Showing posts with label stockpiles. Show all posts
Showing posts with label stockpiles. Show all posts

Sunday, March 23, 2014

China’s Minsky Moment?

By John Mauldin


In speeches and presentations since the end of last year, I have been saying that I think the biggest macro problem in the world today is China. China has run up a huge debt, and the payments are coming due. They seem to be proactive, but will it be enough? How much risk do they pose for the global system?

This week as I travel to Cafayate I have asked my young associate Worth Wray to write up his research and our conversations on China. Worth has lived in China; and with his (and my) access to people with their fingers on the pulse of China, he has come up with some valuable insights. The hard part for him was to keep it in a single letter. China is a such a huge topic that writing about it can easily yield a tome.

I am lucky to have enticed Worth to come to work with me. He is extraordinarily talented and insightful as an economist, has the boundless energy of youth (which means he seemingly doesn’t sleep), and spent the last five years deep in one of the best training grounds that a young analyst could have. He brings his own extensive Rolodex to our organization. In the not too distant future, we plan to start writing a joint letter on portfolio design and construction, translating the macro insights we have into real world portfolios that can inform your own investing. Lots of I’s to dot and T’s to cross, but we are making progress.

I am delighted to be able to bring a talent like Worth to your attention. So let’s let him talk China to us and see where it takes us. [Note: as I do the final edits here in Cafayate, I see that Worth did an outstanding job of bringing the data together and making the story understandable. You want to take the time to read this!]

A Front Row Seat
By Worth Wray

Before I teamed up with John last July, I worked as the portfolio strategist for an $18 billion money manager in Houston, TX that, among its other businesses, co-managed (with an elite team of investors from the university endowment world) one of the largest registered funds of funds in the United States.

For a bright-eyed kid from South Louisiana, it was a life changing experience. I had a front-row seat for every investment decision in a multi-billion-dollar portfolio for almost five years; and along with my colleagues and mentors in Texas, North Carolina, New York, Shanghai, and Singapore, I had the chance to meet and interact with a long list of the most sought-after hedge fund, private equity, and venture capital teams. I often found myself in the same room with honest-to-god legends like Kyle Bass, John Paulson, JC Flowers, and Ken Griffin … and I forged lasting some friendships with their portfolio managers and analysts.

As you can imagine, the information flow was addictive. I spent thousands of hours poring over manager letters from six continents, doing my best to connect the global macro dots ahead of the markets and coming up with question after question for everyone who would return my calls. That experience plugged me in to an enduring network of truly independent thinkers, forced me to see the world from an entirely different perspective, and put me in an ideal position to figure out what it takes to navigate the unprecedented (not to say strange) investment challenges posed by a “Code Red” world.

Sometimes, combing through a mountain of manager letters felt like reading the newspaper years in advance. I remember watching with amazement as a free-thinking global macro investor named Mark Hart made a fortune for his investors by shorting US subprime mortgages and then shifted his focus to what he argued would be the next shoe to drop – a series of sovereign defaults across the Eurozone.

Mark explained how the launch of a common currency had allowed historically riskier borrowers like Portugal, Ireland, Italy, Spain, and France to issue sovereign debt for the same borrowing cost as Germany did… without any kind of fiscal union to justify the common rates. The resulting debt splurge led to a big increase in fiscal debts, drove an unwarranted rise in unit labor costs across the southern Eurozone, and essentially activated a ticking time bomb at the very foundations of the euro system. It seemed obvious that rates would eventually diverge to reflect the relative credit risks of the borrowers, but the market didn’t seem to care until it got very bad news from Athens. We all know what happened next.

Just as Mark and his team at Corriente Advisors had predicted, spreads blew out in Greece, then in Ireland, then in Portugal, then in Spain… and it now appears that Italy and France are veering toward a similar fate. When the euro crisis finally broke out, my colleagues and I were waiting for it, because Mark had already walked us through his playbook for a multi-act global debt drama.

