The Big Picture | Commodities

Ethanol DeathWatch Map

Friday, July 18, 2008 | 11:00 AM

in Commodities | Energy | Taxes and Policy

Regular readers know I am no fan of ethanol -- over-subsidized gasoline substitute that has helped to drive food inflation aggressively higher (and, it gunks up my engines!)

With the price of Oil down $18 over the past week -- off 12% from the $147 high -- perhaps its time to pull out the BioFuels/Ethanol DeathWatch Map.

Its a terrific Google Maps Mashup (via GigaOm) that shows the various biofuel plants that are having "hiccups."

click for more info

The author notes that this is a "a work in progress" You can add new notices or extra information in the comments.

Previously:
The Costanza Energy Policy: 25 Ways to Drive Oil to $150 (May 29, 2008)
http://bigpicture.typepad.com/comments/2008/05/how-to-drive-oi.html

Source:
Maps: Biofuels Deathwatch
Craig Rubens
Earth2Tech, January 9th, 2008 at 12:00 am
http://earth2tech.com/2008/01/09/earth2tech-maps-biofuels-deathwatch/

T. Boone Pickens on Oil Prices, Wind Power

Wednesday, July 09, 2008 | 03:30 AM

in Commodities | Energy | Video

Boone Pickens details to reduce America's dependence on foreign oil:

click for Video

UPDATE: July 9, 2008 9:43pm

Jeff Matthews points out Picken's flip flop

“I was in wind energy for a minute…. I hate it. And when I got to looking at those damn things I said, I don't want to be a part of putting that on the horizon. I think it's homely and I don't like it. We took a loss and got out of it and I'm glad I did.”

—T. Boone Pickens, Bloomberg, February 17, 2005

Related:
Boone Pickens: A man with an energy plan
C/NET July 8, 2008 4:20 PM
http://news.cnet.com/8301-11128_3-9985905-54.html

Big Pickens: T. Boone, the Oilman, Ups the Ante in His Wind Bet
Keith Johnson
Environment, July 8, 2008, 2:11 pm
http://blogs.wsj.com/environmentalcapital/2008/07/08/big-pickens-t-boone-the-oilman-ups-the-ante-in-his-wind-bet/

Texas oilman T. Boone Pickens wants to supplant oil with wind
Dan Reed
USA TODAY July 8, 2008
http://www.usatoday.com/money/industries/energy/2008-07-08-t-boone-pickens-plan-wind-energy_N.htm

~~~

The End of a 20-Year Energy Cycle

Tuesday, July 08, 2008 | 02:30 PM

in Commodities | Energy | Markets | Politics | Psychology/Sentiment

Following up on our Polyanna post last week, here's some more Leonhardt:

While Congress is barking up the wrong tree -- blaming speculators for high Oil prices -- consider this simpler explanation for $100+ Crude Oil:

"The world is now at the end of a 20-year energy cycle. From the mid-1980s to the middle of this decade, oil prices fell even as the world economy grew. A barrel of crude cost $68 in 1983 (adjusted for inflation) — and just $33 in 2003.

How did this happen? The high prices of the early 1980s gave producers an incentive to take more oil out of the ground and also gave consumers reason to use less of it. With supply growing quickly and demand growing less quickly, prices plummeted.

The low prices of the 1990s reversed those incentives. Americans fell in love with Hummers and pickup trucks, and the Chinese and Indian booms were fueled by cheap energy. Oil supplies, meanwhile, weren’t growing so quickly. To top it off, the decline of the dollar since 2001 has reduced Americans’ purchasing power. Without that fall, a barrel of oil would cost less than $110 today, rather than $141, according to Stephen P. A. Brown at the Federal Reserve Bank of Dallas."

Oil will stay expensive until two things happen: the fundamentals of the supply and demand equation changes, and the scarcity psychology around crude oil shifts.

Bottom line: Oil prices will eventually fall as the global economy cools off. But you can forget very cheap oil -- under $30 or even $40 dollars a barrel -- until we find a cheaper adequate replacement.

Previously:
The Costanza Energy Policy: 25 Ways to Drive Oil to $150 (May 29, 2008)
http://bigpicture.typepad.com/comments/2008/05/how-to-drive-oi.html

Source:
Dispelling the Myths of Summer
DAVID LEONHARDT
NYT, July 2, 2008
http://www.nytimes.com/2008/07/02/business/02leonhardt.html

