Con-tango

Greedy with Ethanol

I thought it would be interesting to look at the following –explosive– ethanol CBOT June chart:

Source: CBOT

Where a dizzying $2.80 to $3.42 or 22 % price increase transpired in the past 2 weeks.

So, one AXM06 contract with an initial margin requirement of $2,700
would have rendered $17,980 by today; or a per contract performance of
6.66 x in 2 weeks –enough to even awake Mao Tse Tung.

I posted a while back that a 3,000x increase in production would be
required for a US mandated E10 –or a 10% replacement of gasoline by
ethanol.

In any case, I’m wondering how far up ethanol’s price could rise,
considering tax incentives and what I would call the “war premium”, or
the Prius premium paid to exert ourselves from the middle east oil
dependency?

For an E10 with a $5.00 ethanol and $2.50 gasoline price, the
combined price would be $2.75, a $0.25 difference –I think people would
be willing to pay an extra 10% for an E10 blend… any ideas?

I guess I’m too greedy…   

Refinery fire ignites oil prices

Today’s commodity prices resumed their upwards trend. Apparently triggered by a fire in Valero’s Saint Charles refinery, resulting in a loss of 55,000 bpd of low sulfur oil production.

According to Marketwatch:

Over the weekend, Valero’s St. Charles refinery in
Louisiana suffered a fire in its 48,000 barrel-per-day distillate
hydrotreater, which removes sulfur to produce cleaner burning fuels.
The fire also damaged wires, prompting the shutdown of other units that
were not directly affected by the fire.

As a result, low sulfur diesel
production was reduced to nothing from 55,000 bpd, said Valero in a
statement, while finished gasoline has been cut by about 25,000 bpd.
While it’s still not clear when the hydrotreater will resume
operations, the other units should start up by the end of the week,
restoring gasoline production by Memorial Day weekend-the traditional
start of the nation’s driving season.

Although, by the end of the day the upwards thrust waned in expectation of tomorrow’s EIA inventory reports.

It is the start of the summer driving season; we are in neutral territory. If tomorrow’s inventories are less than expected, oil prices should rise significantly and resume their bullish trend; if not, we will see new lows.

Interested in last week’s EIA inventory charts to see where we stand?

Continue reading…

Inflation ripples?

I must admit Its taken me a while to get some sort of a handle on  last week’s surprising drop in securities and commodities prices.

First, I strongly recommend reading  Mission Impossible by Bill Gross. I think he summarizes quite clearly the overbearing economic markers of the past few years.

He draws the following picture:

The
thought was this: the center of global production was drifting towards
a high savings rate region – Asia. The resultant “savings glut,” to use
Bernanke’s term, would be recirculated into U.S. and Euroland bond
markets to build up “insurance” reserves but also to place a ceiling on
domestic currency appreciation. China was seen as the main culprit but
even Japan was involved in this game of competitive “real” devaluation.
The deal was a win-win for all parties. Asia got to grow their domestic
economies, Japan got to emerge from years of deflation, and the U.S.
got to import cheap goods and cheap money in order to stoke their
housing/asset markets. Euroland prospered as well.

Although
the “stability” produced many inherent disequilibriums including the
U.S. consuming 80% of the world’s excess savings reflected in an $800
billion current account deficit, there seemed nothing impossible about this
mission, I suppose. And there’s nothing improbable about its continuing
either until China/Japan are in closer proximity to their destinations
– China to eventually have a self-sustaining, internally demand
balanced economy and Japan to have permanently exorcised the D word
from its lexicon.

So, what has changed in this cozy arrangement, although deficit laden, to precipitate the markets; and will this deterioration continue?

Continue reading…

Copper margin quadrupled

In two weeks Clearnet has quadrupled the margin requirement to trade copper at the LME; no wonder commodities are acting giddily…

Source: KITCO

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OPEC’s 2006 demand estimate

What a press release… you
can’t get any more words into this OPEC report and shamelessly say less.

What were they trying to convey?

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A slowdown, not

The surprise fall in the trade deficit (to $62 billion, as reported last week by the BEA); was taken quite harshly by the markets, and in
particular commodities where prices fell sharply –the
consensus explanation: lower oil imports meant a falling
US demand.

My curiosity was piqued by FTX reneging  Brad Setser’s lower oil imports to explain a wishful
declining demand and correcting US trade deficit…

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Iraq, a Vietnam deja vu?

Former US Secretary of Defense, Robert MacNamara expounds "know thine enemy". In furthering this concept, it’s troubling to see the parallels that can be found between the Vietnam and Iraq wars.

In essence, the US not only attacked the wrong enemy, Iraq; but still does not understand the motives behind his enemy, the Muslim jihadist.

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