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Timchenko’s Gunvor Thrives As Gas Prices Rise in Europe February 22, 2012

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Energy trader Gennady Timchenko, head of Geneva-based Gunvor Group, has his work cut out for him this year as Europe sees gasoline prices soar to new highs among fears of European economic destabilization.

Bloomberg on February 1, 2012 reported that gasoline was at a four-month high while jet fuel premiums climbed for the first time in a week. The rising price of gasoil may or may not be here to stay, analysts speculate. Just days ago, European gasoline barge prices had weakened and were down by about 1.9 percent (around $994 to $995 a tonne) following outages at various refineries, according to news sources. Hovensa LLC moved to close its refinery in the U.S. Virgin Islands, and Petroplus Holdings saw reduced and stopped runs at five of its refineries. The outages were speculated to account for the boost in refining profits.

America has witnessed heightened tensions in the oil industry in recent weeks. U.S. oil refinery workers have been threatening to strike—which traders fear could close 6 percent of America’s refinery capacity. The current situation in America with possible refinery closures seems to be yet another hurdle the industry has overcome—so far. By agreeing to a new three-year contract, the United Steelworkers union and Royal Dutch Shell Plc avoided a labor strike that would have closed around 70 refineries. 

Gennady Timchenko and Torbjorn Tornqvist, co-founders of Gunvor, have seen—and surpassed—turbulent markets such as these before. After all, it wasn’t so long ago that BP’s well blew out in the Gulf, resulting in an environmental disaster as millions of gallons of oil flowed into the ocean and washed ashore.  

Adroit at navigating fluctuating markets, Gunvor is not Gennady Timchenko’s only successful business venture. The Finnish energy trader also co-heads publicly traded Novatek with Leonid Mikhelson.  Gennady Timchenko and Leonid Mikhelson recently announced tentative plans to try and boost the capacity of liquefied natural gas production in the Arctic Yamal region, in partnership with Total SA, among others.

 

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Strategies for exchange traded funds July 17, 2010

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Let’s forget oil for a moment. I’ve seen a very good article about exchange traded funds from the excellent Barron magazine that I wanted to share with you? It starts right now…

BECAUSE THEY CAN BE BOUGHT or sold at any time during the day, offer access either to broad or thin slices of a market at relatively low cost and facilitate hedging strategies, exchange-traded funds have become a favorite of financial advisors. ETFs’ overall popularity is obvious. As of June 30, there were about 1,000 of them, with $793 billion in assets, up from 780 handling roughly $600 billion 12 months ago. Barron’s recently checked in with five financial advisors who’ve ranked highly in our surveys over the years and give ETFs a significant role in their portfolios. Here’s what they had to report from the front lines.

Charles Zhang

Zhang Financial, in Portage, Mich., has about $1 billion in assets under management, and ETFs make up a hefty 50% of its holdings. Like other ETF advocates, Zhang, 43, can reel off the well-known benefits of the funds—including their tax advantages. However, he suggests that investors haven’t taken full advantage of one important feature: the ability to create limit orders on them to profit from the stock market’s recent volatility.

A limit order, which instructs a broker to buy or sell a specific amount of stock at, below or above a preset price, allows clients to cash in on brief trading opportunities in ETFs that Zhang believes are less risky than applying the same strategy to individual stocks. A stock’s price can fall for reasons that might be difficult to grasp quickly, or could signal fundamental problems (think BP). But Zhang says a quick intraday drop in the price of a broad basket of stocks—creating momentary value—is much more likely to correct itself.

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“In a very volatile market like we see today, limit orders to buy and sell make a lot of sense. They let clients take advantage of the ups and downs in the market,” says Zhang.

For instance, during the flash crash on May 6, the intraday drop for the Dow Jones Industrial Average was about 10%, but the Vanguard Total Stock Market ETF (ticker: VTI) dropped more than 30% from roughly $60 a share. One of Zhang’s clients had a limit order to buy $400,000 of the ETF if it dropped to $40, which it did before quickly returning to about $60. Within three days the investor booked a tidy $200,000 profit.

Another broad-based fund Zhang uses for limit orders is the iShares Russell 2000 Value Index (IWN). To get exposure to the emerging markets he often turns to the iShares MSCI Emerging Markets Index (EEM) and the Vanguard Emerging Market Stock ETF (VWO). He says limit orders are also appropriate for more narrowly focused commodity ETFs. For retirement accounts, he favors the iShares S&P GSCI Commodity-Indexed Trust (GSG), the United States Oil Fund ETF (USO) and, given the run-up in gold of late, the SPDR Gold Shares (GLD). He likes these funds because they’re big and liquid, and the commodities-related ETFs offer a hedge against inflation, which Zhang foresees rising in the next 24-36 months.

