Ok, it was very easy to be pessimistic in the last post. To put things on a more even keel, here’s some focus on the positive aspects of the global economy (btw…this wasn’t all that easy): » read more
Posts Tagged ‘double dip’
In times of market turbulence like this, I find it useful to do two things: make simple observations, and seek solace in the wisdom of others. So this week I have turned to the most voracious voice of reason, Winston Churchill, to help me make some sense of this all. This is what he has told me: » read more
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%
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:
The positive end to this review:
Fall, Thanksgiving, Christmas, and mulled wine – Q4 rocks.
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.