~~~

Faber: Expect Industrial-Commodity Demand to Drop

Monday, July 07, 2008 | 04:00 AM

in Commodities | Economy | Video

Marc Faber, publisher of the Gloom, Boom & Doom Report, talks about the U.S. and emerging-market economies, the state of financial-services industry and the outlook for commodity markets.

00:00 U.S. economy; financials in "disarray"
01:09 "Negative" about emerging-market economies
02:21 Outlook for commodity markets, oil

Click for crappy WMP

Source:
Marc Faber Expects Industrial-Commodity Demand to Drop
Bloomberg, July 1 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2pX.LlaDNqQ

Why the Disconnect: Population vs Pros, part II

Monday, June 30, 2008 | 01:00 PM

in Commodities | Inflation | Psychology/Sentiment

As per our earlier discussion: We know health care costs have skyrocketed, that education costs are through the roof, and that Housing doubled over 7 years and has since fallen modestly from those levels (about 15-20%).

Then there are the commodities: Let's look at a few data points, to see who is less in touch with reality: The gloomy populace, or its Economists:

Goldman Sachs Commodity Index (1978-2008)

via MRCI

One-Year-Ahead Inflation Forecasts, Survey of Professional Forecasters
(1970 - 2008)

Source: Philidelphia Fed

~~~

On an unrelated note, the latest version of Excel for Mac is stripping the dates from the second chart -- I fixed it, but I have no idea how -- any suggestions ?

Here is the Philly Fed file Download inflation.xlsx:

~~~

Chinese Oil Conundrum

Monday, June 30, 2008 | 03:30 AM

in Commodities | Energy | Markets | Trading | Video

China's subsidized fuel prices worked miracles in the past, but because they hurt energy stocks, they are now a major policy concern.

click for video

Related:
For Chinese, the Reality of Higher Gas Prices
JIMMY WANG
NYT, June 21, 2008
http://www.nytimes.com/2008/06/21/business/worldbusiness/21gas.html

The IRS & Inflation Angst

Friday, June 27, 2008 | 07:13 AM

in Commodities | Economy | Inflation | Markets | Psychology/Sentiment

This morning, we have two interesting economic data points: Personal Income & Outlays, and the University of Michigan's Consumer Sentiment reading.

The related theme throughout all of this is Inflation. It is the thread that runs through the tapestry of the economy. The interconnected psychology of the populace, the behavior of consumers, the revenue and profits of corporate America and therefore the equity markets, are all hanging on the Inflation factor.

It has to be one of, if not the single most influential economic factor these days.

The US lags the world in what Bill King terms "Inflation Angst." King blames the CPI's lack of correlation with the real world experience of consumers. The rest of the globe is teeming with inflation angst. When we look at other official inflation measures, we understand why. Russia and China are running double digit inflation; Most of European governments are measuring inflation at 5-7%.

Only the United States, with our debased currency and our enormous twin deficits -- balance of trade and fiscal budget -- has moderate inflation ~~under 3~~ 4.2% (see chart below).

Funny how that happens.

But the man-in-the-street is all too aware that the official inflation data fails to reflect their real world experiences, their actual cost of living increases. They understand that their wages are failing to keep up with prices.

But its more than a bunch of whiny consumers, vicious, lying short sellers, pajamed bloggers -- and PIMCO's Bill Gross -- that have recognized the absurdity of our inflation rate. Even the IRS has finally thrown in the towel:

"The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008, as set forth in Rev. Proc. 2007-70.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year."

As the table below shows, deduction of gasoline expenses was 44.5 cents in 2006; this deduction increases to 58.5 cents by year's end. As measured by the IRS, we have a 32% rise in energy costs over two years.

