Leo Haviland provides clients with original, provocative, cutting-edge fundamental supply/demand and technical research on major financial marketplaces and trends. He also offers independent consulting and risk management advice.

Haviland’s expertise is macro. He focuses on the intertwining of equity, debt, currency, and commodity arenas, including the political players, regulatory approaches, social factors, and rhetoric that affect them. In a changing and dynamic global economy, Haviland’s mission remains constant – to give timely, value-added marketplace insights and foresights.

Leo Haviland has three decades of experience in the Wall Street trading environment. He has worked for Goldman Sachs, Sempra Energy Trading, and other institutions. In his research and sales career in stock, interest rate, foreign exchange, and commodity battlefields, he has dealt with numerous and diverse financial institutions and individuals. Haviland is a graduate of the University of Chicago (Phi Beta Kappa) and the Cornell Law School.


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The lofty pinnacle created around 611 four years ago (1/7/10; NYMEX nearest futures continuation) is a distant memory for many marketplace visionaries. So are much higher price peaks prior to this. Especially since mid-2011, US natural gas production jumped due to the shale gas revolution as well as output associated with the petroleum drilling boom. This has built confidence that ample natural gas supplies generally will keep prices fairly subdued. Allegedly inevitable North American liquefied natural gas exports will not become sizable for at least another two or three years from now. Forecast US electricity demand for calendar 2014 is essentially flat relative to 2013. The NYMEX natural price (nearest futures continuation) even fell under two dollars two years ago (190 bottom; 4/19/12)! Recall the important resistance established this spring at 4.444 (on 5/1/13; challenged but not broken by the recent high on 12/13/13 at 4.443). So how on earth could the front month NYMEX price eventually (even if not this winter) ever sustain itself over 450, or even fly up to 500, 600, or even higher?

Yet inventory obviously still matters. History shows that weather can slash working gas inventories in the Producing Region and elsewhere, sometimes dramatically. Thus despite widespread faith in growing production and other supply/demand variables, high or even average national inventories, particularly from the days coverage perspective, are not guaranteed. Consequently if overall US inventories plummet far enough, and even if this is relatively unlikely (as of now) for winter 2013-14, five or six dollars (and yes, even higher) NYMEX prices are not inconceivable.

In addition, alternative “investment” in commodities has reduced the amount of “free supply” in natural gas. This buy-and-hold for the long run activity probably has been more of a factor since around 2003 (or at least 2006) than in the preceding time span. In any event, for any given arithmetical or days coverage gas inventory level nowadays, such investment makes stocks tighter than they appear, though experts can debate how much. “Speculative” buying enthusiasm also may rally prices.

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US Natural Gas Inventory- the Producing Region Drawing Board (12-16-13)

US NATURAL GAS- OFF IN THE DISTANTS © Leo Haviland, January 14, 2013

In commodity marketplaces, the price level and fluctuations of the spot (physical, cash) world and nearby (front) months generally attract and fascinate us more than periods (distant month contracts) out in the seemingly more misty future. In recent history, bull and bear moves in distant period NYMEX natural gas contracts to a substantial extent have mirrored those in the nearby months. Patterns in NYMEX natural gas strips, whether seasonal ones such as summer 2013 or calendar years such as 2014, 2015, and 2016, significantly resemble those of actual nearby months (and the nearest futures continuation contract perspective). For example, after marching upward and achieving peaks in spring 2011, they eventually fell off together, reaching dismal valleys in April 2012. The front months and distant spans then ascended dramatically, although not exactly the same distance. After this climb, they began to retreat together; recall the descent since late November 2012 (some trading periods started to fall off in price in October). The nearby and distant month trends thus have generally “confirmed” each other.

Nevertheless, any given natural gas near term situation is not always or necessarily the same as that of the more distant future (or ancient history) times. Because natural gas is not a cost of money commodity like gold, this similar directional relationship between spot (and front month) and forwards off in the distance is neither unchanging nor guaranteed. Some divergence may develop. Therefore marketplace players should monitor trends in NYMEX distant month natural gas contracts in addition to those of actual nearby months (and first futures continuation).

The long run major bull trend of the NYMEX natural gas complex that began in April 2012 (as represented by the nearest futures continuation bottom around 190 on 4/19/12) remains intact. However, at present the near term bearish retracement move for both nearby as well as distant month forwards such as the summer 2013 strip and the calendar strips of more faraway years also likely remains in place. See the nearest futures continuation high on 11/23/12 at 393.

The interim decline in natural gas that commenced during fourth quarter 2012 probably is near in time to at least an initial end. Assuming normal winter weather, the most likely time for this bearish NYMEX natural gas pattern to cease is in late calendar January or late calendar February 2013 (probably around nearest futures expiration). In any event, the price (nearest futures continuation basis) will not easily sustain falls beneath the 300 to 285 range (note recent lows on 1/2/13 at 305 and 1/9/13 at 309). Warmer than normal weather (as in last winter) could postpone the low (recall the late April 2012 depth). Given the likelihood of above normal US natural gas inventories in days coverage terms, there remains a significant chance of a final (second, double) bottom in late August or calendar September 2013.

