Showing posts with label CFTC. Show all posts
Showing posts with label CFTC. Show all posts

Wednesday, September 14, 2016

Views from Wall Street on oil market volatility

The Oilholic finds himself 3,460 miles away from London in New York, with Wall Street giving the crude market yet another reality check. In the last few months, money managers of all description, not just our friends in the hedge fund business, are scratching their heads having first seen a technical bear market in July, only for it to turn in favour of a technical bull market in August!

But now, with all that phoney talk of producers coming together to freeze oil production having fallen by the wayside, both Brent and WTI have started slipping again. 

Not one Wall Streeter the Oilholic has spoken to since arriving in the Big Apple seems to discount the theory that oil may be no higher than $50 per barrel come Christmas, and even that might be a stretch. 

In a desperate bid to keep the market interested in the production freeze nonsense, the Saudis and Russians pledged cooperation ensuring "oil market stability" at no less august a venue than the G20 summit in China earlier this month. Of course, as no clear direction was provided on how that "stability" might actually be achieved and nothing revealed by way of production alterations or caps, not many are quite literally buying it – not on Wall Street, not in the City of London.

Forget the shorts, even the longs brigade have realised that unless both the Saudis and Russians, who between them are pumping over 20 million barrels per day (bpd) of oil, announce a highly unlikely real terms cut of somewhere in the region of 1 to 1.5 million bpd at the producers’ informal shindig on the sidelines of International Energy Forum (due 26-28 September) in Algiers, price support would be thin on the ground.

In fact, even a real terms cut would only provide short-lived support of somewhere in the region of $5-10 per barrel. As a side effect, this temporary reprieve would boost fringe non-OPEC production that is currently struggling with a sub $50 oil price. Furthermore, North American shale production, which is proving quite resilient with price fluctuations in the $40-50 range, is going to go up a level and supply scenarios would revert to the norm within a matter of months.

A number of oil producers would substitute the hypothetical 1-1.5 million bpd Riyadh and Moscow could potentially sacrifice. That’s precisely why Wall Street is betting on the fact that neither countries would relent, for among other things – both are also competing against each other for market.

Another added complication is the uncertainty over oil demand growth, which remains shaky and is not quite what it used to be. Morgan Stanley and Barclays are among a rising number of players who think 2016 might well end-up with demand growth in the region of 625,000 to 850,000 bpd, well shy of market think-tank projections of 1.3 million bpd.

Trading bets are mirroring those market concerns. Money managers sharply decreased their overall bullish bets in WTI futures for the week to September 6th, and also reduced their net position for a second straight week, according to Commodity Futures Trading Commission (CFTC) data.

In numeric terms - "Non-commercial contracts" of crude oil futures, to be mostly read as those traded by paper speculators, totalled a net position of +285,795 contracts. That’s a change of -55,493 contracts from the previous week’s total of +341,288; the net contracts for the data reported through August 30th.

The speculative oil bets decline also dragged the net position below the +300,000 level for the first time in nearly a month. That’s all for the moment from New York folks, as the Oilholic leaves you with a view of Times Square! Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2016. Photo 1: Wall Street & New York Stock Exchange, USA. Photo 2: Times Square, New York, USA © Gaurav Sharma, September 2016

Saturday, October 11, 2014

Oil, Tip TV & a ‘timely’ Bloomberg report

Brent continues to slip and WTI is along for the slide-ride too. Over the last two weeks, we’ve seen price floors getting lowered only to be breached again sooner than most expect. The Oilholic’s latest 5-day assessment saw both benchmarks as well as the OPEC basket of crudes end the week below US$90 per barrel on Friday.

One has been putting forward a short position argument on Brent since the summer to the readers of this blog and in columns for Forbes. As the tale goes, yours truly has pretty much got the call right, except for a few weeks over one month. Speculators, including but not limited to hedge funds, triumphed in June using the initial flare-up in Iraq as pretence for driving the futures price up. Market fundamentals were never going to support a price spike to $115, as was the case back then.

