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0 Sep 6 2012 @ 1:23pm by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas

Terms And Conditions

Some weeks I have a certain topic to bang the drum about, while other weeks I am juggling a random bunch of things. Yep, this is one of those weeks.

In recent days I have been pecked at by certain terms, be it terminology, terms of constraint, or terms of office. At the same time, I have been pestered by conditions  – be they weather conditions, economic conditions, or conditions to abide by. So without further rambling, here is a mixed bag of terms and conditions.

Prices go up like a rocket, float lower like a feather

The above phrase is from the comments section of a Wall St. Journal article a few weeks back, where someone was ranting about how prices at the pump go up like a rocket on bad news, but then only float lower like a feather after a situation is resolved. I felt this was a fair criticism, and one we are seeing play out as Hurricane Isaac has trampolined prices higher.

Although the national average has only jumped 3% in the last two weeks, certain areas of the US have seen a price hike three times this magnitude. And although prices are starting to fall as normalcy returns to refining in the Gulf region, prices will only float lower like a feather, for right or wrong (we all know which).

The peak of the Atlantic hurricane season

This is an oldie but a goodie, and one impossible to ignore. Based on over a hundred years of records, September 10th (next Monday) marks the peak of the Atlantic hurricane season. The below chart not only shows us that flame charts look awesome, but also that on Monday we will almost certainly have a named storm in the Atlantic.

Presidential terms of office

My goal is to be apolitical on this blog, so I’m not about to get on my soap-box. My point here is simple; the impending end of presidential terms of office in two key economies of the world – the US and China – has put decision-making on hold in these two nations.

The US election means that a third round of stimulus is unlikely to occur until after its conclusion; likewise, decisions on key energy issues such as the Keystone XL pipeline have been delayed until after this milestone. As for China, the impending election is also likely delaying further stimulus measures, but even worse, the lack of visibility as to who its future leader will be has general financial markets in a state of confusion and apprehension.

US undersupplied of oil (?)

Hot on the heels of the above political implications is a possible emergency oil release from US strategic reserves. Such a move would be politically-motivated given the hot potato high gasoline prices were earlier in the year. And this move would certainly not be fundamentally driven, given US oil production is at a 14-year high and stockpiles are at the top of their 5-yr range.

But if oil prices continue to rise, there will likely be enough justification to more than offset the vilification of the move. Below is a nifty chart which highlights previous releases from the SPR – most of which are driven by supply constraints (as they should be), barring some sales in 1996 by the Clinton Administration to raise funds to reduce the Federal Budget Deficit:

Greek Bailouts

To finish, here is a combination of both terms and conditions. Despite having researched and written about the Greek debacle before (here), it never fails to amaze how messed up the situation is, the enormity of what it will take to fix it, and how unlikely a fix appears to be. So with the clock ticking ahead of the next deadline for Greece to avoid a default, here’s a quick summary of the monetary terms involved, and the conditions to be put in place to avoid such a bankruptcy:

–Greece has about EUR330 billion of debt. These are the largest debtors:

–The majority of the rest is made up of EUR240 billion in loans from the EU/IMF which were issued in May 2010, and October 2011.

–Greece is trying to implement EUR11.5 billion in spending cuts over the next two years to show its cooperation and receive its next installment of the above loans.

–The next installment is for EUR31.5 billion in the coming months, and is needed by Greece to service its debt (i.e., make its interest payments).

–Lenders are formally proposing certain conditions such as a single minimum wage, more flexible work schedules, and reducing regulatory burdens to help limit spending and boost government revenues.

–Lenders have also suggested increasing the working week to six days to increase government revenue. This seems unlikely to fly.

Well, that’s all from this random assortment of terms and conditions. I hope they have shed some light on some of the goings on in the world today – or at least highlighted some of their shortcomings. Til next time…thanks for playing!

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