Posted by SuperDriveGuy on December 23, 2009 at 4:04pm
Swiss oil traders prosper from 2009 volatilityby Giles BroomDecember 21, 2009 | 12:00taken from swisster.chTraders say the 2009 oil market has been profitable, helped by market volatility and beneficial price differentials between spot and futures markets. Top executives tell their success stories to the media and predict that next year will be more competitive now the ‘big five’ traders have expanded in the same markets.According to the Financial Times the five largest traders – Vitol, Glencore, Trafigura, Gunvor and Mercuria, all of which have a big presence in Switzerland – are likely to take home profits of between 3.5 billion and 4 billion dollars in total, making 2009 their best year.“We had a very good year,” said Mercuria chairman Marco Dunand, in the FT report. Pierre Lorinet, chief financial officer at Trafigura, said: “business has been good.”The powerful Swiss-based traders continue to grow. Mercuria announced revenues this year of 47 billion US dollars, compared with just over 6 billion from 2004, its first year of trading.Revenue is “a slightly meaningless number” in the energy trading sector, said Mark Ware, global head of corporate affairs of another Geneva-based giant, Vitol. Ware said his company would announce more detailed 2009 financial figures in January which will explain how well Vitol has done.These influential top five oil traders account for 15 per cent per cent of the world’s crude and oil products output, equal to the combined oil production of Iran, Iraq, Kuwait, United Arab Emirates and Venezuela.Glencore, a private company headquartered in Baar, says on its website that it alone handles 3 per cent of global crude and petroleum products.It has been an exciting twelve months in the Geneva trading scene for other reasons. Two large traders were snapped up by larger energy companies: Dutch company Essent was bought by Germany’s RWE and Addax Petroleum sold up to China’s Sinopec.But on the whole energy traders still try to avoid headlines. A spokesperson for Gunvor told Swisster that the company “has a policy of not commenting on its performance or the market in general” and it refused to give an interview to the Financial Times.The characteristic privacy of Swiss energy traders has led journalists and politicians to cast them as market manipulators and sanctions busters.Trafigura’s reputation was also tainted by a 2006 incident in which a company working with the trader was accused of dumping toxic waste in West Africa.The firm paid a settlement of 198 million dollars in an out-of-court claim related to the incident and this year used an English court injunction to prevent a newspaper from publishing information about the case.On Friday, Trafigura published an apology from the BBC regarding allegations made against the company in a documentary.The unpredictable 2009 price movements have caused problems for producers and consumers of oil, but for the top players, volatility can mean a market of opportunity.Savvy traders have benefited from the increase in crude prices this year, buying at lower points in the market, then selling once the price has increased. The crude price rose from 32 US dollars in January to more than 80 in October.Energy executives told the FT that this year’s ‘contango’ market – a state in which the current energy price is cheaper than barrels held on the futures market – is set to continue in 2010, even more so in diesel than in crude oil.This means that buying at ‘spot’ prices – the market of the moment – and selling higher-priced futures contracts will continue to be profitable.Some traders are able to put oil in storage while the price increases, then sell on the higher futures market to ensure a profit. In December the European Commission gave approval for Vitol to complete the purchase of storage facilities in the Netherlands currently owned by refiner Petroplus.In November Vitol also bought a 15 million barrel storage facility in Oklahoma, USA.Ton Schurink of CFT Advisory Services told Swisster that “most companies made a lot of money in the first half of 2009 with the contango game, a bit less in the second half.”But not everyone is in a position to play. “We haven’t profited from contango,” said trader Marc Ducobu of Morges-based Arcadia, as his company does not own any storage facilities.Traders such as Mercuria and Litasco are better-placed to profit as they have assets which can store the black gold while it increases in value, according to Ducobu.The ex-Cargill trader has a gloomy outlook for 2010, predicting that “the economy will stay bad” and “the fundamentals are negative.”And with the five largest traders all expanding, there may be a point in 2010 when the room becomes too crowded for each player to enjoy the party. Executives expect a closer fight for market share next year.
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With the S&P 500 and Nasdaq hitting year to date highs, it should not surprise currency traders that the dollar has extended its gains. Since the beginning of the month, the dollar appreciated more than 5 percent against the Japanese Yen and over 4 percent against the euro, Australian dollar and Swiss Franc. The only currency that has been stronger than the greenback is the Canadian dollar and even then the loonie’s gains have been marginal. Today, the loonie remains the only currency to strengthen against the dollar. The correlation between the foreign exchange and equity markets continue to dominate trading but it is important to realize that this is a new development on a quiet trading week with unusually low volume and market participants.