Instead of blowing up in spectacular fashion, the Eurozone crisis has taken far longer to resolve than a lot of investors and economists expected (Mark, John, and myself included); but the euro’s survival thus far has been largely the result of extensive Realpolitik and an increasingly hollow narrative from Mario Draghi and the ECB laying claim to the wherewithal to “do whatever it takes” to preserve the single-currency system. Meanwhile, as Corriente understood, the likelihood of major defaults across the Eurozone rises every day that the ECB does the bare minimum to resist France’s and Italy’s slide toward deflation. It’s not over until the fat lady sings.

The point I am trying to make is that Mark saw the fundamental imbalances behind the global financial crisis in time to launch a dedicated fund in 2006, and he saw the root causes of the ongoing European debt crisis in time to launch a dedicated fund in 2007… precisely because he thinks of the global economy as one interconnected system peppered with a series of unstable and still unresolved debt bubbles. Mark is one of the most forward-thinking investors I have ever met and one of the best in recent decades at spotting the big imbalances that spell T-R-O-U-B-L-E.

I can’t tell you if he will be right about the next phase of the global debt drama. Predicting the actions and reactions of elected and unelected officials is next to impossible in a Code Red world, but some people have an eye for fundamental imbalances. And since Mark has been largely right in identifying the major debt bubbles that have plagued the world since 2007, John and I can’t comfortably ignore his warning.

As Carmen Reinhart and Kenneth Rogoff argued in their still-authoritative history of financial boom and bust over the past eight hundred years, “When an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are.”

The Bubble That Is China

Following his prescient calls on the subprime debacle and the European debt crisis, Mark identified in 2010 another source of instability that he warned could shake the global economy. And it took me by surprise. He warned that China was in the “late stages of an enormous credit bubble,” and he projected that the economic fallout when that bubble burst could be “as extraordinary as China’s economic outperformance over the last decade.”

To my knowledge, Mark Hart and his team at Corriente were the first of many global macro managers to anticipate a hard landing in the People’s Republic of China. Mark argued that the Middle Kingdom would land very hard indeed, popping speculative bubbles in the property and stock markets, sending foreign capital flying out the door, and triggering a rapid collapse in the renminbi … and even if the Chinese government could manage its economy away from a deflationary bust, they would be forced to devalue the renminbi to do so. In other words, Mark saw a much lower renminbi under almost every outcome.
It was a mind-blowing concept to me that the main driver of global growth (at the time) could not only implode but even drag the rest of the world down with it.

I can’t share the original Corriente China presentation with you for legal reasons, but here are a few public notes published by the Telegraph’s Louise Armistead after she attended one of Mark’s presentations in November 2010. These may look like obvious observations today, the sort you can find plastered all across the internet, but very few people were actually paying attention four years ago. And the data has only gotten worse since 2010 as rampant credit growth and insidious shadow lending have continued to fuel greater and greater capital misallocation.

In the presentation, which amounts to a devastating attack on the prevailing belief that China is an engine for growth, the financier argues that ‘inappropriately low interest rates and an artificially suppressed exchange rate’ have created dangerous bubbles in sectors including:
Raw materials: Corriente says China has consumed just 65pc of the cement it has produced in the past five years, after exports. The country is currently outputting more steel than the next seven largest producers combined – it now has 200m tons of excess capacity, more that the EU and Japan's total production so far this year.
Property construction: Corriente reckons there is currently an excess of 3.3bn square meters of floor space in the country – yet 200m square metres of new space is being constructed each year.
Property prices: The average price-to-rent ratio of China's eight key cities is 39.4 times – this figure was 22.8 times in America just before its housing crisis. Corriente argues: “Lacking alternative investment options, Chinese corporates, households and government entities have invested excess liquidity in the property markets, driving home prices to unsustainable levels.” The result is that the property is out of reach for the majority of ordinary Chinese.
Banking: As with the credit crisis in the West, the banks’ exposure to the infrastructure credit bubbles isn’t obvious because the debt is held in Local Investment Companies – shell entities which borrow from Chinese banks and invest in fixed assets. Mr Hart reckons that ‘bad loans will equal 98pc of total bank equity if LIC-owned, non-cashflow-producing assets are recognised as non-performing.’
The result is that, rather than being the ‘key engine for global growth’, China is an ‘enormous tail-risk’.

