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  • 20 Bcf Per Well: New Operating Standard In The Marcellus Shale? [View article]
    Paging Arthur Berman...Line 1, Art.
    Oct 28 01:16 PM | 1 Like Like |Link to Comment
  • Delta Airlines' Oil Refinery: The Math Doesn't Work [View article]
    Absolutely shocked this isn't woking out.
    Feb 5 09:42 PM | 1 Like Like |Link to Comment
  • Natural Gas Production Decline May Have Started In September [View article]
    Production isn't falling. Bentek reported a new all-time record high dry production level of 65.0 Bcf/day in late October; we've been within a few tenths of Bcf/day of that ever since.

    Price paints the picture with respect to short-term production trends and we would not be off 11% in the past week in the JAN contract if those of us in the know had reason to understand a budding production decline. Further, and more importantly than the flat price indication, as of Friday, JAN once again trades contango to APR - for the first time since late September. Additionally, all contracts on the NYMEX curve, from the prompt JAN 13, all the way out to the DEC 2024 contract fell below their 100 DMAs last week, for the first time since mid summer.

    These are not the price developments of a market that spies budding production declines.

    If you're relying upon the EIA Monthly Nat Gas Prod Report (EIA 914), you are at a severe informational disadvantage if you're trading the price of NG.
    Dec 4 12:41 PM | 4 Likes Like |Link to Comment
  • Natural Gas Bottom Has Yet To Be Reached [View article]
    Correct. We entered injection season at ~ +900 bcf YoY. National capacity at 11/15/12 is ~ +475 bcf YoY. Pretty-clear math.

    Hell, you had some flagship facilities in the Producing Region come out of winter 91, 92, 93 percent full. As a result, some of those facilities, like SONAT, have seen a net withdrawal since 3/31! Categorically unprecedented.

    Clearly, unquestionably, the surplus had to fall appreciably. That is not what is presented in this Editor's Pick artcle. Hence the nature of my original response.
    Jul 22 02:19 AM | Likes Like |Link to Comment
  • Natural Gas Bottom Has Yet To Be Reached [View article]
    "There is a strong surplus of natural gas in storage which is only growing due to the fact that we are entering another injection season soon."

    This sentence establishes this author's misunderstanding of this commodity.

    We aren't "entering another injection season soon", we're in the singular annual injection season, which we entered in April and will exit in early November.

    The storage surplus is not growing, in fact its quite impressively shrinking. Ergo, price developments over the past 60 days, like the OCT/NOV and OCT/JAN spreads.

    In the 35 years of monthly EIA storage data, back to 1976, no year has seen aggregate storage injections APR through mid JUL lower than 2012.

    The fundamental picture painted in this article, an Editor's Pick no less, is wholly flawed. I challenge the author in the event of any other conclusion.

    There will be no new lows. We may very well go trade $2.500-$2.600-$2.700 again, but the lows are in.
    Jul 22 01:50 AM | 4 Likes Like |Link to Comment
  • Commentary: Here's The Thing About Deflation [View article]
    Pmiller, thanks for the comment. The efficacy of CB printing to offset deflationary events gets down to whether or not a forced horse will drink. Prior to 2009, the number of instances where the Fed Reserve reported aggregate excess reserves among their member banks, system wide, of anything over $1 billion, was zero.

    Since 2009, through today, the Fed reports aggregate excess reserves of over $1 trillion. Further, aggregate cash balances for the SP500 have seldom, if ever, been higher. That's *with* the 400 dma of the UST 10 yr, the genesis of all capital pricing, below 2.75 pct, and current spot at 1.5 pct. The initial hurdle rate for all western corporations has never been lower, and investment is anemic, again referencing heretofore unseen excess reserves and corporate cash balances. That's deflation.

    Forced horses don't drink, as Japan can attest.
    Jun 5 03:10 AM | Likes Like |Link to Comment
  • Commentary: Here's The Thing About Deflation [View article]
    Macro, I believe you are confusing cause and effect. Falling prices are one result of deflation, not deflation itself. It's much like suggesting the cough is the cold, when in fact its a manifest of the cold virus.

    I appreciate your comments.
    Jun 5 02:48 AM | Likes Like |Link to Comment
  • Commentary: Here's The Thing About Deflation [View article]
    Do you accept that our attempts to massage consequence is not costless, resulting in a greater aggregate cost and far longer period of adjustment? Do you accept that the road to hell is paved with the very best of intentions?

    As Hayek put it: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” 
    Jun 5 02:43 AM | Likes Like |Link to Comment
  • Welcome To The Era Of Uncertainty And Volatility [View article]
    Mr. Bern, I appreciate your referencing of my article within your thought-provoking article.

    I found your highlighting of the growing complexities of our global economy(ies) interesting. Generally I agree, although I personally spy ever-increasing homogeneous elements every year, which serve to both incrementally offset the expansion of complexities and to increase the speed with which hell comes down the pike. G7 sneezes manifest into global flues with alarmingly increasing speed.

