Business
Global Energy Advisory …Bulls Run Rampant In The Oil Market
In this edition, Martin Tillier highlights what he believes to be the most important theme in energy markets in 2018. He argues that this theme should be a central part of your trading strategy this year, and picks a stock that he believes is set to boom.
We’ve been nearly alone in taking in some stellar gains in oil stocks since late October, benefiting from an oil rally that few analysts (besides myself) saw coming and positioned themselves for. And the watchword for today is: Let it ride.
You know that I am a long-term bull on oil prices and oil stocks, and even the impressive extension of WTI prices near to $65 a barrel this week throws only a little cold water on my expectations. We’re in the driver’s seat now. You can take some money off the table, sure – but for the most part, let everyone else chase and play catch-up with our stocks.
I was on Bloomberg TV on Wednesday to engage in a bull/bear debate on oil – as if this rally from the mid-forties only began yesterday. A clip from Jeff Currie of Goldman Sachs was played to start the debate, where he noted the robust oil demand expectations for 2018, but was pessimistic about sustaining $60 oil based upon the deep backwardation of the futures markets.
In person, I debated Michael Cohen of Barclays, whose main pessimism was based upon the 1.5m barrels a day of US production he expects to see added in 2018 – a projection that far exceeds even the very unlikely (according to me) 1m barrels a day from the EIA. But Cohen’s 2018 target for WTI – $52 – is already twelve dollars in the rear-view mirror. Um, that’s not so comforting a forecast – considering its still only the 12th of January.
But, instead of engaging (again) in assessing just how much new U.S. shale oil is to come in 2018, let’s look (and debunk?) the interesting argument about the crude curve from Goldman Sachs’ Jeff Currie:
The crude curve is a difficult, but worthwhile mechanism to try and understand, particularly for a 30-year futures trading veteran like me. One of the few generalisations I can make after those 30 years, is that the shape of the futures curve is rarely predictive of prices, unless very wide extremes are being seen.
Let’s take the case of Contango to start examining this, where prices for crude delivery in the future are more expensive than those in the present. In such a case, we are staring at a type of ‘carry trade’ opportunity, where commercial traders can sell far back month futures, buy front (or cash) crude contracts and physically (or virtually) ‘store’ the barrels – pocketing the difference of the Contango, minus the carry (storage) costs. In very extreme cases, such a Contango can signal a coming turnaround to the upside in oil prices – as the $15 12-month Contango did in 2009 and the $8 Contango did just two years ago.
Currie makes the opposite case today, now that the crude curve has gone (recently) into backwardation, where the prices at the front of the curve are more expensive than in the back months. The thesis for an extreme backwardation signalling a coming drop in prices is the exact opposite to the one for Contango: Commercials acquire everything that’s left in storage and flood the market, while buying replacement supplies in back contracts to replace what they’ve sold.
The thing is – The actual physical case for backwardation selling is not nearly as compelling (or as profitable) for commercials as it is for carry trade buying. Historically, all the really big oil bull markets took place despite carrying a deep backwardation as a condition of the crude curve. Most of the bull market from 2003-2007, for example, which took crude to $140 a barrel, happened while the spreads were in fairly deep backwardation.
And even now, it’s not as if backwardation is all that extreme anyway:
This is the current 12-month Feb18-Feb19 spread. Yes, this spread went from Contango to backwardation in September of last year, moving to nearly $5. But that is hardly enough to entice the prompt selling of cargoes today to include the 12-month carry costs. What is more likely happening is a surplus of commercial back month sellers, all hoping to lock in $65 hedges for next year and beyond, and simply not finding the speculative buying to offset it – that’s what I believe has been moving the spread so much higher so quickly in the last several weeks of the New Year.
I know this has been a bit of a wonky column, but I hope you’ll find some value in understanding a little about the crude curve; when it provides a predictive edge – and when it doesn’t.
Martin Tillier
For officers and men of the Western Marine Command of the Nigeria Customs Service (NCS), the battle is not over until smuggling is over.
In the wake of Wednesday May, 8, 2024, the ever vigilant officers, acting on a tip-off, intercepted 177 sacks and 61 kegs of 25 litres containing petroleum products, valued at about N8.750,000million.
The items were intercepted along Isalu Creek, Badagry Waterway en-route Benin Republic.
While briefing newsmen, the Command’s Customs Area Controller, Comptroller Paul Bamisaiye, said: “This seizure is most economically significant to the Command at this period of scarcity of Petroleum Products, especially Premium Motor Spirit (PMS) in our cities, and shows the anticipatory posture in our response to economic saboteurs.