The markets may damn well prove Mark right, along with a host of other managers who either jumped on his bandwagon or reached the same conclusions independently; but it seemed downright crazy in 2010 to think that the main driver of global growth could abruptly become its biggest threat within a few short years.

On a personal note, I obsessed over China’s culture, economy, and political system for years in college and then witnessed the country’s transformation firsthand during my time at Shanghai’s Fudan University in the summer of 2007. Then and later, I marveled at China’s strength relative to the developed world and the seemingly invincible central government’s ability to keep the economy chugging along with credit growth and fixed investment while it hoped for the return of its developed world customers then mired in the Great Recession.

It wasn’t what I wanted to hear … but I had to accept that Mark could be right. He had clearly identified a major imbalance which has continued to worsen over the last few years, and now we are just waiting for the next shoe to drop.



Four years later, Chinese production is slowing in the shadow of a massive credit bubble and in the face of aggressive reforms. Disappointing investment returns are revealing broad based capital misallocation; property prices are cooling (relative to other countries); and commodity stockpiles are mounting.

With China’s new policy of allowing defaults (historically, China’s default rate has been 0%), there is a real risk that follow-on events could spin out of control, raising nonperforming loan ratios and sparking a panic as bank capital is significantly eroded.

In the meantime, the renminbi is trading down, most likely due to an intentional effort by the People’s Bank of China to aid in the slow unwinding of leveraged trade finance.

Now the signs of a Chinese slowdown (and thus a global one, as the world is geared to 8% Chinese growth) are clear, and people around the world are meeting uncertainty with emotion. With that in mind, let’s dig into the data that really matters and try to get to the heart of China’s dilemma.
China’s Minsky Moment?

“China is like an elephant riding a bicycle. If it slows down, it could fall off, and then the earth might quake.” – James Kynge, China Shakes the World

After 30 years of sustained economic growth topping 8% and a successful bank cleanup in 2000, the People’s Republic was well on its way to blowing through the “middle income trap” and transitioning to a more advanced consumption-based economy. But then in 2008 the banking crisis in the United States abruptly ushered in a painful era of balance sheet repair across the developed world and delivered a demand shock to emerging markets. Rather than allow the Chinese economy to fall into recession at such an inconvenient time, the Party leadership sprang into action to stimulate demand with its largest fiscal deficit in more than 60 years and to mobilize bank lending with historically low interest rates and enormous liquidity injections.



As you can see in the charts above, China’s total debt-to-GDP (including estimates for shadow banks) grew by roughly 20% per year, from just under 150% in 2008 to nearly than 210% at the end of 2012 … and continued rising in 2013. Even more ominous, corporate debt has soared from 92% in 2008 to 150% today against the expectation that China’s government would always backstop defaults. That makes Chinese corporates the most highly levered in the world and more than twice as levered as US corporates, just as  corporate defaults are happening for the very first time in more than 60 years.



By another measure, China has accounted for more than $15 trillion of the $30 trillion in worldwide credit growth over the last five years, bringing Chinese bank assets to roughly $24 trillion (2.5x Chinese GDP) and prompting London Telegraph columnist Ambrose Evans-Pritchard to tweet John and me a short message: “China riding tail of $24 trillion credit tiger. Tiger will eat Maoists.” And to that, I would respond that I hope the tiger doesn’t find its way to France. (You can follow John and Worth on Twitter at @JohnFMauldin and @WorthWray.)

Looking further into the debt problem, China is steadily incurring more and more credit for less and less growth – suggesting that the newer debt is less productive because it is being put to unproductive uses – as you can see in Chart 2 above. That explains why many analysts believe China’s official reported nonperforming loan ratio of 1% is more like 11% – or more than 20% of GDP.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.



