14
Mar

TGIF – One Week Until March Expiry

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CPI came in flat for the month of February led by a decline in Energy prices (hey, I don't make this stuff up folks, those are your tax dollars at work).  Sensing that inflation is now well in hand (cough, cough, gasp) the Fed now has the green light to hammer rates again at its March 18th meeting (likely 3/4s of a point). Equity futures are soaring and commodity prices are coming off a trifle. Given that its that time of the month again, I plan to use any strength today to continue paring back front month positions.

Commodity Watch:

  • Crude Oil closed up $0.41 to $110.33 yesterday as the dollar reached new lows against major world currencies. The following monthly chart shows the Euro's jump to new highs.

 dollar-031308.jpg

This morning crude is trading off a half a buck as the dollar makes a slight recovery on flat CPI data.

  • Bubble Watch: "With the ongoing divergence between the weakening fundamentals and the rising price, we see clear elements of a bubble in the crude oil market,'' said Tim Evans an energy analyst at Citigroup. "While that bubble may expand further before it pops, we definitely see less upward potential here against a growing downside risk." ZComment: Tim has been a bear since the $80s but at this point I can't really disagree with him. I think the slowing is less pronounced than many bears would have you believe but it is occurring and it doesn't take a rocket scientist to calculate the increased burden of $30 extra dollars per barrel on the weakened U.S. and global economies.
  • Oil Price Forecast Watch: Morgan Stanley raised their 2008 oil price forecast from $85 to $95 per barrel, boosting EPS estimates across the board on the Majors.
  • Natural Gas closed up $0.219 at $10.23, a record high for the April 2008 contract after an 86 Bcf withdrawal, slightly largely than the 82 Bcf consensus estimate, was announced. As you will see in the following graphs, the storage situation is not dire and we remain above the five year average and actual shrank the deficit to 2007's bloated storage levels. No matter, the speculators are in charge of prices in this and many other commodities until the equity markets become more attractive to them. After all, capital is a coward. Natural gas is trading off 6 cents before the open, marking the decline in crude.

Stocks We Care About Today Watch:

EVEP reports 4Q Results, Boosts Distribution. Reported EBITDA of $24 mm appears to be in line with the mean of the 5 analysts who track this gas-leveraged MLP (Master Limited Partnership). Management anticipates boosting their quarterly distribution by 2 cents to $0.62 beginning with 1Q08. I plan to listen to the conference call: 10 Est.

(IOC) ELK 4 Watch:  Drilling report released. Not yet in the target zone and little new data other than we know they are now at 6562 feet preparing to drill ahead in 7" hole. I'm still out now and may look beyond April for a play as this continues to be a longer term waiting game than previously thought. 

Holdings Watch:

CALLS

Botched Trade Watch: Meant to take the April $70 APC Calls for $1.20. Slip of the index finger on new mouse with scrolling wheel and I bought the March $65 calls for the same strike. I was meaning to add to my April APC position in the wake of the storage numbers which are being viewed, at least early this morning as bullish for natural gas. Sold later in the day for $1.70, for a 2 hour 40% gain. 

Odds & Ends

Analyst Watch: Morgan Stanley raised their 2008 oil price forecast from $85 to $95 per barrel, boosting EPS estimates across the board on the Majors. Credit Suisse takes (XOM) up to outperform. Sun Trust RH cuts (GDP) to neutral,

 

117 Responses to “TGIF – One Week Until March Expiry”

  1. 1
    zman Says:

    from doc
    Chk have a huge profit Chesapeake April calls. We all agree oil has become a very topy.

    Question??? Do to try to sell half now and and lock in the profit??? April expiration is four weeks away

    doc

  2. 2
    Sambone Says:

    7:56 am EST

    Crude Lower On Profit-Taking; US CPI Eyed

    By Angela Henshall
    Of DOW JONES NEWSWIRES

    LONDON — Crude oil futures are trading little changed in London Friday due to light profit-taking, pausing after rallies to record highs every day this week.

    “Dips are still being bought as those funds who are late entrants to this rally do not want to miss the boat completely,” said a broker at ODL.

    “But beware, we have made new all-time highs every day this week and there could be some profit taking ahead of the weekend.”

    At 1147 GMT, the front-month April Brent contract on London’s ICE futures exchange was down $0.38 at $107.16 a barrel.

    The front-month April light, sweet, crude contract on the New York Mercantile Exchange was trading $0.50 lower at $109.83 a barrel.

    The ICE’s gasoil contract for April delivery was up $2.00 at $979.75 a metric ton, while Nymex gasoline for April delivery was down 158 points at 266.70 cents a gallon.

    After six straight days of gains which briefly pushed the Nymex light, sweet crude contract to $111 a barrel traders are now squaring-out positions ahead of the weekend.

    This may be a temporary lull, however, as market participants will focus later in the session on U.S. February consumer price index numbers due at 1230 GMT.

    Increased volatility is also expected as the ICE Brent front-month contract expires Friday, moving from April to May. Nymex light, sweet crude front month rolls next week.

    The market however shrugged-off the Organization of Petroleum Exporting Countries’ monthly report published Friday, indicating the group expects lower demand for its oil in 2008.

