A while back you stated that there was virtually no counterparty risk of default with respect to oil and gas hedges. Is this because o & g companies hedge with their bank group and have a right of offset against their loans?
It seems to me if there are 18 to 1 speculators to commercial parties in the market that there is going to be a blood bath at some point when all of the hedges are settled.
Do I recall correctly that Dodd Frank put in place some pretty stiff margin requirements with regards to derivatives?
The other thing that surprises me is that Credit Default Swaps are still alive and well after the credit crisis. I understand that a lot of the the energy junk bonds have CDO's backing them up. Are we headed for another financial crisis?
It was interesting on CNBC today that the mood was that oil has stabilized and now might be a good time to jump back in. These guys are truly ignorant. Two days ago the sky was falling and now things have stabilized? Go figure.
Hedges
Re: Hedges
Chuck;
No doubt there are speculators that will loose a lot of money when they have to cover their long positions. Derivative on commodities are just like Puts and Calls on stocks. Those traders have to maintain big margin accounts and many of them have already gotten the margin calls. At the settlement date someone has to pay.
Keep in mind that a lot of the big traders have positions on both sides.
No doubt there are speculators that will loose a lot of money when they have to cover their long positions. Derivative on commodities are just like Puts and Calls on stocks. Those traders have to maintain big margin accounts and many of them have already gotten the margin calls. At the settlement date someone has to pay.
Keep in mind that a lot of the big traders have positions on both sides.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Hedges
It "feels like" the price of oil is trying to stabilize. However, I felt the same at $75. It is too early to tell.
This week's oil inventory report was helpful and the cold should increase demand for heating oil.
I think there is a 50/50 chance of an emergency meeting by OPEC this quarter. Several members are really suffering. If an emergency meeting is announced, we could get a significant short covering rally in the futures contracts.
Trying to time this is impossible. However, I to think supply / demand are heading back to balance. Libya is a mess and they have already reduced exports by 500,000 bbls per day since the peak a few months ago. Low fuel prices are increasing demand.
This week's oil inventory report was helpful and the cold should increase demand for heating oil.
I think there is a 50/50 chance of an emergency meeting by OPEC this quarter. Several members are really suffering. If an emergency meeting is announced, we could get a significant short covering rally in the futures contracts.
Trying to time this is impossible. However, I to think supply / demand are heading back to balance. Libya is a mess and they have already reduced exports by 500,000 bbls per day since the peak a few months ago. Low fuel prices are increasing demand.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group