Mexico Hedges 2017 oil at $42… WSJ

by Jim Colburn • Tuesday, August 30, 2016

The article suggests that Mexico’s oil price will be covered at $38:

“The ministry said the government spent $1.03 billion on put options that cover 250 million barrels of oil at the equivalent of $38 a barrel for Mexican crude, through 46 transactions in the global derivatives market with seven counterparts.”

“The Finance Ministry said the budget proposal to be submitted next month to Congress will include an oil price estimate of $42 a barrel. The $4 per barrel difference between that and the hedges will be made up using money in a budget-stabilization fund, from which around $1 billion was set aside for the purpose.”

“The budget-stabilization fund is also used to pay for the put options, which this year were contracted between May 13 and Aug. 25.”

Here is the WSJ article: http://www.wsj.com/articles/mexico-covers-2017-oil-revenue-at-42-a-barrel-1472486222

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Crude oil implied vol update…

by Jim Colburn • Monday, August 29, 2016

Implied volatility for WTI crude oil futures settled at 33.4% on Friday… The long term average implied vol since options began trading on the NYMEX is 33.2… Here is the long term chart:

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November 14th, 1986 was the first day of trading… The first spike in vol was due to Gulf War I, just before bombs were dropped in Iraq; the second spike was in 2008 when prices dropped from around $145 to around $35; and, most recently, the implied vol spiked close to 80% in February this year…

 

 

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Some real contrarian thinking… Business Insider

by Jim Colburn • Monday, August 29, 2016

Jim Rogers is highlighted in this BusinessInsider article:

“”If we all bought North Korean currency, we’d all be rich someday,” Rogers said.”

“Rogers is a pretty colorful guy and is known for his bold bets. He also has investments in Zimbabwe and has been looking at investing in Kazakhstan and Rwanda. That said, he isn’t the only one looking at North Korea.”

Here is the link: http://www.businessinsider.com/jim-rogers-if-we-all-bought-north-korean-currency-wed-all-be-rich-someday-2016-8

Personally, I’ll take a wait and see attitude…

 

 

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Updated inflation nowcast… Cleveland Fed

by Jim Colburn • Friday, August 26, 2016

Here is the Cleveland Fed’s inflation nowcast (love the nowcasts!) for Q3, updated yesterday:

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Even on a “core” basis, the Fed’s inflation targets still have not been met…

Here is the site: https://www.clevelandfed.org/en/our-research/indicators-and-data/inflation-nowcasting.aspx

And speaking of inflation, here is a chart from CarpeDiem (https://www.aei.org/publication/blog/carpe-diem/) showing price changes of selected goods and services:

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Iran’s struggles to ramp up production… WSJ

by Jim Colburn • Friday, August 26, 2016

The Wall Street Journal does a nice job laying out problems Iran has faced in an effort to ramp up oil production:  (http://www.wsj.com/articles/iranian-oil-production-stalls-ahead-of-opec-talks-1472126493)

“Iran has faced two significant obstacles in its quest to return to pre-sanctions production levels: a lack of foreign investment and its own unwillingness to undercut rivals on pricing.”

And this:

“Homayoun Falakshahi, an oil-industry analyst at consultancy Wood Mackenzie, said that oil production initially ramped up faster than expected because pressure was high in wells that had been shut for years. But Iran will struggle to pump more because the fields have high depletion rates and now need significant investment at a time when Iran remains cash-strapped, said Mr. Falakshahi, who visited key oil-producing facilities in Iran this spring.”

 

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Housing Market Starting to Look Healthy… NYTimes

by Jim Colburn • Wednesday, August 24, 2016

Yesterday’s new homes sales report triggered this entry in the NYTimes blog Upshot:  (http://www.nytimes.com/2016/08/24/upshot):

“… a new report Tuesday that shows that more new homes were sold in July than in nearly a decade. Buyers purchased single-family houses at the annual rate of 654,000, the highest rate since October 2007, the government said. That is 31 percent higher than a year earlier. Those numbers are volatile and include a wide margin of error, but combined with other evidence, the United States housing market seems to be solidly on the mend in 2016.”

