gains
Despite continued tightening of oil and agricultural fundamentals, the strength of the recent gains is leading us to lower our energy and agriculture returns forecast, with the latter also pushed lower owing to a downward revision in our wheat price forecast driven by increased wheat and rice availability. We are lowering our returns forecast to 10.0% and 5.0% for energy and agriculture, respectively from 20.0% and 13.0%.
Although we are revising many of our base metals price forecasts lower (with the important exception of copper and aluminum) on differing factors including higher inventories (zinc, nickel, lead) and lower costs (nickel), we are maintaining our base metals returns forecast given that much of these declines have already been priced into the market. We are lowering our precious metals returns forecast to -10.0% from -5.0% on a downward revision
to our gold forecast driven by Goldman Sachs economists' stronger
expectations for the dollar against some of the non-G3 currencies. On net, we now expect a 9.0% return for the S&P GSCI Enhanced Commodity Index, down from 17.5% previously.
source: Goldman Sachs Commodities Research
June 9, 2008
UPDATE: an important clarification
1. First of all to dispell the myth that the Fed can rebuild bank's balance sheets through the various repo and term money market facilities. This is simply not true. Banks have to rebuild their core capital adequacy ratios by adding new assets. Loans from the central bank create liabilities that have to be repaid with interest. This is about providing liquidity to the banking system to buy time.
2. Secondly, banks going cap in hand to investors is not the same as fresh investment. Firstly, those capital injections and rights issues are coming at steep concessions and dillute current shareholder equity. Secondly, they are being used to cover losses not for new lending. Therefore, they do not produce the same future revenue stream.
3. Thirdly, as per the article below, banks still have existing obligations to customers that will have to be honored. The long and the short of it is that pre-approved credit lines (usually for a fee) made while lending spreads were much lower may now have to be made good upon even though the bank's cost of capital has risen. Their costs have gone up, while their margins will be lower, and that lending will crowd out new (more profitable) lending as well.
4. Four, needless to say, banks are not going to lend to one another at interbank spreads when they may either need that liquidity themselves or they can lend it more profitably elsewhere.
Quote:
June 10 (Bloomberg) -- Banks across the world are being called upon to fulfill loans promised to companies before the credit crunch, the Financial Times said today, citing analyst estimates provided by Citigroup Inc.
Corporations have not yet taken up global loan agreements worth about $6 trillion in total, the newspaper said. The volume of corporate lending has increased ``sharply'' since the start of the year in the U.S. and Europe, the FT said.
The commitments threaten to add more strain to banks' reserves as they try to rebuild capital after the U.S. subprime turmoil.
Source: Banks Still May Have to Honor $6 Trillion in Loans, FT Says
UPDATE II: credit crunch will run and run
Quote:
Commercial banks in the U.S. face a complex and difficult situation: margins are compressed and there is increasing stress on a range of assets, from mortgages to consumer loans to debt backing commercial and residential real estate development.
For bank investors this means that we are only at the beginning of lower dividends, more dilutive capital raisings and share price falls, as well as the odd failure.
These failures aren't likely to be widespread enough to be a systemic threat, but the capital raisings, distressed mergers and write downs that are part of the solution will further crimp lending.
Posted: Wed Jun 11, 2008 2:39 am Post subject: Re: Trader's Corner 2008
Pick an opinion. The chances are 50/50.
Quote:
BP chairman Peter Sutherland told the European Policy Centre on Wednesday there was no problem with available supplies of fossil fuels in the medium term, but there was a need for more investment to develop those resources.
"(I) personally don't believe in some of the more apocalyptic predictions," Sutherland said when asked about Tuesday's forecast by Gazprom CEO Alexei Miller.
"I don't believe we're in for a spike to $250 as suggested in price per barrel."
Oil traded at just above $132 a barrel in Asia on Wednesday.
Sutherland also said he did not believe speculation was a major cause of the quadrupling of the oil price in the last five years, contrary to recent comments by Saudi Oil Minister Ali al-Naimi.
