DAY 27: Pump It Up, Pump The Jam
Who Laughs Now ? Some Bears are Enjoying Major Purchasing Power
Gold Flash Crash Rouses Suspicions of Witchcraft
By John Dizard
Ben Bernanke: ‘It will be especially important to evaluate incoming information’
As they say, a paranoid is someone who suspects nine of the five conspiracies against him. Last week was a feverish one for the more sensitive gold specu … investors, with a “flash crash” on Wednesday interrupting what had been a stately procession since December to ever-higher highs. Since gold people believe their positions represent not just an investment, but virtue itself, the losers smell witchcraft, and particularly evil Fed witchcraft at that.
What does the gold crash mean, if anything? Was it the result of a conspiracy by short sellers, or, conversely, does it presage another crisis, as gold price declines did in mid-2008 and September of last year?
Read the rest here.
Comments »Here Are The Winners In An Oil Price Shock
On Friday, we quantified the biggest losers in the case of a sustained oil price shock, and were not surprised to find that the US leads the way with about a 0.9% hit to GDP for every $10 rise in crude prices (compared to about 0.4% for the entire world). Today, via Goldman we look at the flipside and while acknowledging that in absolute terms the world will suffer should crude prices sustain their move higher, there will be relative winners.
Read the rest here.
Comments »Higher Gas Prices = Airline Ticket Prices Going Up
WASHINGTON, D.C.(CBSDC) – For many Americans, the lamentation of rising gas costs is nothing new. It’s an everyday reality to see prices at the pump going up.
But now, those looking to get away from it all may encounter further troubles doing so, thanks to gas price hikes that have the potential to curb holiday travel and drive up the cost of plane tickets.
Travel buffs are just beginning to solidify their spring break and summer vacation plans. As they do, comparison shopping may show that such hikes have already started to take their toll on the cost of airfare.
“[R]ising jet fuel costs put significant cost pressure on the airline industry,” Steve Lott, vice present of communications for Airlines for America told CBSDC. “Regarding fuel, it was the airline industry’s largest expense in 2011, representing 35 percent of total costs. In 2011, the price of jet fuel reached a record high of $3.00 per gallon for the year.”
He continued, “It is even higher for the first two months of 2012.”
Cynthia Brough, director of public relations for AAA, said that as jet fuel costs go up in tandem with gas prices, the consumer could expect to pay more for their flight.
“As with any business, if [an airline] pays more for fuel and operational costs, they need to pass that cost on to the consumer,” she told CBSDC. “There have been [similar] effects in the past.”
Though the illegality of price signaling prevents airlines from discussing numbers, Allison Steinberg, senior media analyst for JetBlue Airways, told CBSDC that there are steps taken to try to stave off the potential effects of rising gas prices.
“We continue to believe the best tools for managing the impact of fuel expense are operating a fuel-efficient fleet and using efficient operating procedures, such as single engine taxi,” she said in an email. “In addition, we continue to manage our fuel hedge portfolio as a form of insurance to help mitigate price volatility and protect JetBlue against severe spikes in oil prices.”
It may take more extreme measures for airlines to keep up, though. Lott added that, from the year 2000 to the middle of 2011, jet fuel prices rose 268 percent. In that same time period, domestic airfare costs reportedly rose 10 percent.
“Fares over the past decade have not kept pace with costs or the price of fuel,” he noted.
According to information provided by the AAA National Office to CBSDC, some airlines have already taken such action, replacing larger jets with smaller, regional aircrafts that are more fuel-efficient in nature.
Travel website Expedia.com confirmed that prices have gone up for flights in recent history. However, they additionally stated that ticket sales have increased as well.
“Despite the recent rise in gas prices, Expedia sees people still taking to the skies,” Jeremy Boore, travel analyst for Expedia.com, said to CBSDC. “With regards to flights, on some of the most popular routes, Expedia sees ticket growth outpacing average ticket price growth.”
According to their collected data, tickets between Los Angeles International and John F. Kennedy International Airports in the past 28 days have gone up in price by 1.7%, with sales up 14.1% in comparison with the previous 28-day period.
Other popular routes saw similar rises in both cost and consumption.
“[T]here is still demand for travel, all things considered,” Boore added.
All the same, consumer surveys and data collected last year indicate that some travelers did make the decision to avoid air travel, instead opting to go by car.