    The group said supply growth looks set to outpace demand growth, particularly given signs the U.S. was on “the brink of recession.”

    “The absence of a trend-ending scenario and the continued positive link between the uptrend and momentum suggest that the greater risks over the rest of the month still lie to the upside,” technical analysts at Barclay’s Capital said.

    The analysts said they see further upside potential to $115 a barrel, and if that level were to “fail to cap, then we would believe a classic commodity spike high is forming.”

    “The bulls are doing their work with steely efficiency right now,” says Clive Lambert analyst at FuturesTechs, “and are happy to buy into any weakness, like Thursday’s selling of ICE Brent front-month to $105.00 a barrel.” He expects traders to continue to pounce on any buying opportunities that appear as crude briefly retreats.

    Energy markets will continue to have the status of an “alternative “safe haven” for those fleeing the ravaged bond and stock markets,” said Edward Meir analyst at MF Global, who expects the falling dollar continuing to provide support. “The path of least resistance seems to be higher still.”

    A hectic schedule of macro-economic data releases next week looks set to offer little respite for the crude market, and the much-anticipated US Federal Reserve decision on rates could also increase volatility.

    —By Angela Henshall, Dow Jones Newswires

  3. 3
    Sambone Says:

    OPEC Cuts Need For Oil On US Recession Views

    Dow Jones Newswires

    LONDON — The Organization of Petroleum Exporting Countries Friday said it believed the world would need less oil from its 13-member group this year than in 2007 because global oil supply growth was set to outpace demand growth, particularly given signs that the U.S. was on “the brink of recession.”

    In its monthly oil market report, OPEC, which supplies more than 40% of the world’s oil needs, said oil demand growth was unlikely to exceed expanding capacity from non-OPEC oil producers and increasing OPEC supplies in the form of non-traditional sources like natural gas liquids and non-conventional oil.

    “Recent indicators reinforce the view that the U.S. economy may be on the brink of recession,” the report said. “With the latest data pointing to a potential recession in the U.S., oil demand growth is not likely to be higher than projected, resulting in lower demand for OPEC crude.”

    OPEC said its estimate for how much crude would be needed from its 13 members in order to balance the market in 2008 was 200,000 barrels a day less than in 2007. It now forecasts the demand for OPEC crude this year to average 31.7 million barrels a day versus 31.9 million barrels a day last year.

    —By Natalie Obiko Pearson, Dow Jones Newswires

  4. 4
    zman Says:

    Re CHK: It can’t hurt to take profits. I plan to soon on my March’s and don’t have Aprils. Was chatting with a fund manager friend who’s a long time CHK holder (since about $2) and he said he was amazed by this recent run.

  5. 5
    Sambone Says:

    BSC, Wow

  6. 6
    zman Says:

    Sam – those BSC headlines look like doom

  7. 7
    zman Says:

    DRYS swapped an 1996 Panamax for a 2000 Panamax …ongoing fleet renewal…still taking care of business.

    Man, what happened with the futures vs the opening.

  8. 8
    Sambone Says:

    Z – Before the open the stock was up to 62 premarket after the announcement, but then swung down big before the open. Like I have said before, this market reminds me of Japan in the 80’s.

  9. 9
    zman Says:

    CHK attempting $50

  10. 10
    jy Says:

    Z- I wish I could screw up an option trade and make 40% in a few hours. After looking at an idea for days, I’ll buy and lose 40% in 2 hours!!!

  11. 11
    zman Says:

    jy – the mouse made me do it, lol…so I guess I should send Bill Gates a ty note as its one of his.

  12. 12
    zman Says:

    Wow…talk about profit taking, energy just punched down with the broad market. What happened to the big broad market rally before the open???!!!

  13. 13
    Sambone Says:

    Z – BSC, Word is they were going belly up last night.

  14. 14
    zman Says:

    and that kills the market after those “benign” CPI numbers?

  15. 15
    Sambone Says:

    yep

  16. 16
    Sambone Says:

    Wow, look at BSC

  17. 17
    Dman Says:

    Hi Z,

    any clue why NFX is holding up versus other E&P?

  18. 18
    Sambone Says:

    looks like a meltdown today

  19. 19
    Dman Says:

    oops, moot question I guess …

  20. 20
    zman Says:

    crude and gas are flat to up. Safe harbor. Those financial types really messed up the party for everyone, again.

    NFX is flat to up again, some broker must have said something nice but I don’t see it.

    CS took up XOMK and a lot of good it did that stock today.

    Wow BSC!

  21. 21
    Denise Says:

    Good Morning
    Bad morning to go to the gym-well maybe I should have spent the day there-got home to down 250
    This is so bizarre-the BSC bailout-lehmann? What next?

  22. 22
    Denise Says:

    From T Crescenzi
    from page 366 of my book, Stigum’s Money Market:

    Reserve banks are authorized, “in unusual and exigent circumstances” and after consultations with the Board of Governors, to extend credit to an individual, partnership, or corporation that is not a depository institution if, in the judgment of the Federal Reserve Bank, credit is not available from other sources and failure to obtain such credit would adversely affect the economy.

    The interest rate charged on such credit would be above the highest rate in effect for advances to depository institutions. Such loans were used in the 1930s to grant about 125 loans totaling a mere $1 million, but it has not been used since.”

