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  • Natural Gas ETF Suspends New Shares: Are There Alternatives? [View article]
    Yes, same issues with $UNG are affecting other commodities ETFs. See "DB Commodity ETFs Face New Restrictions" from Yahoo Finance

    On Aug 21 05:24 PM SouthboroughMAGuy wrote:

    > Do the same issues raised here on UNG apply to DBC?
    Aug 21 08:53 PM | 7 Likes Like |Link to Comment
  • Despite PPI Decline, Breakfasts Aren't Cheaper [View article]
    Analysts are generally in 2 separate camps about inflation. One tends to argue that the Fed's printing of new money would lead to "hyperinflation." The other group argues that, because of the high level of unemployment, falling wages, and plunging home values, there is simply too much "slack" in the economy for prices to rise.
    But right now, with both inflation and deflation seemingly off the radar, markets are concerned almost exclusively with economic growth right now.
    However, it is quite possible we may have high inflation in food and energy, while deflation in the rest of the economy, which is what this article seems to suggest. If this secnario emerges, it will certainly mean more headwinds to growth, and a likely W-shaped, instead of V-shaped, economic recovery pattern.
    Aug 18 09:50 PM | 7 Likes Like |Link to Comment
  • Natural Gas ETF Suspends New Shares: Are There Alternatives? [View article]
    Theorectially, for the NYMEX Henry Hub natgas futures contracts, there are position limits put in place by the CFTC, whereas there are no position limits on ETFs. That is what I meant by fututures market is closed-end since there is such a thing as position limits. However, whether there are ways around position limits is entirely another story.
    Your comment is greatly appreciated.

    On Aug 17 05:28 PM Fivethousandoverlibor wrote:

    > Dian, please explain your statement that futures are closed-ended.
    > Appreciation in advance.
    Aug 17 07:14 PM | 7 Likes Like |Link to Comment
  • Natural Gas ETF Suspends New Shares: Are There Alternatives? [View article]
    We also need to take into consideration of the expected LNG cargoes coming into the U.S.. A lot of the new global LNG capacities are coming online this and next year. Asian and Europen markets, even though are showing signs of recovery, their demand levels are unlikely to be as robust as before the recession in the next 2-3 years.

    In addition, based on the latest earnings calls, shale gas activity is still going on with companies such as $CHK still adding rigs to hot plays like Haynesville and Marcellus. So, the production cuts is not going to be as dramatic as most might expect.

    There are different opinions among analysts as to the expected impact of LNG on the domestic natgas market. But in my opininion, with the already historically high inventory levels, still weak end user (mainly the industrial sector) demand, coupled with the incoming LNGs, the production cuts are not likely to be enough to balance the U.S. natgas market any time soon. Year 2010 is a bit aggressive timeline to look for higher natgas prices.

    Thank you for the comment.

    On Aug 17 04:24 PM Barbarous Relic wrote:

    > Dian, I would be absolutely stunned if spot gas is not higher than
    > $4/mcf by next spring. The drilling curtailment will have an impact
    > much much sooner than 2012-2013.
    > More than 25% of total domestic production comes from wells less
    > than a year old. Decline rates on new shale wells are often 75%-85%
    > in their first year.
    > If gas is still below $4/mcf next year, expect gas drilling to drop
    > by another 50% as producers deliver into their remaining hedges and
    > then further retrench. As it is right now, expect domestic production
    > to drop by 10% or so within 6 months.
    > Spot gas is positioned to be much higher by early next year. However,
    > I agree one should not play via ETFs -- play via gas related equities
    > instead.
    Aug 17 05:18 PM | 6 Likes Like |Link to Comment
  • Natural Gas ETF Suspends New Shares: Are There Alternatives? [View article]
    Low natgas prices have been the main driver of U.S. rig count crashing aobut 50% from the Sep. 2008 peak. Most of the shale gas plays need $4.50 - $6/mcf to meet ROIs, but It also depends on the type & age of the well and producers' hedging positions.

