Is now the time to hedge against an oil price rebound?

Commodity research desks at both Société Générale and JP Morgan Chase have advised businesses exposed to the oil price to hedge at least part of their exposure, according to the FT.

Brent crude prices fell to around $98 per barrel on Wednesday afternoon, down 18% from their early February high and the first time Brent has been below $100 per barrel for nine months.

Graph of ICE Brent Crude Oil Futures ($ per barrel)

Forward prices for Brent in 6-12 months time are also currently trading around $95-$100 per barrel. This combined with a reduction in oil price volatility has resulted in a reduction of hedging activity. read more

European energy buyers at risk from volatility rebound

According to a recent blog post from Timera Energy, European gas price volatility has dropped to its lowest level since market liberalisation. Apart from a cold snap in early 2012 gas price volatility (measured against the Dutch TTF day-ahead / weekend contract) has been on a downward trend with annualised volatility remaining below 20% during 2012 and into 2013.

European gas price volatility

Related article: Commodity volatility lowest since mid-1990′s

A combination of relatively mild weather and weak economic growth has meant that European gas plants are running with spare capacity and ample storage levels. In turn this has reduced the risk premium normally associated with flexible energy contracts, whereby an industrial user allows a part of its energy spend to follow forward market prices. read more

CFO’s vote high and volatile commodity prices their biggest challenge

According to the CFO Survey 2013, published this week by 4C Associates chief financial officers view price risk as an increasing risk to their businesses. The 2013 survey reports that it is the biggest concern for 65% of respondents, up from 48% in 2012. The main reasons given by respondents were volatile commodity prices and an inability to pass any increases on to consumers resulting in tighter margins and less room for error. According to 4C Asscoiates “In this context analysing and modelling price risk is crucial to any large organisation.” read more

Israeli/Hamas conflict raises wider oil disruption fears

The probability of an Israeli/US attack on Iran by end 2013 rose by 2% today (Tuesday) to 20% – according to InTrade.

This followed an Israeli airstrike on Gaza which killed the leader of Hamsas’ militant wing. The strike came in retaliation for 115 missiles fired from Gaza into Israel in the past week.

Oil prices (Brent) rose 1.4% to almost $110 per barrel on the news. With both sides dug in for a drawn out game of missile retaliation oil prices are likely to stay near current levels, remaining volatile. read more

Commodity markets about to go through the eye of the Euro storm

Citibank issued a note yesterday (22 August) reaffirming their projection of a 90% chance that Greece will leave the Euro in the next 12-18 months.

They go further by saying “…we think it is increasingly likely that Grexit will occur in the next six months or so, conceivably as early as September/October depending on the outcome of the September Troika report on Greece.”

Traders on Intrade meanwhile continue to put the probability of a country leaving the Euro somewhat lower. According to Intrade the probability of a country leaving the Euro before end 2012 and end 2013 is 26% and 54% respectively. read more

KPMG expect the unexpected: what lessons can be learnt for commodity risk management?

A new report from KPMG identifies 10 global megaforces that are expected to significantly affect businesses activity in a range of different industries over the next 20 years. With businesses operating in an ever more interconnected world where supply chains are stretched across continents and vulnerable to disruption changing consumer demand, government policy and volatile resource and environmental factors can significantly impact a businesses bottom line.

The KPMG analysed more than two dozen forecasts from international agencies, think tanks and national agencies to identify those changes likely to have the greatest impact on business. The ten ‘megaforces’ identified were climate change, energy and fuel, material resource scarcity, water scarcity, population growth, urbanization, wealth, food security, ecosystem decline and deforestation. read more