Those banking on backwardation were bound to get left holding barrels of paper crude on their books that they never needed in the first place for anything other than trading for profit. As the date of the paper contract got desperately close to where you might have to turn up with a tanker at the end of a pipeline, hedge funds that went long in June ended up collectively holding just shy of 600 million paper barrels on their books.

Smart, strategic buying by physical traders eyeing cargoes without firm buyers made contango set in hitting the hedge funds with massive losses. The week to July 15 then saw hedge funds and other speculators cut their long bets by around 25%, reducing their net long futures and options positions in Brent to 151,981 from 201,568 according to ICE.

Physical traders, had finally taught paper traders a long overdue lesson that you can’t cheat market fundamentals for very long. So it was a pleasure expanding upon the chain of thought and discuss other ‘crude’ matters with Nick 'the Moose' Batsford and his jolly colleagues at Tip TV, on October 6. Here’s a link to the conversation for good measure. 

Overall dynamic hasn’t altered from May. To begin with, of the five major global oil importers – China, India, Japan, US and South Korea – importation by four of the aforementioned is relatively down, with India being the odd one out going the other way. Secondly, if an ongoing war in the Middle East is unable to perk-up the price, you know the macroeconomic climate remains dicey with the less said about OECD oil demand the better.

Thirdly, odd as it may seem, while Iraqi statehood is facing an existential threat, there has been limited (some say negligible) impact on the loading and shipment of Basra Light. This was the situation early on in July and pretty much remains the case early October. There is plenty of crude oil out there while buyers are holding back.

Now if anything else, hedge funds either side of the pond have wised up considerably since the July episode. Many of the biggest names in the industry are net-short and not net-long at present, though some unwisely betting on the ‘only way is long’ logic will never learn. Of course, Bloomberg thinks the story is going. One has always had a suspicion that the merry team of that most esteemed data and newswire service secretly love this blog. Contacts at SocGen, Interactive Brokers and a good few readers of ADVFN have suggested so too.

Ever since the Oilholic quipped that hedge funds had been contangoed and went on to substantiate it on more than one occasion via broadcast or print, this humble blog has proved rather popular with ‘Bloomberg-ers’ (see right, a visit earlier this week). Now take this coincidental October 6 story, where Bloomberg claims "Tumbling Oil Prices Punish Hedge Funds Betting on Gains."

Behind the bold headline, the story doesn’t tell us how many hedge funds took a hit or the aggregate number of paper barrels thought to be on their books. Without that key information, the story and its slant are actually a meaningless regurgitation of an old idea. Let’s face it – ideas are not copyrighted. Some hedge fund somewhere will always lose money on a trading call that went wrong, but what’s the big deal, what’s new and where’s the news in the Bloomberg story? Now what happened in July was a big deal.

The 4.1% jump in net-long positions as stated in the Bloomberg report, only for the Saudis to adjust their selling price and cause a further oil price decline, does not signify massive blanket losses for the wider hedge funds industry. Certainly, nothing on July’s loss scale has taken place over the last four weeks either for the WTI or Brent, whether we use ICE or CFTC data.

So here’s some advice Bloomberg if you really feel like probing the matter meaningfully. In the style of Mr. Wolf from Pulp Fiction, if the Oilholic “is curt here, it’s because time is a factor” when putting these things together, “so pretty please with sugar on top” - 

(a) Try picking up the phone to some physical traders of the crude stuff, as price aggregators do, in order to get anecdotal evidence and thoughts based on their internal solver models, not just those who pay way too much for expensive data terminals and have never felt or known what a barrel of crude oil looks like. It'll help you get some physical market context. 

(b) Reconcile at least two months of CFTC or ICE data either side of the pond to get a sense of who is electronically holding what. 

(c) Take the aggregated figure of barrels held at a loss/profit to previous month as applicable, be bold and put a round figure estimate on what hedge funds might well be holding to back up loss/profit slant.

Or (d) if you don’t have the tenacity to do any of the above, email the Oilholic, who doesn’t fix problems like Mr. Wolf, but doesn’t bite either. In the meantime of course, we can keep ourselves fully informed with news about Celine Dion’s whereabouts (see above left, click to enlarge), as Will Hedden of IG Group noted in a recent tweet – the kind of important market moving news that reminds us all how good an investment a Bloomberg terminal is! That’s all for the moment folks! Keep reading, keep it ‘crude’!