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Thursday, November 11, 2010

Commodity Corner: Crude Oil Settles Flat after 25 Month High

Crude futures remained flat Thursday, pulling back from a 25 month high as data showed record oil demand in China. Light, sweet crude settled unchanged at $87.81 a barrel on the New York Mercantile Exchange. The futures price peaked at $88.63, the highest intraday price since Oct. 9, 2008, and bottomed out at $87.54. Industrial production in China grew by 13.1 percent in Oct. compared to the same period in 2009, increasing oil usage to 8.92 million barrels per day (bpd). According to the National Statistical Bureau, China's refineries hit record throughput at 8.27 million bpd. The 12.2-percent increase from Oct. 2009 to Oct. 2010 is a key bellwether of crude demand growth.

The Organization of Petroleum Exporting Countries (OPEC) also provided support for oil prices by raising its oil consumption forecast for 2010 and 2011. It increased its expectations from global oil demand to 1.17 million bpd from 120,000 for 2011. Analysts said trading volume was light Thursday due to Veteran's Day, a holiday for many in the U.S. Henry Hub natural gas, meanwhile, fell 12 cents to $3.93 per thousand cubic feet.

The Energy Information Administration (EIA) Thursday reported an increase of 20 million cubic feet of natural gas in U.S. stockpiles for the week ended Nov. 5. Total gas in storage has reached a record of 3.84 trillion cubic feet, 31 barrel cubic feet higher than the previous year. Analysts claim that due to milder weather, the demand for heating is not as high. Natural gas fluctuated between $3.92 and $4.13 Thursday. Meanwhile, gasoline futures for December delivery slipped by less than a penny Thursday to settle at $2.24 a gallon. Gasoline peaked at $2.25 and bottomed out at $2.23.

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Monday, October 18, 2010

Oil Falls From Two Week High as U.S. Production Drops, Stockpiles Increase

Oil dropped from its highest in almost two weeks as analysts forecast U.S. crude stockpiles swelled to the largest since June amid refinery maintenance and that fuel demand has slowed. Futures retraced some of yesterday’s 2.3 percent gain on expectations that crude inventories climbed 1.5 million barrels last week, according to analyst estimates before an Energy Department report tomorrow. U.S. industrial production fell for the first time since the recession ended in June 2009, according to Federal Reserve figures. Economists had forecast an increase.

“The fundamentals haven’t really improved by a great deal,” said Serene Lim, a commodity analyst at Australia & New Zealand Banking Group Ltd. in Singapore. “Inventories have been on the high range of the five year average so there are substantial supplies.” The November contract lost as much as 42 cents, or 0.5 percent, to $82.66 a barrel in electronic trading on the New York Mercantile Exchange, and was at $82.71 at 12:05 p.m. Singapore time. Yesterday it increased to $83.08, the highest settlement since Oct. 6. Prices are up 4.5 percent this year.

The more actively traded December contract slipped as much as 43 cents, or 0.5 percent, to $83.37. “We’re probably seeing a bit of profit taking today with $83 being a strong resistance level,” said Lim at Australia & New Zealand Banking Group. November oil surged yesterday to as much as $83.28 a barrel after a strike in France curbed fuel supplies. French truckers blocked highways and officials said they would use police to prevent strikers from cutting the delivery of fuel as the standoff hardened over President Nicolas Sarkozy’s plans to raise the retirement age to 62.....Read the entire article.


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Wednesday, October 13, 2010

Crude Oil Rises a Second Day on Forecasts of Increased Demand and Dollar's Decline

Oil climbed for a second day in New York after an industry-funded report showed U.S. crude supplies fell and the dollar declined against the euro, increasing the appeal of commodities as an alternative investment. Futures rose as the U.S. currency slipped on speculation the Federal Reserve will ease monetary policy further and after the American Petroleum Institute reported that inventories decreased the most since July. Prices surged 1.6 percent yesterday, the most in six days, after the International Energy Agency raised its global demand forecast and as China imported a record volume of the commodity in September.