“At about 2:330hrs on Wednesday 8th May 2024, while on joint patrol by teams in the Command, credible intelligence was received of the movement of 2 boats laden with what was suspected to be petroleum products concealed in sacks. Upon receipt of the information, the team moved into Isalu creeks, Badagry waterway.
“On sighting the approach of the Officers, the smugglers took to their heels through the shore of the Creek. The loaded boats were then towed to the station at Badagry where preliminary examination was conducted and transferred to Western Marine Command Headquarters, Ibafon, Apapa, Lagos.
“Careful examination at the Command Headquarters revealed that the arrest was found to contain One Hundred and Seventy Seven (177) Sacks and Sixty One (61) Kegs of 25 Litres Premium Motor Spirit (PMS) containing Twelve Thousand Five Hundred (12,500) Liters with a total Duty Paid Value standing at Eight Million Seven Hundred and Fifty Thousand Naira (N8,750,000) only”.
Bamisaiye noted that the action of the smugglers is a contravention of Section 245 & 254 of the Nigeria Customs Service Act 2023 which the service, through Western Marine Command, is responsible for enforcing.
“The Command, under the leadership of Compt. PK Bamisaiye, is poised more than ever to rid the waterways of all acts of smuggling and economy sabotage for the benefit of the growth of economy of Nigeria”, he said
Bamisaiye said so far, no suspect was arrested in the Command’s anti-smuggling operations.
Nkpemenyie Mcdominic, Lagos
Petroleum products being sought by motorists have disappeared from virtually all filling stations within Lagos and its environs, but are now booming in business in retail outlets.
Investigations by our correspondent revealed that while the product could not be got at some of the petrol service stations, activities are in top gear in the local retail outlets where the price has gone beyond the reach of users.
It was also gathered that in some filling stations supplied with the products, preference are often given to retail outlet operators by petrol attendants against the consuming public.
A source, directly involved in the business, said some petrol dealers are cashing on the irregular supply to divert the products to retail outlets where they could easily make their gains.
It was also gathered that some sales representatives in the service of major oil marketing firms indulged in the diversion exercise because of their personal interest.
At the retail outlets a liter goes for N950,00 against the normal N760,to N800 at some stations.
Nkpemenyie Mcdominic, Lagos
The Nigeria Customs Service Board (NCSB) has confirmed the appointment of five Deputy Comptroller-Generals (DCGs) and eight Assistant Comptrollers-General (ACGs) of Customs during its 59th regular meeting.
The meeting, chaired by the Honorable Minister of Finance and Coordinating Minister for the Economy, Mr. Wale Edun, was held at the Nigeria Customs Service Headquarters in Abuja last Tuesday.
National Public Relations Officer of the Service, Chief Superintendent of Customs, Abdullahi Maiwada, who disclosed this in a statement yesterday, gave details of the confirmed appointments as: O.O. Peters (DCG /Commander, Training and Doctrine Command (rtd); B.M. Jibo (DCG Enforcement Inspection & Investigation); and B.U. Nwanfor (DCG Excise, Free Trade Zone & Industrial Incentives).
Others are: S.A. Bomia (DCG, Commander Training and Doctrine Command); and C.K. Niagwan (DCG, Tariff & Trade).
The Assistant Comptrollers General (ACGs) are: B. Imam (ACG Board); A.A.S. Oloyede (ACG, Trade & Tariff); S.K. Dangaldima (ACG/Zonal Coordinator, Zone ‘B’); A. Abdul Azeez (ACG/Zonal Coordinator, Zone ‘D’); S.A. Yusuf (ACG, Human Resource Development); N.P. Umoh (ACG, Training and Doctrine Command); C.O. Obih (ACG/Zonal Coordinator, Zone ‘C’); and S. Chiroma (ACG, Strategic Research and Policy).
The new appointments, according to the statement, were made to fill the vacancies created by some senior officers who recently retired from the Service, noting that the principles of federal character, seniority and merit guided the appointments approved by the board.
“These appointments are a testament to the officers’ exemplary services and dedication to the Nigeria Customs Service. The NCSB remains committed to providing strategic leadership to ensure effective and efficient service delivery for optimum performance”, he said.
While thanking the retired members of the management for their meritorious services, the Comptroller General of Customs, Bashir Adewale Adeniyi, congratulated the newly confirmed officers and charged them to redouble their efforts to ensure the service attains greater heights in its mandates of revenue generation, suppression of smuggling, and trade facilitation amongst others.
Nkpemenyie Mcdominic, Lagos
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