Nat Gas

It's hard being a bear, except this week wasn't so bad.

As we head into the US open, European cash equities are seen in positive territory with strong performance observed earlier in the session from the FTSE MIB. This follows reports from the Italian press regarding commentary from the Chinese President Hu Jintao who promised to encourage Chinese industry to look towards Italy with confidence, in a conversation with the Italian PM Monti on the sidelines of the nuclear safety summit in Seoul. Markets have also been reacting to an article from Der Spiegel, citing economists who have warned that the German central bank could be facing hidden liabilities of up to EUR 500bln should there be a break up in the Eurozone. This has prompted some risk-averse flows into the Bund which has seen fluctuating trade so far in the session but remains in positive territory as North America comes to market. In individual equities news, following overnight reports from Abu Dhabi concerning buying a stake in RBS, company shares were seen up 6%. Source comments from earlier in the session regarding the sale speculated that the stake could be up to a third of RBS. Looking ahead in the session, the market awaits US Consumer Confidence data due at 1500BST.

In today's open mic farce that has made the president a target of a fresh republican onslaught, we have Obama telling Russian presidential pawn Dmitry Medvedev that "this is his last presidential election", and that he will have "more flexibility after the election." One can only assume that Obama is referring to the aggressive NATO expansion which has angered Russia substantially as noted previously, and even led to Russia putting radar stations on combat alert. It could be this or it could be anything, including US posturing vis-a-vis Syria assuming the stance a huanitariam, if completely impotent, do-gooder globocop, or for that matter any other foreign policy fiasco in which Russia now have the upper hand by default. Naturally, one wonders why Obama would be pandering to Russia (well, aside for the country's premier export position when it comes to nat gas and crude of course) in the first place. Or more importantly, as the GOP has now figured out, why does the president need to be more flexible after the election to begin with, and to what other special interest will Obama be far more responsive than to his mere electorate. Either way, nothing but more theater as central planning continues on its merry way to terminal dislocation with reality.

European indices are trading in minor positive territory ahead of the North American open with tentative risk appetite. This follows news that the EU leaders have signed off on the EU fiscal pact, with German Chancellor Merkel commenting that 25 out of 27 countries have signed the agreement. The effects of the ECB’s LTRO continue to trickle through as the ECB announce they received record overnight deposits of EUR 777bln from European Banks. Little in the way of data today, however UK construction PMI released earlier in the session recorded the highest rate of increase in new orders for 21 months. In the energy complex, Brent futures have come down below USD 125.00 from yesterday’s highs with WTI echoing the movements, following market reaction to the confirmation that there were no acts of sabotage on Saudi pipelines yesterday, according to Saudi officials. EUR-led currency pairs are trading down on the session, and USD/JPY continues to climb, hitting a 9 month high earlier today at 81.72.

Yesterday we presented why when it comes to Syria, the UN Security Council can forget any attempt at "overhauling" a regime that is a cornerstone for Russian naval presence in the Mediterranean and the middle east. Today, in the aftermath of the UN reminder that it is the world's biggest collection of post-facto hypocrites, not to mention, the world's most irrelevant and ineffectual organization, anger at the Russian and Chinese veto has already manifested itself, as protesters have attacked the Russian embassy in Tripoli and tore down the Russian flag, Al Jazeera reported on Sunday. As Itar-Tass reports, "According to Al Jazeera, the riots staged by the Syria opposition involved Libyans as well. No further details are available so far. None of the Russian diplomats has been hurt in an rally stage by the Syrian opposition in front of the Russian embassy in Tripoli on Sunday, an officer from the Russian embassy told Itar-Tass over the phone. “No one has managed to break into the territory of the Russian diplomatic mission, no one of the personnel has been hurt. All are safe and sound. Although the protesters have managed to tear down the Russian flag,” the diplomat said." Still, the wily occupiers of the Kremlin preempted what they perceived as potential 'displeasure' with Russian tactics to protect its own national interests. Because as Zero Hedge has been reminding readers on occasion, Russia has something that is far more valuable to Europe than the Goldman-alum controlled printing press: it has the world's largest natural gas reserves. Which for a continent gripped in one the coldest winters on record, whose heating infrastructure is based primarily on natgas, and where Russian imports account for 25% of total nat gas, Russia has the upper hand in, well, everything. Which it gladly reminded the world of yesterday. According to the AP: Russia's state-controlled Gazprom natural gas giant acknowledged for the first time Saturday that it "had briefly reduced gas supplies to Europe amid a spell of extreme cold."  Oops... Just a fat finger there, nothing to worry about. Oh, and if anyone forgets that in the Eurasian continent it is Russia who increasingly holds all the cards, Gazprom may "briefly" cut all supplies to Europe, -40 C degree temperatures be damned. Briefly...

It seems like last Friday we were waiting for details of the latest Greek plan – PSI and Troika.  We are still waiting.  Details are starting to come out.  We should know what the bonds investors are expected to exchange into will look like.  The ECB sounds like it may use the interest they have earned on SMP to reduce the amount Greece has to pay back.  The Jobs data gives us an additional twist to today’s Euro watching.  How many of the courier jobs will disappear?  My guess is the data will be okay, but nothing special, just like the rest of the data.  The courier jobs are interesting, not just from what happens this month, but will they come back next year?  Amazon has been beaten up over the Kindle, but one of the benefits of the Kindle is that Amazon doesn’t have to deliver e-books.  I think we will all forget that by next December when everyone’s payroll estimate will include a bump for couriers, but maybe we won’t.