Teresa Jacobsen

A senior vice president-investments at UBS Financial Services, Jacobsen appreciates ETFs’ flexibility and low cost, but she worries that investors don’t always understand the pitfalls. “Some tend to think of ETFs as static portfolios that track an index, but that’s not always what happens,” says the Stamford, Conn.-based advisor. “There can be surprises, and when there are, they can be quite unfavorable.”

A big problem is “tracking error”—when an ETF doesn’t match the returns of the securities it’s intended to track. This can occur with thinly traded or commodity-based ETFs that attempt to mimic the underlying asset by purchasing derivatives. Commodity ETFs often buy futures contracts, locking in positions that may not track recent shifts in spot prices.

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Investors must also pay heed to the individual securities an ETF owns and how they are weighted within it, Jacobsen says. ETFs that track a narrow equity sector might be heavily weighted in just two or three stocks, and a buyer may not realize that he already owns those shares. “ETFs are not a mindless thing to put in a portfolio; they need to be closely monitored,” she says.

Generally, Jacobsen sticks with the biggest, least expensive, most liquid ETFs for investors looking to match the market—since these have very little tracking error. She particularly likes the Rydex S&P Equal Weight Index (RSP), which gives equal weight to all the components of the S&P 500; also based on the S&P 500 but market-cap weighted, SPDRs (SPY) have consistently underperformed the RSP.

Jacobsen has $400 million in assets under management and a mix of retail and institutional clients. For the most sophisticated and risk-tolerant investors she will occasionally dip into leveraged ETFs, which are designed to amplify the moves of the underlying index. Some of her customers used them to play the recent stock rally. “They’re good at catching a trend at a particular time, but leveraged ETFs are designed for the short term. They can be useful, but they’re very volatile,” she says. Daily monitoring is required.

Laila Pence and Dryden Pence

For some investors, dividend income from an ETF is a nuisance—an unwelcome, taxable event. But for Laila Pence, president of Pence Wealth Management in Newport Beach, Calif., ETF payouts are exactly the point. “About 70% of our clients are retirees, so we love to capture cash flow. Our strategy is dividend- and income-driven.” And among ETFs there are many options, such as the iShares S&P U.S. Preferred Stock Index (PFF), which in early July offered a dividend yield of nearly 8%.

BA_etf_DrydenjDryden Pence, the firm’s 50-year-old chief investment officer, explains the husband-wife team searches for “choke points in the economy,” where industries have pricing power and thus the potential for increased cash flow and higher dividends. That would include railroads and water companies. They then locate ETFs that contain leading names in these businesses. “It can be inefficient to buy eight or nine [individual] stocks to get exposure to an industry, but buying an ETF makes sense,” he says.

The firm, with 350 clients and $600 million in assets, uses leveraged ETFs to stretch investment dollars. If an investor wants a portion of his portfolio focused on stocks with a good chance of price appreciation, the team might invest in a leveraged ETF that tracks technology shares. This might include the ProShares Ultra Technology (ROM), which offers twice the daily performance of the Dow Jones U.S. Technology Index, or the ProShares Ultra QQQ (QLD), which offers twice the daily performance of the Nasdaq 100. Pence Wealth Management can thus commit fewer dollars to get exposure and free up money to buy dividend-yielding investments. Dryden Pence cautions that any leveraged investment must be monitored closely and should be paired with stop-loss orders to reduce risk.

Although ETFs provide many benefits, Laila Pence, 52, recommends avoiding those that don’t have significant trading volume and are prone to tracking error. Another caveat: ETFs must be continually reviewed for any changes in their components, which can upset carefully balanced portfolios. “These are not fire and forget investments,” she says.

Dalal Salomon and Dan Ludwin

The past 10 years have been a “challenging, nauseating ride” that’s left major stock indexes pretty much where they started, says Ludwin, president of Salomon & Ludwin, in Richmond, Va. The experience left Ludwin and CEO Salomon frustrated because they couldn’t find any money managers taking advantage of the volatility.

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Their solution: create their own trading software for ETFs. For two years they have used their patent-pending program, “ETF Trigger Point Strategy,” to trade eight different ETFs. So far, 200 of the firm’s 400 clients have committed $125 million to the strategy (the firm has $450 million under management). Because each account differs in asset allocation and start date, no overall return figures are available.

