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3 Nov 11 2009 @ 10:50am by Matt Smith in Global Energy, UK natural gas

Commodity markets are rock n’ roll. (UK nat gas is avant garde jazz)

Birth of the Cool

Birth of the Cool

Don’t get me wrong, I like jazz as much as I like Cuddy from the TV show House (which is a lot), but while commodity markets can throw out some crazy rock ‘n’ roll shapes sometimes, price swings can generally be explained away by a combination of fundamental factors, news-flow, technicals, or market sentiment. On the other hand, the UK natural gas market (aka NBP) has moments where it looks like it is moving to a truly random beat – and yes – as if the market is improvising as it goes.

This is because the NBP market is a different animal to all other commodity markets, in that its price drivers are so complex. From lowly storage, to volatile supply (from Norway, the North Sea or LNG – to name a few), to a forward price curve which is influenced by different factors at different times (the near term by fundamentals, the longer term by crude), NBP marches to the beat of its own drum. But like avant-garde jazz, there is some structure there; it is just that its structure leaves enough lee-way for any one of the varying price drivers to rise in influence and move the market in an exceptionally unusual fashion.

avant garde

avant garde

That’s not to say I am criticizing the market because it is bizarre. On the contrary, while it is hard enough to forecast a non-stop, hip-hopping global commodity like crude oil, it is just as challenging to forecast a quirky one like UK natural gas. But does that make it a flawed market? No; like Miles Davis, it is swayed by the cool.

3 Comments on this post:

  1. Franklin D. Romanowski says:

    Pip pip, cheerio and Bob’s yer uncle. Cheers from your fan in Guernsey.

  2. Kent Evans says:

    Matt – top shelf post good man. It rocks. Get it? Rocks? That’s good stuff right there.

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