The IRS measure of energy inflation is far outstripping what the BLS has stated is happening with fuel prices. No seasonal adjustments, no hedonics for better, cleaner, ethanol tinged fuel -- just a whopping big price increase.

How is it that the government division in charge of collecting money has a better handle on Inflation than then the government department in charge of measuring inflation?

IRS Mileage Deductions

courtesy of Fleets & Fuels

UPDATE June 27, 2008 9:26am

The Bespoke Boys have this spot on table of global inflation rates:
click for detailed view

Sources:
IRS Increases Mileage Rates through Dec. 31, 2008
IR-2008-82, June 23, 2008
http://www.irs.gov/newsroom/article/0,,id=184163,00.html

Fleets & Fuels
March 27, 2006
http://www.altairnano.com/documents/ElectricVehicles_FleetsFuels.pdf

~~~

Doug Dachille & Gary Kaminsky discuss Fed, Rates, and Inflation

Thursday, June 26, 2008 | 03:00 AM

in Commodities | Economy | Federal Reserve | Inflation | Video

Very interesting video from SquawkBox Wednesday morning -- I thought Doug Dachille of First Principles Capital Management did a nice job and Gary Kaminsky Neuberger Berman is always solid.

click for Video

This was not Joe Kernan's finest interview . . . especially later in the interview.

Part II is here:

Iowa Floodwaters

Saturday, June 21, 2008 | 02:00 PM

in Commodities | Science

Insane photos of Iowa flooding from Boston Globe's new blog, which they somehow cleverly named "The Big Picture" (bastards!).

Beyond the devastation to humans, the impact of the flooding Mississippi on food prices, insurance and farm land destruction will be quite significant:

The full run of photos are here (via kottke)

WSJ Interview: George Soros

Saturday, June 21, 2008 | 09:38 AM

in Commodities | Economy | Markets | Psychology/Sentiment | Video

Interesting interview with George Soros:

WSJ: You argue that the crises we've experienced in the past 25 years have been, in retrospect, "testing events" that convince us the system is stable, encourage us to take even bigger risks, leading to one, cataclysmic collapse. Could this be just another testing event?

Mr. Soros: Each time the authorities saved us, that reinforced the belief that markets are self-correcting. Each time when you bail out the economy, you need to find a new motor, a new source of credit and a new instrument that allows for the credit expansion. [It's] difficult to imagine what you can do when you are already lending effectively 100% on inflated house prices.

I have a record of crying wolf at these times. I did it first in "The Alchemy of Finance" [in 1987], then in "The Crisis of Global Capitalism" [in 1998] and now in this book. So it's three books predicting disaster. [After] the boy cried wolf three times ... the wolf really came. If we can sail through this without a recession, then the superbubble story is seriously impacted ... I [will] have cried wolf again. Unfortunately, if you go into a recession, [it is not] proof of reflexivity, or vice versa.

WSJ: How is that you are rich despite your world view having been wrong so far?

Mr. Soros: I'm only rich because I know when I'm wrong.

There are no more important or truer words in trading than this: Bad trade, I was wrong, sell out the position. (That sounds strangely familiar) Soros makes it clear that he understands that quite well.

The whole interview is worth a few minutes of your precious weekend time . . .

Video

Hey Greg! Your cube's desk looks awfully clean . . . Oh, that's right -- I almost forgot!

Source:
Soros, the Man Who Cries Wolf, Now Is Warning of a 'Superbubble'
GREG IP
WSJ, June 21, 2008; Page B1
http://online.wsj.com/article/SB121400427331093457.html

~~~

Oil Producers to Meet to Discuss Supply, Prices

Friday, June 20, 2008 | 04:30 AM

in Commodities | Energy | Video

Government leaders and oil producers will meet in Saudi Arabia over the weekend to discuss record crude prices. Saudi Arabia, the world's biggest oil producer, is considering raising production. But will this solve the problem?