    Other sorts of federal subsidies or assistance, the Fed believes, should be granted only by decisions of Congress and the administration, not by an independent central bank.

  23. 23
    Sambone Says:

    10:21 am EST

    Crude Lower On Profit-Taking; US CPI Eyed

    By Angela Henshall
    Of DOW JONES NEWSWIRES

    LONDON — Crude oil futures are trading little changed in London Friday due to light profit-taking, pausing after rallies to record highs every day this week.

    “Dips are still being bought as those funds who are late entrants to this rally do not want to miss the boat completely,” said a broker at ODL.

    “But beware, we have made new all-time highs every day this week and there could be some profit taking ahead of the weekend.”

    At 1147 GMT, the front-month April Brent contract on London’s ICE futures exchange was down $0.38 at $107.16 a barrel.

    The front-month April light, sweet, crude contract on the New York Mercantile Exchange was trading $0.50 lower at $109.83 a barrel.

    The ICE’s gasoil contract for April delivery was up $2.00 at $979.75 a metric ton, while Nymex gasoline for April delivery was down 158 points at 266.70 cents a gallon.

    After six straight days of gains which briefly pushed the Nymex light, sweet crude contract to $111 a barrel traders are now squaring-out positions ahead of the weekend.

    This may be a temporary lull, however, as market participants will focus later in the session on U.S. February consumer price index numbers due at 1230 GMT.

    Increased volatility is also expected as the ICE Brent front-month contract expires Friday, moving from April to May. Nymex light, sweet crude front month rolls next week.

    The market however shrugged-off the Organization of Petroleum Exporting Countries’ monthly report published Friday, indicating the group expects lower demand for its oil in 2008.

    The group said supply growth looks set to outpace demand growth, particularly given signs the U.S. was on “the brink of recession.”

    “The absence of a trend-ending scenario and the continued positive link between the uptrend and momentum suggest that the greater risks over the rest of the month still lie to the upside,” technical analysts at Barclay’s Capital said.

    The analysts said they see further upside potential to $115 a barrel, and if that level were to “fail to cap, then we would believe a classic commodity spike high is forming.”

    “The bulls are doing their work with steely efficiency right now,” says Clive Lambert analyst at FuturesTechs, “and are happy to buy into any weakness, like Thursday’s selling of ICE Brent front-month to $105.00 a barrel.” He expects traders to continue to pounce on any buying opportunities that appear as crude briefly retreats.

    Energy markets will continue to have the status of an “alternative “safe haven” for those fleeing the ravaged bond and stock markets,” said Edward Meir analyst at MF Global, who expects the falling dollar continuing to provide support. “The path of least resistance seems to be higher still.”

    A hectic schedule of macro-economic data releases next week looks set to offer little respite for the crude market, and the much-anticipated US Federal Reserve decision on rates could also increase volatility.

    —By Angela Henshall, Dow Jones Newswires

  24. 24
    Sambone Says:

    Sorry for the repeat

  25. 25
    Denise Says:

    Z-was just reading May gas crack has gone under $4-
    Your thoughts?
    Time to buy vlo-enough blood?

  26. 26
    Sambone Says:

    Uncle Phil

    http://www.321energy.com/reports/flynn/current.html

  27. 27
    zman Says:

    D – dunno, flattish demand, over stocked, with lousy margins. Just not seeing the light at the end of the refining tunnel. VLO sounds like they want to throw in the towel and sell a bunch of refineries now after years of carefully/selectively acquiring and upgrading them.

    Man I detest this all or none, take no prisoners kind of market. Couldn’t be greener yesterday, couldn’t be redder today.

  28. 28
    Sambone Says:

    What me worry. Alfred E. Newman

  29. 29
    Denise Says:

    It is looking like it will be a long day
    Can’t resist posting this tidbit-from S Smith
    know it’s off topic

    On Tuesday, when Bear Stearns was trading in the mid $60’s, there was huge put volume in the March $30 strike. Over 50,000 contracts traded that day at an average price of 15 cents a contract.

    Those puts are now worth over $5.00 contract. Not to be a conspiracy theorists but someone clearly had sense that one or more of other big investment banks would no longer act as a counterparty.

    Does this sound like something Goldman Sachs, which did in fact pull the rug from doing business with Bear, would do?

  30. 30
    zman Says:

    check out oil and nat gas. Traders thinking inflation hedge no longer needed? Or maybe just the broad market’s pull.

  31. 31
    apbd Says:

    Did Charlie G. warn us about BSC? lol
    apbd

  32. 32
    Denise Says:

    Z-may be time to add to those UNG puts
    but the day is young
    Before the BSC news and open Pappa Kass went short XOM and more Dug
    -economy slowing reason

    Also I was thinking if the Fed is willing to bailout BSC-maybe housing next? Imagine there might be some weekend mtgs

  33. 33
    zman Says:

    Hear ya D, but between the bailouts and the talked about tax credits for housing, who’s paying for this? Oh yea, my kid.

  34. 34
    Popeye Says:

    Make that your kid’s kid Z.