    That said, the complexities you detail are the very things I find that bedevil those with the best of intentions. For I find that those who engineer attempts to massage shallower business cycles, no matter the moniker of the theory applied, akin to those who would attempt to affect the directional outcome of a hurricane. For all the complexities and symphonies of conditional probabilities of the former are found in the latter. As Hayek put it: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

    I'm not at all sure the entire aggregation of all price distortions, no matter how righteous the original intent, has ever netted a scintilla of benefit since man became so smart as to envision our ability to modify nature. Perhaps unfettered price discovery is a messy, unforgiving process, but its residual is zero. Something perhaps quite attractive as we begin to understand the growing gravity of our vast catalog of global residuals.
    Jun 5 02:33 AM | Likes Like |Link to Comment
  • Commentary: Here's The Thing About Deflation [View article]
    Deflation is neither the contraction in money supply nor the falling of prices. These are symptoms of deflation, routinely confused for deflation itself. Deflation is the surging of risk aversions / the rapid increase in investors' time preferences, which manifests in an " investment strike", or in the parlance of my article, a contraction in demand.
    Jun 4 10:24 AM | Likes Like |Link to Comment
  • Delta: When An Airline Buys An Oil Refinery [View article]
    I don't think this is quite an option, which is a right but not an obligation. They've picked up some solidly complex and variable obligations in buying Tanner, including the myriad regulations that will need to be complied with. Now, the purchase price is certainly suggestive of a call, but as noted above and in an article I wrote on this, the purchase price, at about 8-cents on the replacement dollar for the refinery, is a concern in and of itself.
    May 14 05:29 PM | 1 Like Like |Link to Comment
  • Let's Buy A Refinery [View article]
    Trainer was unprofitable for COP. There is no obfuscation on this point, as they've explicitly stated it. So, Trainer wasn't a "distraction" for COP, it was an unprofitable enterprise. Profit is not distracting to profit-seeking entities. Much like saving a life fails to be a distraction for a surgeon.

    DAL has two choices in their current context, 1) buy JET-A at market, or 2) refine crude oil, taking the 17% of JET-A that will result for your needs, and trading out the remaining 83% of products for JET-A, including the 10% of your off-take that is high-sulfur residual fuel oil, which will fetch JET-A at something like 4:1 ratios.

    In order for this transaction to make fiduciary sense, the net result of 2) must be less costly than 1), which is to say nothing of the fact that 2) exposes DAL to the web-of-hell that are cross-product crack spreads, i.e. various refined products, mogas, heat, napthas, resid, trade in the context of their own individual S/Ds - DAL now has full exposure to this, given their plan to trade out the vast majority of their refinery's output for more JET-A.

    So, IF DAL can in fact source their JET-A cheaper than buying it at market - by making it themselves *and* trading out 8 of every 10 gallons of their refined output for JET-A at going market rates for their basket of wares - how is it that COP couldn't turn a profit for their wares at going market rates from the very same facility?
    May 3 08:44 AM | Likes Like |Link to Comment
  • Let's Buy A Refinery [View article]
    Hedging, in this context, reduces the volatility of a cost stream, that's it. Proper application of consumption hedging requires the hedger to be seeking certainty-of-cost, not seeking to lower costs. Pursuing the latter is the reason for 98% of consumer-hedgers heartbreaks.

    When did I portray hedging as zero-cost, low risk? I hedge for a living, think of me as a guy talking about baseball because I've been playing it professionally for 15 years. Hedging is the transfer of risk, that's it. In DAL's position, they seek to get greater control of the potential distribution of their fuel burn costs. Time will absolutely show that purchasing a refinery is the least efficient way for them to achieve greater certainty of their fuel burn.

    Purchasing a refinery does not, in any way shape or form, offset their exposure to crude oil. The very reason that COP can't find returns at Trainer is because of their exposure to the cost of crude oil - the very problem that DAL has. DAL picking up that exposure in a bid to get greater certainty around their fuel burn is probably the worst way to go about it.

    Further, no worries on confusing mogas, the actual term energy professionals use for "auto gasoline", with JET-A, again, I've been in energy for quite some time.
    May 3 08:31 AM | 2 Likes Like |Link to Comment
  • Let's Buy A Refinery [View article]
    I wasn't attempting to assess value or lack thereof in dated CL pricing, my apologies. Rather, when LUV fixed their CL hedges, prices had yet to make their move from the $50-$60 plateau - the "ease" of their hedges, and resulting ephemeral competitive advantage, stemmed from getting in prior to the next leg up.

    Is there another leg up for CL from the $90-$110 plateau, perhaps an established $140? I really don't know - elasticites what they are in CL demand, its possible. Consuming hedges placed today out in Cal 13, 14, 15 would look "easy" if we did.
    May 3 08:21 AM | Likes Like |Link to Comment
  • Let's Buy A Refinery [View article]
    The reason fuel hedging is challenging now is because the dated crude curve is so expensive. LUV looked like heroes because they bought deeply-dated strips early. That's no longer available. Buying a refinery does nothing to counter this.

    If airlines have the capacity to net fuel savings - in a single year - well under the purchase and refurb costs, we had all very well be expecting to see airlines, globally, following DAL's lead. The refinery supply is out there, which is why COP netted about 8 cents on the replacement dollar at Trainer. I'm not holding my breath.
    May 2 10:57 AM | 1 Like Like |Link to Comment
COMMENTS STATS
108 Comments
263 Likes