On the 25th anniversary of the 1987 stock-market crash, traders are once again trying to find something to believe in. After yesterday’s Google earnings debacle, distrust of China’s GDP data and fears that Europe won’t act forcefully enough to stem problems in Spain and Greece, it's causing a lack of confidence sell-off. Yet while oil toils and precious metals falter the heating oil-gasoline spread continues to rock.
Oil prices were sliding yesterday because the Chinese GDP data was either too strong to inspire quantitative easing or too strong to be believed. Doubts crept in after reports of a big drop in electricity demand. China’s electricity consumption grew at an annual rate of 2.9%, the slowest growth in two years. We had the combination of a strong Philly Fed and reports that the politically charged Trans Canada Keystone Pipeline was shut down for three days for what was being called an “anomaly.
The Chinese National Energy Administration releases a monthly report on electricity consumption. The most recent observation for September showed that electricity consumption grew at an annual rate of 2.9%, the slowest growth in two years. Growth was 3.6% in August and was 11.7% during 2011. According to estimates from Patrick Chovanec, business professor at Tsinghua University, electricity consumption actually fell 9.8% in the month of September, which is considerably weaker than the normal seasonal decline.
Yet with all the wild swings, we continue to see incredible moves as the “Widow-Maker,” long heating oil short RBOB gasoline, spread has picked up over 20¢ in a week. While the spread is rebounding a bit and the volatility is high the spread should continue to work as spread traders may sell into a 7¢ to 10¢ correction.
Beehive Bang Up!
The Wall Street Journal reported that some natural gas traders are complaining because apparently they believe that high frequency traders are "banging the beehive." Banging the beehive the Journal says is when “high-speed traders send a flood of orders in an effort to trigger huge price swings just before the U.S. Energy Information Administration (EIA) storage data hit. Or as I call it “price discovery.”
The Journal writes that veteran natural-gas trader John Woods has a simple trading strategy around data on U.S. gas stockpiles: Stay away. Mr. Woods and other floor traders at the New York Mercantile Exchange used to look forward to the weekly report of gas-inventory figures by the EIA, widely considered the best reading of gas supply and demand in the United States. Traders would be glued to their computers before the release at 10:30 a.m. on Thursdays, ready to dive into the busiest trading window of the week. But in the past few months, unusual trading patterns have pushed many seasoned traders to the sidelines.
The Journal states that the, "shifting landscape in natural gas shows how high-speed traders are changing markets well beyond stocks, which so far has been the primary focus for regulators and lawmakers investigating rapid-fire trading.”