Suez Weekly Market Monitor
ERCOT power prices climbed in the early week only to drop midweek. As colder temperatures and high gas prices set in, prices for ERCOT power climbed drastically at the end of the week. Even with the large climb, price still are way off their 52-week high.
Northeast power prices were also effected by the cold spell and the increase in gas prices. Prices still remain well below the 12 month rolling average.
PJM power prices also saw a small leap this week as the natural gas index and the weather shifted the late week trend up. Prices still remain close to their 52-week low.
Natural Gas Market
Natural gas prices took a leap this week as colder weather and high demand drove prices up late week.
Natural Gas Storage: Gas in Storage Decreased 89 Bcf
Working gas in storage was 2,936 Bcf as of Friday, January 12, 2007, according to EIA estimates.
OPEC Dumps $10.1 Billion of Treasuries as Oil Tumbles
OPEC nations are unloading Treasuries at the fastest pace in more than three years as crude oil prices tumble, sending bond yields higher.
Exporters including Indonesia, Saudi Arabia and Venezuela, sold 9.4 percent, or $10.1 billion, of their U.S. government debt securities in the three months ended in November, according to Treasury Department data. Members of the Organization of Petroleum Exporting Countries last sold Treasuries for three straight months in June 2003.
Oil producers have surpassed Asian central banks as the largest pool of global savings, accumulating an estimated $500 billion in 2006 alone, according to research by Pacific Investment Management Co. The sales during those three months mark a reversal because OPEC countries have boosted their holdings of U.S. government bonds by 70 percent to $97 billion in the past 17 months, Treasury data show.
“There will be a significant sell-off,” Joseph Stiglitz, a Nobel laureate and economics professor at Columbia University in New York, said in an interview. “Medium-term and long-term yields will go up.”
Oil producers, including non-OPEC countries, have disclosed almost $200 billion of U.S. government, corporate and agency bonds, said Ramin Toloui, who helps manage about $641 billion for Newport Beach, California-based Pimco, a unit of Munichbased Allianz SE. The holdings are split about evenly between securities due in less than a year and those with longer maturities.
OPEC members were selling Treasuries as crude prices declined 34 percent from a record high of $78.40 a barrel in July. They are reducing demand for U.S. government bonds at the same time as central banks from China to Romania say they want to cut holdings of dollar-denominated assets.
For every $10 drop in the price of a barrel of oil, OPEC members adjust Treasury holdings by about $34 billion, according to estimates by Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc.
Short-term yields have remained above those on longer-term securities since mid-August. That situation, known as an inverted yield curve, has occurred only 11 percent of the time in the past two decades, according to Bloomberg data. Traders watch that difference because four of the past five recessions have been preceded by inverted yield curves.
“The pickup in oil revenues and the recycling of the petrodollars” was one reason for 10-year yields falling as low as 4.33 percent last year, said George Goncalves, a fixed-income strategist in New York at Bank of America Corp.
OPEC export revenue will decline by about $42 billion by the second quarter, from a peak of $126 billion in the third quarter of 2006 as oil prices tumble, according to estimates from commodity analysts at Charlotte, North Carolina-based Bank of America. Crude for February delivery fell $1 last week to $51.99 a barrel on the New York Mercantile Exchange. OPEC countries increased holdings of U.S. government bonds by 115 percent from 2002 to 2006 when the price per barrel rose almost tripled, according to Treasury data.
They still hold more Treasuries than in 2005, when oil prices jumped 41 percent.
The oil exporters in the Middle East, Asia, Africa and South America bought a monthly average of $2.5 billion of U.S. fixed- income securities in the 12 months ended in May 2005, when crude oil averaged about $42 a barrel, Goncalves said. Purchases jumped to $7.3 billion a month from June 2005 through August 2006, when oil averaged about $60 a barrel, he said.
Only Japan, China and the U.K. own more Treasuries than the 12-OPEC nations, according to Treasury data released last week. The OPEC data doesn't include securities owned by Russia and Norway, which account for 40 percent of oil producer reserves, according to Toloui at Pimco.
Central bankers in oil producers Venezuela, Indonesia and the United Arab Emirates have said they will invest less of their reserves in dollar assets.
China, the second-largest holder of U.S. debt, also is cutting back holdings. The central bank, which owned $346.5 billion of Treasuries as of November, trimmed purchases by 1.7 percent in the first 10 months of 2006, Treasury figures show.
“The Chinese are slowing down their buying, so that leaves a big hole after the oil money,” said Brenner at Hapoalim Securities.
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November 19th, 2019
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