As there are regional differences (basis relationships) between natural gas marketplaces, players should not restrict this comparative approach to NYMEX natural gas. Why not analyze near term relative to far out periods natural gas at a variety of different locations (and review related basis relationships over these vistas)? Also, given the links between natural gas and electricity fields, analysis of electricity marketplaces in more distant months in a given region offers insight into near term electricity trends as well as distant month (and even near term) natural gas battlegrounds.
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US PETROLEUM- TAKING STOCK © Leo Haviland, May 8, 2012

Crude oil streams and various refined products create an array of petroleum supply/demand pictures. Although America of course is not the entire oil universe, a survey of the recent overall United States petroleum inventory scene offers insight into the general petroleum price trend. Also recall the linkage in recent years of major trends between the S+P 500 and the petroleum complex (and commodities “in general”). This analysis of petroleum inventories in context underlines the current bearish trends in petroleum and the S+P 500.

At end March, US oil industry total inventory averages 50.3 days coverage (1996-2011, crude and products combined relative to total product supplied per day for that calendar month, Energy Information Administration inventory data; Strategic Petroleum Reserve stocks not included). End March 2012 days coverage climbed to 58.9 days supply. Not only did this soar more than eight days above average. It established a new record for that calendar month for the 1996- present era. Although the United States economy has been in a recovery for almost three years, these inventories broke beyond March 2009’s 58.2 day summit, achieved in the depths of the worldwide economic crisis and the month of the S+P 500’a major low (3/6/09 at 667).

These high supplies for March 2012 are not a one month aberration. Glance at the previous three months in historical context. From 1996 through end 2011, average total inventory for December is 50.2 days, January 51.0 days, and February 50.0 days. December 2011 ascended to a new record high for that calendar month; its 56.3 days of supply decisively beat 1998’s 55.4 days. What about January 2012? Not only is its 58.9 days coverage about eight days above average. They smash January 2010’s top of 56.8 days (compare January 2009’s lofty 55.8 days). February 2012’s 57.9 days coverage likewise significantly exceeds its calendar month average. Its huge days coverage decisively climbs over the previous stockpile record of 56.9 days achieved in February 2009.

As of 4/27/12 (weekly EIA data), US petroleum industry inventory slipped to around 56.9 days of supply (average daily total product supplied for the most recent four weeks). Total oil industry stocks nevertheless remain ample from the days coverage perspective. Although not a new end April record elevation (2009 was 58.8 days), it still vaults more than five days over end April’s 51.5 days coverage average.

On balance, just-in-case fears regarding petroleum inventory probably are diminishing, and will continue to do so for a while longer. A bear trend in petroleum prices probably also will interrelate with attitudes regarding just-in-case inventory management. If prices are dropping, why worry quite so much about supplies, right? ****

Analysis of NYMEX noncommercial petroleum positions indicates they probably reached a peak recently. Liquidation by net noncommercial longs probably has helped to move oil prices lower and probably will continue to do so.

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Petroleum- Taking Stock (5-8-12)
NYMEX Crude Oil (5-8-12)


In love and commerce, taking implies giving. On Valentine’s Day and throughout the year, undoubtedly the prudent Federal Reserve remembers the benefits of having and needs of both debtors and creditors. This regulatory chaperone surely would declare that they passionately strive to perform their very best (do what’s most reasonable according to their interpretation of their regulatory duties) for all parties concerned. Besides, they must balance competing interests. Besides again, the Fed has a long run horizon. The Fed’s recent policies nevertheless imply not only an ethics of inflation, but also manifest somewhat greater affection for debtors than creditors.

Japan’s general government gross debt as a percent of its GDP is gigantic, at 241.0 percent for 2012 (IMF, Fiscal Monitor Update, Table 1, 1/24/12). This dwarfs America’s 107.6pc and the Euro area’s 91.1pc. Japan’s general government debt has been huge for several years. How does it keep financing this massive total? And if Japan can keep doing it, doesn’t America really have a lot of room to go (and time to wait)?

Japan may have more domestic savings than America, or be more of a nation of savers from an overall cultural perspective. Japan has run a current account surplus for quite some time, in direct contrast to the bulging United States current account deficit. (See the September 2011 World Economic Outlook, Statistical Appendix, Table A10.)

However, Japan’s ability to accumulate and finance its big general government deficit also may be due to its more favorable treatment of creditors. And despite low interest rates! Creditors of the Japanese government have earned, and have earned for quite some time, a net positive return due to deflation alongside low government interest rates.

So how long will the Fed and US Treasury get away with offering negative (or very low) real returns on US government debt?

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Sweet Talking, Slick Banking- Federal Reserve Policy (2-14-12)