Page 10 - NorthAmOil Week 40 2021

NorthAmOil PERFORMANCE NorthAmOil

Commodity traders reportedly face

margin calls amid gas price spike

GLOBAL THE global gas supply crisis looks set to take a – a sector that has rapidly expanded in volumes
further turn for the worse, with the world’s top in recent years and gained greater liquidity, pro-
commodity traders being told by brokers and viding a greater opportunity for traders. Around
exchanges to deposit hundreds of millions of 45% of Gunvor’s hedging positions – totalling
dollars in extra funds to cover their exposure $5.3bn in June – are related to gas and LNG,
to record-high gas prices, Reuters reported on according to Reuters.
October 4. In particular, trading firms have placed their
Citing sources, the news agency said that bets on US LNG. To hedge against price differ-
Glencore, Gunvor, Trafigura and Vitol were ences between physical gas in the US now and
In particular, trading among the traders facing these margin calls on the rest of the world in the future, traders need
firms have placed their their financial positions in natural gas markets. to sell short positions in the European and Asian
bets on US LNG. This will mean the traders will have to tie up gas futures markets. A short position is when a
more of their capital to these deals, and some trader sells a gas futures contract with the inten-
of the smaller firms will have to increase their tion of buying it back later, when it anticipates the
borrowing and have less cash left to trade with, price will be lower.
undermining their profits. However, natural gas prices have gone from
Many of the traders declined to comment on strength to strength in recent months – a time
the report. Gunvor told Reuters that while there of year when markets are typically subdued. In
have been margin calls associated with the Euro- Europe, the November delivery contract at the
pean natural gas price rally, Gunvor maintains Dutch TTF hub surged to a new record on Octo-
“a healthy liquidity position and instruments to ber 5 of $1,300 per 1,000 cubic metres.
manage any further volatility.” At TTF alone, sources told Reuters that trad-
Many of the world’s leading traders have ing houses and other players had together accu-
increased their exposure to LNG in recent years mulated $30bn worth of short positions.™

POLICY

OPEC+ maintains production policy

GLOBAL THE OPEC+ group announced this week that months, though Iraq and the UAE in particular
it will stick with its planned addition of 400,000 have regularly been guilty of overproduction in
barrels per day (bpd) of oil up to the end of recent years.
November, causing price increases amid buoy- The statement noted that “compensation
ant demand as economies recover from the coro- plans should be submitted in accordance with
navirus (COVID-19) pandemic. the statement of the 15th OPEC and non-OPEC
In a press release to accompany the Ministerial Meeting”.
announcement, OPEC said that the group “reaf- Meanwhile, there is scepticism that several
firmed the decision of the 10th OPEC and non- member states will not even be able manage
OPEC Ministerial Meeting on 12 April, 2020 their part in the 400,000 bpd uptick. One source
and further endorsed in subsequent meetings involved in the meeting told S&P Global Platts:
including the 19th OPEC and non-OPEC Min- “To be honest, the group is not bringing back
isterial Meeting on the 18 July, 2021.” 400,000 bpd a month. Many producers can’t
It added that during the October 4 meeting, meet their targets.”
OPEC had “reiterated the critical importance However, another source was quoted by Reu-
of adhering to full conformity and to the com- ters as saying that despite the calls for a higher
pensation mechanism, taking advantage of the production increase, OPEC+ did not want to
extension of the compensation period until the make any significant moves, noting: “we are
end of December 2021.” scared of the fourth wave of corona”.
This marks the latest effort to bring into With Brent crude rising to more than $81 per
line producers that have failed to comply with barrel on the news, prices have now surged by
output quotas. Russia, Iraq, the UAE, Bahrain, 50% to a three-year high.
Gabon and South Sudan have all exceeded The next meeting is scheduled to take place
their quotas to varying extents in recent on November 4.™

P10 www. NEWSBASE .com Week 40 07•October•2021