Posts Tagged ‘futures’


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Widowmaker’ Oil Trade Lives Up to Its Name

OIL COMMODITIES MARKETS ECONOMY INTEREST RATES INFLATION FUEL PRICES GASOLINE FUTURES NYSE FTSE
CNBC.com
| 12 May 2011 | 03:10 AM ET
Big oil traders who bet on a rise in gasoline prices relative to heating oil ahead of the summer driving season may have thought they broke the curse of a “widowmaker” trade even as oil prices crashed.
They were dead wrong. Some of the traders who shun the big, directional bets that hedge funds love have crowded into a common springtime trade: betting gasoline futures on the New York Mercantile Exchange (NYMEX) will hold at a premium to heating oil futures as consumption accelerates into the summer.
They have been counting their winnings since March, when the spread staged its biggest seasonal rise since 2007.
The surge accelerated earlier this week as the Mississippi River swelled, threatening refinery operations in Louisiana and Tennesse.
But then came Wednesday, when gasoline futures collapsed in the biggest absolute drop in more than two years.
The spread dropped by over 17 cents, the biggest one-day move since September 2009.
“There will be widows. Some people got pretty whipsawed. But that trade is not for the faint of heart,” said Stephen Schork, editor of the Schork Report.
Indeed, lately it’s been a stomach-churning ride. The spread has moved by more than 6 cents in either direction in four of the past eight trading sessions; prior to last week it moved by such a margin only nine times in two years.
First, the U.S. Energy Information Administration came out with data showing an unexpected build in gasoline stocks as the threat level for refineries from the Mississippi river abated.
This, coupled with mounting concerns that gasoline pump prices near the critical $4 a gallon level will cause U.S. consumers to balk, pushed many bulls to the exit.
RBOB gasoline at one point slumped by over 30 cents or 8.95 percent.
The price drop was so big it triggered a five-minute trading halt in all three oil major contracts for the first time since Sept. 22, 2008.
Victims
The “widowmaker” trade tends to be popular among trading houses and hedge funds which house some of the biggest speculative traders in the market.
One victim is said to have lost $500 million on a single bet in the summer of 2008 when gasoline failed to reach a premium to heating oil, contrary to the usual pattern.
On Wednesday, traders said a big Europe-based oil trading company was forced to stop out, or reverse its long position on gasoline to prevent further losses.
Volumes spiked to the highest level in hitory as dealers rushed to place orders.
“If you were long you were happy this time yesterday and you’re probably not so happy now,” said an oil trader with a European bank. “The flood story freaked everyone out. The market attracted tourists and then we overshot.”
U.S. refineries, which ramped up their gasoline production by 111,000 barrels-per-day last week, according to the EIA, are also set to take a hit if the slump in the futures market is carried to spot markets over the coming few days.
The price crash in theory wiped off more than $5 in profits for every barrel of crude processed into gasoline.
Traders who sensed that the price may have been reaching a peak were relieved on Wednesday to have sold near the top.
The signs were already there. Gasoline demand has been on a continuous slump since the second week of April according to EIA’s 4-week average gasoline supply data.
“Luckily, I sold this morning. I’m too scared to watch it,” said a gasoline trader with a bank.
Before Wednesday’s crash, gasoline was trading at a record premium to heating oil, according to Reuters data going back to 2008.
Others saw the plunge as symptomatic of a new oil trading environment, characterized by huge price swings following last week’s record drop in oil prices, for no obvious reason.
In percentage terms gasoline price fell by less than crude in last week’s price crash, but on Wednesday they led the whole complex lower, analysts said.
“Last week’s steep slide has increased volatility in the market, and we are still responding skittishly to that.
Often in the period after a crash like that things become a little more volatile,” said Gene McGillian, analyst at Tradition Energy.
Flagship commodity fund Astenbeck II run by top Phibro trader Andrew Hall was one name that suffered a double-digit loss last week as oil prices tumbled.

commodities – ‘Widowmaker’ Oil Trade Lives Up to Its Name – CNBC

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Clive Capital On the Commodity Slam…sorry,we mean, Outlook

Until we learn which hedge funds REALLY got clobbered, Chris Levett’s $5 billion Clive Capital, which lost $400 million, will be known as the hedge fund that just got clobbered by the commodities dump.