    Companies are reportedly beginning to bring gas rigs back on line amid signs that the economy is stabilizing. Gas supplies remain ample, however, with U.S. inventories expected to approach maximum storage capacity before the winter.

    The sharp decline in natural gas drilling activity and production cuts will eventually bring domestic natgas market back into balance, but probably not unitl 2013, the earliest.

    On Aug 17 02:14 PM ttibsen wrote:

    > Perhaps this is not the thread in which to make this inquiry but
    > I noticed that the low for Sept NG today is 3.12. Question: is ANYONE
    > (meaning the producers) making money by selling at this price?
    Aug 17 03:25 PM | 8 Likes Like |Link to Comment
  • Natural Gas ETF Suspends New Shares: Are There Alternatives? [View article]
    Hi Ted,
    I forgot to answer your 2nd question.
    Just as Chris (Petrescu) said it is a departure of the fund's objective to invest in other energy futures. Each energy product has different market factors and mixing them in $UNG will make the fund even more complex than it already is.
    And yes, there are other better investment vehicles if you are looking for a bascket of energy products.
    Once again thanks for your time.

    On Aug 17 01:30 PM Dian L. Chu wrote:

    > Ted,
    > Right now, I see the risk of $UNG and natgas more on the down side
    > in the medium term, with natgas likely being capped at $4/mcf through
    > 2012. In addition to the physcial market factors, $UNG could be subject
    > to more downside depending on the regulatory actions, since it is
    > trading above its NAV.
    > Thanks for your comment. Hope to see you on SA often.
    > On Aug 17 08:33 AM tedS wrote:
    Aug 17 01:42 PM | 7 Likes Like |Link to Comment
  • Natural Gas ETF Suspends New Shares: Are There Alternatives? [View article]
    Right now, I see the risk of $UNG and natgas more on the down side in the medium term, with natgas likely being capped at $4/mcf through 2012. In addition to the physcial market factors, $UNG could be subject to more downside depending on the regulatory actions, since it is trading above its NAV.
    Thanks for your comment. Hope to see you on SA often.

    On Aug 17 08:33 AM tedS wrote:

    > Hi, Dian-
    > On the UNG graph you made a comment : " Check back in 2-3 years,
    > if bought in this range.". Do you mean the price will go higher than
    > the current price ( $12.5) or lower? Another question I have is :
    > why is it bad if the fund composition moves to include other energy
    > products besides natural gas?
    > Thank you.
    Aug 17 01:30 PM | 8 Likes Like |Link to Comment
  • China and Commodities: Chicken or the Egg? [View article]
    Since China is sitting on a huge $2+ trillion reserve, prudent risk management would call for diversification. But, China, as the largest holder of U.S. debt/T-Bonds, can't really significantly sell its U.S. t-bond holdings, because it would reduce the value of its own portfolio causing shock waves throughout the globe. So, another hedge against the dollar is to buy hard assets.

    This is essentialy diversification or buying at bargain prices. Either way, this has been the main driving force fueling this year’s equity and commodities rally. But China’s premier Wen Jiabao recently said the country should buy more “long-term corporate real assets” rather than short-term financial assets. That seems to imply buying equity in resources companies, and possibly focusing on the emerging world.

    This would also have been a good investment strategy this year, as commodity-based equities have far outperformed commodities in general. However, some economists suggest the Chinese stimulus may actually be working too well, threatening to overheat the Chinese economy. That raises concerns for inflation setting the stage for the same kind of housing-credit "bubble" that triggered the U.S. financial meltdown.

    So if there is a way to bet on the optimism for a China-centric recovery, buying emerging market resources stocks seems to have been it. Can it continue? It can if China maintains its appetite for resources, but that may be asking a lot.
    Aug 14 11:48 AM | 5 Likes Like |Link to Comment
  • Energy Trends: Crude Oil, Products and the Refining Sector [View article]
    Yes, natgas is now looking more attractive than coal as a power source. As indicated in my 6/24/09 article regarding the domestic natgas, power companies are beginning to ratchet back investments in coal-generated plants to take advantage of low natgas prices and hedge against costly climate-change legislation.

