Reader Paul e-mailed about the special, early opening of the NYMEX to permit pre-Gustav trading. As he correctly noted:
I have NEVER heard of a US market opening early due to macro events; the usual move is to CLOSE during exceptional circumstances.
Neither have I. This looks pretty suspicious. Did some influential parties need to rearrange their positions, or did some hope to use a probably-thin market to their advantage? How many were aware of this session when it opened? How much advance notice was there, and how was this disseminated? It is almost certain no questions will be raised. Any reactions from informed readers very much appreciated.
As for the substance, Bloomberg notes that the market reaction is subdued compared to the supposed severity of the storm, although as of this writing it was a Category 3, not the feared Category 5 it seemed likely to become.
From Bloomberg:
“It’s a huge storm, and it’s got the potential to cause all kinds of problems,” said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. “There’s a lot of concern that this is something that could really, really damage infrastructure badly, and this could be another instance of Katria-Rita or worse.”
Crude oil for October delivery rose $1.67, or 1.5 percent, to $117.13 a barrel at 5 p.m. on the New York Mercantile Exchange. Prices are up 22 percent this year.
Gasoline for October delivery gained 6.58 cents, or 2.3 percent, to $2.92 a gallon on the exchange.
To see oil “up two and a half dollars is a muted reaction to what they’re calling the mother of all storms,” Beutel said….
“We’re more prepared for this storm than we ever have been for any hurricane that I remember,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “We’re better prepared, and demand isn’t that strong anyway, so I’m about as optimistic as I can be in this type of disastrous situation.”…..
“You get a couple of rigs shut down, keeled over from this hurricane, and this is going go take days or weeks to fix,” said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. “The bigger problem is on the refining side and the potential impact on all the refineries that string along the Gulf Coast.”
Almost half of U.S. refining capacity is centered along the Gulf Coast, and refineries have been operating at less than 90 percent of capacity all year, according to the Energy Department.
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Nymex is most likely opening b/c the ICE platform will be open to trade. The rebalancing won’t likely happen b/c markets will prob be much thinner than normal. Plus “they” had ample opportunity to do that earlier in the week. Hurricane models have been fairly steady all the prior week.
The Gustav response sounds like a contrived event, designed to show government and GOP alertness in an election year. The market has already priced Gustav as a non-event and the evacuations crescendo seems quite disproportionate. To paraphrase, it’s akin to a “pound of cure unworthy of an ounce of prevention”.
Agree with anon 7:57pm. Nymex is opening because there’s hot money that wants to trade and Nymex wants the trades executed on its platform so it can capture the fees, rather than ICE or somewhere else.
dean,
I am sure the folks living in NO take great comfort in your analysis…never lived on the Gulf coast, hmmm?
Ano,
No disrespect for those affected but I think (perhaps wrong) that they might be manipulated.
Check out the oil futures for yourself. Do you evidence matching the rhetoric?
http://www.bloomberg.com/markets/commodities/energyprices.html
P.S. I have a great deal of empathy for suffering, human or not.
This comment has nothing to do with this particular article BUT: I noticed a Nielson survey pop-up on this site that request you participate in a survey. Well, I really enjoy this nakedcapitalism.com website so at first I thought, “Sure, I get a lot out of this site so I’ll do the survey.”
But THEN I read the survey’s privacy policy. In my opinion, the privacy policy is NOT a good privacy policy. In fact, in my opinion it is a really bad privacy policy. But, I suggest you read it yourself and each make his own determination.
Love the nakedcapitalism.com site. Hate the Nielson privacy policy.
Ano:
Replace the “do you evidence” with “do you see evidence”.
In any event, Yves’s thesis of a peculiar and unusual pre-trading opportunity designed to favor certain interests is not playing out; at least not yet.
Dean,
FWIW, a seasoned and well-connected investor/correspondent e-mailed me, floored at this development, and was trying to reach his buddies to get some G2 on what this was about.
This does not pass the smell test, but don’t have a lead on cui bono…..
It is also possible that whatever hoped-for advantage failed to materialize. I may have some better theories later.
Yves,
Let us all know what you find out. This is one of the strangest situations I’ve encountered. Officialdom framing Gustav as the “event of the century” and markets responding with some pronounced Zzzzzzs.
It has to be political. “Diligent government saving you from Noah’s cataclysm”, or something similar.
Banana Republico
i recall that there was a special sunday session for hurricane rita. this was shortly after after katrina, which was on a weekend. i don’t think there was a special session for katrina.
This may be a stupid question, but aren’t commodities traded in off hours electronically? While volumes are low, you can trade nymex contracts nearly 24/7, no? So I’m not sure what you accomplish in a trading session that you can’t with the usual off-hours elecronic trading.
The fall in the price of natural gas is the tell of all tells.
The entire energy complex is going much, much lower than anticipated.
(Those of you long UNG with leverage, well, adios mis amigos.)
From NYT:
“Electronic trading in energy futures normally begins at 6 p.m. on Sundays to coincide with the opening of Asian markets, but because of the approaching hurricane, electronic trading began at 2:30 p.m. Sunday to allow traders to ease their risks.