  35. 35
    apbd Says:

    And now our next American Idol contestant is Client # 9 singing:
    ” Looking for love in all the wrong places.”
    apbd

  36. 36
    Sambone Says:

    Barney bill will probably be passed, IMO. Election year. New S&L REFCO. If passed my question is, will overseas still think our paper AAA?

  37. 37
    zman Says:

    Sam – general not a big fan of more legislation but do you think Barney’s lending law is a step in the wrong direction?

    Isn’t ABK’s paper still AAA.

  38. 38
    zman Says:

    IF NG cracks $10 this will be the worst daily perf in a month for the UNG…could have a cascade effect. Currently gas down .16 at 10.06 (a little more % than oil is down. UNG has been pretty much nothing but up since 39 on Feb 7, now at 49, off 1 today.

  39. 39
    zman Says:

    D: you saw IOC had a blurb out this morning? They are still a ways off from reporting results it sounds.

  40. 40
    kaman Says:

    Movie question of the day : “Yeah, I think it’s very important not to let yourself get too run down”…in the desert with vultures padding about. Winner gets a date with “Kristen”.

  41. 41
    Sambone Says:

    Barney bill – Yea, bad bill. Basically gives your grandkids the mess. The S&L bailout was north of 200 billion when the dust settled. If you remember, in texas where houses owned by the goverment sat empty for the longest time. This one will be much larger. Once done, my question once again, will the overseas markets still consider our paper AAA? I don’t think so. If I could short the T bill, that would be the way to go. Thinking of shorting the 10 year, and going long the 2 year.

  42. 42
    zman Says:

    Just saw Bush speaking on mortgages and markets at the NY Economic Club. Missed the mortgage part except for something about a period of three years. Anything new in what he’s saying.

    K – I got no clue on that move line…guessing Wild At Heart.

  43. 43
    Popeye Says:

    Z do you mean “Wild Hogs”? Wild at Heart is my most fav movie.

  44. 44
    kaman Says:

    Nope, not Wild Hogs…gotta go back to the 80’s I think.

  45. 45
    kaman Says:

    The infamous “Ishtar”…quite possibly the second worst movie ever made.

    I thought the quote was applicable in light of Denise’s question above re: would GS slit the throat of BSC? According to Cramer – the Street houses salivate at that…so, its important not to let yourself get too run down.

  46. 46
    zman Says:

    I heard Hoffman cried at the premier on that. Very funny K. The hedgies feel the same way about each other, hence the part of the run in natural gas: “kill thy neighbor”

  47. 47
    zman Says:

    NG refuses to break 10; UNG down 2.5% vs NG’s 1.8% retreat. Back to a horrible looking market.

  48. 48
    zman Says:

    NG and oil have decoupled. NG piercing 10, UNG down about a half percent more.

  49. 49
    zman Says:

    U.S. Faces Severe Recession (not according George and Ben), but it is according to this guy:

    http://biz.yahoo.com/rb/080314/usa_economy_feldstein.html?.v=1

  50. 50
    Popeye Says:

    This market reminds me of a period when I would just sell everything on Thurs and buy it all back late Fri.

  51. 51
    Denise Says:

    Hmmmm…
    Came home to a message from my brother-in-law asking for financial advice
    He has never asked in the 15 yrs I have known him
    Look at the VIX 31.89- Over 30 usually correlates with market lows-

  52. 52
    zman Says:

    Some odd action now in products, especially heating oil. Almost like the specs are looking for things that have not run up as much as O&G have, regardless of fundies.

  53. 53
    kaman Says:

    Z- OK, with you have deemed the UNG 43 puts worthless….still holding 47’s….cashout today before time decay?

    Denise: Ever trade VIX options?

  54. 54
    Denise Says:

    Also read a post Mr Kass was materially reducing all longs and shorts-
    Another post early this am from my voodoo fibanacci man
    “When in doubt I am getting out”-can not remember him ever saying that

  55. 55
    Denise Says:

    Z- No I am a “common ” woman-hate the time decay ect….
    Only buy options when I have the strongest of convictions(rare event for me)or for common protection
    My UNG short-I managed to snag some even though it is restricted

  56. 56
    zman Says:

    K – For $0.20? I’m holding.

  57. 57
    Denise Says:

    Note the fact XCO has been green all day

  58. 58
    zman Says:

    D – I’m seeing a lot more rhyming in the press. Here’s mine: I got slimed by the kings of subprime (Z ~ 03/08).

    The E&P crowd is off but in 3 up, 2 back fasion (or better) which I will gladly take.

    Oil going green now into its last 30 minutes.

  59. 59
    zman Says:

    XCO bumped up their capital program

  60. 60
    zman Says:

    They are unloading natural gas in the last half hour here. Where’s Nicky? Volume is starting to pick up. UNG down 3.25%. I’ve seen gas move in several big increments after moves like the one we’ve had, corrective movements where you can get 20 to 50 cents per day.

  61. 61
    zman Says:

    S&P just cut Bear’s ratings. That’s helpful.

  62. 62
    zman Says:

    ng 9.86 and tumbling

  63. 63
    T-Tupp Says:

    kaman- i trade vix options. over the past year they have become very liquid

  64. 64
    T-Tupp Says:

    kaman- do you trade them? there are a lot of misconceptions about them

  65. 65
    BigJim Says:

    Tax Question: Do I have to put down every option trade for 2007? My broker did not send me a 1099. When I called they said they do not send 1099 on options. So do I still report each option trade? Confused.

