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The Mercatus Energy Pipeline

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Singapore & Houston - Energy Trading & Risk Management Seminars

  
  
  

Due to the continued popularity of our energy hedging, risk management and trading seminars, we are announcing two additional seminars which will be held in Singapore and Houston. As seats for both seminars are limited we recommend registering as soon as possible.

Energy Hedging - Better to be Lucky than Good?

  
  
  

You often hear people say, “It’s better to be lucky than good.” I go the exact opposite direction – Luck has the ability to hide bad management decisions. Going one-step further, bad decisions which lead to good results are often failures of management. This rings very true in the energy industry and is especially common when it comes to hedging decisions.

Crude Oil Hedging in An Uncertain Environment - $30 or $200

  
  
  

WTI has traded in a volatile range lately, as have Brent and all other grades of crude oil. The prompt WTI crude oil contract lost more than 8% of its value (Feb 3 close = $53.05, Feb 4 close = 48.45, change = -$4.60/bbl) on a single day last week. Such volatility is great for news agencies that write stories about extreme price movements, often accompanied by sensational quotes from market participants. For example, CNN Money used a quote from OPEC Secretary General Abdulla al-Badri to write the headline: “OPEC leader: Oil could shoot back to $200.” To paraphrase, Mr. al-Badri does not believe oil prices will fall any lower. He cites falling CapEx and rig counts, going so far as to say there is risk that oil producers may over react, resulting in under investment in oil supply, subsequently resulting in a tighter, maybe under-supplied, oil market. He uses $200 as the result of an extreme case of lost investment combined with the natural decline of existing production. As an aside, a recent Bloomberg article summed up the current market uncertainty quite well - These Experts Know Exactly Where Oil Prices Are Headed - Somewhere Between $30 and $200 a Barrel

February 2015 Oil & Gas Hedging Update

  
  
  

As has been the theme for many months now, forward crude oil and refined products across the world have continued to decline since our last update, with a few exceptions in RBOB gasoline and USGC, Singapore and NWE fuel oil. Since our January update, one year forward prices for Dubai crude oil have once again led the complex lower, down 5.62% month-over-month, and have been closely followed by Brent, WTI and LLS which have declined 4.81%, 4.43% and 4.24%, respectively. On a year-over-year basis, the one year forward curves for WTI, Brent and Dubai have declined by 44.67%, 44.93% and 45.80% respectively.

A Layman's Explanation of the "Famous" Crude Oil Storage Trade

  
  
  

In recent weeks, there have been a lot of stories floating around about the "oil storage trade" but we've yet to see a good layman's explanation of how it actually works in practice. This is going to be the focus of today's post.

What's Driving the Brent-WTI Crude Oil Spread Towards Zero?

  
  
  

While NYMEX natural gas futures are often referred to as the widowmaker of the energy trading world, the recent collapse in the Brent-WTI crude oil spread has likely produced a few widows of her own. For those of you who don't watch the Brent-WTI spread closely, the spread is once again trading near parity. As such thought it would be a good time to review the Brent-WTI spread and the potential implications as it relates to crude oil and refined product price risk management.

Airlines Alter Fuel Hedging Strategies for Low Price Environment

  
  
  

As crude oil and jet fuel prices continue to decline, many airlines are adapting their fuel hedging strategies to account for the current, lower price environment. On one hand, some airlines are taking a more aggressive stance or beginning to hedge their fuel price exposure for the first time in company history. Others are taking a step back and either reducing the scale of their hedging programs or eliminating them completely. Some are also taking an entirely different different approach, choosing to sell their existing positions (and realize the losses) in order to enter into new positions at lower prices.

A Crude Oil Hedging Lesson From Mattress Mack - $85 and It's Free

  
  
  

If you live in Houston or you've spent much time here, you're certainly familiar with Jim "Mattress Mack" McIngvale, the owner of Gallery Furniture. If you're not familiar with him, Mattress Mack is a Houston celebrity, well known for the energetic commercials which advertise his furniture stores. His entertaining commercials generally include some variant of one of his catch phrases - "save you money" or "buy it today and have it in your home tonight". 

Will Consumers Make The Same Hedging Mistakes as Many Producers?

  
  
  

I spent the holidays on the road between Houston and Nebraska visiting family. The trip took me though some rural communities where it is common to find local farmers, truckers, etc. sitting around the table at a truck stop or diner discussing the important topics of the day. As you might imagine, fuel prices are among those topics.

The Top 10 Mercatus Energy Pipeline Posts of 2014

  
  
  

As many blogs do towards the end of one year and the beginning of the next, today we're looking back at all of the blog posts we published in 2014 to see which posts were the most popular with our thousands of subscribers. The number of hits a blog post receives tells you a lot about what's happening in the energy markets, the topics which are of most interest to our subsrcibers and which posts aren't quite so popular.

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