“The overall feeling is optimistic,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. “We still see stimulus being talked about from the Fed, and as a result of that we’re seeing all the commodities climb. It all looks solid for oil to move higher.” The November contract jumped as much as 79 cents, or 1 percent, to $83.80 a barrel in electronic trading on the New York Mercantile Exchange and was at $83.73 at 1:00 p.m. Sydney time. Yesterday, it added $1.34 to $83.01, the highest level since Oct. 6. Prices are up 5.5 percent this year.

Crude stockpiles dropped 4.01 million barrels last week to 362.1 million, the American Petroleum Institute said. A U.S. Energy Department report today may show stockpiles climbed 1.45 million barrels last week, according to the median of 18 analyst estimates in a Bloomberg survey......Read the entire article.

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Friday, October 8, 2010

Bloomberg Survey: Crude Oil May Fall Next Week as U.S. Inventories Climb

Crude oil may decline next week as U.S. inventories increase and fuel consumption drops, a Bloomberg News survey showed. Seventeen of 33 analysts, or 52 percent, forecast crude oil will decline through Oct. 15. Twelve respondents, or 36 percent, predicted an increase, and four estimated prices will be little changed. Last week, 42 percent said crude would climb.

U.S. crude oil supplies increased 3.09 million barrels to 360.9 million last week, leaving stockpiles 13 percent higher than the five year average for the period, an Energy Department report on Oct. 6 showed. Fuel consumption dropped 6.4 percent to 18.5 million barrels a day, the biggest weekly decline since Feb. 27, 2004, according to the department.

“Inventories are higher than a year ago, even when adjusting for demand, yet prices are a good $10 higher,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “There’s just not the demand to justify the recent rally in prices.”

Oil in New York touched $84.43 a barrel yesterday, the highest level since May 4, before retreating 1.9 percent to settle at $81.67. Crude oil for November delivery has increased 0.1 percent so far this week on the New York Mercantile Exchange. Prices are up 17 percent from a year ago. The oil survey has correctly predicted the direction of futures 47 percent of the time since its start in April 2004.

Bloomberg’s survey of oil analysts and traders, conducted each Thursday, asks for an assessment of whether crude oil futures are likely to rise, fall or remain neutral in the coming
week. The results were:

                                  RISE         NEUTRAL      FALL
                                    12                  4                 17



Bloomberg reporter Mark Shenk can be contacted at mshenk1@bloomberg.net

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Wednesday, May 12, 2010

Crude Oil Steady as Report Shows Higher Crude Supplies, Drop in Fuel Stockpiles


Crude oil futures were little changed after a U.S. government report showed an unexpected decline in supplies of gasoline as crude inventories rose. Gasoline inventories fell 2.81 million barrels to 222.1 million in the week ended May 7, the Energy Department said today in a weekly report. Stockpiles were forecast to increase by 400,000 barrels, according to the median of 18 analyst estimates in a Bloomberg News survey.

Inventories of crude oil rose 1.95 million barrels to 362.5 million, the department said. Supplies were forecast to increase by 1.6 million barrels. Crude oil for June delivery fell 12 cents, to $76.25 a barrel at 10:35 a.m. on the New York Mercantile Exchange. Oil traded at $76.53 a barrel before the release of the report at 10:30 a.m. in Washington.

Prices also moved lower as the International Energy Agency cut its estimate of world oil demand this year by 220,000 barrels to 86.4 million barrels a day in a monthly report. The Organization of Petroleum Exporting Countries bolstered oil output by 40,000 barrels a day in April, according to the IEA. Supplies from the 11 members bound by quotas rose to 26.79 million barrels a day, 70,000 barrels a day more than in March. That means the group’s compliance with the record output cuts slipped to 54 percent last month. Iraq has no output target.

OPEC members will need to pump 28.7 million barrels a day to balance global oil demand and supply this year, according to the IEA. That is 400,000 barrels fewer than the Paris based agency estimated last month. Iran, holder of the world’s second largest oil reserves, may be storing as much as 38 million barrels of crude at sea as demand declines for the heavier, sour grades the Persian Gulf country sells, according to the IEA.

