LONDON, Jan 27 (Reuters) – Intra-day price movements are becoming less informative about longer-term changes in oil prices as the ratio of genuine price signals to random noise deteriorates, at least over shorter-time horizons.

Even a cursory look at the chart for front-month Brent futures reveals that significant intra-day moves are increasingly being reversed before the market closes, more often than not leaving prices back where they started.

Futures prices never move in a straight line. Partial reversals are common. But the ratio of continued moves (trends) to reversals has been falling, implying short-term moves over timescales ranging from seconds to minutes and hours are becoming less useful as predictors of where the market will close or where prices might go tomorrow, or next week or next month.

Since summer 2011, both intra-day volatility (measured by the high-low trading range) and inter-day volatility (measured by changes in closing prices) have declined. But inter-day volatility has fallen faster. More intra-day moves are being reversed before the market closes.

Charts 1-3 show how intra-day moves (measured using the Parkinson high-low volatility estimator) compare with the inter-day volatility (conventionally measured using closing prices).

Because of the way they are defined, intra-day volatility measured by the Parkinson high-low estimator has been lower than conventional close-to-close volatility for most of the last two decades (Chart 1). But the gap has been narrowing, and for much of the last couple of years recorded intra-day volatility has actually exceeded the inter-day measure (Charts 2-3).

The rise in random noise relative to genuine signals is characteristic of range-bound markets lacking a strong trend. Front-month Brent prices have been trapped on the inside of a tight $105-115 range since July 2011, so it is unsurprising that the ratio of signals to noise has worsened (Charts 4-5).

LONDON, Jan 26 (Reuters) – EU sanctions on Iran’s oil exports and fears about disrupted supply lines may not have made bullish oil analysts more confident since the start of the year, but they have forced bears with below price average forecasts to scale back their estimate of downside risk.

Seven analysts have made significant changes to their forecasts for average Brent crude prices in 2012 in January compared with December, according to an analysis of the latest oil price poll published by Reuters.

Six analysts raised the predictions by $5 per barrel or more, while one cut their forecast by $8. Every one of the analysts raising their forecasts this month had previously been significantly below the median in the December poll, while the lone analyst to cut their prediction had been significantly above average.

The result is that forecast clustering has intensified. The standard deviation among institutions surveyed in November and January was around $9.25, falling to $7.50 in the January poll.

Pressure to stick close to the consensus remains fierce, but so far it is analysts with the more bearish forecasts who have been forced to come into line, while bulls stick with their earlier numbers (here).

Forecast clustering to this degree looks incongruous. The average change in annual Brent futures price from one year to the next since 1990 has been 23 percent. Market forecasts are converging on $107 in 2012, which is less than 4 percent away from the $111 average in 2011. So much price stability from one year to the next would be unusual.

Clustering may be an inevitable consequence of competitive pressure on analysts (it’s better to be wrong in company than on your own), as well as the unusual lack of volatility in oil markets at present and range-bound trading inside a tight $105-115 band which has not seriously been challenged since summer 2011.

LONDON, Jan 26 (Reuters) – EU sanctions on Iran’s oil exports. Signs of building economic momentum in the United States. Renewed recession in Europe. China’s slowdown. Forecasts from the Fed that it expects to leave interest rates at ultra-low levels until the end of 2014.

Ordinarily any one of these factors would be enough to cause a sharp move in oil prices. Prominent analysts have warned that price risks on both the upside and the downside will be unusually large in 2012. The mantra was “buy volatility”.

But it has been a lousy trade so far this year. Front-month Brent crude futures have barely moved since the beginning of the month, slashing the value of options. Realised volatility has fallen to 24 percent on a 30-day trailing basis (annualised), putting it in the 33rd percentile of the distribution of daily price changes since 1989.

What’s more, trailing measures are still being inflated by price jumps late last month and when markets re-opened on Jan. 3. Over the last 10 trading days, realised volatility has plunged to an exceptionally low 12.6 percent, putting it in just the 3rd percentile for all periods since 1989.

Low levels of realised volatility have begun to filter through into implied volatility and option values. Implied volatilities for out of the money puts and calls (ranging from 25 to 40 percent) remain mildly elevated compared with the current low level of realised price moves but appear in line with long-term average levels of volatility (averaging 35 percent since 1989).

Volatility is itself notoriously volatile. The market alternates unpredictably between periods of much higher than normal daily price movements (a “wild” state) and periods when daily moves are much smaller (a “mild” state). No one expects the calm to last forever. Nevertheless, the lack of price moves when oil-related news flow has been heavy is remarkable.

