The Great Debate

Goldman slashes risk-taking in commodities

July 20, 2010

John Kemp is a Reuters market analyst. The views expressed are his own

Goldman Sachs cut the amount of risk it staked on commodity trading during Q2 2010 by almost 35 percent, part of a broad-based reduction in risk across the bank’s trading book. Value-at-risk (VaR) linked to commodity prices fell to an average of just $32 million per day between April and June, down from $49 million in the prior quarter and $40 million in the same period a year earlier, according to the firm’s earnings release. Cuts in VaR allocated to commodities were in line with reductions elsewhere, including interest rate risk (down just over 20 percent) and equities (down just over 30 percent). Only currency trading saw a slight increase in risk taking (up 3 percent). Commodity VaR was reduced to its lowest level since the three months ended September 2009, and before that November 2007.

Micro and macro volatility in the oil market

July 20, 2010

– John Kemp is a Reuters market analyst. The views expressed are his own —

“Most probably we will continue to have reasonably high short-term volatility but in a narrower price range between $60-95 per barrel”.
That was the (accurate) forecast for crude oil prices given by Mercuria’s head of trading Daniel Jaeggi to the UN Commodities Forum in Geneva back in March [ID:nLDE62M0MT].
In fact front-month futures <CLc1> have been trapped in an even narrower range of $60-86 for the past 12 months, shrinking to $64-86 so far in 2010. Spot prices have barely budged since July last year, despite a substantial improvement in demand, as one puzzled investment bank noted recently.
Yet many traders complain high volatility is making either directional or technical strategies difficult to implement.
The apparent contradiction (high levels of very short-term price movement in a market trending sideways) highlights the different levels of volatility prevailing at different time horizons.

Short side of commodity market becomes crowded

July 15, 2010

Every successful trade and correlation contains the seeds of its own destruction. Imitators pile in and the trade becomes crowded, competing away the gains.

Rising correlation and computer-driven trading

July 13, 2010

Correlation among the individual equities in the Standard and Poor’s 500 index¬† has increased to the highest level since 1987, according to research by Birinyi Associates reviewed in the Wall Street Journal.

The darkest period before dawn?

July 12, 2010

Commodtrader

Abandon hope all ye who enter here was the inscription written above the gates of Hell in Dante’s Divine Comedy.

Markets trapped between euphoria and despair

July 6, 2010

“Don’t panic!” was good advice provided by Lance-Corporal Jones to his commanding officer in the 1970s BBC comedy series “Dad’s Army”. Perhaps it should now be directed to central banks and increasingly jittery investors.

Gensler on brink of position limits victory

June 28, 2010

U.S. Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler appears to be on verge of achieving a big victory in his battle to impose stricter position limits on major energy futures contracts.

Smart grid skepticism derails Baltimore plan

June 23, 2010

Maryland Public Service Commission highlighted the political resistance smart-metering advocates must overcome when it shot down proposals for compulsory smart metering submitted by Baltimore Gas and Electric Company (BGE).

Battered BP seeks a way forward

June 18, 2010

BP shares  jumped almost 9 percent at the opening of the London market on news the firm would pledge cash and assets worth $20 billion to meet future claims arising from the Macondo well blowout (excluding federal and state fines and penalties).

Too much at stake for long drilling moratorium

June 16, 2010

Deepwater oil production in the Gulf of Mexico accounted for 23 percent of all oil produced in the United States last year, and 7 percent of all crude consumed in the nation’s refineries, according to the Energy Information Administration’s “Annual Energy Outlook.”