MARKET PRICES - volatility, liquidity and trading around extreme high and low prices - some personal reflections on the current European gas market but equally applicable to oil, electricity, coal, steel and other commodities:
EUROPEAN natural gas prices are nearing a peak - in time if not price.
As liquidity falls, prices are rising at an accelerating rate - a classic sign that the turning point is near
Market time is becoming telescoped:
EUROPEAN natural gas prices - shown in a semi-log scale to show the acceleration in price gains. First and second derivatives now strongly positive - with prices turning vertical - classic indicator normal pricing relationships are breaking down under extreme stress:
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EUROPEAN natural gas futures show signs of deteriorating liquidity, with large price gaps emerging, indicative of many traders and market-makers avoiding trading in size because short-term volatility has become too extreme and risks are too high:
EXTREME short-volatility, price gapping and evaporation in liquidity are classic features of a market nearing an extreme high/low, in terms of time if not price. Recent examples are negative WTI prices in April 2020 and the peak in oil prices in Jun/Jul 2008
MARKET pricing starts to break down near extreme high/lows, with more and more traders pulling back from taking any significant position because of the size of the short-term price moves and lack of liquidity to enter and exit positions. Lack of liquidity becomes self reinforcing
POWER GRID FAILURES never have a single cause. Grids should be managed conservatively with multiple layers of protection and reserves. Even if there is a single proximate cause, such as a single generator outage, the grid will only fail if those multiple layers have eroded
IN TEXAS, the proximate cause of grid failure was likely the extreme cold temperatures across much of the state. But big freezes are not that infrequent in the state. ERCOT's system operating plan should have been able to cope with the cold. The question is why it failed.
IN TEXAS, the power crisis seems to have blown through multiple layers of system protection, including spinning reserves, peaking power reserves, and demand-response, all of which seem to have proved insufficient, leaving ERCOT no option but massive forced load-shedding.
Forced load-shedding is a sign of a power system under extreme stress, with inadequate firm generation capacity, inadequate capacity to import power from neighbouring areas to support the network, and inadequate flexibility on the consumption side
Forced loading shedding is always a planning failure. Like California blackouts last summer, post-event study needs to identify why ERCOT had insufficient firm generation; whether grid managers acted in time to manage reserve margins; and whether there is enough load flexibility
GLOBAL OIL MARKET - current situation and outlook for 2021 (When I joined Reuters, I told my boss @richardmably my ambition was to tell a story without words, only charts):
GLOBAL OIL MARKET - cyclical position:
GLOBAL OIL MARKET - prices, inventories and OPEC response:
“ONE COUNTRY, TWO SYSTEMS,” formula for Hong Kong is ending. Protestors reject China’s sovereignty; China rejects HKSAR legal autonomy; and United States no longer willing to treat HKSAR as a separate economic and financial territory: state.gov/prc-national-p…
OCTS was based on a deliberate ambiguity about the territory’s status following the transfer of sovereignty from Britain to China, one that obscured differences over culture, identity, economic functions and ultimate control. But ambiguity has come under increasing strain
OCTS required ambiguity at multiple levels: social, HKSAR, PRC, and international. But at every level the ambiguity has given way to pressure for clarity. And the compromises and contradictions are starting to unravel.
ECONOMIC GROWTH and technological change has always destroyed huge numbers of jobs in old industries while creating employment in new industries:
* Peasant farmers (enclosure)
* Spinners (steam engines)
* Weavers (power looms)
* Canal workers (railways)
* Coal miners (automation)
Economic growth, productivity gains and technological change have eliminated occupations which employed tens of millions of people over the last 250 years, and the future is unlikely to be any different