click for video

Related:
Exploding commodity prices, lax monetary policy, and sovereign wealth funds
Guillermo Calvo
20 June 2008
http://www.VoxEU.org/index.php?q=node/1244

Source:
Leaders, Oil Producers to Meet to Discuss Supply, Prices: Video
Rebecca McLaughlin-Duane
Bloomberg, June 19, 2008 23:12 EDT
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aH.1Hqoy5AJI

Stocks: Negative Return Due to Inflation

Monday, June 16, 2008 | 08:00 PM

in Commodities | Earnings | Valuation

Interesting Bloomberg article this afternoon on corporate profits and raw cost inputs:

"Inflation is eliminating the rewards of owning U.S. stocks.

Surging commodity prices have eroded earnings and spurred the Federal Reserve to consider raising borrowing costs just as equities are trading at their most expensive in four years. Standard & Poor's 500 Index shares yield 0.22 percentage point more in profits than the interest on 10-year Treasury notes, the smallest advantage since 2004, data compiled by Bloomberg show. The last time corporate earnings returned less versus bonds, the index posted its first quarterly decline in more than a year.

The 44 percent advance in oil, 72 percent jump in corn and 41 percent climb in rice pushed the UBS Bloomberg Constant Maturity Commodity Index to a record this year. That's squeezing profits as raw-material costs outpace consumer prices by the largest margin since the 1970s. Companies in the S&P 500 will earn 7.7 percent less in the second quarter than a year ago, according to analysts' estimates compiled by Bloomberg."

We know inflation has been significant -- how much is this going to matter in the coming days months and quarters?

What say ye?

Source:
Stocks in U.S. Show Negative Return on Inflation Gain
Michael Tsang and Alexis Xydias
Bloomberg, June 16 2008
http://www.bloomberg.com/apps/news?pid=20601213&sid=afIM_UR69tbo&

Crude Oil = $140

Monday, June 16, 2008 | 01:18 PM

in Commodities | Energy | Technical Analysis

Well, almost -- it hit $139.89 earlier today (July contract, expiring Friday June 20th)

Metals Conference: Currency, Fed policy, and Debt

Monday, June 16, 2008 | 09:45 AM

in Commodities | Credit | Currency | Federal Reserve

If anyone is around Central Park South today, I am giving a short presentation on currency, Fed policy, and debt and how it impacts metals supply and prices at 11:00am at the Ryan's Notes 2008 Assessing Metal Market Drivers.

Here are the details:

Ryan's Notes will host a one-day meeting on Assessing Metal Market Drivers on June 16 in New York City. Speakers will present papers on industries that affect ferroalloy consumption: Steel, energy, automobiles, aerospace, housing and chemicals. In addition, financial analysts will focus on the economic outlook, mergers, currencies and debt. Finally, there will be a discussion of organized metals exchanges established and proposed.

New York Athletic Club
180 Central Park South
New York City
June 16, 2008

Ryan's Notes publishes a weekly newsletter that covers news and prices of ferroalloys, metallics, lead and zinc and minor metals. I have attached a copy of a newsletter. Ryan's Notes also holds conferences. We hold an annual ferroalloys conference that last year attracted over 650 delegates. We recently held our second Metallics Meeting where we had slightly less than 200 delegates.

CPI Goes Higher on Food, Energy, Transportation, Medical, Tuition & Books, Restaurants, Alcohol, Rent, etc.

Friday, June 13, 2008 | 10:05 AM

in Commodities | Consumer Spending | Economy | Inflation

If you are purchaser of computers, women's clothing, or household furnishings, well then I have some good news for you: Everything is on sale, and prices are falling!

However, if you regularly buy Fuel, use transportation, need hospital services, education, books, eat food at home, pay tuition, require medical care, eat out, drink booze, or pay rent, well, sorry: Everything is costing you more.

Even if you back out food & energy -- inflation ex-inflation -- we still have rising prices, and elevated inflation expectations.

