Seeking Alpha

tradax's  Instablog

tradax
Send Message
Simon Jacques is the author of the Trade Shipping and Finance Wizard covering AG markets, Dry-Bulk and the Energy Marine Trade.
My blog:
The Trade, Shipping and Finance Wizard
View tradax's Instablogs on:
  • JET Fuel: NY Harbor Vs USGC Vs Canada. How The Phys Work Alongside Shipping And Spreads ?
    JET Fuel: NY Harbor vs USGC vs Canada. How the phys work alongside shipping and spreads ?

    How the physical markets work alongside shipping and spreads in the Jet Fuel Market ?

    US Energy Information Administration data released September 30 showed the US exported its second-highest level of jet fuel in July, at 6.4 million barrels, behind only December's 6.6 million barrels. Canada was the top destination with 1.67 million barrels, or 54,000 b/d a day, which is about equal to almost six average cargoes for the month.

    It's a record amount shipped to Canada for the month of July, though not an all-time monthly record. But sources said Canadian refineries have had more than the normal issues or scheduled maintenance from July and that it would continue through October. Atypically, Canadians at first pulled largely from the East Coast to meet the short that developed just as airline demand revved up in the US' northern neighbor

    NYH JET vc. USGC JET

    NY Harbor/USGC Jet fuel differential. (Platts)

    New York jet fuel barge at the end of September against dipped below the NYMEX ULSD futures contract, but they jumped to a premium of 31 cents/gal on August 29, the highest level against its underlying futures since the aftermath of Hurricane Ike in 2008.

    The so-called "up-down" from the Gulf Coast to New York was 28.75 cents/gal, far above the 4.51-cent/gal tariff on Colonial Pipeline, and a great arbitrage for those who could actually place barrels into the always-full pipeline that runs from Houston to New York.

    Traders hunted for barrels in a market where US stocks reached 18-year lows, demand was near eight-year highs and pipeline issues hampered delivery.

    John F. Kennedy International Airport was down to a two-day supply of jet fuel at one point, about half the norm.

    Then add the Canadian demand into that mix, still drawing from the US Northeast despite high prices into late August, when Glencore was said to have loaded the Seto Express out of Paulsboro, New Jersey, to take 300,000 barrels of jet fuel into eastern Canada.

    Several traders said Canada's East Coast increased imports in preparation for heavy planned work at the Irving Oil refinery in New Brunswick and other refineries in Canada. "Some US Northeast guys are supplying Irving with products during their turnaround," said one US products trader who had to look elsewhere for the supply he usually receives from Irving.

    Source: Platts, Matt Kohlman, 30/09/2104″ Takeoff, eh? At time of need, New York jet fuel heads to Canada"

    The U.S should double thank Canada !

    Great White North is a top destination for U.S oil and now U.S Jet-Fuel is fueling Canadian airliners.

    This Jet flow from NY Harbor/USAC to Eastern Canada/ECC also arrived as Canadian refineries process more and more very light U.S crude oil(bakken and Texan), yielding less Jet ingredients than medium or heavier crudes.

    Arbitrage Jet Barrels

    It was an amazing trade if you got the Jet, and got Long NY Harbor ULSD September Futures+ a basis for Jet to get it delivered at NY Harbor. 29

    However with the 20 cents premium shown on the chart is telling me that few were actually able to deliver volume or specs.

    Shipping

    A 300,000 bbls jet cargo is pretty big and unusual in Canada. ( I mean i a full MR size, like theSeto Express chartered by Glencore is something that we really see here).

    For Jet it is usually small parcels.

    Canadian destinations were Dartmouth, Nova Scotia (Imperial) and Sept-îles, Quebec(Imperial).

    Imperial Oil is the short name for Exxon Mobil Corp in Canada.

    For Sept-îles it might also have been for HSD+15 (Heavy-Sulphur Diesel) because big customers are in Sept-îles for this product (I talk of miners Rio Tinto etc..).

    Expectations

    U.S product trader is also spot on, expectations play a very important role in the market.

    You have to anticipate for yourself and on what others will do next.

    Futures

    The market for the anticipations is the Futures Markets. The consequences of the unwinding of Jet Trade had severe consequences for the CME NY Harbor ULSD Futures in September. Hint: what product Airlines use to hedge Jet Fuel ?

    In general , it an excellent story about how the physical markets work along with shipping and spreads in the Jet Fuel Market.

    Oct 01 12:36 AM | Link | Comment!
  • Natural Gas Gears Up For The Hurricane Season Part II

    As I said in Natural Gas Gears up for the Hurricane season and Winter Pricing:

    "As we are legging into September, it will be interesting to see what effects a mini heat spike and the hurricane season will have and after that the winter pricing."

    "In case of changes in the weather forecasts, the Day-ahead market will not feel the heat because record production will act as a cushion for higher cash prices."

    Hurricane Cristobal will hit Panuke Platform tonight...

    Forecasters tracking Hurricane Cristobal say there could be wind and rain in excess of 50 millimetres in parts of Atlantic Canada starting Thursday and continuing Friday.

    140 km/h WIND...

    Panuke, the platform supplying New-England should be totally evacuated with the Helicopters by this afternoon.... Production will be shut-down for at least 3 days, Fri, Sat, Sun. It is major for the Boston Market.

