The opposite of peak oil...

If you remember back only five years ago, scientists were huge on the concept of 'peak oil', which effectively meant that oil supply was running out.

'The Economist' is now theorizing that not only is there not going to be peak oil any time soon, but rather demand for oil is going to peak due to technological advances in extracting oil and innovations in automotive technology.

From the Economist:

George Mitchell championed “fracking” as a way to release huge supplies of “unconventional” gas from shale beds. This, along with vast new discoveries of conventional gas, has recently helped increase the world’s reserves from 50 to 200 years. In America, where thanks to Mr Mitchell shale gas already billows from the ground, liquefied or compressed gas is finding its way into the tanks of lorries, buses and local-delivery vehicles. Gas could also replace oil in ships, power stations, petrochemical plants and domestic and industrial heating systems, and thus displace a few million barrels of oil a day by 2020.

The other great change is in automotive technology. Rapid advances in engine and vehicle design also threaten oil’s dominance. Foremost is the efficiency of the internal-combustion engine itself. Petrol and diesel engines are becoming ever more frugal. The materials used to make cars are getting lighter and stronger. The growing popularity of electric and hybrid cars, as well as vehicles powered by natural gas or hydrogen fuel cells, will also have an effect on demand for oil. Analysts at Citi, a bank, calculate that if the fuel-efficiency of cars and trucks improves by an average of 2.5% a year it will be enough to constrain oil demand; they predict that a peak of less than 92m b/d will come in the next few years. Ricardo, a big automotive engineer, has come to a similar conclusion.

The Economist

Cotton - New Trade

This trade in cotton is taken from last weeks watchlist and looks to be a nice longer term play.

Cotton harvest begins over the next month and this is a classic old crop/new crop seasonal.

Technically speaking it appears that the spread seldom trades below parity and even less so below -2.

That gives us quite a nice entry point.

Live Cattle/Lean Hogs - Trade Update

After the news out of Tyson Foods yesterday it was always going to be interesting to see how the cattle market backed up today. And for bulls, it seems to have lost its steam.

Cargill came out and said that it would continue to buy cattle that had been fed with Zilmax, so the talk is that much of reaction is now really built in - and that it was even an over-reaction in the first place.

It's now a matter of if any other meat processors begin to follow the Tyson lead.

Friday's COT report also showed managed money getting net short for week in cattle and long in hogs. So while our spread tinkered on the brink we managed to survive and that might lead to a little bounce.

For now we can maintain the current position.

Natural Gas - Trade Update

After Thursday's semi-bearish storage number, we decided to let this one run and not take off half our position.

Fortunately that seems like it might have been a good descison - for now.

Looking at the intraday chart however, the spread really pulled away late Friday which could just be some covering headed in the weekend.

Regardless, nothing has changed for us so we can maintain this one as is.

Lean Hogs - Trade Update

This one has been a little up and down since entry but closed out the week nicely.

There was some downward pressure late with talk of supplies set to expand, similar to what I mentioned earlier in the week.

Interestingly the latest COT report released Friday, shows managed money's added to their net long positions by around 7000 contracts, yet our spread held up reasonably well, which hopefully bodes well for us going forward.

For now we can let this one run as there is a nice seasonal window through until November.

China poised to become the world’s largest net oil importer

From the EIA, it appears that China is set to become the worlds largest net importer of oil, taking the mantle from the US.

The thing that interests me most is watching the surge in shale production coming out of America. It's also on the back of fears of a slowing Chinese economy.

EIA's August 2013 Short-Term Energy Outlook (STEO) forecasts that China's net oil imports will exceed those of the United States by October 2013 on a monthly basis and by 2014 on an annual basis, making China the largest importer of oil in the world.
The imminent emergence of China as the world's largest net oil importer has been driven by steady growth in Chinese demand, increased oil production in the United States, and a flat level of demand for oil in the U.S. market.

 U.S. total annual oil production is expected to rise by 28% between 2011 and 2014 to nearly 13 million barrels per day, primarily from shale oil, tight oil, and Gulf of Mexico deepwater plays. In the meantime, Chinese production increases at a much lower rate (6% over this period) and is forecast to be just a third of U.S. production in 2014.

On the demand side, China's liquid fuels use is expected to grow by 13% between 2011 and 2014 to more than 11 million barrels per day while U.S. demand hovers close to 18.7 million barrels per day, well below the peak U.S. consumption level of 20.8 million barrels per day in 2005.

Looking beyond 2014, higher U.S. oil production and stagnant or declining U.S. oil consumption, coupled with China's projected strong oil demand growth and slow oil production growth, suggest that once China replaces the United States as the world's largest net oil importer, the gap between net oil imports in China and the United States will grow.

There are several different ways to measure oil import dependence. Discrepancies in the way dependence is assessed arise because oil is imported as crude oil but consumed as refined products, of which crude oil is the main but not only input.
Net oil imports reflect the broadest measure of liquid fuels and include the following elements in the volumes of oil liquids produced and used within national borders: crude oil, lease condensates, natural gas liquids, biofuels, other liquids, and refinery processing gain, which in the United States has been roughly 1 million barrels per day in recent years.

Another common (and narrower) measure of oil import dependence is the ratio of net imported crude oil to net crude oil inputs to refineries. The United States has emerged as a significant net exporter of petroleum products in recent years and a portion of U.S. crude oil imports is used to produce products not consumed domestically. The advent of China as the world's largest importer based on the narrower measure occurs on a different schedule than for the broader one, but the basic trends and drivers remain the same as for the broader measure. However, imports of crude oil alone do not automatically imply domestic dependence on foreign supplies.

A miss in natural gas storage

On the surface it appeared to be a huge miss in natural gas storage last night, when we saw a build of 96 BCF vs expectations of only 77 BCF.

However, the EIA reclassified its base gas as it normally does about once a year. The 96 BCF injection would have been a 82 BCF build prior to the reclassification.

As a result we saw natural gas initially sell-off quite heavily only to rebound.

Our spread also sold off but settled effectively unchanged.

Often times when we see a bearish number (albeit less so than first impressions) that doesn't follow through, it's a sign of a potential reversal.

I'm very tempted to take of half our position here - I certainly would if the injection came in at 96 BCF.

However given the state of the market, which is certrainly trending lower and the benign weather we seem to be having, I think the best course of action is to tighten the stop into 37 even and let this one ride.

We still have three weeks remaining in the seasonal window (2nd September) and given the current trend I think it's worth it letting play out. I am 50/50 here in should be noted.