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To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2014. Photo 1: Shell Oil Rig, USA © Shell. Photo 2: Bloomberg's visit to the Oilholic, Oct 6, 2014 © Gaurav Sharma. Photo 3: Bloomberg Terminal with Celine Dion flashes © Will Hedden, IG Group, August 2014.

Wednesday, April 30, 2014

US prices at the pump & that export ban

Each time the Oilholic is Stateside, one feels obliged to flag up petrol prices at the pump, often a cause of complaint from US motorists, spooking presidents to seek a release of the Strategic Petroleum Reserves.
 
So here's the latest price snap (left) from a petrol station at Mission San Jose, California captured by yours truly while in the South San Francisco Bay. And the price is per gallon, not litres, a pricing level that drivers in Europe can only dream of. With the shale bonanza, chatter is growing that the US should end its ban on crude oil exports. The ban was instituted in wake of the 1973 OPEC oil embargo and has been a taboo subject ever since.

However, the prices you see above are the very reason a lifting of that ban is unlikely to end over the medium term. Argument used locally is the same as the one mooted for the unsuccessful bid to prevent US natural gas exports – i.e. end consumers would take a hit. While in the case of natural gas, industry lobby groups were the ones who complained the loudest, in the case of crude oil, consumer lobby groups are likely to lead the fight.

That's hardly an edifying prospect for any senator or congressman debating the issue, especially in an election cycle which rears its head every two years in the US with never ending politicking. Just ask 'now Senator' and Democrat Ed Markey! But to quote someone else for a change – Senate Foreign Relations Committee Chairman Robert Menendez, another Democrat, has often quipped that lifting the ban would benefit only major oil companies and could end up "hurting US drivers and households" in the long run with higher gasoline prices.
 
Not all Democrats or US politicians are opposed to the lifting of a ban though. Senate Energy and Natural Resources Chairman Mary Landrieu and Republican Senator Lisa Murkowski support a lifting of the ban. Both recently called on the EIA to conduct a detailed study of the effects of crude oil exports.
 
"This is a complex puzzle that is best solved with dynamic and ongoing analysis of the full picture, rather than a static study of a snapshot in time," they wrote in an April 11 letter to EIA Administrator Adam Sieminski.
 
However, in all honesty, the Oilholic expects little movement in this front. Read up on past hysteria over the slightest upward flicker at US pumps and you'll get your answer why. One must be thankful that the debate is at least taking place. That too, only because US crude oil inventory books keep breaking records.

Earlier this month, the market was informed that US inventories had climbed to their highest level since May 1931. So what are we looking at here –  stockpiles at Cushing, Oklahoma, the country's most voluminous oil-storage hub and the delivery point for New York futures, rose by 202,000 barrels in the week ended April 25.
 
The news trigged the biggest WTI futures loss since November last year as a Bloomberg News survey estimated the net stockpile level to be close to 399.9 million last week. That said, nothing stops the likes of Markey from blowing hot air or speculators from netting their pound of flesh.
 
According to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday, traders and speculators increased their overall bullish bets in crude oil futures for a fifth straight week, all the way to the highest level since March 4 last week.
 
The non-commercial contracts of crude oil futures, primarily traded by large speculators and hedge funds, totalled a net position of +410,125 contracts for the week ended April 22. The previous week had seen a total of +409,551 net contracts. While this represents only a minor change of just +574 contracts for the week, it is still in throes of a bull run. That's all from San Francisco folks! Keep reading, keep it 'crude'!
 
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© Gaurav Sharma 2014. Photo: Gasoline prices at a station in Mission San Jose, California, USA © Gaurav Sharma, April, 2014.

Tuesday, July 23, 2013

The WTI rally, hubris, hedge funds & speculators

The 24-7 world of oil futures trading saw Brent and WTI benchmarks draw level this weekend. In fact, the latter even traded at a premium of more than a few cents for better parts of an hour at one point.