  66. 66
    Denise Says:

    I get the feeling Cramer is going to rant about the FED on his Stop Trading segment today-
    Z-are you going to add to your NG puts?

  67. 67
    T-Tupp Says:

    z- im much more centered now that the propagators of ivory tower econ 101 have let me know the energy prices have not increased feb07/feb08.

    how does 75% on average price increases in coal NG & CL and finished products equate to 0.2% or whatever it was!

  68. 68
    Wyoming Says:

    Z,

    RE 60, do you mean move down and up 20 to 50 in a day (whipsaw)?

  69. 69
    Sambone Says:

    Look out below, glad I own SKF!!!!!

  70. 70
    kaman Says:

    T- i do not…but the intrigue is there…alas, I am a novice.

    Denise: A “common” woman? You are full of double entendres this week…guys really like that you know.

  71. 71
    Sambone Says:

    Comstock Partners

    “Since the crisis unfolded last August we have been successively bombarded with 225 basis points of Fed funds rate cuts, the Paulson super SIV plan, the interest rate freeze program, the TAF liquidity facility, the F.H.A. authorization to lend to subprimes, MBS acceptance at the discount window, the tax rebate program, the proposed rescue of the bond insurers, project lifeline to halt foreclosures, the federal mortgage guarantee proposal and numerous large injections of liquidity in various forms. The TSLF plan and the Frank proposal are the latest efforts, but won’t be the last. Seven months after the credit crisis emerged a solution still seems far off, and a systemic melt-down is still a distinct threat to the global financial system.”

  72. 72
    Denise Says:

    K-I get a little squirrelly when I am losing money

  73. 73
    zman Says:

    Crikey – lunch time must be over.

    Big Jim – I’m no accountant but I have one and as I understand it you are supposed to reported each open / close in support of the net amount aggregated on a schedule. Mine was many pages last year. You can use excel but your broker should be able to either run a special report for a fee or you can sign up for it (if you do it in time) at brokers like Schwab. Best think I did to take care of this headache was to get that accountant on it. Let me know if you need further detail on it, it is a headache but you don’t want to get sideways with the IRS, they will wait until the 35 month to point it out after the infraction = max interest and penalties if you owe.

    Wyo – Not peak to trough, but several consecutive sessions of closing down that much. This is like owning a stock that went from 8 to 10.20 on nothing in 1 month and now it starts to crack. Do you buy more. Oh yea, let me add that unlike most stocks, this one’s owners are highly levered. 20 to 1 and in some cases as much as 100 to 1…so the winners here have gained a lot more than a 25%ish move, and therefore, will be a little covetous of those gain…of course, it could open back above $10 on Monday with a cool mid March forecast.

    D – No on adding. Not enough spine.

  74. 74
    zman Says:

    Sam – by the way, big kudo congrats on the SKF!

  75. 75
    ram Says:

    I concur with the first para. on #73. There is also a max for losses and the detailed documentation will be helpful for use in the next year if applicable.

  76. 76
    Sambone Says:

    Z – Thanks. It’s been a hard road, but I’ve stuck to my guns. BSC is the first. I’m watching C now. Two of their SIV’s just accessed credit account set up for them at C. This party isn’t over yet.

  77. 77
    BigJim Says:

    Thanks Zman.

  78. 78
    regale Says:

    I’m a regular reader of 5 Things… on Minyanville. Incidentally, I found Zman’s site from a mention on Minyanville many months back, and for that I’m quite grateful.
    FWIW, which, today, is either a chuckle or a tear, check out the Goldilocks story on 5 Things.

  79. 79
    Sambone Says:

    Expect some prankster on CNBC to say “All this was priced in, financials looks like a buy now” (if I only had a dime every time I heard that), and for the DJIA to end the day down only 25 points. Or something ridiculous like that.

  80. 80
    Sambone Says:

    US Futures Regulator Said To Be Probing Jet Fuel Market

    By ROSE MARTON and JESSICA RESNICK-AULT
    Of DOW JONES NEWSWIRES

    NEW YORK — U.S. regulators are investigating whether jet fuel prices were manipulated during two separate periods in 2006 and 2007.

    Several traders and brokers said they received subpoenas from the Commodity Futures Trading Commission seeking information about trades that occurred last year between May 21 and May 25, and between Dec 18 and Dec 25 in 2006. The CFTC declined to comment.

    The CFTC is asking specifically about telephone recordings, emails and instant messages involving trading that occurred during a very narrow window each trading day.

    The pricing and trading of jet fuel is done in an arcane corner of the energy markets. There is no futures market, so spot market prices are set relative to futures in heating oil, a commodity that is fairly similar to jet fuel.

    The inquiry comes amid greater oversight of the energy markets by the CFTC.

    The investigation appears aimed at ascertaining whether members of the trading community may have manipulated jet fuel prices and could shed light on the somewhat murky waters of this market. Because prices don’t go through an exchange, they’re known initially only by the parties to a deal. Publishers like Platts, a unit of McGraw-Hill Cos. (MHP), try to come up with proxies for market prices by surveying traders and essentially averaging the prices at which they did their deals. Traders cooperate, because deals they themselves strike are based on these assessments.