This leaves the Fed painted into a corner -- the weak dollar, caused in large part by low rates, is adding to inflation. But the recession and the credit crunch are preventing the Fed from appreciably raising rates.

Here's your cost increase picture, measured year over year:

May CPI
click for bigger graphs

Sector Breakdown

Thanks, Jake!

12 Questions on Markets and the Economy

Tuesday, June 10, 2008 | 07:19 AM

Today we are going try something a little different.

Rather then synthesize what's in the news, flavored with my opinions, I am going to ask several questions -- and leave the answering to you, the reader:

1) Economy: Is the US in a mild recession, or, will we successfully avoid one? How weak is consumer spending, and how much further can it fall? Might the US be entering a significant and prolonged downturn?

2) Inflation: How much inflation is in the system? How high are inflation expectations? Under normal circumstances, inflation moderates as an economy cools. Why has that not yet happened in the United States? Will it happen in the coming year?

3) Fed cuts: Are any further Fed cuts coming? Has the market accepted the possibility that more Fed cuts are unlikely? Are equities priced for potential Fed increases as a response to inflation?

4) Market technicals: Markets have been very choppy, with advances narrow, low volume affairs. Will the March lows holds? How fraught with danger are current market conditions? How significant is the failure of major indices at the 200 day moving average? The NASDAQ is holding up much better than the S&P or Dow -- Why?

5) Employment: How strong or weak is the job market in the United States? Why has job creation been so weak this cycle? Why are new unemployment claims still below 400,000? Why have we not seen layoffs in the multi-100,000 range? Is employment significantly affecting sentiment polls? What are the odds of a robust jobs recovery in the next 12-24 months?

6) Housing: Has the real estate market bottomed yet? How much further will home prices fall? When will inventory of real estate get worked down? When will home sales turnaround? When will real estate stop negatively impacting the macro economy?

7) Credit crunch: How much damage has been done to the financial sector? How much damage will be done in the future to the banks and brokers? Are we in the ninth inning, as some have posited, of the credit crunch? Or, do we still have all way to go, to work away through financial issues?

8) Tax rebate checks: Are they stimulating the economy? Are they merely paying for food and gas price increases?

9) Politics: What is the most likely outcome of the United States elections in November? How likely is a significant increase in the razor thin Democratic majority in the Senate? In the House? How likely is a full Democratic sweep including the presidency? What are the economic and market repercussions of such an event?

10) Sentiment: Why is sentiment so negative? Is it the war, employment, gas prices -- or something else altogether? Has sentiment reached an extreme level where it can be considered a contrary indicator?

11) Data analysis: There's been lots of chatter (elsewhere as well as here) about the reporting of economic statistics by the United States government. How accurate is the data that we get out of the BLS, BEA, Census Department, Federal Reserve, and other official outlets? Have we reached the point where this data has lost significance? What does this do to the credibility of these governmental agencies? Is it possible that this data can be improved?

12) Iraq, Iran, Afghanistan: The economy seems to have pushed the Middle Eastern war(s) off the front pages of the newspapers. How good or bad are things progressing in Afghanistan? How about the war in Iraq? There is a continued buzz about a late summer or early fall assault by Israel against the nuclear facilities in Iran (with tacit US approval). How would this affect the price of oil? The global economy? The elections in the United States?

>
Please feel free to answer fully and completely in the comments section.

On Speculators

Sunday, June 08, 2008 | 12:30 PM

in Commodities | Markets | Trading

My friend Rob Fraim on Speculators:

You know, we don’t mind it when speculators drive up the price of our stock portfolios. And we didn’t complain when speculators made our house values rise.

However, now that (arguably) speculators are said to be driving up the price of oil, we hear the outcries of outrage and the call for more regulation on energy trading. “Speculator” becomes a bad word all of a sudden and said speculators are evil and must be stopped. So many are saying at least.

But let’s take a deep breath. What has always happened after speculative forces have driven the price of stocks too high? Eventually they corrected to reasonable levels (and beyond.) And what about the recent speculation-driven housing boom? It busted.

