Posts Tagged ‘EIA’

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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0 Aug 26 2010 @ 10:24am by Matt Smith in Capital Markets, Crude Oil, Economy, Natural Gas

Canada, go, Canada

No need to blame Canada this time, Mr Cartman.

I have a certain affinity with ‘our friends to the North’. Whether it is because I spent eight years working at a Canadian bank, or because one of my favorite people in the world is Canadian (economist Dave Rosenberg, aka Batman – my favorite superhero), or because they produce such great bands as Arcade Fire. I just think they are kinda cool. But to bring this back to our commodity chopping board, here are three random illustrations of their greatness.      

First up, a litmus test to show how they have fared during the ‘great recession’. As we giddily totter ever closer to the edge of double-dipdom, the Canadian employment situation underlines how stoic they have been in the face of adversity. Since the beginning of 2008, Canada has added 173,000 jobs. This is relevant because the US has lost in excess of 7.5 million over the same period. Obviously, the economies of scale are different, but to show positive job growth through the worst recession in nearly a century is rather impressive to say the least:  

       

Next, we board the good ship natty, to take a look at how much Canada exports to its friends to the South. As the chart below illustrates, although levels have currently dipped below the five-year range, Canada is still the most significant supplier of natural gas to the US (at approximately 11% of total supply). Canada sends half of its total natural gas production in the direction of the US, and this volume blows total global LNG imports out of the water; they are six times as small, and only expected to add 0.5 Tcf to US supply this year:         

Canadian Imports of Natural Gas (source: Bentek)

And finally, we tip our hats to the consistently largest exporter of crude oil to the US: Saudi Arabia Canada. They also have the second largest oil reserves in the world (178 billion barrels, second only to Saudi Arabia), and ultimately supply one in every six barrels consumed in the US:     

Exporters of Crude Oil to the US - May 2010 (000's barrels) - (source:EIA)

So these three quick examples serve to show the impressiveness, the importance, and the relevance of our Canadian counterparts. And we didn’t even need to mention Keanu Reeves, Jim Carrey, or Pamela Anderson. And it is for the above reasons we should be grateful that our friends to the North are both our friends, and to the North. And for that, I raise my glass of Moose Milk to you….cheers.

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1 Jul 15 2010 @ 10:55am by Matt Smith in Capital Markets, Economy, Global Energy, Natural Gas, risk management

A Smörgåsbord of Startling Charts

I can’t recall a time when consensus has been so divided as to whether prices are set to rally or crash, be it in commodities, equities, bonds, or currencies. So to add to the confusion, here’s some startling charts I’ve been looking at in the last week that highlight some of the changing dynamics and/or current dichotomy in markets:

The first chart up is actually two charts, and they are taken from last week’s IMF World Economic Outlook. The key takeaway from the retail sales chart (left) is the incredible strength exhibited by emerging economies over the past few years, despite the global slowdown and the temporary move into negative territory by advanced economies. As for industrial production (right), the dip has been pronounced for both emerging and advanced economies. However, although strength in emerging economies has dragged the overall world data back into positive territory, advanced economies are still showing contraction from where we were at the beginning of 2007 (as previously discussed here):  

The following index is getting a lot of attention, and is being watched ever more closely as it experiences its 34th consecutive down day. Yep, that’s right. This chart is the Baltic Dry Index, which measures the cost of shipping dry bulk commodities. It acts as an acid test for emerging market demand for raw materials such as coal, iron ore and steel; it basically gives guidance for the economic health of emerging markets, and to a certain extent, future pricing for coal and other commodities. It is still to be seen whether this fall is due to a collapse in demand (and, hence, shipping prices), or whether the supply of ships has increased, raising competition and reducing costs. Whatever the case, the move lower is certainly raising worries about the strength of a global recovery: 

Next up is the 800-pound gorilla in the corner of the US natural gas room: shale. According to EIA data, we know that approximately 8 Bcf/day of US production currently comes from shale, which is approximately 14% of total US production. As for how much production is expected in the future, estimates are wide-ranging, and add to the cloak of mystery and intrigue of shale. The EIA predicts this number to be 16.4 Bcf/day by 2035, making up 24% of the natural gas consumed in the US. An interim report released recently by MIT called ‘The Future of Natural Gas’ shows a large disparity from the US government data, looking at 12 Bcf/day in the next year, to about 29 Bcf/day by 2030 (given current drilling rates and mean resource estimates); whatever the number, shale is set to be a significant influence on the future of US natural gas:

Finally, we take a look at US oil inventories. WTI crude oil is currently sitting around the mid-$70s, despite inventories in the US still above both last year’s level and the 5-year average. The overall inventories picture is, however, somewhat emasculated when compared to the inventory levels of Cushing, OK, where WTI is priced. Near-capacity inventories were making headlines a few months ago, but have dropped off the radar despite remaining at elevated levels. The point is this; crude oil prices at Cushing remain relatively unaffected, despite supply bottlenecking to push inventories to near-capacity. The flipside of this means that once this bottleneck eases, and once both US inventories and Cushing-specific inventories fall, crude will have one less downward influence to weigh on prices:   

So that’s what was on the burrito block this week – hope you enjoyed it. Please feel free to highlight any startling charts you may have seen recently. Laters ‘taters.

