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Chris Cook

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  • Why Isn't Emerging Markets' Oil Demand Boosting The Tanker Business? [View article]
    Cash McCall

    I used to be be in charge of regulation at IPE (which subsequently became ICE Europe), and I think you will find that Goldman's liquidity (which as you say is pretty much infinite) is not the same thing as their capital position/solvency, never mind their regulatory ability to take principal risks in the market.

    No investment bank these days knowingly (cf UBS) borrows money and punts it on the market. What Goldman is doing is enabling ETFs to effectively lend interest free to producers who lend oil in return.

    And yes, that makes them a very dangerous operator. But their modus operandi is to bring in as much ETF money as possible to keep the commodity bubble going, and trade short term on the basis of 'asymmetric' information, and very short term on the basis of a technological edge (eg HFT/co-location and so on).
    Sep 22 10:54 AM | 1 Like Like |Link to Comment
  • Why Isn't Emerging Markets' Oil Demand Boosting The Tanker Business? [View article]
    The futures market is the tail, not the dog. Goldman and Morgan do not have the capital - never mind regulatory clearance - to maintain the necessary positions in the physical market which set the global oil price. ie Brent/BFOE.

    What is going on is that ETF and index fund money is effectively being lent - via Goldman and others - to oil producers who in return lease oil to the funds via sale and repurchase agreements. The futures positions are merely a footprint of the underlying OTC positions of their client/counterparty funds.

    In addition to this purely financial demand met by forward sales, there has - post Libya and Fukushima - been an additional temporary speculative spike.

    Ask yourself cui bono from high oil prices. It's the producers, and if they can support the physical price with borrowed money then they will, as history has shown us many times.

    If there is a further round of QE, then more risk averse inflation hedging dollars might enter the market and keep the price inflated. Otherwise, in my view, we are going to see a decline or even a collapse in the price.
    Sep 21 08:28 AM | 2 Likes Like |Link to Comment
  • Helicopter Drops Would Work, But 'Helicopter Drops' Might Well Fail [View article]
    I think 'inflation expectations' is a canard.

    Investors have inflation expectations, of course, or they wouldn't buy assets.

    But I don't believe that Joe Sixpack has inflation expectations. When making wage claims (those were the days....) he generally looks back, at the inflation he has just suffered, and not forward.

    I think that Joe Sixpack - if he got the helicopter drop - would first use it to pay down debt and in particular get up to date with his mortgage; secondly, put some aside in case; and only then start spending.
    Sep 20 03:45 PM | Likes Like |Link to Comment
  • Central Banks Step In As The ECB Flounders On Fiscal Policy [View article]
    Exchanging fiat currency for debt is monetary action with no direct fiscal effect on the real world.

    If the ECB created a billion € and it was spent directly on financing a new power station, then THAT would be fiscal action.
    Sep 18 08:10 AM | Likes Like |Link to Comment
  • Central Banks Step In As The ECB Flounders On Fiscal Policy [View article]
    It shows that the dollar remains the global reserve currency.

    And that is, in truth, a curse, not a blessing.
    Sep 17 11:37 AM | Likes Like |Link to Comment
  • Why Isn't Emerging Markets' Oil Demand Boosting The Tanker Business? [View article]
    Spot on, Carlos.

    The Brent price is being supported by manipulation/support of a physical market in secular decline, and - now that QE2 has ended - the backwardation is accounted for by the absence of the necessary financial oil leasing to keep the forward price inflated.

    The way I see it the Brent/BOE market and other commodity markets - particularly copper - are now having a Wile-E-Coyote moment.

    We'll soon see - absent more QE of course......
    Sep 7 06:51 PM | 1 Like Like |Link to Comment
  • The Underlying European Oil Contagion [View article]

    Yours is one of the best informed articles I have read for some time on where the true oil problem is, but you've not quite made the final step.

    It is the Brent/BFOE complex of off-exchange contracts which is key, and in particular the Brent/BFOE Forward contract which gives rise to the physical 'spot' deliveries from the Brent, Forties, Oseberg and Ekofisk fields which actually serve as the global market benchmark.

    What we have seen since about 1995 has been the gradual implementation - initially by Goldman Sachs - of long term 'inflation hedging' investment by risk averse investors which has been matched with the need for producers like BP (joined for 12 years at the head with Goldman) to hedge (sell forward) their production.