“We wanted to provide our customers with the opportunity to respond to the storm’s potential impact to energy markets as quickly as possible,” Bryan Durkin, chief operating officer for the CME Group, said in a statement. The CME Group runs the New York exchange.
Though electronic trading was moved up to an earlier start on Sunday, floor trading remained closed.
Esa Ramasamy, editorial director for oil market reporting at Platts, a provider of energy and commodities information, welcomed the exchange’s decision to start early. On Friday, many traders were still unsure whether the storm would intensify or dissipate, and by Sunday they were more sure that the storm would hit the refineries along the Gulf Coast.
“Anything to serve the market is always a good idea,” he said. “This allows players to hedge their positions. It only helps to stabilize the market.”
imo…CME is “annerversary-ing” over to very tough yoy volume comps…they’ll do anything to get people to trade at this point.
Interestingly, nat gas fell another 20c in the special session.
Oil futures have fallen 20 percent from the record $147.27 a barrel reached on July 11 as the rising U.S. dollar reduced the appeal of commodity investments and on signs of slowing global economic growth.
“Fairly weak” demand and the International Energy Agency’s early commitment to free up reserves if needed has damped the reaction to Hurricane Gustav, Edward Meir, an analyst at MF Global Ltd. in Stamford, Connecticut, said in a Bloomberg television interview.
While major damage may push oil as high as $125 a barrel, prices are otherwise likely to quickly resume their slide after Gustav has passed, he said.
“If it’s Category 3 without any major damage, $105 is possible” by October, Meir said.
Meanwhile: “We can’t expect consumer spending to improve soon,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which manages about $94 billion. “It will be difficult for companies with high dependence on exports, such as automakers, to regain revenue.”
The Nikkei 225 Stock Average dropped 238.69, or 1.8 percent, to close at 12,834.18 in Tokyo. The broader Topix index declined 24.07, or 1.9 percent, to 1,230.64. Both gauges retreated the most since Aug. 19, and almost eight shares fell for every one that rose on the Topix.
Looks like deflation!
Take a look at Gulf/Texas @ ICE:
https://www.theice.com/marketdata/naNaturalGas/naNatGasGraph.jsp?chartId=FZ3.FP.x
Florida Gas Transmission – Zone 3
http://www.nymex.com/FP_term.aspx
http://www.profitquotes.com/commodities-quotes.mpl?c=FP&n=Florida%20Gas%20Transmission%20Zone%203%20Basis%20Swap
In the last few weeks we have had a debate about whether demand destruction has initiated a bear market in oil. I’d say the last week’s price action seals it. We could see the bottom drop out of oil, nat gas and gold this week.
For many people this will be obvious, but from a trader’s perspective once an instrument shows bubble behavior and peaks, the trajectory is then always the same – a 50% haircut. $75 oil is probably in our future.
There’s a school of thought that says it makes sense for oil prices to fall due to where supply shortages are felt. If the LOOP terminal is damaged then there will be a material disruption to the ability of the US to consume oil and therefore backup of available supply on the world markets. International prices falling right now in fact would reflect this. There will be at the same time higher prices for refined products, including gas within the US though to due lack of supply. A peculiar imbalance for sure.
Yves, I remember one time, I think in 2003 that bond trading desks on Wall Street opened at midnight the night of I think it was the reversing a trading halt of Healthsouth bonds.
On the bright side, I had sold away the credit earlier… so I didn’t have to get up, but I heard a lot of grousing from all involved.
PS — the new search function on Bloomberg is wonderful. I was right on Healthsouth:
ABN Amro’s Ullerich Comments on HealthSouth Bond-Trading Halt
2003-03-21 20:28:32.430 GMT
Chicago, March 21 (Bloomberg) — Charles Ullerich, who helps
manage about $700 million in assets at ABN Amro Asset Management
Inc. in Chicago, comments on the halt in trading of HealthSouth
Corp.’s debt.
“I don’t think the halt achieved what they wanted it to
achieve, because it ended at around midnight. Half of Wall Street
desks were empty at the time.”
“We wouldn’t have felt comfortable trading in that situation
because it’s ridiculous to come in at that hour for one bond, and
there was very little liquidity in the market anyway.”
“We’re not doing anything at the moment. We might lighten up
our position a bit, but we’re not going to panic either. The
numbers that we have are what we have, but as we know those aren’t
reliable.”
So, occasionally Wall Street does some odd things at night, and it’s not always nefarious.
I don’t get why everyone is running away from nat. gas in particular (UNG) = the commentator above said longs will be screwed == why?
NYMEX OPENED SO THEY COULD LET THE BIG SHORTS SHAKE OUT THE SMALL TRADERS. (CFTC NET LONG) aND TURNED THEIR LOCALS
LOOSE WHILE THE BROKERS WERE CLOSED.
JAMES E NEWSOME HEADS UP NYMEX THE NFA AND THE CFTC.
SO GOOD LUCK SEEKING RECOURSE.
THEY TOOK ME FOR 2K AND MY BROKER WAS CLOSED.
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