UtiliPoint International, Inc. - European Blog

The higher price of crude oil is beginning to limit physical liquidity. Why? Credit. As prices rise, the cost of credit gets higher and higher and that at a time when banks are reluctant to extend credit. Increasingly, physical traders will be sidelined by these prices and the resulting credit issues.

SemGroup, a US physical trader, is one that has already fallen foul of this issue as you can read in the story below from the FT....

Oil trading company files for bankruptcy

By Javier Blas in London

Published: July 23 2008 03:00 | Last updated: July 23 2008 03:00

SemGroup, the US physical oil trader, yesterday filed for bankruptcy as it acknowledged losses of more than $3.2bn in different energy markets after betting this year that crude oil prices would fall. Its collapse came as oil prices plunged to their lowest levels since early June. West Texas Intermediate crude oil fell to an intraday low of $125.63 a barrel, down $5 on the day.

UtiliPoint® International, Inc. (UtiliPoint) announces that it is seeking sponsors for a new research study that will examine the factors at play behind rising oil prices. The new study will be conducted under the supervision of Dr. Gary M. Vasey, who co-founded the Energy Hedge Fund Center (www.energyhedgefunds.com) and was co-author of ‘Energy & Environmental Hedge Funds – The New Investment Paradigm‘ published by Wiley in 2006 along with inumerable articles on commodity markets and commodity prices, and Patrick Reames, UtiliPoint’s Trading & Risk Management practice lead and Vice President.

The proposed study will examine the data and evidence from a multi-faceted perspective including how structural changes in commodity markets and increased access to commodity markets have changed crude oil price formation and the impact of a weak US Dollar. It will also examine the fundamentals of supply and demand, the existence of a refining bottleneck and other such issues in an attempt to determine what is driving crude oil prices in today’s markets.

Yesterday crude prices fell by $6/bbl on news that the Federal Reserve was growing increasingly vocal over inflation. Today, June's US inflation numbers were released at 1.1%. The price of oil dropped due to fears that a larger demand response to higher prices was setting in and on the idea that if the Fed really gets tough on inflation, crude and other commodities would no longer be quite the inflation hedge that they had been. But with inflation numbers like that you can bet its going to be volatile trading for crude traders....

A new study from UtiliPoint will review what is driving the price of crude oil. We are seeking sponsors for this study and if you might have interest in sponsoring, please request a prospectus from gvasey at utilipoint.com.

As the price of crude oil continues to rise inexorably calls for scrutiny and oversight of commodity markets increase. Both major US Presidential candidates have already partially blamed speculation for rising commodity prices and both have affirmed their view that something should be done. The question though is what exactly? I have argued until I am blue in the face that oil and commodity prices are rising because of a number of factors of which ‘speculation’ is only one. The evidence for ‘speculation’ is actually weaker now than it once was if you look at the CFTC data.

So what is driving the price of crude oil? That’s what a new study by Energy and Utilities analyst and consulting firm UtiliPoint International will seek to establish. In fact, UtiliPoint is seeking sponsors for this research project currently and a prospectus is available from me on request at gvasey@utilipoint.com.

Unfortunately, the price of crude oil is being driven, at least from my perspective, by several increasingly intractable factors which it would appear politicians can neither do anything about nor wish to address and those are as follows;

In 2007, UtiliPoint engaged in a survey of European utilities to review the CIS/Billing solutions in use on the continent. This webinar will outline the results of the survey including which software solutions are most widely used and what factors buyers look for when procuring new CIS/Billing software. It will also discuss the state of European CIS markets and retail competition identifying the criteria used by UtiliPoint to rank each countries progress and our final rankings.

What You will Learn

* What UtiliPoint learned from it’s survey
* What CIS/Billing applications are used in Europe
* Outsourcing trends for various CIS functions in Europe
* What buyers are looking for in CIS/Billing Software in Europe
* The status of European retail competition and markets

Your Instructor

UtiliPoint Europe's recent reports...

Benchmarking of European CIS/Billing Software Markets - 4/8/2008

This important UtiliPoint study looks at European CIS/Billing software markets. It includes the results of a survey of software users that reviewed what software was used, what European buyers look for in CIS/Billing software and which vendors are best known and most widely used – among other valuable data. It also includes a comprehensive review of most European countries (Nordic, Iberian, Central and Eastern Europe) and UtiliPoint’s ranking of each country’s retail markets based on several criteria devised specifically for the study (note: countries with mature retail markets were NOT reviewed including the United Kingdom, Ireland and Netherlands). This study will be an important starting point for any firm looking at European retail markets and CIS/Billing software requirements.

$1,495.00

To purchase: http://www.utilipoint.com/rci/details.asp?ProductID=1166

Results of Snapshot Survey on Energy & Natural Resources Exchange Traded Funds (ETFs) - 4/21/2008

Triple Point announced that it had acquired ROME Corporation today (you can see the actual announcement in the Forum) after it had recently acquired INNSINC. The company has now acquired two leading providers of applications peripheral to the ETRM area proper in Credit and in Hedge Accounting.

Stay posted for analysis of this acquisition.

Utility rate reviews are now a common part of the day to day activities of Utility operations and organisations face a myriad of reviews and operational standards assessment across IT and business functions. Although energy and regulatory price assessments tend to concentrate on a review of the charging regime for utility services, including the underlying revenue requirements, regulatory agencies involved in utility rate reviews are also challenged to protect consumer interests and ensure that rate increases are justified by market conditions, rather than used to subsidize inefficient management practices.

Indicative of the pressures facing utilities as part of any price control review is the need to present a compelling and credible story and to ensure that regulatory agencies have confidence in the data presented. In addition the need to balance cost increases and customer service against a background of ever increasing energy costs places additional pressures on organisations.

I have noticed a few articles just recently comparing the performance of hedge funds focused on energy and the rapidly rising price of crude oil. The Wall St. Journal had an article titled "Energy Hedge Funds Missing the Oil Boom" in part based on performance data published by HedgeFund.net. That website tracks 97 energy hedge funds and their performance and found that, on average, energy hedge fund performance was just around 4% through May as compared to oil-futures which are up more than 40% in 2008.

Now this is all well and good but its a tad unfair on energy hedge funds. No one in their right minds would pursue a long-only oil futures strategy. To do so may provide investors with a few months of amazing returns but it is equally likely that at any point those returns would dissapear overnight. It's simply a far too risky strategy in today's highly volatile oil markets.