    Now for Henry Hub:

    Above-normal temperatures will sweep from Texas to the Northeast through Sept. 10, according to MDA Weather Model.

    This is the late-summer heat that the Natural Gas Market was seeking.

    Futures

    In Chicago, the CME Henry Hub October, which represents the near-term expectations has gained a respectable 25c to $4.05 since August 15th.

    ETF

    UNG, The United States Natural Gas ETF, has done 1$ over the same period. It's maybe just not a proper vehicle for a long or short position in the current markets considering the contango and roll risk.

    I don't think you should invest in UNG, it's a leverage vehicle poorly tracking its underlying.

    Sources: http://www.bloomberg.com/news/2014-08-28/natural-gas-climbs-as-heat-limits-inventory-gain.html

    http://www.cbc.ca/news/canada/nova-scotia/hurricane-cristobal-to-bring-wind-rain-to-atlantic-canada-1.2749089

    http://jacquessimon506.wordpress.com/2014/08/25/natural-gas-is-gearing-up-for-the-hurricane-season-and-winter-pricing/

    Tags: UNG, CHK, natural gas
    Aug 28 10:49 PM | Link | Comment!
  • Natural Gas Gears Up For The Hurricane Season And The Winter Pricing

    As you already know, natural gas has essentially been hit by a low-demand during summer 2014.

    Production has been very strong, but we do still have to play a bit of catch-up on the storage level to get back to the 3.5 tcf range.

    CDDs can be used to tracks how much demand there has been for energy needed to cool-off building in major U.S cities during this summer. HDDs do exactly the same but for heating in the winter.

    (click to enlarge)This week marks the start of the hurricane season.

    (click to enlarge)

    Summer 14

    It is difficult to provide what will be the next direction. Two weeks ago, there was a heat wave forecast but it has never materialized.

    Natural gas market is extremely competitive; I don't think there are major imbalances now because of the supply-side but it would also not take too much to turn this market on the upside. Both CDD and prices are depressed, we are entering in the Hurricane season and winter demand is just around the corner.

    (click to enlarge)

    The historical analysis of the January Futures during the month of August shows that since 2010 prices are populating the left part of the curve.

    In statistical terms, the market price distribution has a little skew to the left and has fat tails.

    The skew to the left reflects years of low-prices/high production like (2012, 2013, and 2014).

    The market is printing in the left corner of the distribution and is filling a gap (illustrated with the Dotted line).

    During August this contract has populated the zone between $ 4 and $4.25 which corresponds to the blank space the between the dot-line and the market line.

    Fat tails show that natural gas has tail-risk i.e. a possibility exists in this market for a many standard deviations event like Hurricane Katrina in 2005 (10.26$/Mmbtu).

    Referring to the right-tail, Futures Magazine Editor and derivatives industry veteran Daniel Collins has that this feature it's not unique to this period of the year and that at current price s, there should be more risk to the upside as we are entering the hurricane season.

    Physicals and Futures

    During last February, the winters had eclipsed the summers and a lot of premium was built into both the winter the summer natural gas forwards basis.

    It appears that merchants have been short physical gas because of these large premiums and that later-on, it has been another price driver for the Henry hub futures.

    The September 2014 contract is what is mirroring the current physical market's expectations is now traded at $3.80 and it will be difficult for the market to attempt going lower than $3.80 because at this level gas will remove some coal from the generation stack.

    The coal-to-gas switching seems to keep a floor around $3.80 from the Southeast.

    In case of changes in the weather forecasts, the Day-ahead market will not feel the heat because record production will act as a cushion for higher cash prices. This theory is at least confirmed by very flat basis at key hubs and current traders' expectations in the forward market at physical hubs.

    Futures

    CAL 15 Strip appears to be at a key support level

    (click to enlarge)

    (click to enlarge)

    4$ is a key support for Nymex January 2015 contract

    4$ is a key support for Nymex January 2015 Natural Gas

    Winter is just around the corner as well. The hedger of a large natural gas industrial user is facing odds of a 50c increase even if weather doesn't totally showed-up like last year. The prompt fundamentals and weather are depressing the winter curve. The Bottom line is that the market right now provided an opportunity to hedge-up.

    Let's call it risk, simple words. The January futures contract can move 20 c down and meanwhile has an upside of 50c until the winter.

    Bearish Factors:

    • Mild weather forecasts for August or September.

    • Strong production and strong storage injections.

    Bullish Factors:

    • Low inventories; reported storage by EIA is 18% below 2013.

    • Net LNG exporter (imports are very low)

    • Cal15 and Jan15 are traded at key support levels.

    • Catch-up on the storage level to get back to the 3.5 tcf range.

    • Moderate weather driven support coming this season.

    In the face of the current natural gas fundamentals, this market doesn't appear mispriced.

    If you look in the windshield, not just in the rear view mirror of the summer, the bias is slightly up. It might be the good timing to buy the January minus prompt spread or selling Jan 450 calls or buying the strip.

    As we are legging into September, it will be interesting to see what effects a mini heat spike and the hurricane season will have and after that the winter pricing.

    Simon Jacques is a trader. Mr. Jacques lectures the Derivatives Products course at the University de Moncton and offers Commodity Merchant Trading and Shipping Advisory Services. You can visit his website at jacquessimon506.wordpress.com

    Aug 23 3:23 AM | Link | Comment!
Full index of posts »

StockTalks

More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.