    Jet fuel prices as assessed by Platts each day are set based on an average price of over-the-counter trades that occur during a half-hour window each day — between 2:45 p.m. and 3:15 p.m. eastern time. Platts collects information on those trades from contacts it has with traders and brokers and then sets the average price used by airlines looking to buy and sell jet fuel.

    “We have full confidence in the integrity of Platts’ price assessment processes, which are designed to bring transparency to the jet fuel marketplace,” said Frank Briamonte, spokesman for the McGraw-Hill companies. “At the same time, we support the efforts of government regulatory agencies to assure proper behavior by participants in the energy markets.”

    The U.S. airline industry in recent years has worked hard to cut costs, resulting in back-to-back years in the black in 2006 and 2007, following five years of losses. Even so, they can’t keep pace with the soaring cost of jet fuel, which has risen along with the price of crude and other products and is now their biggest single expense. This year, some airlines have said that if they aren’t able to raise ticket prices, higher jet fuel costs could result in financial losses.

    Airline representatives said their companies hadn’t filed complaints with the CFTC related to jet fuel trading on the Platts Window. The U.S. Department of Defense is also a major consumer of jet fuel, with the U.S. Air Force purchasing 10% of all jet fuel annually. The department declined to comment on the inquiry.

    Representatives of other large customers of jet fuel — including United Parcel Service Inc (UPS), FedEx Corp (FDX) and the U.S. Postal Service all said they were unaware of a CFTC probe.

    Active Market Trading
    Traders and brokers who received subpoenas said the government was specifically interested in correspondences between market participants that occurred between 2:35 p.m. and 3:30 p.m. — slightly before and after the Platts pricing window opened and closed. According to one broker, the request for information from the CFTC said the commission was looking into how prices were determined based on the last minutes of trading in this window. The requests went out at the end of February, and responses were due back to the commission by March 12.

    The two weeks were particularly active in the spot market, in which days can go by without reported jet fuel trades. During the week in December, premiums were higher than the week previous, and continued to widen the week after. The week in May, 2007 includes a day in which jet fuel premiums in New York Harbor ended about 2 cents higher than they started — a significant difference in this market. The end-day premium comes after the Platts window closes.

    The method for calculating the price of jet fuel to be published by Platts’ index shifted in November 2006. Under the new system, Platts only counts trades conducted during the Platts window in determining its benchmark prices for that day. Previously, Platts had reported on the market based upon deals completed throughout the day.

    At the time of the shift, Platts held discussions with traders internationally, saying the new methodology would give a better indication of how markets moved during the day. Some traders expressed concern that considering fewer deals could make it easier to manipulate prices.

    In one such forum, traders expressed concern over the system. Traders on a conference call suggested alternative methodologies, and said the system allowed Platts to control when and how trading occurred. Platts editors and managers countered that the index is compiled to afford transparency, consistency, and verification of trades, according to slides from that presentation, which Platts makes available to the public.

    More recently, a December 2006 poll of traders at an International Air Transport Association conference suggested lingering concerns over the Platts pricing methodology, according to the Oil Pricing Information Service, an oil industry publication commonly known as OPIS.

    The vast majority of the 165 attendees responding to the electronic poll believed that methodologies for jet fuel prices are subject to manipulation, according to the OPIS report. Among suppliers the tally was 73% and among airlines 88%, the report said. Of the 165 people responding to the entire questionnaire, 36% were airlines, 53% suppliers, and 10% provided other services.

    OPIS and Argus Media Group are also active in conducting price assessments for crude and oil products, including jet fuel, though they don’t operate a window pricing similar to Platts.

    OPIS President Brian Crotty noted that the three companies used to assess prices the same way until Platts changed to the window.

    “I think from our perspective the right way to cover the market is over a full trading day from the minute traders get up to the minute they stop trading,” said Crotty. “We think we’re covering more of the market rather than just a half hour’s worth of trading activity.”

    “We endeavor to supply the market with maximum transparency in our price assessment,” said Euan Craik, chief executive of Argus, Americas.

    Has Examined Window Before
    The CFTC has previously investigated companies’ efforts to manipulate the Platts window for other commodities. In August 2007, the CFTC ordered Marathon Oil Corp. (MRO) to pay a $1 million penalty for an effort to manipulate the cash market price of benchmark West Texas Intermediate crude. The fine concluded an investigation that lasted more than three years.

    An investigation into traders’ efforts to manipulate Platts’ assessments of U.S. natural gas prices resulted in a battle between the CFTC and McGraw-Hill over whether the publisher could be compelled to disclose information it considered privileged because it passed between reporters and their sources. During that dispute, a U.S. District Court judge ruled that McGraw-Hill’s information wasn’t privileged and said the company needed to comply with the subpoena.

    An earlier investigation into manipulation of natural gas prices resulted in a $350,000 fine to a former American Electric Power Co. (AEP) trader. The CFTC found in that case that the trader directed others to report false natural gas trading information used to compile indexes by publishers including Platts.