American drivers will still have to pay more to vacation, however, statistics offered by the U.S. Energy Information Administration show that, for the week starting Feb. 27, gasoline prices per gallon averaged out at $3.71.
That amount reflects a rise of 13 cents from the previous week, and 33 cents from the same week in 2011.
The past month has also been statistically more expensive at the pump than last February, according to numbers collected by AAA. The data collected and presented by their Daily Fuel Gauge Report shows that on March 1, 2012, the national average for a gallon of gas is $3.74. The same time last year, Americans paid just $3.39 per gallon.
The increase in cost can be attributed to a number of things, including dwindling supplies and increasing demand as summer ticks closer and the politics surrounding crude oil acquisition, especially in the Middle East.
Avery Ash, manager of regulatory affairs for AAA, said that gas prices do tend to rise slightly as March begins and winter draws to a close. But the rise seen recently is atypical in size, due to geopolitical influences.
“Last year … we saw escalating tensions in Libya and northern Africa, and that uncertainty impacted the market – most specifically, the removal of Libyan crude from the market,” he told CBSDC, adding that this year’s recent tensions in Iran have taken their toll as well. “This time of year we do see some upward movement, but the last two years have broken the historical norm in the magnitude of the increases.”
A combination of pent-up vacation desires and years of experience with balancing personal budgets has helped American travelers enjoy some time away all the same, even if they had to change their approach.
“[Travelers] did … budget more wisely, by perhaps visiting national parks for free as opposed to another venue of higher cost,” Brough said. “They changed the type of travel, but they still traveled.”
But as Nancy White, who also directs AAA public relations, observed in their end-of-year holiday travel forecasts from 2011, many Americans will prioritize travel over other expenses, especially if family and friends are involved in the trip.
“The heartstrings outweigh the purse strings,” she said, quoting a colleague. “People will do whatever they need to do to spend time with loved ones, making cuts in other areas of spending to accommodate travel plans.”
Comments »WATCH: An Explanation for Gold’s Slaughter on 2/29/12?
http://www.youtube.com/watch?feature=player_embedded&v=abIWrtP_U_U
Skip to 2:10 to get straight to the gold part, although the entire video is worth watching.
Comments »Banks may lose commodity facilities within 18 months
Comments »NEW YORK (Reuters) – Wall Street’s biggest banks are locked in an increasingly frantic struggle with the Federal Reserve over the right to retain the jewels of their commodity trading empires: warehouses, storage tanks and other hard assets worth billions of dollars.
While the battle over proprietary trading and new derivatives regulations has taken place largely in public view since the 2008 financial crisis, the fight by JPMorgan Chase, Morgan Stanley and Goldman Sachs to retain or expand their prized physical commodity operations – most acquired in only the past six years – has remained hidden.
The debate is nearing an inflection point: Within 18 months, the Fed will likely either allow banks more freedom to invest in the physical commodity world than ever; or force them to sell off the assets that many banks are counting on to buttress their trading books at a time when they are already vulnerable because of intensifying competition and new trading curbs.
The banks are now locked in deep debate with the Fed, multiple sources involved in the discussions told Reuters. Goldman and Morgan Stanley argue the right to own such assets is ‘grandfathered’ in from their lightly-regulated investment banking days, or that at least they should be allowed to retain them as “merchant banking” investments, kept segregated from the trading desks.
But regulators and lawmakers may not be in the mood to give way. Banks are under pressure to reduce risk on their balance sheet; as commodity prices rise again, they may face more allegations that they could use these assets to drive prices higher or lower, squeezing them for trading profits.
“The Fed’s not going to be terribly accommodating,” said Oliver Ireland, a former associate counsel to the U.S. Federal Reserve and a partner with law firm Morrison Foerster in Washington, D.C. “There doesn’t seem to be a lot of sentiment in this town for people doing new things and taking new risk.”
Scapegoats 101: Oil speculators are back in
Read here:
Comments »U.S. oil reserves should be put into the market in order to stem recent price rises, Dan Weiss, director of climate strategy at the Center for American Progress, told CNBC. He blamed speculators for the recent rise in oil prices.
Nymex light sweet crude April futures locked in an almost 9 percent price gain for the month of February, while Brent crude saw its futures contract price jump by more than 14 percent last month.
“Speculators are driving up the price, taking advantage of fears about a supply disruption in the Persian Gulf which have not materialized yet.
