Natural gas is trading at 2 handle last checked at $2.67BTU even as crude nearing $100.What is historic relationship between crude oil and natural gas? I pulled some data from Reuters, both are Nymex front month future contract from 1990 onwards. Crude oil data goes to 1986, but Natural Gas only started in 1990. Interestingly …View full post
BOJ just released Japan’s November current account data and there is some interesting tidbits in it. One distinct pattern from the latest data shows a clear downtrend in the current account surplus throughout 2011. With only $1.80 billion USD surplus in November, in dollar terms it just a little bit higher than the worst months …View full post
Recent economic data shows that US Poverty rate is the highest in almost 20 years. It is well known that the current economic climate in the US is the most difficult environment since the great depression. This got me thinking about the level of economic development in the last 10 years of US Households. Its …View full post
Chinese Inflation Paradox The global economy is split in responding to the growing inflation pressures. On one hand, there are those that desperately fighting off inflationary pressures and watching price changes like a hawk, with the mind of finding the right balance between decent level of economic growth and politically acceptable inflation levels. From this …View full post
Below is an interesting graph of the iron ore prices for the last 1 year and 5 years. As you can see, the price of the crucial metal used in the industrialization process of the many developing countries has been steadily increasing since 2007. The run up in price is due to producers struggling in …View full post
The current copper prices are powered by the strong growth in the emerging markets, mainly through the engine of the Chinese economy. With the strong inflation numbers coming in the first quarter of 2011, slower economic growth is almost a certainty in these markets. It is interesting to note that while the stockpile of copper …View full post
I just read an article on the development of the Diamond market in the last century. It is well known that De Beers had a monopoly in the Diamonds for almost a decade until the 2000’s. What is not well known was that there was a temporary banking crisis based on using diamonds as collateral …View full post
Non-farm payroll numbers came in better than expected, with US unemployment rate coming down to 8.8%. Ostensibly, the recovery is coming along nicely. However underneath the surface, more evidence on the data front is needed before we can give the all clear for the US economy. The slowness of the recovery is similar to other …View full post
It is easy to categorize issues into pigeon holes because the question is difficult to answer. One of these question is, is Ireland different from Portugal, Spain and Greece? If these countries are examined in aggregate, the level of debt to GDP is a problem. However if you look under the hood, they are inherently …View full post
The Fed announced that it made 82 Billion USD from investments last year. Now I am going to show you how they did it and how you can do it as well! United States Federal Reserve Business Model 1. Print money 2. Use money to Buy MBS 3. ???? 4. Profit! Politics and bullshit aside, …View full post
The ECB is facing pressures to raise interest rates, however the food inflation problem faced by emerging markets is not as prevalent in the Eurozone and other developed nations. Their problem is lack of growth. Not to beat a dead horse, but ECB is going to have a hard time justifying raising rates beyond next …View full post
The tragedy in Japan has been the primary driver of market sentiments. Beyond the headlines, European peripheral economic conditions are not looking any better. Yields on sovereign debts in the PIGS’ are worse than ever. The European Financial Stability Fund (EFSF) will provide support for them in the short run, but only act a stop …View full post
Recent increase in soft commodity price across the board will be felt across the world. China reported 4.5% y/y inflation in food in February, India earlier this week reported 9.52% inflation for February and 13.86% at annualized levels. Recent Central bank rate rises in the example of South Korea is a real risk going forward …View full post
The ASX 200 benchmark is primarily composed on two sectors, commodities and the financials. The record highs of the AUD against the USD fueled by the Chinese economic growth have raised an interesting question on the long term performance of the Australian stock market. What I am primarily looking for is comparing from the Australia …View full post
As the result of Jean-Claude Trichet remarks last week on the ECB’s vigilance in maintaining inflation expectations, the EUR rocketed to 4 month high near 1.40 EUR/USD. It is interesting to note that while the talk around the FX markets and the press in the last few years is the weakness of the dollar the …View full post
Oil prices have just increase to above $100 a barrel for the second time in 4 years. The last time it breached the $100 dollar mark and peaked at $145 per barrel was in 2008. While the high oil price was not the cause of the severe recession, it nonetheless contributed to the sharp slowdown in …View full post
February RBA Rate Decision – Hold The RBA announced yesterday that interest rate in Australia is on hold at 4.75%. While Australia is enjoying the commodities boom with Q3 GDP growth of 2.7% y/y. Underneath the hood there is very much a two speed economy. The commodity heavy states, Western Australia and Queensland are enjoying mining riches. …View full post
Chairman Ben Bernanke is set to testify in front of the United State Senate today and this would be his first testimony in congress this year. The theme is mostly to focus on the current economic recovery in the US and the progress of the treasury buying program, QE2. The focus in the FX market …View full post
Over the last year, Silver (ETF:SLV) is up by 102.60%, while Gold (ETF:GLD) is up 25.57%. This is an outperformance of 77.03%. While Silver looks good on a 1 year basis, over the last 5 years, Silver is up 135.74% and Gold is up 111.12%. This shows that most of the silver appreciation has been …View full post
A Comparative Analysis of Forward and Futures Premium Puzzle under the Uncovered Interest Parity Theory
Abstract The forward premium puzzle is the bias of the forward premium in the forecast of the expected future spot price. The unique differences in the forecast intervals of futures provide a means of investigating the phenomenon from an alternative perspective to forwards. The current paper compares the bias of both forward and futures of …View full post
Natural gas is trading at 2 handle last checked at $2.67BTU even as crude nearing $100.What is historic relationship between crude oil and natural gas? I pulled some data from Reuters, both are Nymex front month future contract from 1990 onwards. Crude oil data goes to 1986, but Natural Gas only started in 1990.
Interestingly the relationship between oil and gas since 1990 after the initial spike traded between 5 and 15 from 1992 to 2009. Then it has been on a bull run to just under 40 right now. The current ratio is the highest in 20 years, and this can be largely attributed to the Shale Gas boom underway in the US. Presenting the data in this way, it highlights the impact of the shale gas flooding onto the continental market impact on the price.
Due to infrastructure constraints and historical reluctance to export natural gas, all the gas pumped out of the earth have to be consumed domestically. Even with LNG prices in the teens in Europe and high single digit in Asia, the largest growth market there is little means for US producers to take advantage of the situation. One means of consuming the excess supply could be increase the use of natural gas in base load power.
Bullish case for Natural Gas?
In the short term, even with the warmer than expected winter period which has limited natural gas on the upside. Given the seasonal reduction in the natural gas inventories in the short term, along with the predictable decrease in production from high cost producers, as most shale gas drilled recently were attributed to control lease agreement’s use or lose it clause. The downside seems limited from here.
In the medium term, the opening of the exports from the construction of LNG export terminals which the US has evidently lacked will ensure that it can arbitrage the high prices seen around the world. The low cost production in the US allows us to compete from a lower cost base than Australia LNG trains in Aisa. Since gas is cleaner than coal, with China over reliance on coal with the negative externalities, it would be attractive for US producers to push towards this market than any other. However other emerging markets are ripe for the picking, better late than never.
Domestically, the decline in conventional gas production and its replacement with shale gas will maintain the current strong production flow levels. This will ensure that prices will remain lower than historic levels and attractive for power generators to convert and build natural gas plans relative to other sources. However this is predicated upon a constructive regulatory environment to encourage such developments. With the current election year and controversy over fracking extraction method, I would not expect any positive developments in this area until after the 2012 election. Then with a 2 -3 years lead time for planning and construction.