It seems years ago, but it has only been seven months since the euro was reaching new record daily highs against the US dollar, eventually tapping out at $151.43 on November 26, 2009. The currency has been on a steady decline since those heights and plummeted to $121.32 just this week. For much of the time the euro was falling crude futures kept on rising. These past few weeks have seen a swift 20% correction in crude, bringing crude futures back in line with the reduced value of the euro.
The euro has appeared to come full cycle from everyone wanting to own it, to everyone wanting to sell it. Now that crude has made an adjustment to the lower euro, the next adjustment will be made by European Union exports. The lower currency is just what the doctor ordered to help Europe get out of its debt crisis. Germany in particular with its high reliance on exports will benefit greatly by the reduced costs of German goods. I would not be surprised if the European Central Bank tries to push interest rates to 0% to further deflate the currency.
With German factory goods leading the European Union in the months ahead out of economic stagnation, the consequences will eventually be the raising of interest rates, followed by an upward trending euro. This of course means crude futures will need to adjust higher to compensate for a strengthening euro.
The timing of how quickly this scenario will play out is not definite. Markets always seem to over shoot until there are no more interested buyers or sellers. We may have hit the bottom in the euro sell off, but it is more likely that support will be found on the $115 to $120 levels. If that is the case, crude likely to keep heading lower until it begins to attract heavy buying in the $65 to $60 area. We are likely to see more traders begin taking off short positions and reversing course to the long side over the next several weeks.
Saturday, May 22, 2010
Saturday, May 15, 2010
Oil Spill or Gusher? Have Energy Traders Become Complacent?
The BP drilling disaster in the Gulf of Mexico was originally predicted by Goldman Sachs to create major havoc with shipping and drilling in the Gulf, skyrocketing crude to $100. The market's reaction was to push crude to yearly highs of $87. Weeks went by and not even a drop showed up on Gulf coast beaches. On Friday crude closed under $72, as crude aligned itself with the falling euro. Traders likely have become too complacent with what yet may unfold with the continuing flow of crude.
The photos and film footage streaming from the media the past week appear to show a well coordinated and controlled effort to harness the crude and burn the oil. This has been effective due to perfect weather and easterly sea winds keeping the flow away from major shipping channels. We are now heading into the rainy season for the Gulf where afternoon thunder storms routinely kick up waves 10 to 12 feet. Crude will easily flow under containment booms in this type of weather. Wind direction began changing yesterday, causing the crude flow to move in a westerly direction on a course for Louisiana and the all important offshore petroleum loading platform known as the LOOP.
Of course weather conditions would not matter if the flow of oil could be slowed or stopped. The greatest hope to stop the flow is to drill into the current path and fill with cement compound. This operation will take several months to complete.
There also appears to be a wide discrepancy as to the actual amount of crude flowing. BP only recently released film footage that some are estimating show the flow to be 70,000 barrels per day. If true this eclipses by a wide margin the Exxon Valdez spill which was estimated at 250,000 barrels. Researchers at Massachusetts's Wood's Hole Marine have the technology to properly measure the flow, but have been refused permission to deploy their equipment by both BP and the US Government.
Should a worse case scenario evolve and storms begin driving the crude flow to major shipping channels, not only will crude, gas and diesel spot prices sky rocket, other imported commodities such as wheat, rice and sugar will turn sharply higher as ships are forced to stay at sea, just as if there was a major hurricane striking the Gulf.
Let's hope this catastrophe ends better than expected and loss of marine life is minimal. Caution is needed by energy traders seeing this week's fall in energy futures as a shorting opportunity. Complacency ruled last week, but it is not likely to last in the months ahead.
The photos and film footage streaming from the media the past week appear to show a well coordinated and controlled effort to harness the crude and burn the oil. This has been effective due to perfect weather and easterly sea winds keeping the flow away from major shipping channels. We are now heading into the rainy season for the Gulf where afternoon thunder storms routinely kick up waves 10 to 12 feet. Crude will easily flow under containment booms in this type of weather. Wind direction began changing yesterday, causing the crude flow to move in a westerly direction on a course for Louisiana and the all important offshore petroleum loading platform known as the LOOP.
Of course weather conditions would not matter if the flow of oil could be slowed or stopped. The greatest hope to stop the flow is to drill into the current path and fill with cement compound. This operation will take several months to complete.
There also appears to be a wide discrepancy as to the actual amount of crude flowing. BP only recently released film footage that some are estimating show the flow to be 70,000 barrels per day. If true this eclipses by a wide margin the Exxon Valdez spill which was estimated at 250,000 barrels. Researchers at Massachusetts's Wood's Hole Marine have the technology to properly measure the flow, but have been refused permission to deploy their equipment by both BP and the US Government.
