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Benjamin · 18-05-2006, 17:46

NYMEX forward spreads at extraordinary levels as hedge funds increase stakes
05/05/06

Driven by fear that the US gas production could see a repeat of last year's hot summer and vicious hurricane season, spreads between summer- and winter-month contracts on the NYMEX are now "so large you can drive a tractor trailer through it," according to one analyst.

"Part of it goes to the reality that it is never about current fundamentals and supplies," Enerjay Principal Jay Levine said. "It's about the future, and the market is putting much greater emphasis on the back than the front because of the existing [storage] fundamentals. The unknown is next year."

On Wednesday, the spread between the June and December contracts on the NYMEX sat at over $4/MMBtu, with the spread between June and January nearing $5/MMBtu.

"I've never seen that before," said Kent Bayazitoglu, market analyst for Houston-based Gelber & Associates, adding that typically the spreads between the May through August contracts and the winter months is about $1/MMBtu. "In the last two years, [the spreads have] been up to $1.50[/MMBtu], which was considered to be awfully high. This winter, it has just blown away to $3[/MMBtu] to $4[/MMBtu] spreads, which is unheard of."

Bayazitoglu pointed to two factors in the market pushing the spreads. "The market believes demand is going to come back ... but not right away, so they are selling the short-term, not the long-term. A lot of people are betting on the spreads."

The resulting contango , where longer-term futures contracts carry a higher price than the front months, encourages utilities and marketers to add to storage inventory.

A spread of "$4.70[/MMBtu for the summer/winter] is way above the cost of storage," Ed Kennedy, market analyst and broker for Commercial Brokerage, said. "It's going to pay [utilities] to lock in storage and sell January and February. It's riskless - guaranteed. Even if the market goes lower, what do they care? It's a godsend for utilities."

On the other side are speculators who want to be "short in the front, but they are leery of being naked shorts," Kennedy said, referring to a speculator who shorts a stock or commodity he or she cannot deliver. "So they are selling June, July and buying October, November to protect it. There's a lot of it going on."

John Olson, chief market strategist for Sanders Morris Harris Group, said speculation by hedge funds into energy futures has pushed the contango to new highs.

"There are now $60 billion in energy commodity hedge funds, and they are doing their level best to arbitrage crude and natural gas prices regardless of whether the real cash market is far away or close to the NYMEX," Olson said.

But that strategy could backfire. With gas storage 699 Bcf higher than the five-year average as of the week ended April 28, if the nation does not get a hot summer to siphon off some gas, storage injections will slow from 9.5 Bcf/d to between 6 Bcf/d to 6.5 Bcf/d, forcing more gas onto the market by August or September, Olson said. "If we have a return to gas-on-gas competition, you are likely to see [cash] prices come down from a national average of $6.10/MMBtu to something in the high $4/MMBtu to $5/MMBtu range," he said.

The back end of the board is "very susceptible to [a] considerable decline should events not transpire the way the market is anticipating," Levine said . However, he said it is not a secret that the vast majority of those who speculate in natural gas lose money because few speculators are prepared for the volatility in the natural gas market. "There are fewer people making money [in commodities] and more losing," he said. "It's not equal."
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Ergänzung von mir: So sieht das praktisch aus: Juli- und Dezember-Future im Vergleich:

18-05-2006, 17:46	#38
Benjamin TBB Family Registriert seit: Mar 2004 Beiträge: 10.374	NYMEX forward spreads at extraordinary levels as hedge funds increase stakes 05/05/06 Driven by fear that the US gas production could see a repeat of last year's hot summer and vicious hurricane season, spreads between summer- and winter-month contracts on the NYMEX are now "so large you can drive a tractor trailer through it," according to one analyst. "Part of it goes to the reality that it is never about current fundamentals and supplies," Enerjay Principal Jay Levine said. "It's about the future, and the market is putting much greater emphasis on the back than the front because of the existing [storage] fundamentals. The unknown is next year." On Wednesday, the spread between the June and December contracts on the NYMEX sat at over $4/MMBtu, with the spread between June and January nearing $5/MMBtu. "I've never seen that before," said Kent Bayazitoglu, market analyst for Houston-based Gelber & Associates, adding that typically the spreads between the May through August contracts and the winter months is about $1/MMBtu. "In the last two years, [the spreads have] been up to $1.50[/MMBtu], which was considered to be awfully high. This winter, it has just blown away to $3[/MMBtu] to $4[/MMBtu] spreads, which is unheard of." Bayazitoglu pointed to two factors in the market pushing the spreads. "The market believes demand is going to come back ... but not right away, so they are selling the short-term, not the long-term. A lot of people are betting on the spreads." The resulting contango , where longer-term futures contracts carry a higher price than the front months, encourages utilities and marketers to add to storage inventory. A spread of "$4.70[/MMBtu for the summer/winter] is way above the cost of storage," Ed Kennedy, market analyst and broker for Commercial Brokerage, said. "It's going to pay [utilities] to lock in storage and sell January and February. It's riskless - guaranteed. Even if the market goes lower, what do they care? It's a godsend for utilities." On the other side are speculators who want to be "short in the front, but they are leery of being naked shorts," Kennedy said, referring to a speculator who shorts a stock or commodity he or she cannot deliver. "So they are selling June, July and buying October, November to protect it. There's a lot of it going on." John Olson, chief market strategist for Sanders Morris Harris Group, said speculation by hedge funds into energy futures has pushed the contango to new highs. "There are now $60 billion in energy commodity hedge funds, and they are doing their level best to arbitrage crude and natural gas prices regardless of whether the real cash market is far away or close to the NYMEX," Olson said. But that strategy could backfire. With gas storage 699 Bcf higher than the five-year average as of the week ended April 28, if the nation does not get a hot summer to siphon off some gas, storage injections will slow from 9.5 Bcf/d to between 6 Bcf/d to 6.5 Bcf/d, forcing more gas onto the market by August or September, Olson said. "If we have a return to gas-on-gas competition, you are likely to see [cash] prices come down from a national average of $6.10/MMBtu to something in the high $4/MMBtu to $5/MMBtu range," he said. The back end of the board is "very susceptible to [a] considerable decline should events not transpire the way the market is anticipating," Levine said . However, he said it is not a secret that the vast majority of those who speculate in natural gas lose money because few speculators are prepared for the volatility in the natural gas market. "There are fewer people making money [in commodities] and more losing," he said. "It's not equal." --------------------------------------- Ergänzung von mir: So sieht das praktisch aus: Juli- und Dezember-Future im Vergleich: Geändert von Benjamin (18-05-2006 um 17:54 Uhr)