Anyone who went to bed with the EURUSD about to breach 1.30 to the downside may have been surprised this morning to see it trading nearly 150 pips higher. Checking the headlines for news of a Greek deal however would be futile, as one did not occur. Instead what did, were more promises of a deal being "imminent" even as Greece is doing all it can to appease intransigent creditors, offering GDP upside warrants (something that did not work too well for Argentina), with the IMF stating it demands guarantees that this time Greece will follow through with promises. Oddly enough the German demand for fiscal overrule has gotten lost in the noise but is certainly not forgotten and last we checked Merkel has not withdrawn this polite request. Still futures are up, primarily on a smattering of better than expected PMIs, in China and Europe. Alas, the Chinese PMI beat as discussed last night, was more of a cold water shower as the market had been hoping for much more defined promises of PBoC intervention and instead got a lukewarm Goldilocks economy which could last quite a bit longer without RRR-cuts. As for European PMI numbers being better than expected, we only wonder if these now correlate with the prevailing unemployment rate throughout the Eurozone.

"Quirky canary-in-the-coal-mine indicator" indicating trouble. 

Not sure what to make of a market that traded relatively poorly on strong apple earnings but managed to rip higher on a relatively neutral fed statement.

As financials and builders (and implicitly markets in general) levitate further, Peter Tchir of TF Market Advisors takes a brief and somewhat sarcastic look at the factors that are supporting the rally.

After we reported about the aberrant Crude Oil Futures algo earlier, we asked out friends at Nanex to take a closer look. What they discovered is something far more disturbing than merely another iteration of the confused "fractal" algo seen previously trading Natural Gas.

Two weeks ago we reported on Goldman's natgas trading recommendation change, after analyst Samantha Dart said to short at $4.84. Well, in what may be the first time in 2011 in which a Goldman trading reco has lead to client profits (and Goldman prop losses), the firm apparently has just reached its breaking point on how much losses it can take, and just announced it is closing the short. "Closing: Short October 2011 NYMEX Natural Gas (initial price $4.84/mmBtu, closing price $4.33/mmBtu, gain $0.51/mmBtu) We close our short trading recommendation in the October 2011 NYMEX contract, as prices have corrected in line with our expectations. We also see increased price support from higher coal prices going forward, which allows for coal-to-gas substitution at a higher price level." Confirming Goldman's now suddenly "bullish" bias is the firm's reco to go long Q4 2012 ICE natgas: "Long UK NBP Q4 2012 ICE Natural Gas contracts (initial price 70.8 p/th, current loss 0.8 p/th) We recommend opening a long position in the UK NBP Q4 2012 contracts, as we expect a continued tightening of global LNG markets to lead to a reconnection between spot prices and oil-indexed prices in Europe, with spot gas pricing above oil-indexed in the beginning of the winter to attract incremental volumes for the peak demand period. This reconnection between spot and oil-indexed natural gas prices in Europe is not currently priced in the UK NBP forward curve." In summary: "outside of the United States, after two years of a cyclical surplus, the tightening has been accelerated by the recent events in Libya and Japan. As a result, we expect future global demand growth to test effective LNG production capacity, ultimately leading to a re-connection between UK NBP and oil-indexed gas prices this year on a sustainable basis."

Last week we had the advance stop order shake out warning courtesy of berserk inverted fractal HFT algos which were completely not accidental. Now we get the real thing. Just out from Goldman's Samantha Dart: "NYMEX natural gas prices have rallied 12% in the past three weeks, largely driven by strong cooling-related demand for natural gas on the back of significantly warmer-than-average temperatures, and exacerbated by the still high nuclear outages. However, these factors are transient in nature, and their support to generation demand for natural gas will likely diminish in the coming weeks as the weather normalizes and nuclear power plants come out of maintenance...However, even after taking these transient issues into account, the supply and demand balance for gas was surprisingly resilient in May, especially given the continued impressive gains in shale gas production. We believe the production growth has been largely accommodated by additional strength in generation demand resulting from a wide discount of US natural gas prices relative to coal generation costs, as well as by higher pipeline exports out of the United States. We view the current high prices as unsustainable. In addition to the transient nature of the demand support from weather and nuclear outages, we expect the underlying balance to soften in response to the higher  prices, as production growth is further incentivized and price-induced coal-to-gas substitution diminishes. Accordingly, we recommend going short the October 2011 NYMEX Natural Gas contract, at an initial price of $4.84/mmBtu." Translation: Goldman is now buying nat gas.

This is where things get downright bizarre...

It isn't a Wall Street CEO. But it is a start. One of the most well known market manipulation crimes of the pre-Great Financial Crisis era, has just been fined $30 million. Yes, it is far less than what Hunter has made during his career, but it is not just a wristslap either. And at least it has finally happened: after 5 years many had assumed that regulators would totally screw this up as well. From DealBook: "Energy regulators on Thursday fined a former hedge fund trader $30 million for his role in a scheme that manipulated prices in the natural gas futures market. Mr. Hunter and Matthew Donohoe, a fellow Amaranth trader, sold huge sums of natural gas futures contracts in early 2006 to drive down the settlement price of the trades, according to the Federal Energy Regulatory Commission. Mr. Hunter placed the trades during a so-called settlement period, the last 30 minutes of trading on the day that a futures contract expires." Now... For that precious metals market manipulation that only fringe lunatic website allege is happening...