    It was not really until 2005 (when Shell and ETF Securities caught on) that this financial oil leasing technique caught on, and in fact the slow ramping up and inflation of the oil price from 2005 to 2008 was entirely due to financial purchases of oil made by funds through off-exchange dealings in the BFOE market.

    This 'financial oil leasing' sees producers - who store oil for free in the ground - essentially monetising this oil through sale and repurchase 'leasing' agreements (similar to metals) against interest-free loans of dollars from funds.

    The oil spike in 2008 was essentially caused by a trading coup against Semgroup, but it could have been anything. The financially inflated bubble was already leading to demand destruction. Once the market started down in earnest, many of the risk averse funds pulled out in Q2 2008, and we saw the market over correct to $30/bbl, and then start back up the hill.

    What we have seen since 2009 is Saudi (possibly GCC) participation in oil leasing - undoubtedly in agreement with the US at the highest level - to keep the oil price pegged within a level which is high enough for the Saudis, but not so high as to affect a US president's re-election.

    Unfortunately, a supply shock (Arab Spring/Libya) and a demand shock (Fukushima) have seen a genuinely speculative spike disrupt the Saudi's managed equilibrium as the world's Central Oil Bank.

    What happens next is anybody's guess, but Brent's insane purely financial premium over WTI - even leaving operational constraints to one side) - is fundamentally unsustainable, and the only question is when it will collapse, and how far the oil market will then fall before it starts marching up again.

    This long article of mine on seeking alpha a couple of years ago is useful background to the reality of the oil market.

    This is a bit more up to date
    Aug 20 09:12 AM | 1 Like Like |Link to Comment
  • Global Reserve Currency: Dollar Will Remain King [View article]
    No one has to join the € to use it as a pricing reference.
    Aug 9 12:07 PM | Likes Like |Link to Comment
  • Why Natural Gas Is an Excellent Long-Term Investment Option [View article]
    Good, but incomplete, I think.

    Post-Fukushima the baseload power generation which used to come from nuclear will increasingly come - for those nations frightened off - from gas powered generation. Germany is a case in point.

    Shell is getting into natural gas big-time; a shrewd move, I think.
    Jul 29 10:34 AM | 1 Like Like |Link to Comment
  • The Copper Problem Accelerates [View article]
    I don't buy this at all. I think that financial demand and stockpiles account for most of the price rise, not to mention Chinese financing games.

    I'm more inclined to accept Simon Hunt's take on the market
    Jul 27 11:17 AM | Likes Like |Link to Comment
  • 2010 Oil Story: Drawing Down the Inventories [View article]
    "I agree with the Economist Magazine’s conclusion that most of the difference between 82.095 mbpd produced and 87.382 mbpd consumed came from stock changes. In other words: the drawing down of oil from inventories"

    The Economist was referring to daily rates. There were 365 days last year so that's a 1,930 million barrels differential, which would be the greater part of OECD stocks.

    Am I missing something?
    Jun 10 12:48 PM | 1 Like Like |Link to Comment
  • Statoil: The Goose That Lays the Golden Eggs for Norway [View article]

    The only more disastrous energy market approach than the Norwegian one is arguably that of the UK.

    You might be interested in this submission of mine to the UK's DECC as a Senior Research Fellow of UCL's Institute for Security and Resilience Studies....
    Apr 16 09:17 AM | 1 Like Like |Link to Comment
  • No More Storage in Cushing; WTI Will Be $90 in a Month [View article]
    In fact shifting WTI out of Cushing is very much restrained by pipeline logistics.

    Moreover, it is insignificant compared to the government's strategic reserves.
    Mar 31 09:05 AM | 4 Likes Like |Link to Comment
  • Is the Future of Finance "Post-Human"? [View article]

    Machines can play and maybe win the game, but can't, and never will, make or change the rules.
    Feb 26 10:38 AM | 1 Like Like |Link to Comment
  • Spare Capacity Theory and the Libyan Disruption [View article]
    @Objective Function

    It's not so much consumption on transport, but more things like profligate use of water desalinated at massive energy cost, and new buildings which come with massive AirCon consumption and so on.

    Also the use of cheap energy for industrial production which then constitutes a hidden subsidy of the price.
    Feb 26 06:49 AM | 2 Likes Like |Link to Comment