Should the United States join OPEC? - This is one of the better articles that I have seen on the very real prospect of US energy independence, a subject which Fullermoney has frequently discussed in recent years. Written by columnist Thomas Friedman for the NYT and IHT, and based on remarks by the oil analysts Phil Verleger and Hal Harvey, here is a section:
All of this is good news, but it will come true at scale only if these oil and gas resources can be extracted in an environmentally sustainable manner. This can be done right, but we need a deal between environmentalists and the oil and gas industry to lock it in - now.
Says Hal Harvey, an independent energy expert: "The oil and gas companies need to decide: Do they want to fight a bloody and painful war of attrition with local communities or take the lead in setting high environmental standards - particularly for "fracking," the process used to extract all these new natural gas deposits - "and then live up to them."
Higher environmental standards may cost more, but only incrementally, if at all, and they'll make the industry and the environment safer.
In the case of natural gas, we need the highest standards for cleanup of land that is despoiled by gas extraction and to prevent leakage of gas either into aquifers or the atmosphere. Yes, "generating a kilowatt-hour's worth of electricity with a natural gas turbine emits only about half as much CO2 as from a coal plant," says Harvey, and that's great. "But one molecule of leaked gas contributes as much to global warming as 25 molecules of burned gas. That means that if the system for the exploration, extraction, compression, piping and burning of natural gas leaks by even 2.5 percent, it is as bad as coal."
Hence, Harvey's five rules for natural gas are: Don't allow leaky systems; use gas to phase out coal; have sound well drilling and casing standards; don't pollute the landscape with brackish or toxic water brought up by fracking; and drill only where it is sensible.
My view - These are eminently sensible, commercial rules because the oil companies which abide by them are much more likely to receive lucrative contracts to develop non conventional (shale) oil and gas reserves in other countries, as well as in the USA and Canada.
The US is already paying much lower prices for natural gas than other countries, as you can see from these weekly charts for the USD-denominated NYME natural gas contract and the GBP-denominated ICE natural gas contract. It is also paying less for crude oil as you can see from the WTI contract versus Brent, both of which are quoted in USD.
Email of the day (1) - On an interesting quote:
"I got this quote from our mutual friend, Bernard Tan. Wonder what you think?"
"There are two types of participants in the market. One watches prices all the time and imagine that they can discern real world dynamics from these price movements. The other thinks about real world dynamics all the time and imagine that they can discern price directions from these dynamics. Both are delusional."
My comment - Thanks for sharing this quote which is certain to be of interest to other subscribers. Bernard Tan is an original thinker and I am in general agreement, although some important exceptions are inevitable.
Regarding market action, it is often correct that one cannot discern real world dynamics from market prices but one can recognise fashion trends or other changes in perceptions which influence money flows. Some of these trends will endure well beyond the short term because they reflect a fundamental change, although one will not know that from prices alone in the early stages of the move.
Email of the day (2) - On BHP bonds being a better bet than Italian government bonds:
"I thought that subscribers might find the attached article of interest... BHP bonds a better bet than Italy"
My comment - My thanks to subscribers who sent this link or a similar report.
This is not the first time that successful Autonomies such as BHP have been able to raise money more cheaply than indebted, slow-growth economies and I think we will see it more often in future.
Additional commentary by Eoin Treacy
Stocks, Euro Gain Before ECB Lending as Bond Risk, Oil Decline This article by Stephen Kirkland and Lynn Thomasson may be of interest to subscribers. Here is a section:
European banks will probably tap the ECB for 470 billion euros ($632 billion) in three-year funds, according to a Bloomberg News survey of analysts. Italy auctions as much as 6.25 billion euros ($8.4 billion) of bonds today. Consumer confidence may have increased this month, economists said before data from the Conference Board.
The market is expecting a further boost from the liquidity injection, said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd.
My view The ECB's about face in its attitude to liquidity provision spurred an impressive rally over the last two months, marking the best start to a year for stock markets in quite some time. The second injection is scheduled for tomorrow and can be expected to provide at least as much as the first round. Many investors have already positioned themselves to benefit from this development. This has contributed to the short-term overbought condition evident on many stock market indices and in oil contracts.
