Oil and Gas Markets- A Consultants Perspective [Compatibility Mode]

8/8/2019 Oil and Gas Markets- A Consultants Perspective [Compatibility Mode]

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consultants ers ectivePresented by : Mr. Biren Vakil

CEO Paradigm commodity,


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Oil market constitutes of consumers roducers hed e funds s eculators

traders,brokers,financers,venturecapitalists,investors,specialtyfunds

like

enhanced

Alpha

and

Beta

specialty

funds,

retail

investors

and

many

Fortheeconomy itislifebloodofeconomicactivity,fortheindustryitisasourceofcreamyprofitsandforinvestorsandspeculatorsitisan

.

Oilpresentsdifferentkindofopportunitiesfordifferentkindofpeopleandentities.Itsattractingallkindofmoney smartmoney,hotmoney,

rtymoneyan goo money. n r canan ormer t sa ac capitalforrogueregimesandformafias.Duetoitsstrategicimportance

corruptionand

oil

and

gas

trade

are

inseparable.

OilMarketisdefinedintofuturesmarket,physicalmarketandstructuredOTCproductmarketandisveryopaqueinnature.


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v

v

EmergenceofalternativeinvestmentmarketslikeETF,ETN,betaspecialty

funds,enhance

Alfa

funds

are

agent

of

change

in

market

structure

.,

moneypowerhasdwarfedconsumerandproducerasapricesetter. With

thehelpofcarrytrade ultracheapfinancing,speculatorshavehijacked

smar e . ommo y u ures ra ea one asgrown rom n n

2002to3trillionin2009.GlobalETFindustryhasgrownto1.1trillionandoilandgasETFinvestmentsizeisnearly$150billion.

GrowthofGasETFmarkethascausedsomemarketturbulenceinUSlast

.goldtrustETFholds1300tongold. Worldsixlargestgoldholder.IfUS

Govt ordertoclosethisfund Goldcouldhalveitsvalue.


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" ", .

issues units that may be purchased and sold on the NYSE Arca.

Currently the ETF industry consist of USD 1.1 trillion.

The oil & gas ETF size is USD 128 billion. exchangetraded fund (ETF), also known as an

exchangetraded product (ETP), are essentially Index Funds that are listed and traded

on exchanges like stocks.

ETF have opened a whole new panorama of investment opportunities to Retail as wellas Institutional Money Managers. They enable investors to gain broad exposure to

relative ease, on a realtime basis and at a lower cost than many other forms of

investing. It as a Mutual Fund that you can buy and sell in realtime at a price that

chan es throu hout the da .

Example: The United States Oil Fund, LP ("USO") is a domestic exchange traded

security designed

Copyright ParadigmCommodityAdvisorsPvt.Ltd.


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A type of mutual fund with a portfolio constructed to match or track the

components of a market index, such as the Standard & Poor's 500 Index

(S&P 500). Goldman Sach, Dow Jones AIG, CRB, Rogers International are

popular index funds. Goldman Sachs is energy centric fund while CRB and

Rogers international are more balanced funds.

,

operating expenses and low portfolio turnover.

Investing in an index fund is a form of passive investing. The primary

a vantage to suc a strategy s t e ower management expense rat o on

an index fund. Technically speaking index funds are long only funds i.e.

these funds always buy an asset. They cannot short an asset. Hedge fundscan buy or short sell the asset.



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NYMEXislargestexchangeandwidelywatchedasabenchmark

.

MCX theIndianEnergyExchangehasovertookTOCOMinGastrading

andis

third

largest

Gas

trading

exchange

in

the

world.

MCX

terminals

are

nowpresentinfarflunginthecountryandanybodycantrade oilandgas

onMCX.Thesecontractsaremirrorima eofNYcontracts.

Singaporeis

the

hub

of

physical

oil

market.

Besides

Platt's

oil

gram

acompanypromote y c raw so er ng e g ngp at orm. not er

suchpricefacilitatorisArgus.Boththesecompaniesareusefulservice

providersforOSPbenchmarkingtomakelongtermcontracts.


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row

Income

Price elasticity of demand

ea er s oc s

Forward curves shape

Size of speculative positions in

Price elasticity of supply

Role of reserves

the futures market

Traders sentiments

Spare Capacity

Noise Traders

market Exchange Rate fluctuations

Inventories

Wars & other Geopolitical

conditions

e nery s u owns, even r s

Energy security and resource

hunt



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ThePLATTSMARKETONCLOSE

(MOC)

A pricediscovery system designed to yield a price assessment reflective of

market values at the close of the typical trading day.

The MOC pricing system recognizes as a core principle that price is afunction of time and MOC enables Platt to have full clarity on the price at

the close of business.



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In a reallife example, a gasoline seller might believe the market value of.

seller X and the buyer Y. Platt seeks to gauge the true value of gasoline.

, ./gal) and Y might bid to buy at 152.75 cts /gal.

X and Y communicate their bids/offers to a Platts market editor.Communication ma be via an instant messa e to a Platts marketreporter, who inputs the information internally ,or via Platts electronicwindow communication tool enabling market participants to input datadirectly. In either instance, the information is delivered back to themar e a arge n rea me roug e a s o a er e ec ron c

service. Platt at this stage can assess market value between 152.75 and 154.25 cts

.

