LONDON, May 14 (Reuters) – Bullish investors finally abandoned hope for a recovery in oil prices, at least in the short term, in the week ending May 8, slashing their long positions in WTI-linked futures and options by the largest amount in more than five years.

Hedge funds and other money managers reduced their long position in U.S. crude by the equivalent of nearly 54 million barrels of oil, the largest one-week decline since at least June 2006, according to data released by the U.S. Commodity Futures Trading Commission (CFTC) on Friday (Chart 1).

The long liquidation was three times greater than in the “flash crash”, almost exactly a year ago on May 5, 2011, when speculative longs were cut by a little under 19 million barrels.

Tumbling prices drew some fresh interest from speculators on the short side. Money managers boosted their short positions in WTI-linked contracts from 48 million barrels to 75 million, the highest level recorded for seven months.

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LONDON, May 9 (Reuters) – Research and analysis into commodity prices and derivatives almost always relies on the commitments of traders (COT) report published by the U.S. Commodity Futures Trading Commission (CFTC).

Except for some correlation studies published by the European Central Bank and International Monetary Fund, every major report on the formation of commodity prices, supply/demand, the role of index funds, and the possible “financialisation” of the asset class, published in the last five years, has relied on data taken from the COT report.

Most big investment banks in commodities, as well as smaller brokers and dealers, publish an analysis of the weekly COT data for their clients, and COT numbers appear somewhere in the tables and charts included in regular reports.

But how much does the commitments of traders report really reveal about activity in commodity derivatives markets?

The report is less insightful than many regular users realise. But in a classic example of availability bias the data is (mis)used as a proxy for speculation and hedging, and over-interpreted to track the correlation between prices and positions, simply because it is the only information researchers have.

DATA AVAILABILITY BIAS

The COT report provides almost the only information on the type of traders and size of their positions in the otherwise secretive futures and options markets for energy products like crude and natural gas, metals such as copper, and agricultural items ranging from grains to livestock and coffee.

LONDON, May 8 (Reuters) – While the leaders of Britain’s coalition government insist “we are all in this together”, austerity is being felt and viewed very differently across the country, re-opening the big north-south divide which characterised the economy and politics in the 1980s.

Broadly the country is again dividing into the “Two Nations” that was part-title of a novel written by Benjamin Disraeli in the 1840s, when he was a young and radical politician, before he went on to become prime minister in the 1860s and 1870s (“Sybil, or the Two Nations”, 1845).

But rather than splitting by class, as in Disraeli’s novel, the country is dividing along a regional fault line that pits prosperous and coalition-supporting south-east England against the increasingly disaffected Midlands and north of England, Wales and Scotland.

NORTH-SOUTH VOTE DIVIDE

In political terms, austerity continues to receive solid backing across the south of England, outside London, with 40 percent of voters saying they support the Conservatives, and another 14 percent backing the Liberal Democrats, the junior partners in the coalition, according to the latest daily tracking poll published by YouGov ().

Support for the Conservatives remains above average in London, at 36 percent, but the party’s position has eroded and it now trails its Labour opponents, who are on 43 percent.

In the rest of the country, however, support for the Tories has slumped to 29 percent in the north, 23 percent in Wales and the Midlands, and a paltry 15 percent in Scotland. Labour (and the Scottish National Party north of the border) enjoy corresponding majorities over 50 percent, according to the YouGov poll.

LONDON, May 3 (Reuters) – North America has enough underground capacity in depleted oil and gas fields, uneconomic coal seams, and saline aquifers to store all its carbon dioxide emissions for the next 600 years. That is according to the first comprehensive survey published by the U.S. Department of Energy, Natural Resources Canada and Mexico’s Energy Ministry.

For policymakers in all three countries, underground storage is essential if North America is to continue to burn its abundant fossil fuel reserves, especially coal, to meet energy demand without worsening climate change.

The optimistic message of the new “North American Carbon Storage Atlas,” published on May 1, is that the total carbon dioxide (CO2) storage capacity of the United States is 1.8-20.4 trillion tonnes, compared with annual emissions of just 3 billion tonnes, enough to last for hundreds if not thousands of years ().

The atlas puts Canada’s potential storage at 48-320 billion tonnes, compared with annual emissions of 219 million, while Mexico’s resource is at least 100 billion tonnes compared with yearly emissions of 205 million, which is more than ample.

FEASIBILITY

Sedimentary basins containing oil, gas and coal are also the most suitable for injecting CO2 underground in the form of a liquid or supercritical fluid (which behaves like a combination of a gas and a liquid).

The most likely areas for implementing carbon capture and storage (CCS) projects therefore overlap with states and provinces that are home to the coal mining and petroleum industries, which should ease political opposition.

LONDON, May 1 (Reuters) – Statisticians at Britain’s Office for National Statistics (ONS) could be forgiven a little schadenfreude today after the latest batch of manufacturing surveys showed the sector barely grew in April.

The ONS came in for blistering criticism last week after its preliminary estimates pointed to an economy-wide contraction during the first three months of 2012.

Private sector economists and officials from the Bank of England pointed to more upbeat evidence from business surveys to suggest the ONS was being too gloomy and risked damaging business and consumer confidence.

Commentators “knew” or at least claimed to suspect the preliminary estimates for gross domestic product (GDP) were “wrong” and would be revised upwards when more complete data became available. But that is now looking less certain.

CONVERGING DOWNWARDS

The Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI) dropped to 50.5 in April, which is basically indistinguishable from the 50-point threshold which divides expanding activity from a contraction, suggesting manufacturers flat-lined last month.

The PMI for March was also revised down, from 52.1 to 51.9, suggesting the manufacturing sector was growing more slowly at the end of the first quarter than originally thought.

