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.


Subscribe to Leo Haviland’s BLOG to receive updates and new marketplace essays.

RSS View Leo Haviland's LinkedIn profile View Leo Haviland’s profile


Having established a major low at 190 on 4/19/12 (NYMEX nearest futures continuation), natural gas marched sharply higher, reaching significant resistance around 330 (7/31/12). After retreating to 258 (8/29/12), the marketplace renewed its assault on the 330 barrier in late September. Even if prices lose some ground in the near term, and assuming normal weather, a decisive advance above that level, and to at least major resistance hovering at 380 to 415, probably will occur in the next few months. It would not be surprising if the initial assault on 380/415 occurred relatively soon.

But why will prices keep climbing? Admittedly, bears have good arguments. For example, current United States natural gas inventories (9/21/12 stocks of 3576bcf) are up about nine percent year-on-year. Suppose weather is around average for the 2012-2013 winter draw season. An initial review of United States natural gas inventories from a days coverage perspective indicates oversupply for the upcoming draw season.

However, there arguably is less oversupply in the near term than many believe. There seems to have been an upward shift in desired stockholdings from the days coverage vantage point in recent years.

In addition, inventories during winter and at end season 2012-13 probably will be far less excessive than during the preceding draw season. This will tend to excite many bulls.

For the next few months, natural gas production growth appears to be flattening (compare calendar 2012 with 2013). But gas demand increases, assuming sustained higher prices over 330, and maybe a bit cheaper, also may level off.

Yet it seems that natural gas is “looking forward” over a longer horizon than just the next few months (or maybe even calendar 2013). A bullish aura underpinning natural gas “for the long run” derives significantly from the coal plant retirement story (especially in 2014 and thereafter). This enthusiasm (though it may eventually confront supply jumps) thus thereby assists to some extent the bullish near term price trends. Also, nuclear power supplies probably will not increase much anytime soon; some players question how much and how quickly renewable supply will blossom from here.

This longer run bullish natural gas faith (orientation) has an implication for the probable willingness of natural gas producers to short hedge, say at around 380/415, or even 450 and beyond (strategies surely differ for each calendar year). Short hedging at these levels probably will be less than many believe.

What about LNG? The extent of LNG exports is conjectural. However, at quite low prices (picture under 200, maybe even 250), the export appeal rises. Though these floors are much beneath current prices, this story tends to support the upward price bias established in April 2012.

Add a technical bull point from the timing perspective. Many key natural gas (NYMEX nearest futures) marketplace bottoms have been reached in late August and calendar September. This did not occur in calendar 2012, which argues that the new highs being made recently will be surpassed. Also, the minor low around 258 in late August, although not close to the April 2012 depth, nevertheless occurred at a time from which prices often have sprung higher. Thus the quick travel higher of the past several weeks argues for a further upward flight.

FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Natural Gas- the Winter Inventory Drawing Board (10-1-12)

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.

FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Petroleum- Taking Stock (5-8-12)
NYMEX Crude Oil (5-8-12)


Not only does recent Middle East political turmoil flood the news. Actual supply interruptions, as well as conjectural ones, of course influence petroleum and other trading and hedging behavior.Increasing petroleum consumption in non-OECD (developing) nations, though it is challenging to measure, is a bullish factor. There’s probably been a shift within the petroleum industry from a rather confident “just-in-time” orientation to a more fearful “just-in case” bias regarding preferred levels of inventory holding. Moreover, keep in mind the continued bullish effects of the weak United States dollar, low policy interest rates in America and many other OECD nations, noteworthy quantitative easing (money printing), and the global economic recovery story in general and associated rallies in stock marketplaces. Moreover, to many soothsayers onWall Street and beyond, commodities (particularly petroleum) are a new asset class. This faith inspires “alternative investment” (buy and hold for the long run) in that universe, thus tightening petroleum free supply and pushing prices higher.

By around calendar 1996, US petroleum statistics suggest a move to lower inventory holdings in days coverage terms, probably at least due to widespread faith in the appropriateness of just-in-time inventory management.

So the longer that US (and OECD) holdings such as those of March 2011 remain high relative to the 1996-10 period, the more it seems that there has been a partial shift (by at least some industry members) to a just-in-case approach. Given what may happen in the oil world, why not hold a bit more around “than usual”. Players may grab an three or four days extra now relative to just-in-time needs, as versus say 10 or more days in the distant past.

Both the 2008 and 1987 eras hint that any major (final) high in the petroleum complex will be fairly near in time (within a few months, either before or after) one in United States equities.

FOLLOW THE LINK BELOW to download this market essay as a PDF file.

Inside the Petroleum Jungle (Desperate Housewives, Episode 10)