Understanding the Correlation Between Currencies and Equities
The correlation that everyone is focused on is the positive correlation between the dollar and stocks. There is an expectation that the U.S. dollar and stocks will rise in tandem on the belief that investors in both markets are banking on an accelerating U.S. recovery. It also means that the dollar is keying off U.S. fundamentals and not risk appetite as stronger U.S. data bolsters the confidence and attractiveness of dollar denominated assets. Although this may seem logical to many investors, it has not been the case for most of the year. In fact the illogical behavior of the dollar selling off on good data and rising on bad has dominated trading. The following table illustrates how the correlation between the S&P 500 and currencies has changed. Between last Thursday and today, the S&P 500 has had a 96 percent negative correlation with the EUR/USD and a near perfect correlation with USD/JPY. In other words, since last Thursday, a rally in U.S. equities has coincided with a sell-off in the EUR/USD and a rally in USD/JPY. However this is a new development because over the entire month, the correlation between stocks and currencies has been very weak. If we take a step back and look at the correlation between currencies and equities over the past 6 months, we can see that previously, the EUR/USD rose alongside equities. It remains to be seen whether this new correlation can hold and if it does, it would break a relationship that has lasted for most of the year.
Economic Data Preview and Review
Meanwhile the stronger existing home sales report completely offset the market’s reaction to the disappointing GDP report. After last month’s solid number, many people believed that the pace of improvement in the housing market would slow and even though it did, the 7.4 percent growth was extremely impressive. The number of units sold in the month of November hit 6.54 million, the highest since Feb 2007. This suggests that we could see similar strength in tomorrow’s new home sales report. Personal income, personal spending and revisions to the December University of Michigan consumer sentiment report are due for release tomorrow. Stronger numbers are expected all around. As for growth, the third release of GDP revealed that the U.S. economy expanded by only 2.2 percent in the third quarter, a far cry from the initial estimate of 3.5 percent. The details of the report pointed to weaker growth in personal consumption, gross private investment and government consumption. Personal consumption was revised from 2.9 to 2.8 percent while PCE was revised from 0.5 to 0.4 percent.
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Three days before Christmas and the volume is light
Exxon Mobile(NYSE:XOM), the Spyders(NYSEArca:SPY), and Apple(NasdaqGS:AAPL) are doing all right.
While gold(NYSEArca: GLD), and oil(NYSEArca: USO) have caught a small bid
however, for them to move higher the dollar must have had an intra-day skid.
Goldman Sachs(NYSE: GS) is trading down less than a buck
with $20 billion in bonuses do they really need luck.
Other banks are basically flat on the day
why should they be down they took 'mark to market' away
Remember toxic assets are a thing of the past
Where did they go? Did they just vanish like gas?
What does it matter the market is higher.
Stocks like Dollar Thrifty Automotive(NYSE: DTG) are now a high flier
I remember in March when it was under a buck
Now it is $27.00 this isn't just luck
Wall Street is fine for all to see
we must thank the 'Man of the Year' Ben Bernanke.
He followed his predecessor Alan Greenspan
by lowering rates throughout the land
We all know this was the cause for the 'Great Bubble'
One can only wonder will this one be double.
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Resistance line being well observed.Cable has only managed to fake out of this resistance line, the current candle is trying to test. if it confirms inside the line more downside?
The markets are moving higher today on the back of solid moves from Alcoa Inc (NYSE: AA), Amazon.com, Inc. (NasdaqGS: AMZN), Intel Corporation (NasdaqGS: INTC) and JP Morgan Chase Co (NYSE: JPM). Volume has started to trail off and is expected to starting around 10:30am ET each day this week. This is due to traders leaving early for the holidays and the lack of news after the morning session on Wall Street. This week we will see quite a bit of economic news, but it is all pushed into the pre market session or the 10am ET time frame. Once 10:30am comes around, traders will be essentially done for the day.Alcoa Inc. is higher today after a major deal with Saudi Arabia worth 10.8 billion dollars. In addition, Alcoa was upgraded by Morgan Stanley to overweight. While this upgrade is interesting to say the least, I believe it has come very late to the party. It does appear AA may have a little more upside but I would begin to use this upward momentum as an opportunity to unload positions. A pullback to $12 or below would be much more appealing.Amazon.com Inc. is having a solid day on the back of a blizzard that buried most of the north east of the United States. The key here was to recognize the snow storm was coming on Friday during trading hours and see that there was a high probability that it would cause an extra influx of online shopping. Near term, this seems to be boosting Amazon.com. While Amazon.com seems to be having a solid day, I would expect the pull back to continue after the holidays as profit taking continues. I think there is a large chance Amazon.com will pull back to the $110.00 level before being a solid entry once again.Intel Corp. is also one of the key DOW components keeping the markets up. It is up more than 2% on the day. Intel Corp. was raised to overweight from equal weight by a Barclays Capital analyst. This stock has been in a choppy trading range technically speaking. Being range bound, it may be in a consolidation pattern for a break out. However, watch the key $21.25 level. I would be mildly warm on this as the range from $18.50 to $21.25 looks to continue into the new year.JP Morgan Chase Co. is also helping the DOW and the markets head higher. Along with Goldman Sachs Grp (NYSE: GS), the financials are having a strong day. Over the weekend, comments were made from Barrons that the finanicals may have a bright future. JP Morgan Chase Co was highlighted as being the front runner to profits down the line. Citigroup Inc. (NYSE: C) was noted as being the worst. While the financial stocks have pulled back off their highs, technically speaking, it bothers me the markets have not followed. The financial stocks continue to be a leading indicator to this market. Be aware that their weakness may be a signal of a 10% correction coming in January and February.Gareth SolowayChief Market StrategistInTheMoneyStocks.com
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