X and Y can change the price at which they are bidding and offering bysmall reasonable increments, and each of these price changes is publishedon the real

time screen as a rice alert headline.

As offers and bids become sharper, as in any negotiation, the strength ofeach party will determine who acts first, both knowing that other marketparticipants could intervene with a bid or an offer.



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.budge, and X may eventually sell at 152.75 cts /gal.

This process gives a very detailed information trail to Platt's, and theassessment derived from it is not an o inion that X is ri ht or that Y isright, but a reflection of the fact that either party would be expected tocomplete a transaction if its counterparty or another market participant

met a bid or an offer. It is possible that both parties may not trade at all but only remain bidding

152.75 cts/gal and offering at 153.00 cts /gal, in which case theassessment will consider the bid and offer in its assessment process and

.

It is important to note that Platts has very strict systems and disregardsmarket gapping activity in its assessments.

, , ,by lifting high and unreasonable offers or selling into low andunreasonable bids, such activity would be disregarded. In these cases, the

transactions would be ignored and the assessment would take intoaccount t e ast re evant i an o er, wit an e itoria assessment ma eof value, but the last trade would not be considered to be of value.



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Argus uses markets implied value for the North Sea Dated price reference

obtained by cross referencing forward trade, CFD trade and physical

period.

The building block from which the North Sea Dated assessment is derivedis called the flat rice or forward rice. It is the rice for Brent crude

for loading in one (or possibly two) months time. Argus assess prices for 12 pipelines crude markets, based on amethodology that includes deals done through out the entire trading day.

It trades on a barrel perday basis because oil moves all day, everyday.This is why the logic of the marketonclose window methodology

escapes most producers and refiners, and why so many of them now rely.



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Energy markets becoming increasingly volatile due to

ultra loose monitory policy and expansive fiscal policies.,money managers are chasing oil and commodities insearch of hi her returns.

Sovereign debt crisis of Europe and Debt monetizationby US, UK and Japan is also encouraging capital flowsinto resources. The liquidity overhang has an era of

Dynamic Dislocation. Hence, price overshooting orun ers oo ng wou ecome a ru e ra er an anexception. Volatility is here to stay and industry has to

.


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enomena r se o a ternat ve nvestment

markets (AIM) i.e., hedge funds, ETFs andIndex Funds are new kids on the block.

Normall rice setters can be either a

producer or a consumer, but as resourcesare now financial commodities ricesetters are banks and speculators.

.normal.


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orecast ng- tr c y us ness r un ur y o o man ac s ma e o orecas ng a

tricky job, good for consultants, bad for banks/hedgersand u l for the industr which is not interested in shortterm price volatility but interested in long terminvestments and build business.)

ur ng ast year o as a en rom to anbounced back to 85. Robust demand from Asia andemer in economies and demand destruction in OECDare counter cyclical forces and act as a tug of war.

Macro demand trend suggests long term trend is up, butn t e me um term pr ce may tra e etween -


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.. There is no fundamental or technical

reason that oil sta s within a $60-$80band. But that way Wall Street cant make

.

Emergence of Algo Trading, hunger forsuper normal pro its and availability o

ultra leverage trading tools propelsvolatility.


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.. nergy pro ects are u up w t

years of horizon, but volatility has reducedplanning, management and financing intodiserror.

Herd forecasting by consultants has addedwoes and conflictin theories like Su erSpike Theory by Goldman Sachs (2005)

Bank (2008) just confused market


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Gas remains nasty and sexy commodity - nasty

for unsuccessful and sexy for successful. During last 20 years, it often spiked from $2 to

$15.

Since weather is key driver and advent of GasETF h h n h mi r n m rdynamics of trade and industry.

,name of the game in Gas futures market.


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.. torage g ut, presence o n ex an ong on y

funds ETFs, Option Trading and flowed carry

commodity.

,normal arbitrage opportunity

,tango soared to 100% annualized

sometimes behaves inversely to the oil.


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a s o a e ec no ogy, arge un appe

reserves and perceived supply glut suggest a

count points a different picture. Gas has strongly outperformed Oil and storage

build up shows extra supply is being eaten out. During 2005 peak of $12, rig count of Gas, .

This may lead to a supply shock if new

makes drilling less attractive


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There are two basic schools Qualitative and

Quantitative.

ua a ve approac nc u es ec n ca na ys s,Behavioral psychology, market research and Subjective

, ,

Quantitative approach includes Statistics, generical orithms black box tradin and automated s stems.

Another late emergent is mix of both, using chaos and

viewless trading. We believe- a mix approach and eventdriven approach is good for long term success inforecasting.


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- s rony a orecas ng ar y wor s w en s

necessary and when it works it is hardly a necessity.

.hit 145 and everybody was talking 200 but it fell to 35.When It fell below 50, forecaster started calling for 30 oreven ower. uc n o er menta ty amages ongterm planning, market efficiency and had not benefitedeo le at lar e.


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Oil & Gas production cost varies from country to

country and operator to operator. However, path of least resistance is seen to the

upside due to robust consumption in Asia, Aging

infrastructure & underinvestment in Europe, andprobable peak in US & Europe may lead to asupply shock when Global recession is over.

W li v NY WTI il m hi 1 - 12 nGas may hit $10 in 2011-2013.

Documents

Oil and Gas Markets- A Consultants Perspective [Compatibility Mode]