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June 30, 2014

July 2014

 

Macroeconomic Factors

For most of June the US economic data were a bit stronger, suggesting a rebound after a weather-influenced first quarter. In the last week the picture became mixed. The final results for Q1 GDP were revised to a negative 2.9%, the worst level outside of a recession in many decades. Housing data have been mixed. Regional Fed surveys and the Institute for Supply Management reports have been strong. Initial jobless claims have held the lower recent levels. Personal spending and business investment have been weaker.

Most estimates are that weather accounted for about half of the Q1 decline with inventories and lower than expected health expenditures also important. It is not a recession in the US, but the gap between current levels and potential remains wide. Next week’s employment data will be a major focus of interest.

European economies remain weak. The “flash” PMI data from Japan and China show a little rebound. Overall, it has been a continuing sluggish background, helping to reduce world energy demand.

Potential Risks

The near-collapse of the modern Iraqi nation has rocked global energy markets for weeks. As the Islamic State of Iraq and the Levant has spread outward from Syria, a staggering number of key oil fields and refineries have found themselves the focus of territorial conflict. A Bank of America commodities report from June 23 reads:

“Brent spiked back above $115/bbl following headlines over the weekend that ISIS militants had taken control of Iraq’s border crossings with Jordan and Syria and following stronger than expected Chinese PMI data overnight. Iraq’s production in the south remains unaffected so the move is once again fear and headline driven. WTI is higher this morning as well, breaking through $107/bbl. The backs of both curve continue to mark new highs.”

While there have not yet been reported issues in oil exports from the south of Iraq, market makers consider continued militant gains to be very dangerous. According to Oil Price Online:

“Iraq is burning, and now its largest refinery has quite possibly been taken over by Sunni insurgents.

On June 18, reports on the ground remained unclear as to who controls the refinery, with Iraqi security forces saying they were close to retaking full control, but other sources suggesting the refinery was surrounding by insurgents allied with anti-government tribes from the area.

By June 19, the Iraqi Oil Report was twittering that the Iraqi security forces were inside the refinery, but that the Sunni militants from the Islamic State of Iraq and the Levant (ISIS) and their loose alliance with local tribes were controlling everything around the refinery, and that production had been completely halted.

What does it mean for global markets? Well, not much—yet, at least in direct relation to the Baiji refinery. Baiji is billed as Iraq’s largest refinery, but that’s skewing the picture a bit. It is perhaps Iraq’s largest refinery in terms of square footage. But it refines products for consumption on the domestic market only—not for export.”

We will continue to monitor the situation in Iraq. The shocking developments over the last month only underscore the instability of global energy markets. Without fuel price protection, fuel managers and everyday consumers alike are at the mercy of geopolitical power struggles.

Pricing

Clearly, the forward curve for the month of May has far exceeded anything seen since last fall. This drastic change goes far beyond what we would normally expect from seasonal adjustments. The ongoing conflict over control of oil-producing regions in Iraq and Syria have seriously altered the geopolitical landscape for the foreseeable future.

To download a more detailed version of this report CLICK HERE.

Filed under:Eyes on Energy | by Fuel Expert @ 1:59 pm | 

May 23, 2014

May 23, 2014

 

Macroeconomic Factors

  • Industrial production increased due to utilities and then weakened with the warmer weather.
  • Employment has improved, as measured in both job losses (lower initial claims) and net job creation.
  • Today’s reports on new home sales show strength in March and April, once again after the worst of the weather. Mortgage rates have hit another new low.
  • China seems to be growing at slightly less than the 7.5% government target.

Potential Risks

The turmoil in Eastern Ukraine over the Russian Federation’s role in the region continues to dominate headlines in energy markets. A recent Bank of America commodities report suggests this is the most significant factor in moves this week:

“Crude continued its choppy, albeit range bound, trading yesterday as it rallied on stronger equities, increased tensions in the Ukraine over the weekend, and on expectations of crude stocks declining for this week’s stat. WTI rallied 60 cents in the prompt, breaking through its 200 day moving average to settle at $100.59/bbl. Front spreads were lower, however, as they remain in a tight range while the spreads further out the curve were stronger. Brent rallied as well, ignoring headlines of a further ramp up in Libyan exports given similar reports in the past haven’t materialized. Brent’s gains were capped around $108.80/bbl as it gained 52 cents on the day to settle at $108.41/bbl.”

We will continue to keep a close eye on geopolitical events and short-term market trends to assess the potential risk of price increases at the pump. The summer months hold much potential for unforeseen conflicts to bump up prices around the nation.