Clive was “at a loss to explain what had caused crude oil markets to be “annihilated,” Clive’s management said, according to the FT.
We assume Levitt’s will bounce back. But for some smaller funds, what happened last week was game over.
Until then, check out what Clive Capital was saying about commodities in October.
Below is a summary from their October letter to investors. We published Clive’s macro view in November.
From Clive Capital’s October letter to investors:
Energy
— Bullish on gas, power, and emissions
  • Estimates for U.S. onshore oil production growth are continually revised up
  • In Asia, Chinese oil demand continues to beat expectations
  • With floating inventories of crude and products continuing to whittle away, oil fundamentals appear to be tightening. Onshore commercial inventories would be the next to draw, which should be supportive to oil spreads in general.
  • Ethanol shortages in 2011 look increasingly possible, which would be supportive for gasoline, particularly in Brazil and the U.S.
  • Gas is expected to remain in a competitive position versus Coal all winter long and throughout 2011.
  • Germany will reach 2008 level power consumption by the end of 2011 if current growth trend is sustained.
Precious Metals
— Bullish on Precious Metals Growing fears over the value of the major paper currencies as well as the persistence of ultra low real rates across the world should be bullish for Precious Metals as a group going forward. We made no major changes to our Gold positioning and should continue to benefit from a move higher in prices… PGM’s also rallied in October; with Palladium outperforming Platinum and seeing Palladium prices reach 9-year highs. The longer-term bullish supply story is not only a function of constrained supply but also of increased cost pressures (particularly in the face of a strong South African Rand and power tariff increases), which are reducing producer profit margins despite these higher prices. On the demand side, tighter emissions legislation around the world has been a positive driver for many years. The implementation of regulations for off-road vehicles (e.g. those used in agriculture, construction) in Europe and North America in 2011 as well as demand from stationary fuel cells should add two further demand components to markets that are already struggling/unable to supply enough metal for all the other uses.
Base Metals
Bullish on Copper and Tin Market balances for 2011 are pointing towards market deficits in Copper, Tin and Lead while Nickel and Zinc should see small surpluses… Copper mine supply is expected to expand by less than 500kt in 2011 (compared to annual refined production of around 19mt)… To put this into perspective, global demand is expected to expand by around 700kt (with the bulk of that growth coming from China and using very conservative assumptions for the G3). As such, there is a strong likelihood that the market will record an even bigger deficit in 2011 than the estimated 300-400kt deficit in 2010. Add in the growing likelihood of physically backed Base Metal ETFs and one could easily envisage a scenario where several metals, particularly Copper and Tin, trade well into record territory in 2011 while others, such as lead, Zinc and Nickel (which are still well below their respective 2007/08 peaks) will see prices rising closer to those prior highs.

Read more: http://www.businessinsider.com/check-out-what-clive-capital-was-saying-about-commodities-before-the-annilhilation-2011-5#ixzz1LrXHGfGX

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Clive Capital On Commodity Outlook


Also read:

Clive Capital Investor Letter on the Commodity Slam 

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Friday Look Ahead: Tech a Focus for Stocks Friday, as Gold Dazzles Investors

Published: Thursday, 16 Sep 2010 | 9:10 PM E
By: Patti Domm
CNBC Executive Editor
Some good news from the tech sector could be a positive for stocks Friday.

Outside the New York Stock Exchange in lower Manhattan.
Photo: Oliver Quillia for CNBC.com
Outside the New York Stock Exchange in lower Manhattan.

Both Oracle and Research in Motion reported strong earnings after Thursday’s bell. Separately, Texas Instruments boosted its $0.12 dividend by a penny and said it would buy back another $7.5 billion shares. All three stocks were higher in after-hours trading.

Stocks Friday morning could feel the effect of the quadruple expiration of futures and options. Traders expect the expiration to be low key at the open, and if anything, the impact should be slightly positive.
CPI, at 8:30 a.m., is expected to show a 0.3 percent increase in August consumer prices. Consumer sentiment is expected to improve slightly to a reading of 70, from 68.9 last month, but economists say the strong performance of the stock market this month could push that number a bit higher. August’s sentiment reading was the second lowest of the year. Consumer sentiment is released at 9:55 a.m.
Stocks drifted on both sides of the unchanged mark Thursday. The Dow ended up 22 at 10,594, and the S&P 500 was off less than a half point at 1124.  The dollar weakened against the euro, and dollar/yen was barely changed after the Bank of Japan intervened to curb the yen’s rise Wednesday.
“This intervention might have higher chances of succeeding, assuming we continue to see relatively acceptable U.S. economic data. That’s the critical thing,” said Boris Schlossberg of GFT Forex. “…as long as the idea of double dip keeps receding, Treasury yields should stabilize and go back up and that will be critical to dollar/yen.”
On the other hand, if we see the 10-year yield move to 2.5 percent, or dip below 2.5 percent, I don’t think any amount of money will stem the (dollar) decline,” he said.
Barry Knapp, chief equities portfolio strategist at Barclay’s, said the initial stock market reaction after a big intervention is often a short-term decline. “For the first couple of days, the market goes down a little bit..the first reaction is to look at the dollar,” he said.
The view is “if the dollar is going up, that’s bad for earnings, so sell it. Dollar’s going down, that’s good. That’s a very simplistic approach. I don’t think it’s right at all,” he said. “If you look back at 2003, when the Japanese were intervening dramatically, the initial reaction was that the stock market sold off, and then it regained its footing.”
Knapp said the intervention at that time was about $360 billion, and he estimated this round could total $250 billion. The BOJ was reported to have bought more than $20 billion Wednesday.
“If somebody puts $250 billion into the markets, event though that money won’t be buying riskier assets, it can trigger an effect,” he said.
The impact on Treasurys could also be noticeable, he said. Traders have been speculating the Japanese will park their dollar holdings in shorter duration Treasurys. “Initially the Treasury curve steepens, but then that tends to drive investors who were in 2s and 5s to extend out the curve and it starts to flatten. Then it triggers a whole position rebalancing.”
All that Glitters
Gold continued to dazzle investors Thursday, scoring its second record settlement of the week. Investors are betting it could try to break the $1,300 level, maybe even as early as next week depending on the outcome of the Fed’s meeting Tuesday.  Gold Thursday rose about a half percent to settle at $1273.80.
Gold has faced some high-profile criticism this week, including from investor George Soros who called it a bubble. “If you think about a world where every major country is trying to find a way to devalue its currency, gold looks pretty good in that environment. Personally I think the dollar is going down more. There’s lots of reasons why gold will continue to rise. I don’t know if I’d buy it, but I know I wouldn’t short it,” Knapp said.

 http://www.cnbc.com/id/39223276





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