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Posts Tagged ‘NBP’

1 Sep 2 2010 @ 10:44am by Matt Smith in Crude Oil, Economy, energy consulting, Global Energy, Natural Gas, Random

Commodity Markets Through The Fab Four

It’s not that I’m a huge Beatles fan, but I read last week that Rolling Stone magazine were releasing their list of top 100 Beatles songs, and I thought, ‘ooh, I bet they have some songs that relate to commodity markets’. And sure enough…they do. So here they are – some links are obvious, and some are tenuous. But all of them rock:

Magical Mystery Tour – A number of energy commodities take a magical mystery tour before arriving at their point of consumption. For example, LNG imports into the UK predominantly come from Qatar and Trinidad, while the US also imports LNG from these places, as well as from Nigeria and Yemen. The US has net imports of approximately 10 million barrels of oil a day (in crude and products, from countries such as Canada, etc – referenced in last week’s post), while also exporting approximately 2 million barrels a day to places such as Latin America and, err, Gibraltar…a magical mystery tour indeed.

When I’m Sixty-Four – this one could be deemed as a reference for crude oil, which was happy-go-lucky at nigh on $83 in early August, only to precipitously tumble in recent weeks on economic worries and sky-high US stockpiles of crude and products. So, it is not beyond the realms that we could be talking about Texas tea in the near future….when it’s sixty-four (bucks). 

Come Together – A kinship has emerged between risk assets, as equities and commodities have moved in-step since bottoming out early last year. Their close comradeship makes sense to a certain extent, with crude tracking equities for a sign of economic recovery (and hence returning oil demand). But should this tight relationship continue for the foreseeable? It would seem unlikely as fundamentals for crude should climb into the driver’s seat eventually and stop riding shotgun, but for now, they come together.   

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Back in the USSR – While resource-rich Russia has recently had its problems, both their economy and production levels across commodities are now looking brighter. Russia is producing a similar level of natural gas as the US, at 24 Tcf a year, while oil production has now reached a new post-Soviet high of approximately 10 million barrels per day. This is forecast to rise to 10.5 million barrels per day in 2011, maintaining Russia’s status as the second largest oil producer in the world.

Hello Goodbye – Just as crude has struck up a friendship with best buddy equities, it has nurtured an arch-nemesis in the US dollar. Although this relationship shifts from tight to tenuous at moments, the chart illustrates there is definitely still an inverse relationship at play. When risk appetite increases, there is a move out of the dollar and US-denominated Treasuries, and into riskier assets such as equities and commodities. Conversely, when there is a flight to safety, funds flee crude and into the arms of the greenback. Again, will this relationship breakdown at some point as dynamics change? Yes. But for now, as the dollar says goodbye, crude says hello.

Revolution – 2010 seems to be the year that shale has finally been embraced as a revolution for the US natural gas market, after the uprising had been quietly building for so many years. As prompt prices have edged lower through the year, production has continued to increase, signaling that the unconventional shale gas plays have a low-breakeven rate (low enough for production to hit a record high for the year, as prompt month prices hit their lows). Shale now makes up approximately 14% of US production, with the EIA predicting this number to rise to 24% by 2035.    

Ob-la-di  Ob-la-da – la-la-la-la life goes on. Doesn’t it just?

Please feel free to contribute any good ‘uns that you think I’ve missed…..

0 Jul 1 2010 @ 10:23pm by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas

The Burrito Review of Q2

The end of the Q2 leaves us somewhat this way.

Ironically, the end of the show ‘Lost’ this quarter has left financial markets to take up this mantle instead. Let’s rise above the confusion this week (= diplomatic way of saying ‘the worryingly bad market action’) to put on the wide-angle lens and take a broader look at the bigger picture: the key moments in the second quarter of 2010:  

Round the energycommodityworld(tm) in sixty seconds:  

US natural gas first up; natty started Q2 a nickel higher than the prompt month low of the year at $3.81, and gradually rallied through the quarter on a mild end to spring, a hot start to summer, and an expectedly busy hurricane season. That was, however until last week, when it ran full steam into a key technical resistance level around $5.23 and got knocked onto the canvas, waking up around the $4.62 mark where it finished the quarter. UK natural gas has been one-way traffic, starting the quarter sub-30p, but closing out here nearly 50% higher in the mid-40 pennies, as outage after outage at Norwegian and North Sea facilities have caused gas flows to be volatile, and traders to be skittish. European power markets prompt and calendar strips have taken a nod from natural gas,  while also tracking recovering coal and carbon prices. Finally, black gold, Texas tea started Q2 in the lofty position of the mid-$80s, before having a rollercoaster ride as low as $64.24 on a fourteen-day trouncing which saw it lose over 26% from the high of the year made at $87.15. This fall was due to a tumultuously tumbling euro / strong dollar relationship, as sovereign debt worries across the Eurozone sprung up like sprinklers on a golf course. Prices have recovered somewhat to finish the quarter at $75. Stop the clock. 

Scores on the doors for Q2, 2010:  

US natural gas prompt month: +19.3%
US natural gas Calendar 2011 strip: +0.01%
NBP UK natural gas prompt month: +48.1%
NBP UK natural gas Calendar 2011 strip: +40.9%
German power prompt month: +34.2%
German power Calendar 2011 strip: +16.7%
WTI crude oil prompt month: -11.9%
WTI crude oil Calendar 2011 strip: -13.3%
S&P500: -11.9%  

Biggest energy-related event of the quarter: The BP oil spill in the Gulf of Mexico. You probably heard about it.   