Referendum to be held on European fiscal compact This article from the Irish Times may be of interest to subscribers. Here is a section:
Mr Kenny told the House that the Attorney General's advice at this morning's Cabinet meeting was that "on balance" a referendum was required to ratify it. Scheduled Dáil business was interrupted for the statement.
The Taoiseach said that he intended to sign the treaty at the weekend with all the heads of the EU in Brussels.
In the coming weeks, he said the Government would finalise the arrangements and the process leading to the referendum, leading to the establishment of a referendum commission. No date was given for the poll.
My view It is looking increasingly likely that no other country will give its citizens the opportunity to vote on the Eurozone's fiscal compact. Here is link to the full text of the treaty. The agreement will pass into law when 12 member states have ratified it. Therefore unlike the Nice and Lisbon treaties an Irish No' will not veto the chances of the treaty passing into European law.
Irish public mood is tilted towards dispensing with the €31 billion liability the government took on when it bailed out the banking system. I suspect this is seen as the price for a Yes' by many voters. In absence of such a concession, the balance of probabilities points towards an Irish No'.
China labour costs Mrs Treacy visited a number of factories this month in Zhejiang and Guangdong provinces of China. A common theme was evident, just about all were experiencing staff shortages which was stretching the lead time to delivery. A number reported employees simply didn't return from the New Year holiday. This trend has been evident for some time because yearend bonuses get paid before the holiday, making it the ideal time to change jobs. However, when we visited Shenzhen technology companies, which typically pay approximately 20% more, they were experiencing no such difficulties.
Email of the day on crude oil contract spreads:
"The chart library has the 1st month - 12th month backwardation-contango chart for the WTI crude but does not have the similar chart for Brent Crude. (the chart library does have the 1st - 2nd month backwardation-contango chart for both WTI and Brent). Could we get the 1-12 month backwardation-contango chart for Brent, since it reflects more on the tightness of world oil supplies? I would also appreciate your comments on the backwardation-contango charts for the energy sector and the prospects for an oil price rise absent an Iran-Israel event."
My comment Thank you for this suggestion which has been added to the Chart Library. While the spread between the 1st and 2nd month contracts for West Texas Intermediate is in contango, the 1st and 12th month has moved into backwardation. The Brent crude equivalents are both in backwardation and the 1st 12th month spread is even wider than the 1st 2nd spread, suggesting a steeper futures curve and more pressing short-term demand dominance. This has been borne out by the nominal price action.
Email of the day on additions to the Chart Library:
My comment Thank you for these suggestions which have been added to the Chart Library.
Jim Puplava's Financial Sense I will be interviewed by Jim Puplava for his Financial Sense Newshour show on Wednesday with airing on Friday.
Speaking engagements in the USA - I have accepted invitations to speak to a number of associations and groups while in the USA for The Chart Seminar. My schedule is still filling but here are the details so far:
San Diego MTA chapter in the first week of April. Time and venue yet to be arranged.
Los Angeles MTA chapter on April 11th venue to be arranged but will be in the Long Beach area.
To Hoard or to Horde: risks and opportunities from participating with the crowd. Will be the topic of my talk to both these associations.
CFA Institute San Francisco April 12th 3pm. The venue has yet to be finalised but the topic will be Differing patterns of development, comparing the USA & UK with China & India.
The TSAA-San Francisco April 13th. Venue and time have yet to be confirmed by the topic will be Investment implication of competing inflationary and deflationary forces.
If you would like me to speak to your local chapter or organisation in California or New York please contact your respective chairperson and ask them to contact me.
The Chart Seminar 2012 - Following a sell-out tour to Singapore and Australia last year, The Chart Seminar will be held in San Francisco, New York and London this year..
We are currently taking bookings for our San Francisco and New York dates in April as well as London seminars in May and November. Anyone interested in securing a place at any of our events should contact Sarah Barnes at [email protected].
The date and venues for my seminars so far in 2012 are:
San Francisco - April 16th &17th 2012 Nikko Hotel
New York - April 23rd & 24th 2012 at The Manhattan Club (above Rosie O'Grady's) at 800 7th Avenue
London - May 25th & 25th 2012 at the Radisson Edwardian Hampshire
London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire
The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.