Volatility is here to stay, Ludwin says, but most investment firms remain fully invested. “Buy low, sell high is still a good strategy, but applying that to a fully invested approach really does not help us.”

One day this spring the Dow dropped 300 points in the morning but finished up by the close. Many money managers were happy to manage a gain. But Ludwin, 41, says by using Trigger Point, some Salomon & Ludwin clients bought ETFs in the morning and enjoyed much greater profits.

The software also aims to provide a long-term allocation strategy. Once a trigger price is hit and a sale occurs, part of the profit goes into cash, where it can be used to repurchase the ETF if its price falls. The rest shifts to fixed-income. “You should get more conservative as you get older, so this is a way to transition,” says the 54-year-old Salomon.

Fred Fern

Fern, chairman and CEO of Churchill Management Group, is a long-time market-timing investor who’s survived 11 major bull-bear cycles since opening his doors in Los Angeles back in 1963. He’s learned that aging bull markets tend to become volatile, which is a great environment for ETFs. “ETFs are a wonderful way to reduce the volatility of a portfolio,” he says.

TOC ETF photo

In anticipation of a new bull market, Fern, 72, picks the sectors he thinks will lead the charge and then focuses on his favorite stocks in those groups. But as the bull market matures, volatility increases,which is what’s happening today, Fern says. To smooth out this volatility, he sells stocks and buys ETFs to maintain a broad exposure to his chosen sectors. When he believes a bull market is finally petering out, he starts selling his ETFs and moves most of his holdings—$2 billion in all, from 3,000 clients—into cash and money-market funds.

He’s recently held positions in emerging-market ETFs, such as the iShares FTSE/Xinhua China 25 Index (FXI), whose underlying index consists of 25 of the largest and most liquid Chinese companies. He has also invested in technology ETFs, specifically the PowerShares QQQ Trust(QQQQ), which tracks the Nasdaq 100 index.

In a sign Fern believes the bull market is nearing its end, he’s started to lighten up on his ETF holdings. He’s exited the FXI, though he’s still holding the QQQQ.

He, too, cautions investors to pay attention to the size of the fund. “ETFs are one of the hot new games, and there are a ton of them. But some are real small, and investors need to be aware of their volatility and how they work.” Or perhaps put that volatility to work for them.

Staff leaves BP after the spill June 7, 2010

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One more consequence of BP gigantic oil spill in the Gulf of Mexico: some staff members are leaving the company. Not as many as first expected, but this is a sign that the company is in pretty bad shape and that its future is weak…

BP Plc lost some staff from its fuel oil trading desk but it was not as many as reported, a senior executive said on Monday.

Reuters reported that 14 staff have quit worldwide over the past month from BP’s global fuel oil trading desk, including the global head and team leaders in Asia, the United States and Europe.

“There are people leaving, but not as many as reported,” said Clive Christison, Director and CEO, Supply & Trading, Integrated Supply & Trading, Global Oil, Eastern Hemisphere of BP.

When asked if the departures affected BP’s fuel oil trading activities globally, he said: “No.”

Christison earlier said at the Asia Oil and Gas Conference that BP continued to trade fuel oil in the Platts window.

“We have a very strong fuel oil team,” he said.

A comprehensive video on oil spill May 14, 2010

Posted by mytruthaboutoil in Oil (general), Uncategorized.
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A comprehensive video by Al Jazeera explaining how the accident happened and what did not work out!

Oil spill: worse than expected May 6, 2010

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More bad news for BP! Are we on the edge of an unprecedented disaster?

Gulf Oil spill: BP will have to pay… twice! May 3, 2010

Posted by mytruthaboutoil in Oil (general), Oil giants, Uncategorized.
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American president Barack Obama on Sunday made it clear that Oil major BP,  responsible for the oil spill and the unprecedented environmental disaster to come in the Gulf of Mexico, will have to pay for its failure to prevent the accident.

The total cost of this gigantic oil spill could rise up to 4 billion dollars according many experts and would include the cost of  repairs on the leak, as well as environmental and economical costs (40% of American seafood comes from Louisiana waters).

4 billions! An impressive figure by itself! But BP might lose much more than that with this disaster. It’s of course a PR and communication disaster for the oil giant. But it’s most certainly a disaster on the stock market value of the company, which lost 17% of its value on Monday!!!

And nothing says that the downfall will stop anytime soon. Any day without appropriate answers to the repair of the leak will be terrible news for BP. And we’ve not yet seen awful images of wildlife polluted and angry fishermen stuck in the harbors.