After having traded at a discount to Brent for three years, with the spread reaching an all time high of around US$30 at one point (in September 2011), the WTI’s turnaround is noteworthy. However, the commentary that has followed from some quarters is anything but!

Some opined, more out of hubris than expertise, that the WTI had reclaimed its status as the world’s leading benchmark back from Brent. Others cooed that the sread’s shrinkage to zilch, was America’s way of sticking up two fingers to OPEC. The Oilholic has never heard so much [hedge funds and speculative trading inspired] tosh on the airwaves and the internet for a long time.

Sticking the proverbial two fingers up to OPEC from an American standpoint, should involve a lower WTI price, one that is price positive for domestic consumers! Instead we have an inflated three-figure one which mirrors geopolitically sensitive, supply-shock spooked international benchmarks and makes speculators uncork champagne.

Furthermore, if reclaiming 'world status' for a benchmark brings with it higher prices at the pump – is it really worth it? One would rather have a decoupled benchmark reflective of conditions in the backyard. An uptick in US oil production, near resolution of the Cushing glut and the chalking of a path to medium term energy independence should lead the benchmark lower! And that’s when you stick two fingers up to foreign oil imports.

So maybe mainstream commentators stateside ought to take stock and ask whether what’s transpired over the weekend is really something to shout about and not let commentary inspired by speculators gain traction.

Looking at last Friday’s instalment of CFTC data, it is quite clear that hedge funds have been betting with a near possessed vigour on the WTI rally continuing. Were the holdings to be converted into physical barrels, we’d be looking roughly around 350 million barrels of crude oil! That’s above the peak level of contracts placed during the Libyan crisis. You can take a wild guess the delivery won’t be in The Hamptons, because a delivery was never the objective. And don’t worry, shorting will begin shortly; we’re already down to US$106-107.

The Oilholic asked seven traders this morning whether they thought the WTI would extend gains – not one opined that it would. The forward month contract remains technically overbought and we know courtesy of whom. When yours truly visited the CBOT earlier this year and had a chat at length with veteran commentator Phil Flynn of Price Futures, we both agreed that the WTI’s star is on the rise.

But for that to happen, followed by a coming together of the benchmarks – there would need to be a "meeting in the middle" according to Flynn. Meaning, the relative constraints and fundamentals would drive Brent lower and WTI higher over the course of 2013. What has appened of late is nothing of the sort.

Analysts can point to four specific developments as being behind the move - namely Longhorn pipeline flows (from the Permian Basin in West Texas to the USGC, bypassing Cushing which will be ramping up from 75 kbpd in Q2 to the full 225 kbpd in Q3), Permian Express pipeline Phase I start-up (which will add another 90 kbpd of capacity, again bypassing Cushing), re-start of a key crude unit at the BP Whiting refinery (on July 1 which allows, mainly WTI sweet, runs to increase to full levels of 410 kbpd) and finally shutdowns associated with the recent flooding in Alberta, Canada. 

But as Mike Wittner, global head of oil research at Société Générale, notes: "Everything except the Alberta flooding – has been widely reported, telegraphed, and analysed for months. There is absolutely nothing new about this information!"

While it is plausible that such factors get priced in twice, Wittner opined that there still appear to be "some large and even relatively new trading positions that are long WTI, possibly CTAs and algorithmic funds."

In a note to clients, he added, that even though fundamentals were not the only price drivers, "they do strongly suggest that WTI should not strengthen any further versus the Louisiana Light Sweet (LLS) and Brent."

Speaking of algorithms, another pack of feral beasts are making Wall Street home; ones which move at a 'high frequency' if recent evidence is anything to go by. One so-called high frequency trader (HFT) has much to chew over, let alone a total of $3 million in fines handed out to him and his firm.

Financial regulators in UK and US found that Michael Coscia of Panther Energy used algorithms that he developed to create false orders for oil and gas on trading exchanges in both countries between September 6, 2011 and October 18, 2011. Nothing about supply, nothing about demand, nothing do with market conditions, nothing to do with the pride of benchmarks, just a plain old case of layering and spoofing (i.e. placing and cancelling trades to manipulate the crude oil price).