If a price movement is purely driven by speculators, at some point the market will do what the market does and the aberrant price will normalize. If on the other hand the reasons for the movement of a market are fundamentally rather than speculatively based, then all of the grumbling and grousing about speculators is shown to be irrelevant.

If skyrocketing oil is the fault of speculators time will work it out, and some of the speculators will be burned. The risk we run is that in pointing fingers at market participants and blaming them for energy prices, we end up having our attention diverted from the fundamental issues that need to be addressed – energy exploration, governmental policy, energy conservation, improving energy efficiency and most importantly the need to develop energy technology and alternative energy sources to ultimately make oil a much less critical commodity.

Good stuff -- thanks, Rob!

Crude Oil = $139+

Friday, June 06, 2008 | 01:24 PM

in Commodities | Contrary Indicators | Energy | Psychology/Sentiment

So much for THAT magazine cover indicator! That has to be the fastest any call OF MINE has been proven wrong -- a new mea culpa record !

Cover art courtesy of The Economist, May 29th 2008 issue

Crude futures approaching limit of +/- $10.00 per barrel -- trading will be halted if it trades at the limit for five minutes. The crude limit is $10.00 per barrel ($10,000 per contract) for all months. If any contract is traded, bid, or offered at the limit for five minutes, trading is halted for five minutes. When trading resumes, the limit is expanded by $10.00 per barrel in either direction.

Crude Oil Futures, June 2008

Jim Rogers: Crude Bull Market Has 'Years to Go'

Friday, June 06, 2008 | 03:30 AM

in Commodities | Energy | Psychology/Sentiment

Jim Rogers on Banks & Commodities:

Click for video

Excerpt:

"Jim Rogers, chairman of Rogers Holdings, said the increase in the price of crude oil has "years to go'' as known sources of petroleum are dwindling. "I know that unless someone discovers a lot of oil, it can go to $150, $200'' a barrel, Rogers said in a Bloomberg Television interview. "The facts are the world is running out of known oil reserves.''
Rogers said he bought airline stocks around the world today, saying bankruptcies show the sector may be nearing a bottom. "Bankruptcies are signs of bottoms, not signs of tops,'' he said.

He also said he was shorting Exchange Traded Funds for investment banks, and specifically Citigroup Inc. and the Federal National Mortgage Association, or Fannie Mae. "I am short all the investment banks,'' Rogers said on the phone from his home in Singapore. "I know they're all in trouble, most of them have phony accounting.''

Source:
Rogers Says the Crude Bull Market Has `Years to Go'
Todd Zeranski and Betty Liu
Bloomberg, June 5 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXaqxlra5b3M

Trichet 3, Bernanke 0

Thursday, June 05, 2008 | 05:07 PM

in Commodities | Currency | Energy | Federal Reserve

Wild day in the pits -- DJIA up 213.97, Nasdaq up 46.80 (and over its 200 day moving average!). Crude oil up over $6 intraday, closing up $5.49 to $127.90.

Blame ECB chair Trichet, whose hawkish inflation pronouncements helped tank the greenback and send oil soaring.

In the battle of the Central Bankers, its Trichet 3, Bernanke 0

UPDATE: June 6, 2008 5:48am

See this Bloomberg story, Trichet Leads Shift From Growth to Beating Inflation

US Agriculture Secy: Food Inflation to Hit 43%

Thursday, June 05, 2008 | 03:30 AM

in Commodities | Inflation

"Internationally we're looking at a 43% inflation rate in food this year," Ed Schafer, US secretary of Agriculture, told CNBC Tuesday. Schafer said the big driving factor was energy