Here is the chart:

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The ten year note was about unchanged:

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A flow of funds explanation of oil prices… Reuters

by Jim Colburn • Tuesday, August 23, 2016

Reuters’ John Kemp uses flows of hedge funds to explain recent oil price movement here: http://www.reuters.com/article/us-oil-global-kemp-idUSKCN10Y030

Here are some highlights:

“Hedge funds executed one of the fastest U-turns on record this month as managers turned from super-bearish to cautiously bullish about the outlook for oil prices.”

“Most of the adjustment has come from the short side of the market, where hedge fund managers convinced that oil prices would fall further were wrong-footed by the sudden rally. Short positions were reduced by 114 million barrels (31 percent) between Aug. 2 and Aug. 16.”

“The furious race to buy back short positions sent prices higher. Front-month Brent futures prices jumped from $41.50 a barrel on Aug. 2 to $49.23 on Aug. 16 and continued rising to reach $50.88 on Aug. 19 for an increase of more than 20 percent.”

“Market chatter about a possible production freeze after next month’s meeting of OPEC and non-OPEC oil ministers in Algeria fueled a recoil that would probably have happened in any event.”

 

 

 

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Noisy oil markets…

by Jim Colburn • Tuesday, August 23, 2016

From a recent WSJ article (http://www.wsj.com/articles/crude-oil-prices-fall-as-hopes-for-production-cuts-fade-1471857989) here are some explanations of why oil prices have been moving around.  First, the chart from barchart.com:

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Why prices were up:

“Prices have risen for three straight weeks on optimism that the Organization of the Petroleum Exporting Countries could agree to freeze production at an informal meeting in September.”

Opec has had ample opportunity to freeze production over the past couple of years and failed to do so… What’s changed that a market would move by 20%?  (And, why would financial news services define this move as a bull market in crude?  Try telling an oil producer we’re in a bull market…)

Why prices were down:

“But many analysts are skeptical that a deal can be reached, or that an output freeze at already-high production levels would help reduce the oversupply of crude.”

It took three weeks to figure this out?

But this is my favorite throwaway line explaining oil price movement:

“The dollar rose Monday against other major currencies on increased expectations that the U.S. could raise interest rates this year. The WSJ Dollar Index recently traded up 0.1%. A stronger dollar can make oil, which is priced in dollars, more expensive for buyers using other currencies, reducing demand.”

Can it be that simple?  Interest rates would likely rise only if economic activity continued to increase, which would increase demand for energy.  Isn’t the reason why the dollar moved more important than the dollar movement itself?

I’m not sure which is harder, predicting future oil prices or explaining current ones…

 

 

 

 

 

 

 

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Crude oil disruptions in Nigeria… EIA

by Jim Colburn • Tuesday, August 23, 2016

From the August 18th (I was on vacation) edition of Today in Energy from the EIA (http://www.eia.gov/todayinenergy/detail.cfm?id=27572):

“Crude oil production disruptions in Nigeria reached 750,000 barrels per day (b/d) in May 2016, the highest level since at least January 2009. The increased disruptions come as militants continue to focus attacks on oil and natural gas infrastructure in the West African region. Nigeria is a member of the Organization of the Petroleum Exporting Countries (OPEC) and was Africa’s largest oil producer until Angola’s oil production surpassed Nigeria’s earlier this year.”

Here’s the chart:

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+100,000 barrel per day increase?…. Bloomberg

by Jim Colburn • Thursday, August 18, 2016

Yesterday’s weekly status report by the EIA showed a sharp increase in oil production which they say never really happened… Here is Bloomberg:

“The output estimate jumped by 152,000 barrels a day for last week, the biggest increase since May 2015, according to the Energy Information Administration. Production didn’t actually increase by that amount but was modified to incorporate a “re-benchmarking” versus the agency’s Petroleum Supply Monthly, according to Jonathan Cogan, an EIA spokesman.”

Bloomberg quotes Cogan again:

“”I would caution anyone who takes the production number from one of our monthly reports and takes it as the beginning of a trend, and that’s certainly the case with the weeklies,” Cogan said.”

Here is the full article: http://www.bloomberg.com/news/articles/2016-08-17/eia-increases-weekly-u-s-crude-output-to-reflect-monthly-data

And here is the EIA’s weekly status report:

http://ir.eia.gov/wpsr/overview.pdf

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