Speculators are buying two thirds of futures contracts and end-users only one third, when it’s usually the reverse,” he said. “In the U.S., demand is down, and price increases are not demand driven.”
Meanwhile, the U.S. is producing “more oil than it has in years. The amount of reserve oil on hand is much higher than forecast,” he said.
Weiss said speculation can be curbed by bringing some of those reserves to the market in order to bring prices down.
“We’ve spoken about bursting the speculative bubble by having the President putting some reserve oil on the market. Every time that’s been done, it’s led to a decrease in oil and gas prices,” he said.
Crude Oil Takes it on the Chin After Last Night’s Rumor Spike; Crack Spreads Down Too
Will the Keystone XL Pipeline Really Be a Benefit to Us ?
“I’ll get us that oil from Canada,” Mitt Romney said in his victory speech after the Michiganprimary. He was referring to Keystone XL, the crude-oil pipeline that has become a top-tier campaign issue for Republicans.
Problem is, the tar-sands oil in that pipeline wouldn’t be coming to “us.” It would go directly from Canada to refineries in the Gulf region en route to export markets in Latin America and Europe. The U.S. would be used as little more than a transit corridor.
We’ve heard a lot about groundwater contamination near the completed portions of the pipeline — more than a dozen spills of the highly corrosive oil, including one near Kalamazoo, Michigan, that they can’t seem to clean up. Conservative Nebraskans became greens overnight when they learned the details of the project that will go through their state.
But the immediate effect of completing the Keystone pipeline (perhaps by 2015) is more surprising and counterintuitive.
The project would increase domestic oil prices by more than $6 a barrel and prices at the pump in parts of the country by about 20 cents a gallon. You read that right. At a time when rising gas prices threaten President Barack Obama’s re-election, the Republicans’ most ballyhooed remedy — a new pipeline — would make the problem worse….”
Comments »Oil Falls After The Saudi’s Deny Reports of a Pipeline Explosion
“Oil fell in New York and headed for the first weekly decline in four after Saudi Arabia denied a reported pipeline explosion in its Eastern province.
Futures slid as much as 0.9 percent after climbing to the highest price in 10 months yesterday. There was no sabotage at oil facilities in the Qatif area, according to Major General Mansour Al-Turki, a spokesman for the Saudi Arabian Interior Ministry. Prices rose above $110 a barrel for the first time since May after Iran’s Press TV said an explosion hit pipelines in the area, home to Saudi Arabia’s largest refinery.
“The report of the pipeline fire seems to have been a very successful scam by the Iranians,” said Filip Petersson, commodity strategist at SEB AB in Stockholm. “They want higher oil prices to compensate for lost export barrels and are obviously using various means to achieve it. The success clearly shows how nervous the market is.”
Oil for April delivery dropped as much as 98 cents to $107.86 a barrel in electronic trading on the New York Mercantile Exchange and was at $108.24 at 11:45 a.m. London time. The contract closed up $1.77 at $108.84 yesterday, after rising as high as $110.55. Prices are down 1.4 percent this week and up 5.9 percent from a year ago.
Brent oil for April settlement slipped $1.08, or 0.9 percent, to $125.12 on the London-based ICE Futures Europe exchange after falling as much as 1.3 percent earlier. It surged as much as 4.7 percent to $128.40 yesterday, the highest price since July 2008, the month Brent reached a record $147.50. The European benchmark contract’s premium to West Texas Intermediate was at $16.87 a barrel today….”
Comments »FLASH: SAUDI PIPELINE, WHICH HAPPENS TO BE ON FIRE, CARRIES 6 MILLION BARRELS PER DAY
As per the ever trustworthy Iranian news agency.
Comments »Crude to Go Parabolic: Saudi Pipeline Set Ablaze (live coverage)
Keystone XL Pipeline Likely to Raise Gasoline Prices
The proposed 1,700-mile Keystone XL pipeline will not make the US more energy independent nor will it lower gasoline prices. If anything, the pipeline from western Canada’s oil sands to the US Gulf Coast will raise gasoline prices for many US drivers. A consultant for TransCanada Corp. (NYSE: TRP) estimates that the pipeline will raise the price of gasoline by $0.04/gallon on average in the US.