You have to hand it to these HFT guys in a perverse sort of a way. While creating mechanisms to place, buy or sell orders, far quicker than can be executed manually, is an act of ingenuity; manipulating the market is not. Not to digress though, Coscia and Panther Energy have made a bit of British regulatory history. The fine of $903,176 given to him by UK's Financial Conduct Authority (FCA) was the first instance of a watchdog this side of the pond having acted against a HFT.

Additionally, the CFTC fined Coscia and Panther Energy $1.4 million while the Chicago Mercantile Exchange fined them $800,000. He’s thought to have made $1.4 million back in 2011 from the said activity, so it should be a $3 million lesson of monetary proportions for him and others. Or will it? The Oilholic is not betting his house on it!

Away from pricing matters, a continent which consumes more than it produces – Asia – is likely to see piles of investment towards large E&P oil and gas projects. But this could pressure fundamentals of Asian oil companies, according to Moody’s.

Simon Wong, senior credit officer at the ratings agency, reckons companies at the lower end of the investment-grade rating scale will, continue to face greater pressure from large debt-funded acquisitions and capital spending."

"Moreover, acquisitions of oil and gas assets with long development lead time are subject to greater execution delays or cost overruns, a credit negative. If acquisitions accelerate production output and diversify oil and gas reserves, then the pressure from large debt-funded acquisitions will reduce," Wong added.

Nonetheless, because most Asian oil companies are national oil companies (NOCs) - in which governments own large stakes and which often own or manage their strategic resources of their countries – their ratings incorporate a high (often very high) degree of explicit or implied government support.

The need for acquisitions and large capital-spending reflects the fact that Asian NOCs are under pressure to invest in order to diversify their reserves geographically. Naming names, Moody’s made some observations in a report published last week.

The agency noted that three companies – China National Petroleum Corporation, Petronas (of Malaysia) and ONGC (of India) – have very high or high capacity to make acquisitions owing to their substantial cash on hand (or low debt levels). The trio could spend over $10 billion on acquisitions in addition to their announced capex plans without hurting their respective underlying credit quality.

Then come another four companies – CNOOC (China), PTT Exploration and Production Public (Thailand), Korea National Oil Corp (South Korea) and Sinopec (China) – that have moderate headroom according to Moody’s and can spend an additional $2 billion to $10 billion. These then are or rather could be the big spenders.

Finally, if Nigeria’s crude mess interests you – then one would like to flag-up a couple of recent articles that can give you a glimpse into how things go in that part of the world. The first one is a report by The Economist on the murky world encountered by Shell and ENI in their attempts to win an oil block and the second one is a Reuters’ report on how gasoline contracts are being ‘handled’ in the country. If both articles whet your appetite for more, then Michael Peel’s brilliant book on Nigeria’s oil industry, its history and complications, would be a good starting point. And that's all for the moment folks. Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
© Gaurav Sharma 2013. Photo 1: Pipeline in Alaska, USA © Michael S. Quinton / National Geographic. Photo 2: Oil drilling site, North Dakota, USA © Phil Schermeister / National Geographic. 

Monday, October 24, 2011

North Sea, Gaddafi, CFTC (Rhymes not intended)

The past week has been cruder than ever, loads to talk about – not least a bit of good news from the North Sea for a change. Following BP’s earlier announcement on its commitment to offshore west of the Shetland Islands to the tune of £4.5 billion, Statoil recently doubled the estimate of the size of its crude find in the North Sea.

The Norwegian energy major now says the Aldous Major South field, a prospection zone linked to the Avaldsnes field operated by Swedish firm Lundin Petroleum, could contain between 900 million and 1.5 billion barrels of recoverable oil.

While the find is perhaps one of the largest ever discoveries in the North Sea, what is of much more significance is the fact that much of extraction zone is in relatively shallower waters. Admittedly, the find and BP’s move are unlikely to increase British production levels to pre-peak (1999) levels. Nonetheless it is welcome news for a prospection zone, the British end of which has been bemoaning higher taxation and where the only overall bonanza independent observers sometimes see is the one related to decommissioning. (Not that, that’s over.)