The main factors were increased demand, a shortage of investment in developing new oil and gas resources and political instability risks in production areas such as Iraq, Venezuela and Nigeria, Sutherland said.
"I'm hopeful that we won't have dramatic further escalations in the price per barrel," the former European Commission and World Trade Organisation chief said.
Speaking in Deauville, France, on Tuesday, Gazprom's Miller said he expected the price of crude oil to almost double within 18 months and to take gas prices hither with it.
"We think it will reach $250 a barrel in the foreseeable future," he said.
Rudy K. Moenaert, author of Visionary Marketing
Professor Strategic Marketing
TiasNimbas Business School
UPDATE: EMU (publicly) showing signs of strain
Back in the 'petrodollar wars' of 2005 and 2006 I was erroneously accused of being a 'euro-sceptic' at the time, although I fully supported the rationale behind EMU and the Maastricht Criteria that underpins its strength. I had my doubts about a Frenchman, Trichet, running the ECB at first, certainly the way he was railroaded into the job by French interests, but he has proven a pleasant surprise. One of the only central bankers in my opinion to have survived this 'credit crisis' with his reputation intact.
Quote:
Mr Zapatero is a passionate pro-European and this is the first time he has aligned himself with Italy's Silvio Berlusconi and France's Nicolas Sarkozy in attacking the ECB.
The emergence of a Paris-Rome-Madrid axis changes the balance of power in the euro-zone and poses a serious threat to ECB hegemony. Together they make up three of the "Big Four" euro powers.
Under Maastricht Article 109, politicians have the ultimate power to set exchange rate policy. If they choose to invoke this clause - by qualified majority vote - they could overrule Germany.
"The tensions can only increase," said David Owen, Europe economist at Dresdner Kleinwort.
"Politicians are not going to stand by as their economies disappear into recession. There is going to be more speculation about countries quitting EMU," he said.
The ECB is having to pilot a hazardous course between inflation and the credit crisis. "The risks to euro area financial system stability on balance had increased," it said in its monthly report.
However, what I said at the time, and have repeated since, is that a) countries were allowed into the EMU under political and not economic circumstances before they were ready for membership; b) that countries like Italy, Greece, Portugal and others to a greater or lesser degree lied about their public finances to get into EMU; c) that they have not done enough since to reform their economies or improve their competitiveness; d) that they instead benefited handsomely from ultra-low interest rates due to the stability of the euro that was the result of latching their own legacy currencies to the core deustchmark currencies; e) the for a long-time euro rates were too high for Germany's economy that experience low, slow, no growth since its reunification, but forced it to become more productive; f) that the Club Med's failure to reform their economies and increase labor productivity would come back to haunt them and would cause friction within the EMU; and g) that is exactly what is happening now!
As the reformers and non-reformers within the EMU face slower growth and higher inflation there will be one camp calling for higher rates to combat inflation, and another looking for a lower rates and a weaker euro to bailout their poor investment decisions and kick-start their ailing economies. The ECB is by definition caught in the middle.
If Club Med gets its way it is the end of the euro eventually. You can count on it. Then you can reverse trillions of euros worth of financial gains since its inception. I would not like to see that. That does not make me a 'euro-sceptic', but you cannot have a currency union built-on false promises and economic fudges. France, Italy and Spain might not like that much, I guess Ireland isn't too keen on it either at the moment, but you cannot devalue your way to prosperity either. Currency union was always going to come at a price. Club Med drank at the trough of easy money at low rates, so now they need to shut-up and pay the bill. It's Germany's problem, too, but it isn't really! _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Wed Jun 11, 2008 8:49 am Post subject: Re: Trader's Corner 2008
Flying to Austria for a few days of business and UEFA Euro2008, so back on Monday. Have a good weekend, but watchout for a weak close to the trading week. Cheers. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Wed Jun 11, 2008 12:28 pm Post subject: Re: Trader's Corner 2008
.
for those interested in crops ,things are still O.K. but it's getting edgy pretty much every grain is late
Cold and rain are fine in good time , but there is going to be a mighty sight of relief when the northern harvest is in , yield and quality might not be as good as hoped .
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