Hedge funds increase WTI net-long position… Bloomberg

by Jim Colburn • Monday, July 31, 2017

No surprise here, from Bloomberg:

“Hedge funds increased their WTI net-long position — the difference between bets on a price increase and wagers on a drop — by 11 percent to 238,501 futures and options over the week ended July 25, data from the U.S. Commodity Futures Trading Commission showed. Shorts slipped by 22 percent and stood at less than half their level at the end of June. Longs fell 0.2 percent.”

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OPEC break even prices… WSJ

by Jim Colburn • Monday, July 31, 2017

The Wall Street Journal discusses OPEC’s problems in attaining an oil price that will cover public expenditures here…  And from the WSJ:

“Previously, low production costs meant OPEC members profited even when oil prices fell. These days, members have ramped up government spending to keep populations happy and cover military expenses, and don’t have a cushion to let oil revenues slip. Their strained budgets can be covered only through increasingly high prices per barrel, and if prices are low they need to produce more.”

“Several years of $100 a barrel oil prices lasting until 2014 coincided with big military, security and domestic spending to pacify restive populations during the Arab Spring, hold back the tide of Islamic State and influence the Syrian civil war. Those spending obligations meant OPEC was fundamentally unprepared for the oil-price crash that followed.

The U.A.E. spends only $12 to pump a barrel of oil but needs oil to sell at $67 to cover its government expenditures, according to the International Monetary Fund. Its national budget has quadrupled to over $114 billion over the past 15 years.”

This chart illustrates OPEC’s need for higher prices:



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Stocks moving in the right direction…

by Jim Colburn • Thursday, July 27, 2017

that is, if you are bullish… Here are crude oil, gasoline and diesel stock levels outright and as a days supply measure, from This Week in Petroleum…  All three are looking “tighter” compared to last year…


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Comments on the Fed, inflation, the dollar… Narayana Kocherlakota via Bloomberg

by Jim Colburn • Wednesday, July 26, 2017

Narayana Kocherlakota, in a Bloomberg article, thinks the Fed might be fooled by a declining dollar’s influence on inflation..  Here is a chart showing the trade weighted value of the dollar:

And here is the Fed’s favorite measure of inflation:

“The cheaper dollar pushes up the prices of inputs for U.S. businesses, and gradually shows up in consumer prices. Research by Harvard economics professor Gita Gopinath suggests that a 7 percent fall in the dollar should push up inflation by about 0.1 to 0.2 percentage point in each of the subsequent two years. After that, the effect would subside.

In other words, the recent fall in the dollar should boost inflation in 2018 and 2019, then fade away. Because monetary policy tends to operate with a lag of about two years, this means the Fed will have to be careful about removing stimulus in the next couple years. Otherwise, it could find itself falling short in 2020 and beyond.”




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The New Astrology… Alan Jay Levinovitz, via Aeon

by Jim Colburn • Monday, July 24, 2017

Mr. Levinovitz suggests that “By fetishising mathematical models, economists turned economics into a highly paid pseudoscience”… Here is the link:  https://aeon.co/essays/how-economists-rode-maths-to-become-our-era-s-astrologers

“Unlike engineers and chemists, economists cannot point to concrete objects – cell phones, plastic – to justify the high valuation of their discipline. Nor, in the case of financial economics and macroeconomics, can they point to the predictive power of their theories. Hedge funds employ cutting-edge economists who command princely fees, but routinely underperform index funds. Eight years ago, Warren Buffet made a 10-year, $1 million bet that a portfolio of hedge funds would lose to the S&P 500, and it looks like he’s going to collect. In 1998, a fund that boasted two Nobel Laureates as advisors collapsed, nearly causing a global financial crisis.

The failure of the field to predict the 2008 crisis has also been well-documented. In 2003, for example, only five years before the Great Recession, the Nobel Laureate Robert E Lucas Jr told the American Economic Association that ‘macroeconomics […] has succeeded: its central problem of depression prevention has been solved’. Short-term predictions fair little better – in April 2014, for instance, a survey of 67 economists yielded 100 per cent consensus: interest rates would rise over the next six months. Instead, they fell. A lot.”

