Guest post by Jeff Korzenik
The Commodity Futures Trading Commission (CFTC) began hearings this week on whether or not to constrain speculation in the energy markets. The Commission is considering the broad imposition of “speculative position limits,” traditional rules which have capped the size of positions held by futures market speculators. Far from being an obscure regulatory debate, this issue is of huge importance to all Americans. While many observers now concede that speculation has been a factor in energy pricing, it is crucial that our policymakers understand the dangers inherent in such a market condition. At stake is the ability of our economy to recover, the potential for another systemic financial crisis, and the risks of unleashing destructive inflationary forces.
McKinsey has another report out touting the big savings that can be made from energy efficiency. You can read summaries in several places (nytimes.com has even provided a little summary of successful efficiency investments case studies contained within the report).
As well as identifying that $520bn in efficiency investments could yield $1,200bn in cost savings over that period, McKinsey have a few suggestions. They revolve around recognising energy efficiency, identifying the best approaches, funding more research and so forth. But the most challenging one is this:
3. Identify methods to provide the significant upfront funding required by any plan to capture efficiency
What prompted the FSA oil meeting?
Markets: Oil leads recovery for commodities markets
It’s all about Saudi Arabia and IEA stats
Doom and gloom in oil
Wind power in 1909: The more things change…
John Kempt predicts the CFTC will only recommend minor changes (Reuters)
Blaming speculators is not just wrong, it’s dangerous (Morgan Downey)
Goldman Sachs and JP Morgan defend their commodity ‘firewalls’ at the CFTC (Dealbook/NY Times)
Huge returns can be made on investing in energy efficiency, says McKinsey, but the same incentive problems remain (BNet, WSJ)
The US won’t run out of natural gas for a long, long time, according to new Marcellus Shale estimate (Rigzone)
EU talks energy with Turkmenistan (UpstreamOnline)
Small victory for Eberhard in Tesla case (GreenSheet)
How much natural gas to replace gasoline? (The Oil Drum)
The UK’s Financial Services Authority is calling in big oil companies, hedge funds, banks and oil traders next week for a closed-door discussion on “whether the current arrangements [in the oil market] remain appropriate”.
Where are the concerns coming from? The meeting comes hot on the heels of the first round of hearings by the CFTC, held this week, after which the US regulator looks almost certain to impose more limits on trading positions in energy commodities markets.
All of this has suggested to some in the industry that the FSA is just playing catch-up and wants to be seen taking a more proactive role.
Oil prices rebounded on Thursday after tumbling by more than $3 a barrel in the previous session, leading a recovery across commodity markets which came under pressure on Wednesday amid concerns that economic growth in China could slow after the government indicated that it might rein in bank lending later this year.
In energy markets, Nymex September West Texas Intermediate rose 65 cents to $64.00 a barrel, after sinking to a low of $63.04 in the previous session following a huge increase in US crude stocks which fuelled concerns about weak demand in America.
ICE September Brent rose $1.14 to $67.67 a barrel and the spread between Brent and WTI ballooned to $3.60 a barrel.
Canada’s Globe and Mail has an interview with iconoclastic oil analyst Henry Groppe, who argues most oil statistics - including those from the IEA – are wrong because they are based on incorrect data. This is because, he says, they look at exports rather than imports.
Imports are more reliable because they are taxed, Groppe says, and looking at these figures shows that oil exports are overstated by between 1.25m and 2m barrels per day:
This week’s volatility in crude oil prices shows just how frail market sentiment is: a run-up to $70 in Brent was quickly shattered by yesterday’s news of a bigger than expected inventory build in the US.
And the sentiments from big oil companies reporting this week are not helping, either.
BP’s chief executive Tony Hayward was unremittingly bleak on the industry outlook on Tuesday, saying he was “not counting on a recovery any time soon” and today his counterpart at Shell, Peter Voser, had a similar take.
Price of crude tumbles after big rise in stocks
Concerns about weak demand after increase in US stocks (FT)
Conoco pins hope on exploration portfolio
Energy group has fared worse than its bigger rivals (FT)
Repsol seeks Brazilian oil
Spanish group seeks to reverse four years of declining production (Bloomberg)
Gas group BG confident it can handle steep rise in debt
Sharp fall in profits for UK company (FT)
Japex in talks to develop big Iraq oilfield
Company has sights set on East Baghdad field (Reuters)