    The CFTC settled last year with BP PLC (BP), with the U.K. oil major agreeing to pay $303 million related to charges of manipulation of the propane market. A 2007 report by the U.S. Government Accountability Office found that the CFTC had handled 41 cases involving energy trading between 2001 and September, 2006. The bulk of these cases were concentrated in 2003 and 2004.

    (Ann Keeton and Doug Cameron in Chicago contributed to this article.)

    –By Rose Marton, Dow Jones Newswires

  81. 81
    zman Says:

    BigJim – tax accountants are a dime a dozen too – almost free.

    IOC all over the place today.

    regale – too kind

    Sam – Cramer said BSC is a buy under for monday, may be worthless.

  82. 82
    zman Says:

    OPEC said it is pumping more than enough oil in its monthly statement today…smells like a cut before the September meeting, definitely no hope of a increase, nor should they.

    gas rig count out, down 15 no big deal

    CFTC short data out in an hour. That was a pretty weak close on gas.

  83. 83
    zman Says:

    Hillary on TV saying futures markets don’t make sense to her and they should be investigated.

  84. 84
    zman Says:

    come back in EOG and some other names pretty impressive late this afternoon. I was too slow for the profit or loss taking mentioned in the post this morning as our rally died so fast. Look for those trades early next week.

  85. 85
    zman Says:

    Anyone see anything on OII, nice counter group up move today, same FTI

  86. 86
    Brian08 Says:

    I love the mention of BSC Caine’s wealth detiorating because of the drop of BSC stock…Let me cry this MF a river…He’s still worth $200MM and he’s costing me my butt…Hope he loses it all…

  87. 87
    zman Says:

    Hear ya B, which house in the Hamptons do I sell? Him and the guys at Merrill and Countrywide should all take a trip together.

  88. 88
    Denise Says:

    Skin cancer will claim Mozillo(sp?) soon no need to worry about him

  89. 89
    zman Says:

    CFTC shows nat gas at record short and net short interest … shorts increased, longs started selling.

  90. 90
    zman Says:

    that’s gotta be a bad way to go.

  91. 91
    ram Says:

    RE #73 – Since alot of politicians don’t make sense – logic says they should be investigated as well. Regardless of which politician stated the futures thing in #73 – it is those reckless statements that feed the general public that are financial system is all “bad”.

  92. 92
    Denise Says:

    Z-Aren’t they considered smart money so an increase is good sign?

  93. 93
    ram Says:

    Sorry #83.

  94. 94
    Denise Says:

    I thought Z was making a joke-had me laughing- Thought she was a little more knowledable about investing
    Actually Ram it feels pretty bad lately maybe thier on to something

  95. 95
    zman Says:

    Ram – same goes for the “evil” oil industry. Hardest working people out there in my opinion…

    Denise: who’s smart money?

    Too bad this happened today as next week is a short week, only 4 trading days left in March contracts.

  96. 96
    apbd Says:

    Re # 73
    Schwab prints out all of the transactions for the year at year end.
    I don’t know about other brokers.
    apbd

  97. 97
    zman Says:

    apbd – Schwab has a great program that is free but you have to ask for it before year end. It gives a printed reported in the mail and access to the detailed and printable schedule online.

    D – I never joke about the futures markets.

  98. 98
    Brian08 Says:

    Anybody taking bets on if BSC’s slimy CEO is going to get prosecuted for securities fraud??

    Funny how BSC goes from OK a few days ago (based on what the CEO said on CNBC) to liquidity crisis and has a Fed bailout set-up…I’m sure that only takes 24-48 hours…

  99. 99
    Denise Says:

    Z-the CFTC-I was under the impression they usually get it right and it pays off to join them at extremes?

  100. 100
    zman Says:

    D – Interest is huge on the short side, not just record but way record. If they can hang on a little longer gas should fall as the longs run away. I think we have had a continually recharging short. Or a cover up as I like to call it.

    B – like when the Countrywide guy said everything was ok and the concept of bankruptcy was lunacy. Who’s getting investigated for securities fraud now, chump?

  101. 101
    zman Says:

    The UNG 47 puts went from bid 0.20 when we talked about bailing on them this am to 0.45 now. I’m going to hold them.

  102. 102
    Sambone Says:

    B – No way. That’s why the have “Forward statements”. Alan Schwartz will get his JPM stock on Monday and then walk away. That’s the American way!

  103. 103
    Denise Says:

    Z-so if you overlay the CFTC NG graph with NG over a long period of time is it true? Does it work in your opinion?

  104. 104
    Denise Says:

    Z- Also wanted to thank you for the bubble graphs earlier this week-
    got me to buy some CHK back
    My one bright spot for the wk-got lucky and traded it yesterday

    Sambone- a congrads to you on the SKF
    nice-you have been right

  105. 105
    Sambone Says:

    3:40 PM EST

    Nymex Crude Closes Lower, Defies Bear Turmoil

    By GREGORY MEYER
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures concluded a choppy session a shade lower Friday, defying turmoil in other markets touched off by word of an emergency financing plan to support Bear Stearns Co.

    Heating oil futures, meanwhile, settled at a fresh record high a week before the official end of winter.

    Light, sweet crude for April delivery settled 12 cents, or 0.1%, lower at $110.21 a barrel on the New York Mercantile Exchange. It was the front-month contract’s first decline in a week.