And this:

“After the Great Recession, the failure of economic science to protect our economy was once again impossible to ignore. In 2009, the Nobel Laureate Paul Krugman tried to explain it in The New York Times with a version of the mathiness diagnosis. ‘As I see it,’ he wrote, ‘the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.’ Krugman named economists’ ‘desire… to show off their mathematical prowess’ as the ‘central cause of the profession’s failure’.”



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California wholesale electricity prices… Today in Energy

by Jim Colburn • Monday, July 24, 2017

The EIA’s feature, Today in Energy, shows the effect of utility and small-scale solar power generation have on pricing in California… Power prices are now higher at the beginning and end of the day, creating an increasingly familiar “duck curve”:


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World economic growth remains on track… IMF

by Jim Colburn • Monday, July 24, 2017

The IMF released its World Economic Outlook Update this morning… World GDP is expected to grow by 3.5% in 2017 and 3.6% in 2018… While these estimates are unchanged from their last release in April, the underlying mix has changed… Here is an infographic summarizing the report…

Here is the IMF link:  http://www.imf.org/en/Publications/WEO/Issues/2017/07/07/world-economic-outlook-update-july-2017

We still seem to be in a sweet spot for most world equity markets, that is, solid economic growth at a pace that is not triggering inflation..


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Libya, Nigeria Oil Output Caps Ruled Out for Now… Bloomberg

by Jim Colburn • Sunday, July 23, 2017

I’m not sure if this Bloomberg story is bullish or bearish:

“Nigeria is ready to cap or even reduce supply if it can maintain output of 1.8 million barrels a day, said the two people, asking not to be identified because the information is confidential. Libya isn’t planning to join any agreement to curb output until it reaches its target of 1.25 million barrels a day by December, they said. Producers including Saudi Arabia and Russia are gathering in St. Petersburg, Russia, to assess the effectiveness of an international accord to pare output.”

Here is the bullish part (note the Secretary-General’s optimistic oil demand number):

“The oil market will need more Libyan and Nigerian crude as it re-balances at a faster rate later in the year after a slow start, OPEC Secretary-General Mohammad Barkindo told reporters on Sunday in St. Petersburg.

“The re-balancing process may be going on at a slower pace than we earlier projected, but it is on course, and it’s bound to accelerate in the second half,” Barkindo said. Oil demand is expected to grow by 2 million barrels a day in the second half, he said, without specifying if he was comparing that with the same period of 2016 or the first half of this year.”

but, back to the bearish stuff:

“Nigeria boosted its output to 1.75 million barrels a day in June from 1.5 million barrels in December, while Libya’s production climbed to 840,000 barrels a day from 630,000 barrels, according to data compiled by Bloomberg.”






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Gas everywhere… WSJ

by Jim Colburn • Saturday, July 22, 2017

Spencer Jakab writes about gas production outstripping takeaway capacity in the Marcellus region in the Wall Street Journal

“Before the shale boom, the Northeastern U.S. and the Midwest had plenty of pipeline capacity, but it carried gas north from places like Texas and Louisiana. Now the Northeast has too much gas and needs to ship it to the Midwest’s heating and industrial customers. Eventually the old trading flows should reverse so gas goes south to the Gulf of Mexico’s massive petrochemical facilities and export hubs.

This race to build may run into more misfortune, though. Cheap northeastern gas still will have a hard time competing with growing volumes of “associated” production coming out of the oil patch closer to the Gulf of Mexico that will be sold at any price.”

Here is what the “shale boom” looks like:


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Why Oil Prices Aren’t Going Anywhere… OilPrice.com

by Jim Colburn • Friday, July 21, 2017

Nick Cunningham, at OilPrice.com, suggests that the data is mixed enough to give bulls and bears plenty to make a case:

“One can find whatever they want in the data. Looking for signs that the oil market is moving towards balance? There’s a strong inventory decline for you. Worried that the market is still woefully oversupplied? Yep, there is also data to back up that conclusion – another week of strong production increases.”

“For example, two headlines from the same news outlet, The Wall Street Journal, highlight how interpretations of the health of the oil market can vary depending on the focus. Following the release of the EIA data, the WSJ reported: “Oil Rises on Bigger-Than-Expected Inventory Decline.” But early the next morning, another WSJ article reads: “Oil Struggles After Rise in U.S. Output.””

But we are talking about oil, and oil prices will eventually move sharply somewhere…

Here is a 5 year chart of  the oil VIX, a measure of expected volatility:



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