Cross-asset correlations…

by Jim Colburn • Saturday, February 17, 2018

The CME has a nice analytics tool, here, that shows-cross asset correlations over time… Here is the one month matrix for selected assets:

Over the past month, crude oil shows a high positive correlation with forex with the Euro, +.71, and the British Pound, +.68…. This is not the case over the past year where there is almost no correlation among forex and crude:

Sometimes they correlate and sometimes they don’t!

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Guess who was on the wrong side of the VIX?

by Jim Colburn • Saturday, February 17, 2018

Here is the Wall Street Journal:

”More recently, some of these investors also made big, unpublicized wagers seeking to benefit from what had been an unusually long period of low volatility, according to pension-fund consultants and others who deal with these institutions. The strategies, often involving the writing of complicated options contracts, were for years a source of easy money. Markets hadn’t been so calm since the 1950s.

Among those making such bets were Harvard University’s endowment, the Employees’ Retirement System of the State of Hawaii and the Illinois State Universities Retirement System.”

The option floor traders had colorful ways of describing these short vol strategies… One that can go in print is, “It’s like picking up dimes in front of a steamroller”…


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Oil, wheat, sand bottlenecks in Canada… Bloomberg

by Jim Colburn • Friday, February 16, 2018

Here is Bloomberg:

”The nation’s biggest railways haven’t been able to deliver enough cars after harsh winter conditions and as a sudden boom in energy production sparked a swell of demand. Some farmers have been waiting for months to deliver wheat and canola to elevators before they can get paid. The squeeze also means that crude supplies are piling up in Alberta, pushing prices to the biggest discount relative to New York futures in more than four years.”

Sand used in the fracking process is affected too:

”Earnings for Halliburton Co., the world’s biggest fracker, will be reduced this quarter due to temporary shipping delays of sand, the company said. Canadian National halted all new frack-sand shipments for a week across a wide section of Minnesota and Wisconsin amid winter weather. The region accounts for about a third of Halliburton’s total purchased sand volume, Chief Financial Officer Chris Weber told investors Thursday at the Credit Suisse Energy Summit in Colorado.”

Bloomberg provides a nice chart to illustrate widening price differentials:

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It’s not easy being green…

by Jim Colburn • Wednesday, February 14, 2018

Mark J. Perry on the lack of gas pipelines in Massachusetts:

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OPEC production, supply/demand…

by Jim Colburn • Wednesday, February 14, 2018

The tables below are from OPEC’s Monthly Oil Market Report, released on Monday… Note the two production numbers in January for Venezuela, 1,600 from “secondary sources’ and 1,769 from “direct communication” …

OPEC produced at a 32.3 mbd pace in January which is enough to cover the first half of the year, but second half gets interesting with the call for OPEC crude increasing by +1.4 in Q3 and +1.6 in 4Q… We are setting up for a very interesting June meeting…

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The LOOP is testing the exporting of crude… WSJ

by Jim Colburn • Tuesday, February 13, 2018

The LOOP is testing the process of exporting oil… This, from the Wall Street Journal’s, Alison Sider:

”A supertanker recently pulled up to the Louisiana Offshore Oil Port to test loading up on crude at the facility, the port announced on Tuesday. The test is significant because no other Gulf Coast ports have the capability to fully load the large crude carriers that can more profitably export oil to Asian markets.”

Here are exports so far…


”LOOP, as the Louisiana port is known, has been receiving oil shipments from abroad since 1981, but unlike other Gulf Coast ports has never sent oil out. The port, which is 17 miles out to sea and connected to the shore by pipeline, is the only one in the U.S. deep enough to allow these large carriers to be fully loaded with oil without scraping along the bottom. These supertankers can carry 2 million barrels of crude, so they can more profitably make the long journeys to markets in Asia, analysts say.”

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Power price, expenditure rankings, by state… EIA

by Jim Colburn • Tuesday, February 13, 2018

From “Today in Energy”:


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The IEA weighs in on shale… WSJ

by Jim Colburn • Tuesday, February 13, 2018

The Wall Street Journal reports on today’s release of the IEA’s monthly oil supply/demand report:

”Shale producers “cut costs dramatically” during the oil-industry downturn, the IEA said. They then took advantage of the Organization of the Petroleum Exporting Countries cartel’s decision last year to cut its own output, which helped prices rise from the low $40s to over $70 a barrel in January.”

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The IEA’s Oil Market Report is out…

by Jim Colburn • Tuesday, February 13, 2018

The summary is here

”Our demand growth estimate for 2017 remains strong at 1.6 mb/d, reinforced by November data for the US. For 2018, the more positive global economic picture published by the International Monetary Fund is a key factor in raising our growth outlook to 1.4 mb/d. It was thought that the significant increase in the dollar price of crude oil since the middle of 2017 would dampen growth, and this might be the case to some extent, but the impact of higher prices has been partly offset in some countries by currency appreciations.”

And, this:

”It is clear that strong demand growth in 2017, alongside a modest increase last year in non-OPEC output, and the cuts made by leading producers, has contributed to the extraordinarily rapid fall in OECD oil stocks. A year ago, they were 264 mb above the five-year average and now they are only 52 mb in excess of it, with stocks of oil products actually below the benchmark. Although the OECD is not the whole world, the leading oil producers who agreed to cut output identified the level of the group’s stocks as an indicator of the progress of their initiative. With the surplus having shrunk so dramatically, the success of the output agreement might be close to hand. This, however, is not necessarily the case: oil price rises have come to a halt and gone into reverse, and, according to our supply/demand balance, so might the decline in oil stocks, at least in the early part of this year.”

And, this is amazing:

”Today, having cut costs dramatically, US producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth. This is a sobering thought for other producers currently sitting on shut-in production capacity and facing a renewed challenge to their market share. Another sobering thought is that it is not just a matter of production: trade patterns are changing. Recently we read of a shipment of condensate from the US to the UAE. Such a development would have seemed incredible a few years ago, now it looks like the shape of things to come.”

Here is their chart showing supply/demand:






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Big batteries as peaking plants… WSJ

by Jim Colburn • Monday, February 12, 2018

This article from today’s Wall Street Journal, by Russell Gold, discusses the use of batteries to store power and release it during peak demand periods:

”Giant batteries charged by renewable energy are beginning to nibble away at a large market: The power plants that generate extra surges of electricity during peak hours.

Known as peakers, the natural-gas-fired plants are expensive to run, and typically called into service only when demand rises and regular supplies are insufficient. That makes them vulnerable to disruption from lithium-ion batteries, which have fallen in price in recent years, and are emerging as a competitive alternative for providing extra jolts of electricity.”

But battery costs are still high:

”Overall, it still generally costs 35% more today to provide extra power via a battery compared with a conventional peaker plant, according to energy analysts at SSR LLC. But they estimate that batteries will be less expensive by 2024. Batteries, they add, are better suited to replace peaker plants in warmer areas than in colder climates, where winter peaks can last for longer than four hours.”

Me:  The amount of optionality embedded in power markets is amazingly high but also very constrained… Batteries can be valued like oil storage facilities or like pipelines, but don’t seem to be…



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