From the North Sea to Col. Moammar Gaddafi – whose gory end had a near negligible impact on crude oil futures according to evaluations conducted by several City analysts. The former Libyan dictator was killed by revolutionary forces in his hometown of Sirte last Thursday. Most analysts felt focus had already shifted, following the fall of Tripoli, to restoring Libyan production. In fact damaged oil terminals, already factored in to the pricing strategy and supply/demand permutations, were more of a concern than the Colonel’s demise. As Libya moves forward, what sort of government takes shape remains to be seen.

Continuing with pricing, the ICE Brent forward month futures contract could not hold on to early gains last week and stayed below the US$110 level, but the WTI had a mini rally ending the week above US$87. Today in intraday trading Brent’s flirtation with the US$110 level and WTI’s with US$88 continues with all eyes on the outcome of the EU leaders’ summit on October 26th.

Analysts at Sucden Financial Research, expect some further consolidation in the oil market ahead of the meeting. “Thus, volume might be muted while high volatility and nervous trading are possible to dominate the markets. In the meantime, currencies movements will remain the key driver of oil direction, while it will be interesting to watch how the global equity markets will digest any breaking news,” they wrote in an investment note.

Moving away from pricing but on a related note, the Oilholic found time this weekend to read documents relating to the US Commodity Futures Trading Commission’s (CFTC) 20th open meeting on the Dodd-Frank regulations which approved, on October 18th, amongst other things, the final rule on speculative position limits.

To begin with the Oilholic, along with fellow kindred souls in the world of commodities analysis, wonders how a move designated to impose curbs on ‘excessive speculation’ does not actually define it or explains what constitutes admission to the category of ‘excessive speculation.’

The final ruling, according to the CFTC, will establish ground rules for trading 28 ‘core’ commodity futures contracts and also ‘economically equivalent’ futures, options and swaps. The limits are going to be introduced in two phases.

Wait a minute, it gets ‘better’ – limits for ‘spot-month’ will be introduced after the agency further defines what a ‘swap’ contract is (eh???). It seems there is no strict timeline for that definition to come about but the world’s press has been informed that the definition should come before the end of the year. The trading of four energy contracts will be affected – i.e. NYMEX Henry Hub Natural Gas, NYMEX Light Sweet Crude Oil, NYMEX New York Harbor Gasoline Blendstock and NYMEX New York Harbor Heating Oil.

Michael Haigh, analyst at Société Générale CIB notes, “In the short run therefore these rules might not impact price volatility (they still have to define a swap) and we believe the rules will not decrease volatility or stop commodity price spikes down the road. Increased volatility and price spikes are actually more likely in our opinion. The rules will also create a better paper-trail for the CFTC knowing who is holding what and in which market (swap or futures) but legal challenges to the rule are considered likely.”

As for the nitty-gritty, the initial spot month limits will be the CFTC's legacy limits for agricultural commodities (e.g., 600 contracts for corn, wheat and soybeans, 720 for soybean meal and 540 for soybean oil). For other commodities, exchange limits will be applied. Thereafter, spot limits will be based on 25% of the deliverable supply as determined by the exchanges and these will be adjusted every other year for agricultural contracts but each year for metals and energy.

In the second phase, the CFTC will set limits for positions in non-spot contracts (and all months combined) based on open interest. The CFTC should have that data by August 2012. In practical terms, it appears that the all months combined/single month limits will therefore take effect in late 2012 or early 2013 after the CFTC reviews the data, comes up with limits and imposes them.

The CFTC promises to conduct a study 12 months after implementation and would ‘promptly’ address any problems. However, Haigh notes that by all logical reasoning, the study would be at least one year after full implementation, so sometime in 2014. “A reversal of rules would obviously come much later. By then, the damage may have already been done and the markets would have seen even wider gyrations in prices with the removal of liquidity,” he concludes.

