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0 Sep 9 2010 @ 10:55am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas, risk management

No Alarms and No Surprises

Sometimes it is very easy to get whirlwinded up in capital markets, believing we are at an absolute tipping point, an extremity of extremities, a turn signal the likes of which we have never seen before, only for prices to continue on and on. And on. Markets, like humans, are not dictated wholly by logic, and we need to remember: they too provide tales of the unexpected.

So despite the utter brilliance of the turbulence they provide, sometimes we need – and wish – for an anti-outlier: an expected outcome. So it is with that in mind, I present three such hopes:

First up, we hit the peak of hurricane season tomorrow (September 10th), with all but a half-hearted fanfare. Although the Atlantic hurricane season runs from 1 June to 30 November, the below image illustrates how activity ramps up in late August, only to fall off just as precipitously by the start of October:

This reason for such apathy of late with this hurricane season is not due to it being less active than normal (we’ve had 9 named-storms thus far – from Alex to Igor, via Bonnie and ferociously-named Colin – compared to the average of 11.3 for the entire season), but because it was projected to be one of the the most active in recent times. All this said…it ain’t over ’til it’s over. (Lenny Kravitz said so. And so did Yogi Berra, come to think of it).

Next up, we have Opec set to meet in mid-October, for only the second time this year. It is not that surprising that we haven’t heard much mumblings and grumblings from the cartel of late, in a past year that has had them declaring prices to be ‘perfect’, stuck solidly in their sweet-spot of $70 – $80 a barrel.  That said, their continued non-compliance with production quotas has been causing unrest within the group, and will once again be addressed next month in Vienna. Any formal production cut would be a ginormous surprise, and would likely only occur should crude prices fall precipitously below the aforementioned sweet spot (the chart below illustrates the adaptive nature of Opec production to price moves):

 

The third and final chart wishing for no alarms is the outlook for US GDP (gross domestic product a.k.a economic growth). This chart reflects the lowest view from 68 economists on Bloomberg. The reason I’m showing the low-balled view and not the average is simply because consensus appears too optimistic. In the same fashion that last quarter saw growth revised down from an initial 2.4% reading to 1.6%, we will likely see continued downward revisions so that forward projections converge  to meet reality. And the hope is that this low-end view will become reality, and not any worse….  

So in the choppy seas of this current economic environment, I place my hope in the above three anti-outliers to be a place of calm within this current storm. As for my current spate of music-related blog posts, I’m gradually becoming more current; last week the Beatles, this week Radiohead…next week maybe I’ll feature Katy Perry. In the meantime, no alarms and no surprises…..please.

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