Why CTA Strategies Are Failing Investors… Instituional Investor

by Jim Colburn • Saturday, June 30, 2018

Here is one takeaway:

”Since the financial crisis, the enormous amount of liquidity pumped into global markets by the Federal Reserve and other central banks around the world has essentially chased away volatility. “As a result, CTAs have adapted their trading techniques to be more profitable in the recent market environment and as a result they’re less capable of hedging equity corrections,” said Nigol Koulajian, founder and chief investment officer of quant hedge fund Quest Partners. Among other moves for the current environment, many CTAs have changed their time frames to sell when markets turn down.”

Do read the whole thing here:


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Fed’s GDPNowcasts decline…

by Jim Colburn • Saturday, June 30, 2018

Both the Atlanta and NY Feds’ estimates for current quarter GDP declined this week:

Here is the Atlanta Fed:

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2018 is 3.8 percent on June 29, down from 4.5 percent on June 27. The nowcast of second-quarter real personal consumption expenditures growth declined from 3.7 percent to 2.7 percent after this morning’s personal income and outlays report from the U.S. Bureau of Economic Analysis.”

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Petroleum and products stock levels… EIA

by Jim Colburn • Thursday, June 28, 2018

From the EIA’s This Week in Petroleum, here are petroleum and product stock levels compared to five year highs and lows:

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Some oil fundamentals… WSJ

by Jim Colburn • Tuesday, June 26, 2018

Christopher Alessi, WSJ, lays out factors driving recent price moves in oil here:

“The shutdown of a major oil-sands facility in Canada, known Syncrude, has bolstered crude prices amid signs the 360,000-barrel-a-day plant could be out of commission through July. Meanwhile, Libyan oil exports are expected to come under pressure amid heightened political tensions in the North African nation.

The boost to prices comes a day after both Brent and WTI closed down in the wake of a weekend decision by the Organization of the Petroleum Exporting Countries and its allies to begin increasing crude output by the start of next month by as much as 1 million barrels a day.”

From Barchart.com here are charts showing price action in WTI, WTI/Brent and the WTI front month spread:



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A Natural Gas Giant Awakens… Columbia/SIPA

by Jim Colburn • Tuesday, June 26, 2018

Here is the conclusion of a nice piece by David Sandalow, Akos Losz and Shang Yan from Columbia’s SIPA Center on Global Energy Policy on growing natural gas demand in China:

”Natural gas will play a growing role in China’s energy mix in the years ahead, as a core part of the Chinese leadership’s strategy for responding to serious environmental challenges, including urban air pollution and climate change. Domestic production and pipeline imports will be unable to keep up with rapidly growing demand, leaving LNG imports to fill the gap. Infrastructure constraints may limit LNG imports in the short term but will likely be resolved within several years.

The impact of LNG trade on the US-China bilateral trade deficit will be modest at most. Nevertheless, that trade could offer benefits to companies in both countries if trade tensions do not interfere.

China is shaking up natural gas markets as it emerges as the world’s leading LNG importer in the next decade. Chinese LNG demand will be instrumental in investment in LNG supply around the world, including—potentially—the United States. Chinese natural gas could also deliver significant environmental benefits both in China and globally, although there are risks with respect to methane leakage that must be addressed.

As in other parts of the energy sector, as the giant awakens, the world will notice.”

Here is a chart showing future LNG demand projections:


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What’s the yield curve… NY Times

by Jim Colburn • Monday, June 25, 2018

Matt Phillips, The NY Times, does an excellent job explaining the yield curve and it’s importance as a predictor of recessions, here

”…if you’re in the business of making economic predictions, it has become very difficult to disregard an important signal from the bond market.

The so-called yield curve is perilously close to predicting a recession — something it has done before with surprising accuracy — and it’s become a big topic on Wall Street.”

There is more here





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The times, they are changing, again… WSJ

by Jim Colburn • Monday, June 25, 2018

Stephanie Yang, Wall Street Journal, reports on the changing nature of commodity funds, here

“In 2017, closures of commodities hedge funds outnumbered launches for the first time in data going back to 2000, according to data provider Eurekahedge—a trend that has continued into this year.”

”The long string of fund closures also reflects an evolving market, they say, one that is increasingly driven more by algorithms than fundamental information.”

““Twenty years ago, if you were to talk to a commodity manager and ask him why should we invest with you, the typical answer would be, ‘Well I have all these networks of people and call them for any information I need.’ Today, pointing to proprietary information to be your edge is really dubious,” Mr. Younes said.””

However, assets under managent remain high:

”The number of commodity funds reporting returns has fallen to an all-time low of 130 this year, compared with a peak of 371 funds in 2011, according to data going back to 2007 from research firm eVestment. That comes as assets under management have rebounded to about $83 billion this year from a low of $66 billion in 2015.”



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Post-OPEC options trading…

by Jim Colburn • Monday, June 25, 2018

Here is a summary of most active WTI oil options from the CME…  Volume was heavy with an even amount of calls and puts trading (146,786 calls, 156,890 puts)… Record volume was 579,935 on November 16, 2016, also around an OPEC meeting…  And, despite a huge move higher, implied vol was around unchanged at 24%….



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“We have an agreement”…. Bloomberg

by Jim Colburn • Friday, June 22, 2018

“We have an agreement” for a “nominal” production increase of 1 million barrels a day, Saudi Energy Minister Khalid Al-Falih told reporters in Vienna. In reality, the accord will add about 700,000 barrels a day of oil to the market in the second half of the year because several members are unable to increase their output, said Nigeria’s Oil Minister Emmanuel Ibe Kachikwu.”

That is from Bloomberg, here…  And, the market is rallying on the news… Here is barchart.com:

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Pipeline constraints to continue in the Permian…

by Jim Colburn • Wednesday, June 20, 2018

From the Houston Chronicle, here, quoting Scott Sheffield, CEO of Pioneer Natural Resources:

“”We will reach capacity in the next 3 to 4 months,” Scott Sheffield, the chairman of Pioneer Natural Resources Co. said in an interview at an OPEC conference in Vienna. “Some companies will have to shut in production, some companies will move rigs away, and some companies will be able to continue growing because they have firm transportation.””

More from Sheffield:

”The Permian is growing at 800,0000 barrels a day annually and production currently stands at 3.3 million barrels a day, said Sheffield, who first drilled wells in the region in 1979 and is considered one of the architects of the shale revolution. Total pipeline capacity is 3.6 million barrels, so the region will reach capacity in the next three to four months and the bottleneck isn’t likely to ease for at least a year, he added.”

And, this:

”The lack of pipeline capacity will continue to cause severe dislocation in U.S. oil markets, Sheffield said. Benchmark West Texas Intermediate crude at Midland in the Permian is likely to trade at a $25-a-barrel discount to price at the industry’s hub in Cushing, Oklahoma, he said.”



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