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0 May 6 2010 @ 10:57am by Matt Smith in Crude Oil, Global Energy, Natural Gas, UK natural gas

10 simple points about energy markets

I am a huge proponent of keeping things simple (hence the use of cartoons, films, the Hoff, etc), so in these times when information whizzes past our eyes every minute of every hour of every day, I thought it useful to get back to basics and outline 10 simple points about energy markets which add some background to the news at the fore – it’s easy to forget ‘em:

Opec was a different animal back in 1986....

 

1) So what exactly is the big deal about Opec again? It is this: in 2009, the twelve-country cartel produced 39% of world’s oil (42% in the prior year, before they curtailed production in 2009 to support prices). Their influence has grown in recent times, and is likely to continue, given lackluster production growth in OECD countries. Opec has come a long way; back in 1986, Opec only made up 22% of the world’s oil production. 

2) Is the US increasing or reducing greenhouse gas emissions? Data just released by the EIA show US carbon dioxide emissions fell by 7% in 2009. But was this due to lower economic growth? In a word, yep. The ‘exceptional’ drop was more to do with lower energy demand from lower output (aka ’the great recession’), added to a cleaner mix of fuels in the economy, with a sprinkling of improving energy efficiency.   

3) Why does storage inspire such concern in the UK natural gas market? – simply because there is so little. Due to a maximum daily withdrawal rate (like at an ATM), there are 80-ish days of supply in storage. But if there were no technical constraints on withdrawals, there are only approximately 21 days of supply (or as little as 9 days at the height of demand). This compares to the US which has approximately 44 days (without constraint on withdrawals) – hence, there is a corresponding rise in blood pressure in the UK to a falling level of storage, especially at the start of the winter months. 

4) Just who is the largest exporter of oil to the US? This may come as a surprise, but it is Canada. The US imports more from our friends in the Great White North than from the entire Persian Gulf (= Saudi Arabia, UAE, Bahrain, Qatar, Kuwait and Oman). And also interestingly, Venezuela is ever-present in the top four eager exporters to the US, despite their rhetoric to the contrary. 

The shale revolution has left LNG rather deflated.

 

5) Shale, schmale. How much of US natural gas production comes from LNG?  In 2009 this level was approximately 1.6%. This is expected to grow this year, as more global production comes to market. Part of LNG’s charm comes from the fact that it can be stored and transported at a size 600 times smaller than its gaseous form. 

6) Is coal still relevant in the US? In these greener-than-thou times that we live in, the fact that half the power generation in the US comes from coal is swept under the rug somewhat. And it doesn’t look like this percentage is going to radically change anytime soon, despite the possible implementation of a cap-and-trade-and-tax-and-shimmy scheme, or otherwise. Although technological advancement such as CCS (carbon capture and sequestration) may mitigate some of the emissions from coal, coal consumption in 2008 accounted for 37% of energy-related carbon emissions in the US.     

7) WTF is the SPR? (What Type of Facility is the Strategic Petroleum Reserve?) It is the emergency fuel store of oil for the US. There are four storage facilities, two in Louisiana, and two in Texas. Current capacity is 727 million barrels (over a trillion gallons). How full is the SPR? Pretty much to the brim. 

8) Is China really taking over the world through consuming more and more oil?  The answer is a resounding yes. In 1990, Chinese oil demand represented 3.4% of global demand. The estimate for 2010 is 10%. More importantly, since 2000, China alone has represented half of all growth in global oil demand. At the current rate, China will represent 20% of global oil demand by 2020, potentially a larger share than the US. 

9) Aw, c’mon then. How much of current US production comes from gas shale? While gas shale accounted for 2 Bcf/d five years ago (approximately 4% of total US production), this has now dramatically increased to approximately 8 Bcf/d due to seven key shale plays, including Barnett (5 Bcf/d), Fayetteville (1.3 Bcf/d) and Haynesville (1.1 Bcf/d).  This is approximately 14% of total US production; a rather significant amount.         

10) How much gasoline does the US consume in a year? The amount of gasoline consumed in the US annually would fill approximately 250,000 Olympic-size swimming pools.

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0 Apr 30 2010 @ 10:07am by Matt Smith in Capital Markets, Crude Oil, Global Energy, Natural Gas, Random, Technology

Derby hors d’œuvres.

It’s an extra special Friday here in Louisville, KY, as everyone is getting a bit over-excited ahead of the Derby tomorrow (and that’s only us that aren’t at the track already). This week has seen crude oil picking up to a canter after a slow start, while US natural gas began the week hot to trot, but couldn’t last the distance. Outside of Commodityworld(tm), the bookmaker that is Goldman Sachs got its knuckles wrapped for dodging dealing, while bets increase on Greece to default. No bites this week, instead we get hors d’œuvres:  

–some good background surrounding the oil spill in the Gulf of Mexico, with the the latest on it.

–India has more cellphones than toilets.

–Natural gas prices may limit Shale gas drilling….or is it an empty promise?

–In defense of electric cars – 10 myths.

–Swiftly followed by 5 myths about green energy.

–A novel way to carry books.

–A quick take on the EIA production downward revisions.

–Man eats 1500 lightbulbs. 

–Top ten coal burning countries in the world.

–Car crashes through parking garage wall. 

–not relevant but essential reading for foodies – the dirty dozen cheat sheet of organic vegetables.

The Burrito Theme of the the Week……Swapsies! : First Venezuela swaps barrels of oil with China in exchange for a $20 bln loan, then Russia approves a treaty that allows one of their fleets to stay at a Ukrainian port until 2042, in exchange for $40 bln of gas subsidies.

May your weekend be full of winning tickets and Mint Juleps!

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