One explanation is that large upside and downside price risks (Iran, the global economy) are cancelling one another out in investors’ minds. Another is that market participants are struggling to price in a number of low-probability, high-impact events (such as the closure of the Strait of Hormuz or a widespread European debt default), which could in theory rock the market severely but by definition are not very likely to happen.

LONDON, Jan 25 (Reuters) – Hydraulic fracturing and horizontal drilling have laid to rest concerns about peaking oil and gas supplies for a generation, but they have also made the search for comprehensive policies to restrain greenhouse gas emissions more urgent.

In a world where fossil energy remains abundant and relatively cheap the economy will combust increasing quantities. Oil and gas reserves will last long after the planet has been gently cooked unless governments enact deliberate policies to restrain consumption.

Fracking has solved one problem (peak fuel) but sharpened another (climate change). Policymakers and voters can no longer rely on increasing scarcity, and rising oil and gas prices, to restrain demand and carbon emissions through the market.

POLITICAL INACTION

Public support for policies to tackle global warming by curbing use of fossil fuels is broad but not deep. For a minority of environmentally minded voters and policymakers climate change is the over-riding priority. But for most voters and politicians climate is only one of number of competing priorities that include quotidian concerns about growth, jobs, income and quality of life.

In surveys, most voters express general support for policies aimed at limiting emissions through curbing the use of fossil fuels. However that support quickly evaporates when restrictions entail substantial changes in behaviour or quality of life such as large increases in the cost of international air travel, motor fuels and home heating.

Most voters want to avoid climate change. But they also want to continue taking holidays and visiting relatives on other continents, commuting from the suburbs and countryside to work, and having access to a wide range of energy-intensive products at affordable prices.

LONDON, Jan 24 (Reuters) – Jobs have taken over from emissions as the main currency for measuring the impact and benefits of energy policy in the United States as recession and fears about structural decline push climate change down the list of priorities.

In an editorial previewing President Barack Obama’s State of the Union, White House energy and climate change adviser Heather Zichal highlighted the Department of Energy’s loan guarantee programme, which “has already supported more than 40 clean energy projects that will ultimately employ more than 60,000 Americans”.

The battle over Keystone prompted a fierce side skirmish over how many jobs the pipeline would create. Pro-pipeline organisations cited up to 250,000, while campaigners against the line suggested it would create no more than 6,000 temporary jobs in construction and a few hundred or fewer permanent positions.

The opponents contrasted their estimate of the small number of permanent jobs with the millions of jobs at risk in clean energy if Keystone was approved and momentum towards a policy favouring clean technology was lost.

“Keystone XL is at odds with millions of clean energy jobs”, warned the Natural Resources Defense Council (NRDC) in October 2011, a prime example of the zero-sum fossil fuels versus clean tech approach that has dominated the employment debate ().

SIZING THE CLEAN ECONOMY

It is worth putting aside the broader questions about greenhouse emissions, and whether fossil fuels and clean technology are really locked in zero-sum competition, to take a look at the size and characteristics of the clean economy.

LONDON, Jan 24 (Reuters) – President Barack Obama will use his annual State of the Union address to call for a “new era of American energy”, according to advance materials being circulated in Washington.

The White House is trying to shape reactions and reclaim the initiative going into this year’s presidential election campaign.

But if America is on the threshold of a new energy era, it is no thanks to this administration or Congress. For all his soaring rhetoric about a new era of American energy, the president is the accidental beneficiary of a drilling boom he has done little to encourage.

NEW, MORE INCLUSIVE LANGUAGE

Many of the themes likely to feature prominently in the president’s address have already been trialled in an editorial published last week by Heather Zichal, deputy assistant to the president for energy and climate change.

“For the Obama administration, moving towards the goal of energy independence has been a clear priority since day one,” Zichal wrote (here).

“The Obama administration’s approach to achieving American energy independence has been a comprehensive and sustained effort, with emphasis on boosting domestic energy production, increasing efficiency, and transitioning to cleaner energy sources.”

LONDON, Jan 20 (Reuters) – Critics will seize on a government report, showing U.S. natural gas exports could raise prices for domestic users, to press the Department of Energy to withhold permission for a string of new LNG export terminals.

But restricting gas exports to ensure a captive supply of cheap energy for U.S. chemical companies and other manufacturers would constitute a crude form of protectionism. It is not consistent with U.S. policies favouring free trade abroad and free markets at home.

Restrictions would send a terrible signal to trading partners at a time when the United States is pressing for better access to markets in China and across the developing world, and would discourage investment by domestic energy producers.

