Fossil Fuels

I'm going to give you the benefit of three stories hot off the wires without much of a common thread to them, except that (a) if you get your news from television, or just from the front page of your local paper, you probably won't hear of any of these, and (b) they all involve the world's fossil-fuel energy industries.

1) Moody's upgrades Qatar. Moody's Investor Service said that it now regards Qatar Petroleum's senior unsecured bonds as an Aa2 investment, an upgrade from an Aa3. Qatar Petroleum is a government-related business, but its bonds aren't sovereign bonds. Still, Moody's says the reason it is more confident in Qatar Petroleum now is that it is more confident in Qatar. More confident than ... when? Well ... more confident than it was in February, which was the heighth of a Qatar-related terrorism scare.

2) China to go homegrown. An agency headquartered in Beijing, the National Development and Reform Commission, has put out a draft report on how to encourage the homegrown petroleum and petrochemical equipment industries. It isn't obvious how much clout within the government as a whole this commission has, or what effects this development will have upon the huge energy market that the PRC is, and the even more huge market it promises to become. Still, it is evidence that "energy independence" as a policy goal isn't a distinctively American idea.

3) Civil actions against Amaranth, some of its traders. Meanwhile, in the US, both the Federal Energy Regulatory Commission (Ferc) and the Commodity Futures Trading Commission (CFTC) have this week brought actions against the corporate shell of Amaranth, and against its infamous 6-billion-dollars-losing trader, Brian Hunter. Hunter's disastrous trades were in natural gas futures. FERC has jurisdiction over the markets for the gas itself, the CFTC has jurisdiction over the market for commodity futures contracts. Mr. Hunter seems to have been trying to play them off against one another to avoid such an action, but to no avail. He seems only to have persuaded them to team up.

To what does all this add? Damned if I know. I put them together because they illustrate the difference between the speculation around an industry and the fundamentals, between the wagging tail and the standing dog. My instinct is that the speculators (like Mr. Hunter) don't really drive the fundamentals. Whether or not Qatar's energy-related facilities are well-protected from terrorist strikes: that's a fundamental. That's the dog that wags the tail of speculation.

The news from China is somewhere in the middle of the spectrum: whatever plans they have for stiffening up their home industry are too tentative to be fundamentals yet, but the issue that commission addressed does seem to be more real than the personal fate of Mr. Hunter. So I guess the lesson from my three random tidbits is simply the difficulty, in the crush of industry news, is distinguishing which is which. What's the dog, and what's the tail?