Rounding things up, ABN-AMRO – the ‘once’ troubled Dutch bank is attempting to ‘re-establish’ its international presence to energy, commodities and transportation clients according to a communiqué issued from Amsterdam this morning. To this effect, a new office was opened in Dallas staffed by a 'highly regarded' energy banking team swiped from UBS. More offices are to follow in Moscow and Shanghai over the coming year on top of an existing network of 10 international offices. Lets see how the reboot goes!

© Gaurav Sharma 2011. Photo: North Sea oil rig © Cairn Energy Plc

Thursday, December 31, 2009

Crude Year ’09 Ends Just Like the Last One

When 2008 was coming to an end, the price of crude oil was stuck below half its record peak price of US$147 a barrel seen in July that year. Yet fears about a new spike persisted despite a dire global economy. As the curtain falls on 2009, with the price of crude futures hovering around $80, market commentators have voiced similar concerns. Most of the reasoning banks on sound conjecture that oil consumption in India and China is rising beyond expectation and that OECD economies are also witnessing an economic recovery of sorts after facing negative growth for much of 2009.

The year saw some memorable as well as predictable developments. As the price of oil weakened so did the black gold weighted currencies, most notably the Russian Rouble. OPEC continued to maintain production levels at its March meeting, resisting temptation to cut production in wake of falling prices. It ended the year with a production level of 24.84 million barrels per day (bpd), excluding Iraq's output. On the M&A front, Suncor and Petro Canada announced a CAD$ 19.3 billion (US$ 15.3 billion) merger. ExxonMobil topped the Fortune 500 Index, dethroning Walmart as USA’s biggest company. The Texas-based oil giant, according to published sources, employed 79,000 people and produced 3% of global oil as of April 2009. It was followed closely behind by Chevron in third place and ConocoPhillips in fourth, highlighting the dominance of energy companies in the U.S. corporate world.

Clamour for biofuels grew, along with arguments for and against them and new methods of production. One of the most unique theories came from three researchers at the University of Nevada (Reno, U.S.A.) whose research was carried by a number of media outlets in 2009. Lead by Dr Manoranjan Misra, they found that coffee grounds can yield 10-15% of biodiesel by weight. However, so far there are no indications that Starbucks would enter the oil trade.

Perhaps still haunted by the fact they sold minerals rich Alaska to the U.S.A. in 1867 for two cents an acre, the Russian government launched fresh and detailed territorial claims within the Arctic Circle determined not to miss out on a perceived oil bonanza in the region. Despite extracting oil from seabed being mighty awkward, Canada, Denmark, Iceland, Norway and U.S.A. also made their respective claims beyond agreed international borders (to be heard at a later date).

Nigeria’s maritime troubles related to oil, dogged production for most parts of the year. The militant group curiously named MEND (Movement for the Emancipation of the Niger Delta) offered nothing more than temporary respite. While Nigerian production fell, Uganda and Ghana struck oil. Armed with petrodollars, China, Russia, Iran and Venezuela dished out their own respective international versions of how to win friends and influence people noted The Economist.

Major oil firms frowned at the miserly terms offered by Iraq’s government at the first opening of competitive bidding for production rights in July and some seemingly held out for better prices. Iraqis said it was their moral right to protect the country’s wealth. As security is a distant prospect, something has to give way with negotiations and fresh bidding slated for 2010.

Last but not the least, bashing 'speculators' emerged as the most popular way for American and European politicians to spend time when called upon by their electorates and the popular press to explain first high and then low oil prices. Ultimately settling on 'volatile' as an apt description, politicians hailing from no less than 19 developed countries echoed the common message of 'damn the speculators' - some in more colourful language than others.

For most of the motley crew, alternative investors such as exchange traded funds which hold large commodity positions for extended trading durations were behind price volatilities seen in anything traded on earth from gold to garlic, and not just oil. However, a U.S. CFTC study from 2008 seemly exonerated them and the Commission’s new boss Gary Gensler has so far not rejected the validity of its findings.

Maybe for some, it’s rather difficult to palate that ‘speculation’ in itself mirrors supply, demand and global instability premiums. While the latter impacts oil more than most, supply and demand permutations hit traded commodities of all descriptions.

© Gaurav Sharma 2009. Photo Courtesy Cairn Energy PLC

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