It will certainly get a lot worst for BP in the coming weeks…

BP Looks to Boost Refining Profits March 2, 2010

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LONDON—BP PLC on Tuesday said it is pushing through the biggest shake-up of its oil-production business since it acquired Amoco 12 years ago, as it seeks to increase annual profits by more than $3 billion over the next two to three years.

In an update to investors Tuesday, Chief Executive Tony Hayward said that while the British oil giant’s portfolio ranks among the best in the industry, “our financial performance has yet fully to reflect this.” He said BP sees a “real opportunity to make this portfolio work harder for us, and we intend to do just that.”

The push involves another round of efficiency measures designed to improved BP’s financial performance and its sometimes patchy record of executing big oil and gas projects, as well as more standardization across the company and improvements in the way it buys goods and services from third parties.

The reforms show BP seeking to build on the big efficiency gains it has pushed through over the last two years, a period of volatile oil prices and soaring industry costs.

BP said it will target a $2 billion increase in underlying pretax profit in its refining division, which saw earnings plunge last year amid the global economic slowdown, and a $1 billion rise in profitability at its exploration and production arm, in part through the creation of a new central unit to manage all major projects.

Mr. Hayward said it is the “biggest change we’ve instigated in the upstream,” or exploration and production, since the merger with Amoco in 1998.

BP also said its annual output would rise 1% to 2% a year on average to 2015, two years further out than the forecast it gave a year ago. It said it would start 42 new major projects between 2010 and 2015 that would contribute about one million barrels a day to total production.

Mr. Hayward took over at BP in 2007 with the company scrambling to recover from mishaps, such as an explosion at the Texas City refinery in 2005 that left 15 people dead, leaks from its Alaskan oil pipeline and delays in projects such as its flagship Thunder Horse platform in the Gulf of Mexico.

BP saved $4 billion in costs last year, double the initial target, and has shed some 7,500 jobs since 2007. That helped it close the gap with rival Royal Dutch Shell PLC.

But underlying earnings, which strip out nonoperating items and disposals and acquisitions, trail those of Exxon Mobil Corp., considered the company to beat. BP’s underlying return on capital employed is also lower than most of its peers.

BP’s head of exploration and production, Andy Inglis, said projects had exceeded their budgets by 20% on average over the past five years. Some overruns occurred because of inflation, but most resulted from “inconsistency in our approach to project management,” he said. BP could save $700 million a year through better project management, he said, and $500 million a year by improving drilling efficiency—measured by the number of days a company takes to drill down 10,000 feet.

In centralizing project management, BP is seeking to emulate Exxon, widely seen as the most efficient of the oil majors. Exxon is far more centralized than BP, where the heads of business units have traditionally enjoyed broad independence.

Shell has pushed through similar changes. Last year it created a new business to manage the design of all major new projects, previously the responsibility of its various operating units. The idea was that it would save money and improve project execution by centralizing procurement and contracting.

Oil price: OPEC won’t move December 5, 2009

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OPEC should not raise its oil output targets when it meets later this month, two oil ministers from the group said on Wednesday, suggesting the group sees no need to curb rallying oil prices.

The group which pumps more than a third of the world’s oil meets in Luanda, Angola on Dec. 22. Oil is trading near $74 a barrel, almost double the price a year ago and in the $70-$80 range many in OPEC see as fair.

“The Economist” apologizes to Gennady Timchenko and Gunvor August 3, 2009

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economist timchenko okIt seems that finally journalists have to admit that, in the 21st century, the oil business is actually conducted in a nice and transparent way by the leading traders. FYI, please find hereafter a translation of the prominent Geneva newspaper La Tribune de Genève:

“An agreement has been reached between the oil group Gunvor, whose operations are run from Geneva, its co-founder, Russian citizen Gennadi Timtchenko, and the British magazine “The Economist”.

Apologies will be published in the weekly’s next issue.

This agreement ends the conflict dating from 29 November 2008 and renders null and void any and all proceedings filed by Gennadi Timtchenko. On the date in question, the magazine had implied that Gunvor or Gennadi Timtchenko had received favors following payments made to Russian political leaders.”

Documentary on oil business: the whole industry is scared July 15, 2009

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People are more and more talking about the upcoming broadcas of an ABC documentary on Oil business which is said to reveal shocking details on the industry.

for now this is just a rumour, but it starts to freak out a whole bunch of people. I’ll keep you updated.

By the way, I’ve been in vacations for a while and did not update the blog. New posts to come…