Macro-economic event of the quarter: It’s difficult to pick one from many good ‘uns, but the jobless recovery in Q2 has been as good as anything to provide smoke and mirrors for clarity on an economic recovery in the US. The smoke has mostly been blown and the mirrors held by census workers, who have temporarily boosted / distorted unemployment data, although like all good discolorations, this will all come out in the wash.   

Biggest financial non-event of the quarter: The revaluation of the Chinese Yuan. Just like getting excited about Christmas or a vacation, the arrival of this event didn’t quite live up to the hype. Despite the initial excitement it caused, the revaluation was a political manouver by the Chinese to avoid it being a key discussion point at the G20 meeting in Toronto last week. In that respect, mission accomplished. In terms of having maximum impact, minimal movement, mission accomplished too. All in all, a bold hand, cheekily played by the Chinese.  

Chart of the Quarter: The below chart tells a number of stories; that crude and equities continue to be best friends; that their fortunes have continued to improve over the past eighteen months, and that if you are culpable for the biggest oil spill in US history, your stock price will get absolutely spanked:  

  

 Largest loss of the quarter: Apart from BP’s stock price, one of the obvious candidates is eighties pint-sized icon, Gary Coleman…RIP  

Stealth datapoint move of the quarter: I have been a bond bull and wrong for a very long time (note: Pinky and the Brain post), so am not surprised to see Treasuries quietly rally throughout Q2 to pierce the 3% level. The downside to this move is what it indicates: that investors are worried about either deflation or a double dip recession. Unfortunately, the financial crisis and subsequent bailouts come with a steep price to pay; as we say in England, you pays your money and you takes your choices.  

Q3….bring it on.

0 Jun 25 2010 @ 10:31am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas, Random

An Energy Perspective – Part 2

The second guest post of my World Cup speech from Shakespeare’s Globe is out on the Houston Chronicle, after last week’s first part. Click on the below image to launch to it:

0 Jan 15 2010 @ 10:58am by Matt Smith in Capital Markets, Crude Oil, Economy, Natural Gas, UK natural gas

Burrito Bites

Well, this is the week that was, which has unfortunately been overshadowed by the catastrophic disaster in Haiti.

This week we have learned that the SPR (= strategic petroleum reserve) is full (yep, we paid for that), that US natural gas storage can have the largest weekly withdrawal of the winter and still cause prices to tumble, and that China is trying its darndest to hold back a runaway-train economy by throwing some anchors onto the caboose (by applying banking restrictions to curb lending). Anyhow, here is this week’s Burrito bites, have a top weekend:

 –The Economist print edition leads with a piece echoing the sentiment (and first words) of my post humdrum conundrums…… something has got to give.

–Not necessarily relevant, but interesting – why are traffic jams so bad on Mondays? – all roads lead to The Carpenters……

–The commodity super cycle is alive and well – two weeks into 2010, and a consistent theme among the investment community is for a bull market in commodities.

–This is a little bit heavy-going, but highlights the still-rather large cracks on the pathway to a US recovery  – the yield curve can’t drive profits if banks won’t lend.

–Not relevant at all…the Christmas Day underwear bomber is hampering chefs from smuggling meats into the US.

–What are the best energy stocks to invest in? Don’t ask me, read what the true stock jockeys have to say.

–UK natural gas becomes a popular topic due to gas balancing alerts (aka panic buttons), and the story proceeds to run on and on.

–The twenty best moments on The Simpsons.

–A long but worthwhile story about whether carbon-trading in the US is just another complex derivative market for a select few to make their billions in.

The Burnt Burrito Award of the week is for the BLS. Unemployment data may seem to be getting better all the time (it couldn’t get any worse….or could it?), but current statistics show that if I were to lose my job today, I would likely to be out of work for another 29.1 weeks before finding a new one, according to the latest Nonfarm Payroll release for December. I would go nuts if I was out of work for essentially 300, 000 minutes.

The Burrito Deluxe Award of the week goes to anyone who has helped in the aftermath of the Haiti earthquake, be it a doctor or a $10 donation – rock on.

3 Nov 11 2009 @ 10:50am by Matt Smith in Global Energy, UK natural gas

Commodity markets are rock n’ roll. (UK nat gas is avant garde jazz)

Birth of the Cool

Birth of the Cool

Don’t get me wrong, I like jazz as much as I like Cuddy from the TV show House (which is a lot), but while commodity markets can throw out some crazy rock ‘n’ roll shapes sometimes, price swings can generally be explained away by a combination of fundamental factors, news-flow, technicals, or market sentiment. On the other hand, the UK natural gas market (aka NBP) has moments where it looks like it is moving to a truly random beat – and yes – as if the market is improvising as it goes.

This is because the NBP market is a different animal to all other commodity markets, in that its price drivers are so complex. From lowly storage, to volatile supply (from Norway, the North Sea or LNG – to name a few), to a forward price curve which is influenced by different factors at different times (the near term by fundamentals, the longer term by crude), NBP marches to the beat of its own drum. But like avant-garde jazz, there is some structure there; it is just that its structure leaves enough lee-way for any one of the varying price drivers to rise in influence and move the market in an exceptionally unusual fashion.

avant garde

avant garde

That’s not to say I am criticizing the market because it is bizarre. On the contrary, while it is hard enough to forecast a non-stop, hip-hopping global commodity like crude oil, it is just as challenging to forecast a quirky one like UK natural gas. But does that make it a flawed market? No; like Miles Davis, it is swayed by the cool.