Reporter Mark Shenk can be contacted at mshenk1@bloomberg.net.


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Wednesday, January 20, 2010

Oil Tumbles on Dollar Strength, Forecast of U.S. Supply Gain


Crude oil fell the most in a month as a stronger dollar reduced the appeal of commodities and on speculation that U.S. inventories increased. Oil dropped as much as 2.6 percent as the dollar climbed against the euro after China took steps to curb lending and as Greece’s bonds tumbled. Prices also decreased on speculation that a government report tomorrow will show that U.S. stockpiles rose last week. “We continue to be at the mercy of the financial markets,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Investors now treat oil as an asset class.”

Crude oil for February delivery fell $1.85, or 2.3 percent, to $77.17 a barrel at 11:17 a.m. on the New York Mercantile Exchange. Oil is heading for the biggest one day decline since Dec. 9. The February contract expires today. The more active March contract declined $1.78, or 2.2 percent, to $76.54. Chinese regulators asked some of the nation’s banks to limit credit after banks lent a record 9.59 trillion yuan ($1.4 trillion) last year. Cuts in Greece’s credit rating last month fueled investor concern that the country could be forced out of Europe’s single currency. The dollar traded at $1.41 per euro, up 1.3 percent from $1.4288 yesterday. The greenback touched $1.4093, the highest level since Aug. 19. A stronger dollar reduces the appeal of commodities as an alternative investment.....Read the entire article.

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Wednesday, January 6, 2010

Natural Gas Advances to One Year High on Cold Weather Forecast


Natural gas futures rose to their highest settlement price in a year, exceeding $6 per million British thermal units as cold weather across the U.S. lifted demand for heating fuel. Temperatures in St. Louis, Memphis and Dallas will be below normal for the next week, according to a forecast from MDA Federal Inc.’s EarthSat Energy Weather. Cold weather in recent weeks cut a stockpile surplus to 14 percent for the week ended Dec. 25 from 16 percent at the start of the month. “Storage is going from materially oversupplied to more manageable inventory levels,” said Tom Orr, director of research at Weeden & Co., a brokerage in Greenwich, Connecticut. “It looks like it’s going to continue to be pretty cold here.”

Natural gas for February delivery advanced 37.2 cents, or 6.6 percent, to settle at $6.009 per million Btu at 2:50 p.m. on the New York Mercantile Exchange. The price was the highest since Jan. 5, 2009. The Energy Department may say tomorrow that U.S. stockpiles dropped 155 billion cubic feet last week, based on the median of 21 analyst estimates compiled by Bloomberg. The “seasonal norm” withdrawal is 83 billion, Scott Speaker, JPMorgan Chase & Co.’s natural gas strategist in New York, said in a note to clients yesterday. “We see a net withdrawal of 144 billion cubic feet, a draw that would significantly tighten the current year over year surplus and the surplus compared to the past five year average,” he said.....Read the entire article.

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Saturday, January 2, 2010

Heating Oil Hits 13 Month High as Frigid Weather Cuts Supplies


Heating oil reached a 13 month high as the frigid weather that has drained distillate supplies was projected to extend into January, increasing demand for the motor fuel.
The U.S. Climate Prediction Center forecast below normal temperatures from Texas to Maine from Jan. 5 to Jan. 13. Distillate stockpiles fell to the lowest since July, the Energy Department reported yesterday. “Heating oil is going out stronger for the year primarily because they keep extending the cold weather forecast,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Heating oil for January delivery rose a seventh straight day, gaining 0.95 cent, or 0.5 percent, to settle at $2.1188 a gallon on the New York Mercantile Exchange, the highest settlement price since Nov. 4, 2008. Futures advanced 4.1 percent this week and gained 5 percent in December. January contracts for heating oil and gasoline expired at the end of trading today. The more actively traded February heating oil contract fell 0.46 cent to settle at $2.1156. January flipped to a 0.32 cent premium to February, from a discount of 2.06 cents on Dec. 24, indicating tighter supplies.....Read the entire article.