Should a worse case scenario evolve and storms begin driving the crude flow to major shipping channels, not only will crude, gas and diesel spot prices sky rocket, other imported commodities such as wheat, rice and sugar will turn sharply higher as ships are forced to stay at sea, just as if there was a major hurricane striking the Gulf.
Let's hope this catastrophe ends better than expected and loss of marine life is minimal. Caution is needed by energy traders seeing this week's fall in energy futures as a shorting opportunity. Complacency ruled last week, but it is not likely to last in the months ahead.
Saturday, May 8, 2010
Ethanol Blended Gas Major Headache for Boaters
As the boating season gets underway this year, I have noticed a significant amount of our fleet fuel customers bringing their watercraft to our Columbia, SC bulk plant to fill their boats and gas containers with our ethanol free conventional gas. Quizzing a few of the customers as to why they fueled at our facility instead of their local retail stations, the comment over and over was that they are fearful of the damage that can be done by ethanol decomposing gasoline.
Researching the blended ethanol gas affects on boats I am finding there is real truth to what customers are saying. The problem is not so much with 10% blended ethanol that is completely consumed until the tanks are empty within a week or two of purchase. The real problem comes into play with ethanol blended gas that sits in the tanks and hose lines for over three weeks or several months. The high humidity in summer months is easily absorbed by ethanol. The added water decomposes the gas causing octane levels to fall. This contaminated gas will then clog fuel filter and carburetors.
Prospective buyers of boats need to be wary of purchasing a boat that has been running on ethanol blended gas. Especially if the seller has been storing the boat for 90 days or longer with ethanol blended gas in the tanks.
Some boaters may live in areas where there is no conventional gas option. These boaters should be sure to refill their tanks every one to three weeks to minimize the affects of water absorption.
There is nothing worse than planning to have a fun day on the water only to have it destroyed by an engine that will not start. Having a good understanding of blended ethanol gas contamination to fuel supply will help to ensure time on the water is enjoyable.
Researching the blended ethanol gas affects on boats I am finding there is real truth to what customers are saying. The problem is not so much with 10% blended ethanol that is completely consumed until the tanks are empty within a week or two of purchase. The real problem comes into play with ethanol blended gas that sits in the tanks and hose lines for over three weeks or several months. The high humidity in summer months is easily absorbed by ethanol. The added water decomposes the gas causing octane levels to fall. This contaminated gas will then clog fuel filter and carburetors.
Prospective buyers of boats need to be wary of purchasing a boat that has been running on ethanol blended gas. Especially if the seller has been storing the boat for 90 days or longer with ethanol blended gas in the tanks.
Some boaters may live in areas where there is no conventional gas option. These boaters should be sure to refill their tanks every one to three weeks to minimize the affects of water absorption.
There is nothing worse than planning to have a fun day on the water only to have it destroyed by an engine that will not start. Having a good understanding of blended ethanol gas contamination to fuel supply will help to ensure time on the water is enjoyable.
Saturday, May 1, 2010
Cheap Money, Easy Trading Profits
The Federal Open Market Committee left interest rates unchanged this week. No real surprise with the decision. What concerned investors was whether any indication would be given as to when rates might begin to rise. The Fed made clear that they have no intention of raising interest rates any time soon. This leaves the perfect trading environment intact for hedge funds and the big houses to continue borrowing money cheaply, investing in security of choice and earning steady trading profits.
The easy money policy of the Fed can be very frustrating to energy traders focusing solely on fundamentals. The fundamentals of over supplied inventories for crude, gas and distillates continue week after week, month after month, year after year. And yet those continually trying to short the market, with the exception of natural gas traders, have found themselves with negative P&L ratios.
In the long run, all commodities eventually return to obey the laws of supply and demand. However, in the process of returning to the real world, over supplied liquidity will always feed a bull market.
Eventually the Fed will quit feeding the bull by raising interest rates, but until then, buying on the dips, selling on the rips, will continue to turn cheap money into easy trading profits.
The easy money policy of the Fed can be very frustrating to energy traders focusing solely on fundamentals. The fundamentals of over supplied inventories for crude, gas and distillates continue week after week, month after month, year after year. And yet those continually trying to short the market, with the exception of natural gas traders, have found themselves with negative P&L ratios.
In the long run, all commodities eventually return to obey the laws of supply and demand. However, in the process of returning to the real world, over supplied liquidity will always feed a bull market.
Eventually the Fed will quit feeding the bull by raising interest rates, but until then, buying on the dips, selling on the rips, will continue to turn cheap money into easy trading profits.
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