The title of this post would have been much funnier (maybe) if I had actually appeared on CNBC’s (Pop ‘n Droptastic) Fast Money as I was going to – but instead I was on Power Lunch (which although great, makes this title just a little less appropriate). But does this dissuade me? Heck, no - I am pushing on through regardless to illustrate some pops and drops that have been served up by financial markets in the last few days. The turmoil in MENA* ( = Middle Eastern and North Africa) has flipped markets around like a pancake – some have headed ceiling-bound and stuck, and some have crumbled in a pile on the floor. Here are some examples of both. » read more
Posts Tagged ‘equities’
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Feb 24 2011 @ 7:54am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, risk management
Pops and Drops
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Jan 13 2011 @ 10:58am by Matt Smith in Capital Markets, Crude Oil, Economy
The Best Things In Life Aren’t Things
Flipping through a book on graffiti in the past week, I came across this phrase and image. It set me off on the tangent that the best things (= most bullish influences) in current markets at the moment are not ‘things’ (i.e. underlying fundamentals), but the unquantifiable: perception and sentiment. » read more
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Nov 11 2010 @ 10:10am by Matt Smith in Capital Markets, Crude Oil, Economy
Between The Devil And The Deep Blue Sea
Cab Calloway originally recorded the song ‘The Devil and the Deep Blue Sea’, which is an apt analogy to where I feel we are at the moment. The devil – i.e. the exuberant rallies we are seeing – appear a rite of passage, while the monkey on my shoulder is tugging my ear and telling me we should be sinking. So here’s two compelling and contrasting illustrations of both cases, which lead me to conclude little else than Cab Calloway is great. » read more
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Oct 7 2010 @ 9:39am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas, UK natural gas, energy consulting
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.
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Jul 21 2010 @ 10:50am by Matt Smith in Crude Oil, Global Energy, Natural Gas, Random, UK natural gas
The Commodity Cast of Toy Story
Trust me on this one, it’s not as far fetched as it first seems. Commodityworld(tm) is a big place, and there have been a number of commodities in the news recently, some familiar to energy, and some not. So let’s take a closer look at some of these headline grabbers, through their natural comparisons to our pixelated friends from Toy Story.
A Crude Tail
What first sent me on the Toy Story tangent is the way that crude oil has been following equities recently. I know the relationship has been somewhat apparent over the last eighteen months or so, but this relationship has tightened even more in recent weeks. For July, the correlation between the S&P500 and the first-month WTI price has been a remarkably strong +0.93 (correlations can run from + 1.0 to -1.0), which makes me draw the analogy with Slinky the dog. Equities represent the head, and crude is , erm, the rear. Corporate earnings surprises are causing the excitable head of the dog (equities) to lead the charge for risky assets. This leaves crude at the other end of the slinky, being whipsawed around, yet following nonetheless. No tail wagging the dog here, crude is ignoring its own fundamentals for the most part, and being easily led.
Cocoa and Lumber
Next up is a not an energy commodity, but is one of our favorite commodities….chocolate. Or in trader-talk, cocoa. Cocoa is currently making headlines, due to some blatant market manipulation by a British hedge fund led by Anthony Ward. Last week he bought 241,000 tons of cocoa beans, which is enough to manufacture 5.3 billion quarter-pound chocolate bars. The transaction was the single largest cocoa trade in 14 years, and unsurprisingly caused prices to rise. Prices have since fallen in the last day, but with the power to potentially force manufacturers to raise the price of chocolate bars, cocoa is like Buzz Lightyear, as we could see prices head to infinity…and beyond.
UK Nat Gas
There’s not much to say about first-month NBP UK natural gas, except that it continues to make other-worldly moves, rising a stellar 48% on the prompt month for Q2 this year, only to rip 21% lower since early July. Referred to as avant garde jazz on the burrito previously, we update this analogy as UK nat gas gives us as much cohesion sometimes as a three-eyed alien. So while we come in peace, let’s move on swiftly.
From limber lumber to lumber the tumbler
The next non-energy commodity to be sliced and diced is lumber, hence its blunt analogy to…Woody. Lumber is making headlines for very different reasons to enemy-then-buddy Buzz Lightyear (i.e., cocoa). Lumber steadily increased in value throughout 2009 and into 2010, as the economic downturn forced the closure of lumber mills and increased lumbers scarcity. Now, just as mills start to come back online, cracks are re-appearing in the economic foundation. This has been highlighted most recently by remarkably poor housing data. Hence, as the chart glaringly illustrates, lumber prices are getting the whoop-bang-wallop treatment.
Darth Tater
Last, but by no means least, we come to my favorite character in Toy Story; the one, the only, Mr Potatohead. In Commodityworld(tm), Mr Potatohead represents our dearly beloved US natural gas, as unconventional plays such as shale and LNG are changing the face of the natural gas complex. As technology develops, we will see these changes continue over the next decade or three, to where the market will look unrecognizable to what it once was.
So, on that note, I bid you farewell, and leave you to dwell on the analogies laid out before you. And as Darth Tater would say, may the force be with you.