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Wednesday, October 7, 2009

Oil Rises as Dollar Declines, Crude Supplies Fall Unexpectedly


Oil rose in New York as the dollar weakened against the euro and a government report showed an unexpected drop in U.S. crude supplies, boosting optimism about a demand recovery in the biggest energy consuming nation. Oil pared yesterday’s 1.9 percent fall as the dollar declined toward a two-week low, increasing the appeal of commodities as an alternative investment. Prices were also supported by an Energy Department report that showed U.S. crude stockpiles fell 978,000 barrels last week amid a drop in imports. A 2 million barrel gain was forecast in a Bloomberg survey.

“The imports were down and that was a big surprise,” said Jonathan Koranfel, a director for Asia at options traders Hudson Capital Energy in Singapore. “Any more weakness in the dollar is limiting oil’s gains to a cap of about $72. The trading range in crude has gone from $65 to $75 to about $68 to $72. It’s just getting tighter and tighter.” Crude oil for November delivery gained as much as 83 cents, or 1.2 percent, to $70.40 a barrel in electronic trading on the New York Mercantile Exchange. It was at $70.18 at 12:55 p.m. Singapore time. Yesterday, the contract dropped $1.31 to settle at $69.57. Prices have gained 57 percent since the start of the year.....Read the entire article

Wednesday, September 30, 2009

Crude Oil Price Reacted Mildly Positive to Less Than Expected Distiallte Stock Gain


Crude oil inventory rose +2.8 mmb, compared with consensus of +2 mmb increase, to 338.4 mmb in the week ended September 29. The good thing is Cushing stock recorded significant drop of -1.5 mmb. Situation in oil product stockpiles was better than previously anticipated. Gasoline inventory drew -1.66 mmb while distillate inventory gained only +0.32 mmb. Both readings beat market expectations.

WTI crude oil price changes little after the report, only edging slightly higher to 67.5 from 66.5 before the release. Investors probably need to gauge the implications of a higher crude build with lower distillate build. Heating oil bounces to 1.71 while RBOB gasoline rises to 1.65 after the report. Lack of positive response from investors was also driven by disappointing US employment data and Chicago PMI. ADP reported -254K decline in employment in September following a -277K drop in the prior month. The market had expected.....Read the entire article

Thursday, September 24, 2009

Oil Falls to a 1-Month Low on Larger Than Expected Supply Gains


Crude oil fell to a one month low after a government report of a larger than forecast gain in U.S. fuel supplies signaled that a glut is forming in the world’s biggest energy consuming country. U.S. gasoline stockpiles surged 5.41 million barrels last week, more than 10 times what was forecast by analysts in a Bloomberg News survey. Inventories of distillate fuel, a category that includes heating oil and diesel, rose 2.96 million barrels, almost double what was estimated. Crude oil supplies also climbed in the week ended Sept. 18.

“We had three major stock builds and increases in the year on year surplus,” said Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut. “We are testing support and will have to see if we can break out of the recent range”.....Read the entire article

Crude Oil Falls a Second Day on Gains in U.S. Fuel Stockpiles


Crude oil declined for a second day after a U.S. government report showed a larger than expected increase in fuel stockpiles in the world’s largest energy consuming nation. Gasoline stockpiles in the U.S. surged 5.4 million barrels last week, the Energy Department said yesterday. That’s more than the 500,000 barrel increase forecast in a Bloomberg News survey of analysts. Diesel and heating oil inventories jumped almost 3 million barrels, double what was expected, and crude oil stockpiles also climbed.

