Month of January, 2008

Happy New Year to all our visitors as oil prices break $100/bbl.

It didn't take long for oil to break new barriers in 2008 as it traded at $100.bbl on NYMEX yesterday. As we have been saying for some time now, the oil supply/demand picture remains very tight and any external factor that has a perceived impact on supply or demand will have a an exaggerated effect on price. Political disruption in Nigeria and a weak US Dollar are those external factors that analysts are pointing to.

Our previous commentary on crude oil prices and its impacts can be found here.

UtiliPoint® International, Inc. (UtiliPoint) has created a new blog site to cover its European activities – www.utilipointeuropeblog.com.

UtiliPoint successfully commenced operations in Europe last year providing analyst and consulting services there and, in the process, gaining a number of important new clients. Additionally, the company conducted six proprietary research projects and has issued four study reports to date with two more study reports due in January 2008. The new blog site will be used to comment on the European energy and utility industry and UtiliPoint’s activities there.

“European utilities and energy companies are experiencing change in the climate, emissions, wholesale, and retail areas of their businesses,“ states Jon T. Brock, President & COO of UtiliPoint. “UtiliPoint has found that its model of providing primary research across multiple jurisdictions works well in European markets and the new blog is one way of communicating with market participants,“ added Brock.

“Blogs have become essential tools in communicating and promoting business activities.“ said Dr. Gary M. Vasey, GM, Europe for UtiliPoint. “The new blog focusing on our European activities and the European energy and utilities sector joins and links to our successful energy trading blog at www.etrmcomunity.com and will become a key tool in growing UtiliPoint’s business and profile in Europe.“

In the period after Christmas, the price of crude oil futures finally met and exceeded the $100/BBL psychological barrier prompting further cries of anguish from consumers and politicians. Turmoil in Nigeria, a weaker US Dollar and the general supply/demand picture was largely blamed for the brief spike in prices which have since declined slightly as fears over the US economy have taken center stage once more. The Energy Information Administration also reported that US crude stocks fell 4 million bbl to 289.6 million bbl during the week ended Dec. 28, well below market expectations of a 1.7 million bbl drop. It marked the seventh consecutive week that US crude inventories have fallen.

In reality, the movement beyond $100/bbl was brief and took place on an intra-day basis but analysts were quick to point to a possible $105/bbl price as the next target. But what chance has that of occurring?

An important factor will be US inventory movements and the final US weekly data for 2007 show US crude inventories ending the year at just below 290 million bbl, some 65 million bbl lower than the peak at the end of June. Crude inventories have gone from well above the 5-year average to 6.8 million bbl below that average in 2007. Should this trend continue into the new year then the impetus for price formation might well remain unchanged. Despite that, concerns over the US economy are now beginning to emerge as a stronger factor and high energy prices are seen obviously as a contributing factor to a possible US recession.

Bullish Factors

Energy Viewpoints has added a page with news videos for browsers. Hopefully, this adds to the value of the site as Energy News and Views you can use....

You can find the videos here

Two years ago I thought it might be fun to write a book on ETRM Software trends. The idea was that at the very least the book would be a great leave behind marketing piece for UtiliPoint. The book was very kindly sponsored by Allegro Development (www.allegrodev.com) and SAS/RiskAdvisory (www.riskadvisory.com). If the book sold a few copies that would also be nice but for such a small niche market we thought the prospects of that pretty remote.

As of today, the book has actually sold 725 copies. I am astounded. It might not seem like a lot (and doesn't compare to Harry Potter sales for sure) but I think it speaks volumes about the interest in ETRM software this last two years.

As of today, I am planning on a second edition to update the book (if you would like to sponsor the second edition - please do contact me). There is also a second book in the works on a slightly different topic that should be coming out in early February... I will post more news on it later.

Meanwhile, Trends in Energy Trading, Transaction and Risk Management Software - A Primer is available from Amazon.com should you like to obtain a copy.

In a recently issued white paper, I made the case that energy and indeed commodity markets are changing and have changed. The basis for this thesis is quite complex but I will attempt to summarize below.

Barrier to Entry
In the not so distant past, trading energy commodities was the exclusive turf of professional energy traders at a variety of energy companies and trading firms.

Today, by virtue of the rapid emergence of electronically traded funds that allow access not just to broader energy or natural resources equity indexes but also to commodities such as crude oil and Uranium, anyone can invest in commodities. As interest has grown in commodities so too has the number and sophisticated of publically available instruments to allow it – not just ETF’s but mutual funds and other vehicles. This has allowed many new types of investor access to energy markets either directly or indirectly.

However, the resurgence of electronic trading at NYMEX and ICE, as well as other exchanges, has also helped to bring down both the cost and barrier to entry for a wide variety of non-traditional energy and commodity investors. In turn, new exchanges have opened up offering new instruments and offering features that reduce certain risks such as counterparty risk via exchange clearing mechanisms. This trend continues since the more investor appetite that there is, the more opportunities are created to cater for it.

As I have previously pointed out Natural Resource ETFs are all the rage these days. Now comes one focused on coal from Van Eck.

More Here

And I think there is yet scope for many more if investor appetite holds up.

Just noticed that Amazon are discounting the Trends in Energy Trading, Transaction and Risk Management Software - A Primer book by 36%.... Might be a good time to buy it.

If so, UtiliPoint is looking for your opinion and input to our electronic survey here. In return for your participation, they will send you a summary of the results wen completed. The survey is quite brief so shouldn't take up much of your valuable time....

As the Fed steps in to cut rates by 0.75% what will happen to the US Dollar? Based on past trends it will weaken again and commodity prices will rise. But.... given the overall concerns about the US economy will that happen? We will have to see how the markets respond I guess.

You might ask. as oil prices hover around $100/bbl the news from OPEC is that markets are well supplied - that despite most sources of data such as the IEA and EIA showing something quite the opposite. But then, as US recession looms and fears about future demand bring oil prices down again, OPEC can suddenly supply more?

OK. So where is the logic here? While prices are high, lets make them higher still is understandable but when oil prices are falling let's help them drop further is strange.

Well - I found a site that made me laugh because it delivers quick punchy laughs with funny photographs and funny stories. It makes light of life's difficulties. In particular, check out How to find a lost dog as an example of what they post there...

I guess we all need a laugh now and then - right?