    April Brent crude on the ICE futures exchange, which expired Friday, closed down 9 cents at $107.45 a barrel. More actively traded May Brent crude closed at $106.14 a barrel, down 31 cents.

    Unlike other markets, oil trading appeared unshaken by reports Bear Stearns (BSC) is receiving emergency funds from JPMorgan Chase & Co. (JPM) and the Federal Reserve Bank of New York in order to stay afloat.

    While Bear Stearns, through its Bear Energy LP unit, has a growing energy trading presence, observers say its positions in oil are limited. Instead, a sell-off in the stock market prompted by Bear’s announcement may have helped keep crude prices solid on a day of expected profit-taking.

    “This latest body blow to the financial markets in general is helping to generate the chase for hard assets,” said John Kilduff, senior vice president at brokerage MF Global in New York. “It’s making the gold and energy story all the more compelling.”

    Gold futures hit historic highs above $1,000 an ounce Friday. The dollar, whose chronic weakness has drawn buyers to crude, continued to fall against the euro.

    Since last Friday, the front-month crude contract has marched 4.8% higher. It is now up 89.5% from a year ago.

    Options on April Nymex crude futures expired Friday. Open interest on call options with a strike price of $110 stood at a sizeable 9,198 as of Thursday, according to Nymex data, potentially focusing buyers and sellers around that price.

    Heating oil futures, meanwhile, cruised to another record high amid reports ConocoPhillips was seeking to buy heating oil amid a tight market for diesel fuel, which like heating oil is a distillate.

    “Although crude prices exhibited some disconnect from the precious metals and a further weakening in the dollar today, we are viewing today’s new record highs in the heating oil as keeping this bull move alive,” said Jim Ritterbusch, president of energy trading advisory firm Ritterbusch and Associates in Galena, Ill.

    Front-month April heating oil settled 2.17 cents, or 0.7%, higher at $3.1465 a gallon. Front-month April reformulated gasoline blendstock, or RBOB, gained 66 points, or 0.3%, to settle at $2.6894 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  106. 106
    Sambone Says:

    Tini time and baby I need it today, what a ride!

  107. 107
    zman Says:

    D – Not over a long period. The shorts used to be a good contrarian indicator. Now I think the extremes are more useful to monitor, maybe not the build up to them but the turn in them. In this case, the longs having recently built and come back down. Will put some charts up over the weekend and try to better organize the preceding thought.

    Surprised the EVEP didn’t do better today on the increased distribution but will listen to the replay of their call this weekend.

    What a yo-yo of a week. Beer thirty…off to soccer practice.

  108. 108
    kaman Says:

    Cheers mates.

  109. 109
    T-Tupp Says:

    kaman you still around?

  110. 110
    T-Tupp Says:

    z- there was a great article on oil in this months popular mechanics magazine. just though i would tell you.

    they mentioned a project in the deep water GOMEX by i think Shell that they claimed had 15b/bls, like half the size of TUPI. i haven’t heard anything about this find do you know what one they are talking about?

  111. 111
    zman Says:

    Thanks T

    Got that one with “the truth about oil” on the cover in the mail today. Will read over the weekend.

  112. 112
    T-Tupp Says:

    i meant double the size of Tupi. but never heard of it which is weird seeing how dialed in we are within the realm of O&G

  113. 113
    T-Tupp Says:

    are we back on central time here z? WTF haah J/K. i was confused at first…. when did we switch back?

  114. 114
    zman Says:

    T – that’s Jack (9/2006 discover), in the lower Tertiary. People have said 3 to 15 billion barrels. CVX operates and has half, then DVN and STO split the rest last I saw. Its way out in the middle of nowhere in terms of infrastructure so it has to be really big to be economic. I remember when BP and XOM claimed Crazy Horse (now renamed Thunder Horse so as not to offend anyone) was a billion barrels after drilling one well. Many, many years later and with a lot of additional satellite fields to tie in the Greater Thunderhorse area is over > 1 B barrels. Also see a second appraisal well is planned for early 2008? will check out that date as I see nothing recent. DVN has said expect first oil from Jack in 2011 to 2013 ish.

  115. 115
    zman Says:

    Looks like the system failed to keep up with daylight savings time. Will switch it back to EST. Do you have a link to Happy’s new site? What happened there anyway, he was part of the PSW empire?

  116. 116
    zman Says:

    Jack #2 tested 6000 bopd back in September so that should have been the appraisal I was talking about in 114. There was a big spike in the stock on that day which I now remember. These Walker Ridge and Keithley Canyon wells cost $80 to $120 million apiece and the fields are almost halfway to Mexico across the Gomex and take a lot of cash and time to develop. APC is in this stomping ground too and just (last week) monetized its interest in one (Kaskida) for big $ instead of going ahead with it.

    Devon has another big lower tertiary exploratory well at its Chuck prospect that should be down very soon (hey, there might be an option play there) …they were drilling ahead below 30,000 feet (almost 6 miles if you count the water) in early 2008 and have been drilling since summer 2007. Devon is 4 for 6 in the lower Tertiary trend and Chuck will make the 7th test.

  117. 117
    T-Tupp Says:

    http://www.wangshappytrading.com/

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