“If products aren’t moving, then there’s no demand for crude,” Sentje Diek, an energy analyst at HSH Nordbank AG, said by phone from Hamburg. “Gasoline and distillate stockpiles are clearly above their five year average.” Crude oil for November delivery fell as much as 95 cents, or 1.4 percent, to $68.02 a barrel in electronic trading on the New York Mercantile Exchange. It was at $68.49 at 11:11 a.m. London time. Coupled with a 3.9 percent plunge yesterday, the two day decline has reduced oil’s year to date gain to 54 percent, from more than 60 percent last week.....Read the entire article

Monday, September 21, 2009

Oil Options Hit Highs as Verleger Predicts 44% Plunge


Oil traders are paying more than ever in the options market to protect against a plunge in crude prices. The gap between prices of options betting on a decline and those that would profit from a rise in oil widened to a record 10 percentage points, according to five years of data compiled by Bank of America Securities Merrill Lynch. Crude stockpiles in the U.S. are 14 percent larger than a year ago and OPEC is pumping 600,000 barrels a day more than the world needs, according to the International Energy Agency.

While the recovery from the first global recession since World War II pushed oil up 62 percent this year to $72.04 a barrel in New York, growth alone isn’t likely to erode the glut by the end of next year because production exceeds demand, data from the Paris based IEA shows. A drop in prices would penalize companies from Exxon Mobil Corp. to BP Plc and exporters.....Read entire article

Wednesday, September 16, 2009

Oil Trades Near $72 After Supplies Drop to Lowest Since January


Oil traded near $72 a barrel in New York after the U.S. Energy Department reported that crude stockpiles in the biggest energy consuming nation dropped to the lowest level since January. Crude inventories fell 4.73 million barrels, the weekly report showed yesterday, more than the 2.5 million barrel decline forecast in a Bloomberg News analyst survey.

Prices also gained as the dollar declined to the weakest level in almost a year and as global equities advanced, spurring expectations of improving fuel demand.“The gains in equities support optimism for the economic recovery that would drive oil demand and lead to supply tightness,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore.....Read the entire article

Sunday, August 30, 2009

Oil Drops as Stockpile Concerns Cap Gains on Economic Optimism


Crude oil fell for the first day in three in New York as concern over above-average distillate fuel stockpiles capped a rally built on speculation that demand will increase as the global economy recovers. U.S. distillate inventories, which include diesel and heating oil, rose to a four week high of 162.4 million barrels last week, the Energy Department said Aug. 26. That’s near the highest level since 1983. Separately, the United Arab Emirates’ state owned company eased cuts on crude oil supply for the first time in seven months, a sign OPEC members may be overshooting their output targets. “As we get into the autumn season we’ll focus on distillate fuels and right now inventories are at very high levels and then we have the floating storage off Europe”.....Complete article

Tuesday, August 4, 2009

Oil Falls From Seven Week High on Concern Recent Gains Overdone

Crude oil fell from a seven week high on speculation that gains of 13 percent in the past three days weren’t supported by an improvement in demand. Crude stockpiles in the U.S., the world’s biggest energy consumer, probably increased for a second week, according to a Bloomberg News survey before tomorrow’s Energy Department report. Oil futures declined as equity indexes slipped in Europe, where the Stoxx 600 dropped 0.9 percent. “The actual situation in the oil market doesn’t justify levels about $70,” said Hannes Loacker.....Complete Story

Wednesday, July 22, 2009

Natural Gas Futures Gain on Signs of Small Stockpile Increase Share

Natural gas futures advanced in New York on speculation a report tomorrow will show a slowing pace of U.S. stockpile gains. Gas inventories probably rose 66 billion cubic feet last week, based on the median of eight analyst estimates compiled by Bloomberg. An increase of that amount would be the smallest since April 17. Stockpiles normally rise between April and November as utilities prepare for higher demand in the winter.
“This week it’s a very different number,” said Teri Viswanath, director of commodities research at Credit Suisse Securities USA in Houston.....Complete Story

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Wednesday, July 1, 2009

Oil Rises Before Report Forecast to Show U.S. Supplies Shrank

Oil advanced before the release of a report predicted to show that U.S. crude supplies contracted for a fourth week, stoking optimism that fuel demand will recover as the recession abates. The Energy Department will probably report today that crude oil stockpiles dropped 2 million barrels last week, according to a Bloomberg survey. Yesterday the industry funded American Petroleum Institute said crude supplies fell by 6.8 million barrels.....Complete Story
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