Food Inflation to Hit 43%: Schafer
click for video

~~~

Bonus video: PIMCO's Bill Gross and CNBC's Steve Liesman discuss the dollar and future interest rate decisions.

The Dollar & Interest Rates
click for video

Uh-Oh: Economist Cover on Oil

Tuesday, June 03, 2008 | 07:15 PM

in Commodities | Contrary Indicators | Energy | Financial Press

Painful though it is, this oil shock will eventually spur huge change. Beware the hunt for scapegoats

Cover art courtesy of The Economist, May 29th 2008 issue

For those of us who believe in such things as contrary indicators, this suggests a short term top in Oil to me. I would bet we don't see new highs in Oil for the next 6 months, and perhaps even 12 months.

Excerpt:

Thirty-five years on, oil prices have quadrupled again, briefly soaring to a peak of just over $135 a barrel. But, so far, this has been a slow-motion oil shock. If the Arab oil-weapon felt like a hammer-blow, this time stagnant oil output and growing emerging-market demand have squeezed the oil market like a vice. For almost five years a growing world shrugged it off. Only now is it recoiling in pain.

Before engaging in a knee jerk dismissal of the magazine cover indicator, please read page 9, #4 of this report: Contrary Indicators 2000 – 2003 Bear.

UPDATE: June 4, 2008 10:26am

My friend Paul Kedrosky references the Senate debate as the crude oil top tick . . .

Source:
Recoil
The Economist, May 29th 2008
http://www.economist.com/opinion/displayStory.cfm?Story_ID=11454989

NYMEX Raises Margin Requirements for Crude

Friday, May 30, 2008 | 06:37 AM

in Commodities | Energy | Trading

Hefty increase in margin rules from the NYMEX, effective earlier this week:

The New York Mercantile Exchange said on Tuesday it will increase margins for its crude oil and related futures contracts, beginning at the close of business on Wednesday.

Margins for the crude oil, crude oil calendar swap, and crude oil financial futures contracts will go up to $7,250 from $6,500 for clearing members, to $7,975 from $7,150 for members and to $9,788 from $8,775 for customers, NYMEX said in a release.

Margins for the NYMEX miNY crude oil futures contract will rise to $3,625 from $3,250 for clearing members, to $3,988 from $3,575 for members and to $4,894 from $4,388 for customers. Margins for the NYMEX MACI index futures contract will increase to $1,450 from $1,300 for clearing members, to $1,595 from $1,430 for members and to $1,958 from $1,755 for customers.

That may be one source of pressure on Crude this week . . .

UPDATE: May 30 , 2008 11:00am

For all you folks who are Google-impaired:

May 29, 2008

NYMEX to Change Margins for Brent Crude Oil, Related Futures ContractsNEW

NYMEX to Change Margins for RBOB Gasoline Futures Contracts

NYMEX to Change Margins for Heating Oil, Related Futures Contracts

May 28, 2008

NYMEX to Change Margins for Crude Oil, Related Futures Contracts

May 27, 2008

NYMEX to Change Margins for Natural Gas, Related Futures Contracts

May 22, 2008

NYMEX to Change Margins for Heating Oil Crack Spread Calendar Swap Futures Contrac

These come from the 2008 NYMEX Press Releases.

Incidentally, this is what the Fed should have done with Stock margin requirements in 1998-99: gradually increase required capital.

Source:
NYMEX to raise margins for crude, related futures
Gene Ramos;
Reuters Tue May 6, 2008 10:25pm BST
http://uk.reuters.com/article/oilRpt/idUKN0651587320080506

Dallas Fed: Oil Heading Back Under Par

Thursday, May 29, 2008 | 04:30 PM

in Commodities | Data Analysis | Energy

“Absent supply disruptions, it will be difficult to sustain oil prices above $100 (a barrel, in 2008 dollars) over the next 10 years.”

-Dallas Fed researchers Stephen Brown, Raghav Virmani and Richard Alm

>

Since we have been spilling so many pixels on Crude lately, I wanted to point out this excellent piece from the Dallas Fed Research department on Oil prices.

While I do not agree with all of their conclusions, I love any research piece that is cogent, well written, and filled with chart porn!

Source:
Crude Awakening: Behind the Surge in Oil Prices
by Stephen P. A. Brown, Raghav Virmani and Richard Alm
Federal Reserve Bank of Dallas, May 2008
http://dallasfed.org/research/eclett/2008/el0805.html