I was utterly gutted to hear about the passing of Adam Yauch (MCA from the Beastie Boys) last week. Although I didn’t care for the band’s early stuff like ‘Fight For Your Right To Party’ and ‘No Sleep ’til Brooklyn’, their second album ‘Paul’s Boutique’ is one of my favorite records ever, and I have been a fan ever since. So in honor of such a glorious life (from hoodrat to humanitarian), here are some Beastie Boys classics which loop their way back to Commodityland™.
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Posts Tagged ‘inventories’
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May 10 2012 @ 10:58am by Matt Smith in Crude Oil, Economy, Natural Gas
From The Beasties To Commodities
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Dec 15 2011 @ 10:55am by Matt Smith in Crude Oil, Natural Gas
The Emergence of Convergence
Hey yo, this post is based on a simple observation relating to the current nuttiness of natural gas and retail gasoline prices.
The two prices have converged to parity recently, but not for the reasons we may have previously considered. It seemed more likely that the two would meet due to wintry weather boosting natty, and increasing demand boosting gasoline, but neither of these scenarios have played out. So let’s take a look at some of the real reasons for the emergence of this convergence.
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Aug 20 2010 @ 10:48am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas, Random
Burrito Bites
Happy Friday one and all! Let’s start this week’s summary with some fun (goodness knows we need a laugh after this week’s market action). This picture needs a caption; funniest one wins a burrito-related gift.
As for markets this week, a flight to safety has been the destination of choice for investors, as economic data continues to point an accusatory finger towards a slowing US economy. Crude is hitting 6-week lows, while natural gas is testing levels not seen in the last three months. That’s enough gloom for now; come on, let’s chow!:
–Is a library really more dangerous than a drilling rig?
–Whiskey biofuel available in a few years, more potent than ethanol.
–Dogs improve office productivity.
–Senior NOAA Scientist admits he lied that the Gulf oil spill is gone.
–Buffett vs Gross, inflation vs deflation.
–Pay-as-you-throw…reducing landfills by charging by the trashbag.
–9 challenges of alternative energy.
–18-mth low in floating storage points to potential inventory drawdowns for crude.
–Koala negotiates 50mph crash without a scratch. 
–Do 3 shale companies for sale signal the peak in its popularity?
–Markets in everything – using parking lot satellite surveillance to forecast retail sales.
–Only 8% of energy stimulus spent.
–The Beloit College Mindeset List for the Class of 2014.
–Why Opec doesn’t mind low oil prices.
–Boy, 13, hit by lightning on Friday 13th, at 13.13.
The Burrito Deluxe Award of the week goes to BHP Billiton, for shaking up the M&A landscape (and general markets too) by bidding for Potash - the world’s largest fertilizer producer. There’s a few more twists and turns left in this tale, which should provide some entertainment over the coming weeks.
The Burnt Burrito Award is postponed this week as there were too many losers to choose from.
Have a fantabulous weekend!
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Aug 18 2010 @ 10:55am by Matt Smith in Crude Oil, Economy, Global Energy, Natural Gas
The Good, the Bad and the Ugly…..and the Odd
Alrightee folks, this week we are going to look at four charts which highlight the good, the bad, and the ugly currently surrounding our dearly beloved commodities, and general markets. And one chart which highlights the oddness.
So let’s dive straight in and start with the Good. The good in this instance represents strong production in the US natural gas market. As the chart below illustrates, production has never been this good, for this year or for the past five years. Despite prices being at what is considered a low level, production continues to grow as break-even costs for new unconventional plays (i.e., shale) mean it is cost-effective to drill for gas at sub-$5. This is further reaffirmed by natural gas rig counts currently hitting an eighteen-month high.
US weekly natural gas production (source: Bentek)
‘You see, in this world there’s two kinds of people, my friend: Those with loaded guns and those who dig. You dig.’
The Bad is illustrated through current distillate demand in the US. As the arrow clearly indicates, demand has headed south at a rapid clip since the highs made for the year back in June. This wouldn’t be such a worry in itself; after all, distillate demand is seasonal, and it is currently the time of year for demand to be in slumber. However, the bigger issue is that demand levels are only a meager 3.6% higher than last year’s anemic levels, and well below the 5-yr average. Not the data you would expect from an economy supposedly in the early throes of expansion:
US distillate products supplied (source: EIA)
‘There are two kinds of people in the world, my friend: Those with a rope around the neck, and the people who have the job of doing the cutting.‘
The next chart is U-G-L-Y (and no, it doesn’t have an alibi). This chart shows the yield on 10-year US government debt. Prices of bonds move inversely to yield (e.g., as prices rise, yields decline). Government bonds, especially Treasuries issued by the US federal government, are seen as the safest of assets; in times of heightened risk aversion (= ‘flight to safety’) investors move their money into bonds, pushing prices up (and yields lower). The last time the yield was as low as 2.6% was back in March 2009, which coincided with equity markets hitting their lows. Government bonds in the last three months, however, have seen strong buying once more. This signals another flight to safety as investors’ views on the economic outlook have deteriorated (with rising concerns over a ‘double dip’ recession) and worries of a deflationary environment shimmy from being incredulous to in-the-mix: 
‘There are two kinds of spurs, my friend. Those that come in by the door; those that come in by the window.’
And finally, I found this interesting as it was Odd. Back in June we looked at the revaluation of the Yuan (through Sonny and Cher…c’mon, you remember!). At the time, the de-pegging of the Chinese currency was met with both excitement and the expectation for a strong rally. However, the last two months have yielded a modest move (don’t let the chart deceive you…the move from 6.83 to 6.79 only looks big relative to the lack of movement in the previous year). For now it looks as though the revaluation has allowed the Chinese to both appease foreign nations who were accusing them of currency manipulation, while also not drastically changing the currency landscape for its exporters; a win-win situation.
It feels fitting to end with some type of poignant quote. But instead I leave you with two straight-shooting quotes from Mr Clint Eastwood himself. The first ties in nicely with risk management, reminding us that life is unpredictable: ‘if you want a guarantee, buy a toaster’. And the second is to keep a positive perspective: ‘I don’t believe in pessimism. If something doesn’t come up the way you want, forge ahead. If you think it is going to rain, it will’. That’s my lot; thanks for playing.
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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.
