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Posts Tagged ‘crack spread’

0 Oct 7 2010 @ 9:39am by Matt Smith in Capital Markets, Crude Oil, Economy, energy consulting, Global Energy, Natural Gas, UK natural gas

Burrito Review of Q3

My kingdom for a horse.

Once again, time carries us over the threshold of another quarterly milestone. These past three months have brought us confirmation that the last recession has ended (in June 2009), while general markets have rallied on the hope that things are so bad that further measures will be taken to keep us from contracting again. The past ninety-two days have seen BP finally plugging the oil spill in the Gulf of Mexico (as oil prices nonchalantly went on their way), while natural gas has continued its slide down the pricing pole on further faltering fundamentals. Spain won the World Cup, the US dollar lost its luster, and some people in China spent a chunk of this past quarter in a traffic jam. Let’s use this juncture to take a look at the energy highs and lows and somewhere inbetwixts: 

Scores on the doors for Q3, 2010:   

US natural gas prompt month: -16.1%
US natural gas calendar 2011 strip: -16.8%
NBP UK natural gas prompt month: +4.0%
NBP UK natural gas calendar 2011 strip: -7.4%
German power prompt month: +2.9%
German power calendar 2011 strip: -6.2%
WTI crude oil prompt month: +5.7%
WTI crude oil calendar 2011 strip: +6.4%
S&P500: +10.7%  
US Dollar Index: -8.5% 

The above price performances sliced and diced in 156 words: 

US natural gas was whoop-bang-walloped in the past quarter as production rose to a record high, more than negating the fourth hottest US summer on record and the increased cooling demand (= air conditioning) this brought. A non-eventful hurricane season only added further color to this bearish picture, and both prompt and calendar strips both slid. Across the pond, Europe saw modest gains on the prompt month for both natural gas and power due to unpredictable flows from such exporters as Norway (as well as a contangoed contract rollover), while hope that these supply issues were a transient glitch ushered the longer end of the curve lower. Crude saw a strong quarter across the forward curve as a weaker dollar and strong emerging market demand continued to rev the global economic engine (from stalling), whilst equities also buoyed the crude complex on hopes of a global recovery, regardless of  being souped-up by government intervention or not. 

Biggest energy-related non-event of the quarter: 

Hurricane Season. Despite there being an above-average number of named storms this year (15 with Otto appearing yesterday, versus the average of 11.3), and despite the EIA predicting 146 Bcf of production to be shut in due to hurricane season, only hurricanes Alex and Bonnie caused any outages of note. And the impact of this gruesome twosome totaled less than 10 Bcf.  An eventful non-event it has been. 

The oddest energy-related event of the quarter: 

One thing that has taken the crude complex by surprise is the blowout in the crack spread for heating oil  (the exchange-traded name for the diesel contract). Despite distillate inventories being at historically glut-like levels, the crack spread (measuring the profitability of producing a barrel of heating oil from a  barrel of crude) has risen as high as $15 on increased demand from Europe and refinery outages in Latin America. 

 

 The claustrophobic event of the quarter: 

Chilean miners spent the majority of Q3 trapped underground

Burrito crystal ball prediction for next quarter: 

Q4 will be the quarter for rollovers. Precipitously-poised economic data will topple to the dark side – manufacturing data, housing numbers, and the unemployment rate. Eeekola. 

The positive end to this review: 

Fall, Thanksgiving, Christmas, and mulled wine – Q4 rocks.