Elliott

Thoughts on Energy Trading Position Limits

Chris Cook: "I think the market spiked because the investment banks were able to control the physical and forward markets in Brent/BFOE crude oil, and hence the global benchmark price, through the aptly named Brent/BFOE complex of contracts."
===

OK, well, I've never seen evidence of banks in "control" of the markets. In Congressional testimony, a hedge fund manager pointed out that hedge funds, pension funds, ETFs, etc., increased their positions in futures contracts from $13 billion to $260 billion from 2003 to 2008. It was a huge momentum trade, making a profit on the rollover from one contract to the next, and never taking delivery of the oil.

So much money poured in that the price got disconnected from the actual demand for oil.

In a normal free market, prices are high when goods are scarce. When the price of oil hit the peak, world oil storage was full. America's top oil storage facility, Cushing Oklahoma, was turning away oil. The fact that prices were high while oil was in surplus -- is strong proof that the oil futures market was distorted and unbalanced by financial players.

People need to understand that if you truly want the free market to exist in the futures markets, we need to limit participation to professionals who actually produce and consume the commodity at the wholesale level.

Thoughts on Energy Trading Position Limits

I disagree -- "excessive concentration" and "excessive speculation" are part and parcel of the same thing, both of which are activities that damage the futures markets. Futures markets are fragile and they work best as a price discovery mechanism when both sides have an actual interest in the physical commodity. I guess the author forgot we paid $4 per gallon for gasoline in 2008 not because oil was scarce -- inventories were very high -- but because hedge funds and big banks bid up the futures and had no intention of ever taking physical delivery of oil nor gasoline.

The Inflation / Deflation Forces Battles On

Urban myth: the Fed is printing money like crazy. Not true. Go to FRED, the Fed's database, and look at a chart for M2. The total dollars in circulation in 2009 has leveled off after climbing in previous years. Government debt is increasing but total dollars in circulation is not... with high unemployment, there are fewer actual dollars chasing goods. That's why the inflation numbers are so low. With pay cuts, lack of jobs, huge housing price cuts, credit card contraction, etc., deflation is dominant right now. You can't have sustained inflation with a 10% unemployment rate... not enough buyers of goods to push up prices.

United States Natural Gas Fund: No More Futures?

"UNG has attracted more than $3 billion in cash inflows so far in 2009, during which time the fund has lost more than 50% of its value."

B-baaa, herd up the 401k sheep for their monthly shearing!

Why Did Natural Gas Spike?

The ambush of gas traders trying to short the UNG rollover was reported in a gas industry subscription-only newsletter, and confirmed in a later Bloomberg news story.


On Oct 06 05:47 AM Andy Abraham wrote:

> When do you know where there is an imbalance... over bought..over
> sold...

Why Did Natural Gas Spike?

No big mystery. We've seen this movie many times before in stocks and futures markets -- there was an imbalance of way too many traders on the short side playing the "obvious" UNG monthly rollover. When there's an imbalance all it takes is for a few bulls to light the kindling, then shorts buy to cover, the fire gets bigger, setting off more stop losses on the way up. The market never tolerates an imbalance and always finds a way to restore equilibrium.

Natural Gas Production Declines Are Becoming More Evident

Mmarrkk: you raise a good point. I would meet you halfway, and say that the current gas surplus is due to both overfinancing (i.e., loose money) in '08 and depressed demand in '09.

Natural Gas Production Declines Are Becoming More Evident

Any year-over-year analysis using 2008 as a comparison is misleading. When the financials and the hedge funds ran up the price of energy during the commodity bubble last year, the high prices made it attractive for drillers to produce as much as possible. This lead to massive overproduction, which is stuffing all of the available storage today.

Last week 67 Bcf was put into storage. The five year average, using EIA numbers, is 65 Bcf this time of year. I'm not seeing evidence of lower-than-normal production, only a return to normal levels. I think the real story is that we continue to have normal production in the face of a 500 Bcf surplus.

UNG: The Best Way to Invest in Natural Gas

Today's quotes: front month gas futures = $3.65, next month = $4.61. That one dollar premium is a steep fee to pay every month when holding UNG.

Coming Soon: State ETFs

California ETF could have some big names: Chevron, Disney, H-P, Intel, Safeway, Apple, Northrup-Grumman, Cisco, Amgen.

Rough Times Ahead for Natural Gas

Working gas in storage is 500 Bcf above normal and producers continue to inject more at the rate of 60 to 70 Bcf a week. Storage usally peaks around Nov 1 and then is drawn down at approx rate of 450 Bcf per month during winter. Just to draw down the excess in storage is probably going to take until December, even longer if we get the expected mild El Nino winter.

Natural Gas: Extreme Contango Suggests Caution for E&P Companies

Two main reasons Congress is ignoring NG

1. Coal lobby

2. Political calculations -- Pennsylvania is an important swing state in elections, and neither side wants to be punished by Penn voters for causing the loss of coal industry jobs.

On Sep 08 12:01 PM GotLife wrote:

> Current Congress is not enamored with NG because of carbon emissions.
> Their base is awaiting "energy with zero ecological impact" and have
> also decried shale drilling for NG based on water table consequences.
> Anybody notice the ban on windmills over most of the western states
> until the effect on the Prairie Grouse is evaluated?
>
> So, we keep burning coal and exploding gasoline. Maybe the OPEC nations
> and mother Russia ARE smarter than US.

Why the Fuss over Natural Gas ETF?

The chart is chasing its own tail. Since UNG owns a large percentage of futures and swaps, of course the price movements of UNG and futures front month are closely correlated. The real question is, what would the price chart look like if UNG did not exist?

Natural Gas Is Cheap Compared to Oil

There are two camps: one camp says the oil/gas ratio is at an all-time low and it has great significance; the other camp says that oil and gas have different markets, are used in different products and cannot be compared.

The author's "squiggle chart" looks like the night's walking path of the town drunk. It's hard to argue that oil and gas have any sort of relationship at all.

Supply Glut Pressuring Natural Gas

On Aug 31 10:03 AM Mad Hedge Fund Trader wrote:

> Natural gas
> at these prices is another way of buying oil at $18 a barrel, with
> less pollution.

Really? Wow, I had no idea they could take natural gas and make gasoline, diesel and jet fuel out of it.