    However, the natgas production cut, and the incremental demand from the power gen sector are unlikely to balance the domestic natgas market anytime soon with the exiting inventory overhang and the expected new LNG cargos coming into the US.

    LNG is expected to "globalize" the the natural gas market making it more competitive with crude oil. A lot of the LNG contracts now are priced to index crude. So give it some time for a global natural gas market to develop and mature, the prospects for the 8 to 1 theoretical crude oil to natgas price ratio appear bright probably by 2015. Meanwhile, we quite possibly will get stuck with a $4/mcf ceiling through 2014.

    Your comment is greatly appreciated.

    On Aug 11 01:03 PM Mad Hedge Fund Trader wrote:

    > zxcvn. I ran some numbers today and came to the staggering conclusion
    > that at $3.60/BTU, natural gas is now cheaper than coal in some markets.
    > One ton of high grade Pennsylvania anthracite costs $65/ton. Some
    > 18 million BTU’s of natural gas, the energy equivalent, costs $66,
    > and doesn’t give you black lung, asthma, lung cancer, polluted air,
    > and mountains of ash. The BTU equivalent of crude comes in at $210,
    > and high test gasoline at an extortionate $420. The crude/NG ratio
    > is at 19:1, an all time high, and an entire generation of ratio traders
    > has been wiped out. It’s just another one of those six standard deviation
    > events which seem to be happening constantly. And like a rubbernecker
    > driving past a gory accident where the human organs are draped over
    > the detailing, I am always interested in wipe outs. Yes, I saw the
    > movie Crash. Don’t ask. Why aren’t the power companies jumping in
    > and burning gas instead of coal? There is the minor issue in that
    > the industry needs $500 billion and ten years to build the plants
    > to take advantage of the enormous new supply. So only frenetic production
    > cuts will support the price until then, which are accelerating as
    > you read this. Or a major hurricane. Better keep UNG on your screen
    > and buy the next wash out.
    Aug 12 12:47 AM | 5 Likes Like |Link to Comment
  • Energy Trends: Crude Oil, Products and the Refining Sector [View article]
    Yes, the the loss of the deep differential that used to exist for heavy, sour crude has hammered refiners. It is a growing trend among US complex refiners to shut down coker units, as light-heavy crude differential is one of the more significant in determining coker rates.

    Credit Suisse recently noted crude differentials looked bad for complex refiners in 2009 and may not recover much in 2010, citing a combination of OPEC production changes and new global refining capacity startups.

    I did not get into the light/heavy differential much here as it is a factor in the relative crack spread, which was discussed in the "Gasoline vs. Diesel "section, and also due to the length and technical nature of the article.

    Thank you for a very insighful comment.

    On Aug 11 05:25 AM A Barrel Full wrote:

    > A good comprehensive summary of the sector. I have just one gripe.
    > You say:
    > .....although shortages of conversion sour & heavy crude capacity
    > in the refining industry have contributed to an increase in the relative
    > value of light crude......
    > However, in the current market, light/heavy differentials have all
    > but disappeared. Ural crude has traded above Brent.
    > No doubt we will get back to normality as the economy recovers, but
    > we are not there yet.
    Aug 11 06:29 PM | 6 Likes Like |Link to Comment
  • Energy Trends: Crude Oil, Products and the Refining Sector [View article]
    This article is also on Reuters and Daily Markets
    Aug 11 03:26 PM | 5 Likes Like |Link to Comment
  • China's Bull Market: Massive Underlying Risk Still Exists [View article]
    Indeed, in contrast to this ideological conviction of the West that markets knew best, virtually all Asian countries seem to believe that government has an important role in managing the economy. This is essentially the philosophy of Dr. Amartya Kumar Sen, the Nobel prize-winning economist and a Harvard professor, that the invisible hand of the marketplace has to be balanced by an emphasis on the visible hand of good governance.