LONDON (Reuters) – The knives are out for the Environmental Protection Agency (EPA) following the resignation of the agency’s senior official in Texas and four other south-central states, which is symptomatic of the mounting pushback in Congress and the courts.

Unless the EPA can find a way to build bridges with some of its critics, and enforce environmental laws more sensitively, its wings will be clipped by legislators and judges angry about the sweeping impact of its rules and concerned that it puts environmental considerations above jobs, growth and competitiveness.

AN INCONVENIENT TRUTH

EPA Regional Administrator Al Armendariz resigned on April 29 after a You Tube video showed him likening enforcement of environmental laws to Roman invaders crucifying local inhabitants to send a clear message to the rest [ID:nL1E8FU9NT].

“It was kind of like how the Romans used to conquer little villages in the Mediterranean … they’d find the first five guys they saw, and they would crucify them. And then you know that town was really easy to manage for the next few years,” Armendariz said.

He went on to say the same approach can encourage companies to obey environmental laws: “You make examples out of people who are not complying with the law,” according to a report in the Washington Post (“EPA official who compared enforcement to crucifixion resigns” May 1).

In a technical sense, Armendariz was right. Regulators as well as prosecutors routinely use selective prosecution, and ask courts to impose exemplary fines, to deter anyone else tempted to break the law.

LONDON, April 30 (Reuters) – Oil hedgers held the smallest net short position in WTI-linked futures and options for at least six years in the week ended April 24, according to commitments of traders data published by the U.S. Commodity Futures Trading Commission (CFTC).

This physical hedgers category, which the CFTC identifies as “producers, merchants, processors and users” (who use futures predominantly to manage or hedge risks), typically runs an overall short position in U.S. crude futures and options <0#CL:>, according to CFTC records.

Companies that sell or store physical oil and run a short position in futures and options to hedge price changes generally run larger positions than oil buyers who hedge their price exposure with a long futures position.

But that net overall short position has been dwindling since the start of 2010. At the close of business on April 24, short futures hedges outnumbered long ones by just 15 million barrels, down from 220 million at the same point in 2011 and 256 million barrels in 2010 (Chart 1).

If the net position continues to adjust at the same rate, producers/merchants/processors/users will find themselves net long of WTI-linked futures and options this week for the first time since at least 2006 (Chart 2).

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LONDON (Reuters) – The race to succeed Mervyn King at the helm of the Bank of England when his second five-year term ends in June 2013 is now well underway, with contenders jockeying for position, though the UK government insists the formal search will not start until the autumn.

The field is thought to include five economists and policymakers, plus a couple of long-shots from the banking world, according to a race guide published by the Financial Times (“MPs look to monitor the next bank governor” April 20) and a recent survey by FT columnist Samuel Brittan (“The BoE needs neither a bureaucrat nor a dictator” April 26).

The Bank’s own deputy governor for financial stability, Paul Tucker, has emerged as the internal candidate, representing continuity. In 156 meetings of the rate-setting Monetary Policy Committee he and King have attended together since 2002, they have disagreed only 8 times, most recently in August 2009 and before that January 2007.

Other establishment candidates are: Adair Turner, chairman of the Financial Services Authority and Mr Fix-it for both the previous Labour government and the Coalition on pensions and financial reform; Gus O’Donnell, former permanent secretary at the Treasury and head of the civil service, a legendary safe pair of hands; and economist John Vickers, former Bank chief economist, head of the competition watchdog, as well as main author of the recent Independent Commission on Banking report on structural reform of the UK financial sector.

If the government wants to go outside Britain’s relatively narrow pool of political economists, there is always Bank of Canada Governor Mark Carney, who has cultural and educational links to Britain and has had a good financial crisis. Or even someone from the world of commercial banking, though given public anger about bankers in the wake of the financial crisis, an appointment from the private sector seems a long-shot.

But in appointing a new governor, ministers cannot avoid rendering a judgment on the Bank’s controversial performance under King.

WANTED: A SUPERHUMAN

LONDON (Reuters) – National governments increasingly see themselves locked in a “race” to support the development and deployment of clean energy technology to cut emissions and capture a competitive advantage by offering a range of financial incentives to support the commercialization of innovative technologies.

“When it comes to the clean energy race, America faces a simple choice: compete or accept defeat,” U.S. Energy Secretary Steven Chu told Congress in November 2011. “In the coming decades, the clean energy sector is expected to grow by hundreds of billions of dollars. We are in a fierce global race to capture this market.”

Raising the specter of falling behind, Chu warned: “In the past year and a half, the China Development Bank has offered more than $34 billion in credit lines to China’s solar companies. China is not alone: to strengthen their countries’ competitiveness, governments around the world are providing strong support to their clean energy industries” (statement to the House Energy and Commerce Committee, November 17, 2011).

The executive director of the Energy Department’s Loan Programs Office (LPO) had earlier told the Senate what was at stake. “Clean energy has an important role to play in America’s future. The extent to which we can successfully deploy new, innovative clean technologies will have enormous implications for our future global competitiveness, energy security, economic recovery, and environment” (Report on the Clean Energy Financing Act, Senate Report 112-47, August 30, 2011).

The race analogy is not restricted to the United States. In the United Kingdom, SmartGridGB, a lobbying organization of energy suppliers, technology companies, consumer organizations and grid operators, launched a report Tuesday asking “Smart Grid: a race worth winning?” and came to a clear conclusion the answer is Yes.

“Smart grid development will deliver more secure, sustainable and affordable generations of British consumers; and the development of smart grid globally represents a major growth opportunity for Britain,” according to the report written by consultants Ernst and Young (smartgridgb.org/news/35.html).

But in rushing to win, the clean technology community and policymakers are leaving taxpayers with some very unattractive investment options.