Drivers won’t be the only ones affected. Canadian producers like Exxon Mobil Corp. (NYSE: XOM), Suncor Energy Inc. (NYSE: SU), Cenovus Energy Inc. (NYSE: CVE), and others will gain a substantial price hike on Canadian crude. We noted this when TransCanada announced a couple of days ago that it would go ahead with a plan to build a 423-mile section of the pipeline from Cushing, Oklahoma, to Port Arthur, Texas.
Refiners like Marathon Petroleum Corp. (NYSE: MPC) and HollyFrontier Corp. (NYSE: HFC), which currently benefit from their ability to get the cheaper oil from Canada, will take a substantial hit on prices. We wrote about this yesterday.
The reason for the higher prices is pretty basic: the Canadian oil is curretnly essentially stranded and was priced at an average discount to Brent crude of about $23.50/barrel in 2011. Moving Canadian oil to the Gulf Coast where prices are higher will not lower the price of Brent crude unless the new oil more than replaces the existing supply. The Gulf Coast imports around 5 million barrels/day and the Keystone XL pipeline and a couple of other pipelines proposed to move oil south from Cushing to the coast will transport less than 1.5 million barrels/day if and when all the current plans are realized.
The effect will be to raise the price of Canadian crude everywhere, including the Midwest and the Rocky Mountain regions, where Marathon and HollyFrontier do their refining. Their feedstock costs will rise and the price for their refined products will also rise.
Energy industry consultant Philip Verleger told Bloomberg News:
The Canadian plan [for the Keystone XL pipeline] was to use their market power to raise prices in the United States and get more money from consumers.
Verleger estimates that gasoline prices will rise $0.10-$0.20 a gallon in the Midwest and Rocky Mountain regions.
The Keystone XL pipeline is far from a free lunch. It will not make the US any more energy independent and it certainly will not lower gasoline prices. If US drivers continue to drive less, then Canadian oil will reduce the amount of oil imported to the US and help with the US trade balance. That’s a good thing, but is it enough?
Paul Ausick
Comments »Gold Falls in ‘Manic’ Plunge
By Debarati Roy – Feb 29, 2012 5:27 PM ET
Gold futures fell as much as $100 to below $1,700 an ounce on signs that that the Federal Reserve will refrain from offering more monetary stimulus to bolster the U.S. economy.
In testimony before Congress today, Fed Chairman Ben S. Bernanke gave no signal that the central bank will take new steps to boost liquidity. The dollar rose as much as 0.8 percent against a basket of major currencies, eroding the appeal of the precious metal as an alternative investment. Yesterday, gold reached $1,792.70, a three-month high, even as coin sales by the U.S. mint slumped in February .
“People were expecting that the Fed would loosen policies, even if the perception is that the economy is doing well,” James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania, said in a telephone interview. “The investor sentiment changed as the Fed committed to nothing. This is the manic nature of the market.”
In electronic trading on the Comex in New York, gold futures for April delivery fell $90.30, or 5 percent, to $1,698.10 at 5:14 p.m., compared with yesterday’s settlement. Earlier, the price tumbled as much as $100, or 5.6 percent, to $1,688.40, the lowest for a most-active contract since Jan. 25.
The settlement at the close of floor trading was $1,711.30, down 4.3 percent, the most since Dec. 14. The price, down 1.7 percent this month, has gained 9.2 percent in 2012.
Read the rest here.
Comments »FLASH: GOLD IS HAVING ITS DICK CUT OFF TODAY
Asia Facing a 3 Metric Ton Shortage of Sugar
About that Crash in Natural Gas Prices
Posted by JC Parets on February 28th, 2012
It’s looking like fresh lows are in the cards for nat gas. Where is the bottom? When is the blood bath over?
We’re going on over 3 1/2 years of destruction and 80% losses. There is an old saying on Wall St. that, “Bottom Fishing can be Hazardous to your Wealth”. If you didn’t know this, let the current state of Natural Gas and the ’08 Financials be a lesson.
But in this case, we’re not talking about a company that can go bankrupt right? This is a commodity after all. So the reversion to the mean process should begin at some point. But where and when?
Take a look at the recent consolidation in the United States Natural Gas Fund ($UNG). The breakdown here below the triangle is typical. This type of brief pause usually resolves itself in the direction of the underlying trend. In this case it is clearly down. As scary as it may sound, the 4 point base in the triangle gives us a target somewhere in the 17.50 area. We may not get that low, and we can just as easily go even lower. But I have a feeling that a vicious tradable rally will develop from this breakdown.
Read the rest and see the charts here.
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