    This decoupling could lead to some major changes. For example, the Asian economies could perform better than their western counterparts for a good while, by adhering to western ideas on economic development as west effectively backtrack from them.

    In addition, while many western populations are becoming increasingly wary of globalization, there is virtually no evidence of this in Asian societies. So, we might witness the globalization reversing direction from the east to the west. Only time will tell.
    Thank you for referencing one of my older blogs. Your readership is greatly appreciated.

    On Aug 09 10:02 PM PairsTrader wrote:

    > The following is a summary from a blog post dated 4/12/09 by Ms.
    > Dian Chu, which I thought would be an appropriate comment to this
    > article. Ms. Chu is an oil industry economist, who is also a contributor
    > at Seeking Alpha:
    > URL:
    > "Measures taken by Beijing in the midst of the worst and most synchronized
    > global recession in our life time, such as infrastrucure-focused
    > stimulus programs, flurry of new Free Trade Agreements (FTA's) among
    > Asian countries, are in sharp contrast to the US reacting with protectionism
    > and interfering with private companies operation.
    > It seems this unprecedented global financial crisis is nudging the
    > US towards much despised centralized economy, while China is becoming
    > more capitalistic. Though there's an ongoing debate about the two
    > systems, at the moment, China appears to be acting more logical and
    > rational."
    Aug 9 10:14 PM | 7 Likes Like |Link to Comment
  • Iron, Steel and China [View article]
    Steel consumption has likely reached a trough for the cycle and should start to recover gradually in the 2nd half of this year. Steel prices in the U.S. slipped for the 11th straight month in June, but prices could go up. Steelmakers have announced substantial price hikes for July. However, the mills will have to continue their negotiations with those who have been resisting paying the last round of increases. But even with prices hikes, the market pricing will remain substantially below prices in previous quarters.

    Historically, true pricing power does not swing to the mills until utilization are near 75-80%. The utilization rate in the US is below 45% right now, and is unlikely to pass the 75% mark before 2012. So, substantial industry headwinds remain over the medium term.

    As for iron ore, BHP is increasingly pushing its iron ore pricings towards spot and indexed future based, as predicted in my 6/5/09 article - Iron Ore Negotiation's Impact on the Steel Industry, China will likely move more ore pruchases to Brazil's Vale.

    For China, The ore negotiation now is about face, instead of prices. The Chinalco deal and the show of pricing power through the BHP-RIO tie-up has made the Chinese-Aussie relationship very testy right now. The saga continues till China sings.
    Jul 31 09:21 AM | 5 Likes Like |Link to Comment
  • BP: Emerging Stronger from Recession [View article]
    Tony Hayward, chief executive of BP, said that, while demand for oil and gas was stabilising, “we’re not counting on a recovery any time soon." He also warned that there is little evidence of any upturn in energy demand and the recovery in the world economy is likely to be “long and drawn-out”.

    Although BP has achieved significant cost reductions, it still needs an oil price of about $50 to fund its capital programs of about $20 billion, and about $60/b to be able to cover its dividend payments, plus capex. So far, I've seen various oil price forecasts mostly ranging from $50 to $75 for the next couple of years. That means if oil prices materialize at the low end of the forecast range, BP will likely either cut capex or cut dividend, or both.

    In my view, global economic recovery, though under way, remains uncertain at this time. So, the next couple of years will likely remain challenging for all oil companies, including BP.
    Jul 29 03:24 PM | 6 Likes Like |Link to Comment
  • U.S. Housing Nearing Bottom, But Foreclosures Worrying [View article]
    Though residential housing seems to have stopped free falling, the commercial real estate is the next head wind. Morgan Stanley & Wells Fargo, two of the largest lenders and investors in commercial property across the US, confirmed this when they reported large losses and surging bad loans.

    The failing health of the $6,700 billion commercial property market, which accounts for 10+% of the US GDP, could be a significant hurdle on the road to recovery.
    Jul 29 09:24 AM | 5 Likes Like |Link to Comment