The Department should stick to current guidelines which state that “the market, not government, should determine the price and other terms for imported or exported natural gas. The federal government’s primary responsibility … will be to evaluate the need for the gas and whether the import or export arrangement will provide the gas on a competitively priced basis … while minimising regulatory impediments to a freely operating market”.

REQUEST FOR EIA STUDY

The Natural Gas Act requires any person wanting to export or import natural gas to obtain prior permission from the U.S. Department of Energy’s Office of Fossil Fuels (DOE/FE). The Department must authorise transactions unless it finds they are not in the public interest (15 USC 717b(a)).

Exports to countries with which the United States has concluded free trade agreements (FTAs) are automatically deemed to be in the public interest and must be granted without modification or delay (15 USC 717b(c)).

LONDON, Jan 19 (Reuters) – President Barack Obama’s decision to block Keystone XL is an illustration of everything that is wrong with U.S. energy policy.

There are strong arguments for and against the project. But leave them to one side for the moment (“This announcement is not a judgement on the merits of the application”, according to Obama) to focus on the decision-making process itself.

Like regulatory approvals needed for a wide range of other energy projects, the permitting process for Keystone subjected it to years of delay, maximised uncertainty for investors and the oil industry and was ultimately influenced by extraneous factors that were not relevant to the pipeline extension itself.

The approval process should enable the federal government to balance competing economic and environmental interests in a timely manner and set a clear, coherent and consistent framework to enable investment in long-lived capital projects, but instead it is being abused for narrow political point-scoring.

ENDLESS DELAYS

In his statement, the president complained about the “rushed and arbitrary deadline” for reaching a decision on the permit application imposed by congressional Republicans as part of the Temporary Payroll Tax Cut Continuation Act at the end of 2011.

The artificial deadline “prevented a full assessment of the pipeline’s impact, especially the health and safety of the American people, as well as our environment”, according to Obama. As a result, the State Department and president concluded they could not state the pipeline was in the national interest and it had to be rejected.

LONDON, Jan 13 (Reuters) – Forget careers in journalism, finance and the law. The glut of new graduates is outstripping demand and putting downward pressure on real compensation.

Instead, some of the best career opportunities are currently in petroleum engineering, geology and other disciplines benefiting from surging demand linked to rising oil and gas prices and the boom in exploration and development (including shale gas/oil drilling).

Following almost two decades of job cuts, which saw the closure of a significant number of university courses in petro-engineering, the U.S. oil and gas industry faces acute labour shortages, and salaries are soaring.

Just 690 people graduated with bachelor’s degrees in petroleum engineering from U.S. universities in 2008/09, according to the U.S. Department of Education’s “Digest of Education Statistics”.

There were another 133 graduates in geophysical engineering, 86 in the discipline of seismology (essential for finding and mapping new deposits), and 3,257 in general geological sciences.

Graduation rates in petroleum engineering tripled between 2003/04 and 2008/09, with smaller but significant increases in other disciplines, as a new generation of college students and postgraduates responded to strong salary and employment incentives for joining the domestic oil and gas industry.

Nonetheless, the number falls far short of demand. Graduates with relevant disciplines represented just 0.3 percent of all graduates with first degrees from U.S. universities in 2008/09.

LONDON, Jan 11 (Reuters) – U.S. gas producers hoping exports will bring some relief from intense downward pressure on U.S. gas prices look set to be disappointed.

Large-scale exports could throw a lifeline to beleaguered domestic producers struggling with prices that recently slumped below $3 per million British thermal units as a result of the glut of fresh supplies accompanying the shale revolution.

But exporters will face tough competition for market share from conventional gas producers in Russia, Qatar and Algeria, as well as the massive new shale resources likely to be developed in Argentina, China, Poland and across North Africa, Eastern Europe and the Middle East.

As the shale revolution goes global, intense gas-on-gas competition will keep prices under pressure. If there is a window for major U.S. exports, it is likely to prove fairly short. The International Energy Agency’s “golden age of gas” will bring benefits for consumers but is set to prove anything but golden for producers and exporters.

WAKING ENERGY GIANT

The past five years have seen a remarkable turnaround in the U.S. oil and gas market. As recently as 2005, the country was racing to construct liquid natural gas (LNG) receiving terminals to cope with an expected shortfall in domestic supplies.

However, the spread of hydraulic fracturing and horizontal drilling has doubled the country’s gas resources, which could now supply more than 100 years of demand at today’s consumption rate, according to a recent study by the National Petroleum Council.