Pricing

In April, the forward curve maintained the relatively stable prices seen in the market over the winter. May futures reflect an increase across the entire curve. The market expects a substantial rise in coming months due to the summer driving season and the potential for hurricanes in the Gulf of Mexico. Those acting to lock in prices do not buy the high current spot price, of course. It is easily possible to assure price stability for the much lower future prices – and to do so before hurricane season.

To download a more detailed version of this report CLICK HERE.

Filed under:Eyes on Energy | by Fuel Expert @ 1:51 pm | 

April 17, 2014

APRIL 17, 2014

 

 

Macroeconomic Factors

  • Initial jobless claims have dropped to a fresh post-recession low of about 300,000 per week.
  • The most recent data on Chinese GDP shows growth of 7.4%, slightly lower than the target of 7.5%, but in line with most estimates.
  • Growth in Europe has improved slightly, and European central bankers have shown more attention to fighting deflation. This has been reflected by successful bond auctions in Spain, Italy, and even Greece.
  • To summarize, the economic data have improved with the weather in the US, suggesting modest upside pressure on energy prices.

 

Potential Risks

Russia’s sudden invasion and subsequent occupation of the Crimean Peninsula rocked international energy markets in the month of March. Given that Russia is the world’s largest exporter of oil and gas, financial media was quick to hype the potential impact this could have on the rest of the world. Thankfully, cooler heads prevailed in more detailed analysis, like this excerpt from a BoA Merrill Lynch Global Research Report:

“Russian oil does indeed flow in large quantities through the Black Sea, making the Russian Navy station of Sevastopol as well as the whole Crimean peninsula crucial strongholds to control both Azov and Black Sea commerce flows. These routes are, for now, secure and diverse. Thus, while oil has risen in sympathy with other commodities, we believe the upside risks are rather modest from here unless the conflict escalates…”

We will continue to monitor the news closely for new developments on this story, as well as countless other potential risks in global energy markets.

Pricing

This month’s forward curve does not appear to have shifted significantly from February – or even the prior December. However, when projected out into the spring of 2015, it is clear that the market now projects oil prices to be higher than it had in February.

To download the full version of this report CLICK HERE.

 

Filed under:Eyes on Energy | by Fuel Expert @ 4:13 pm | 

February 20, 2014

February 20, 2014

 

Macroeconomic Factors

  • The simple fact is that we have a couple of months of data where the implications are unclear. The recent Fed minutes said as much. We expect continuing modest growth in the spring.
  • China looks a little weaker based upon the HSBC “flash PMI” but still slightly positive on the “official” version. We prefer to look at harderdata, and that seems to show continuing growth in the 7 – 7.5% range.
  • The extreme cold is also influencing energy demand, mostly natural gas prices. There is spillover into gasoline.
  • And finally, we have the potential for increased supply. It was a pretty lucky season for hurricanes and other weather effects. This has shifted the official forecasts in a friendly direction.

 

Potential Risks

As the month of February draws to a close, the rise in crude oil prices that accompanies the spring and summer becomes more apparent. According to

Newsday:

“The price of gasoline held steady into early February, but an increase is almost inevitable this time of year. Pump prices have gone up an average 31 cents per gallon in February over the past three years. And although this year’s rise might not reach the heights of years past, there are reasons for drivers in some regions – like the Northeast – to worry about a painful spike.

‘We’re going to get increases and they are going to be noticeable,’ says Tom Kloza, chief oil analyst at Gasbuddy.com and the Oil Price Information Service. ‘We’re going to get that pop relatively soon.’ The price of crude oil has risen 8 percent over the past month, to $100 per barrel. And analysts expect fuel supplies to begin to decline as refineries dial back production to perform maintenance and make the switch to summer fuels.”

Pricing

The forward price curve for the month of February appears a bit higher than the year-end projections, but levels out in the distant future. This indicates that the market expects geopolitical pressures to push crude oil prices up to levels not seen since the beginning of fall.

 

To download a more detailed version of this report CLICK HERE.

Filed under:Eyes on Energy | by Fuel Expert @ 4:26 pm | 

December 24, 2013

December 24, 2013

 

Macroeconomic Factors

  • Employment gains have increased and the unemployment rate is lower.
  • The ISM’s manufacturing index jumped to 57.3, also consistent with growth above 4%.
  • China’s exports are rebounding, with an overall growth target of 7.5% still expected.

Potential Risks

  • Domestic gas prices rose the past month, and will likely continue to rise based on stronger economic data. According to the Associated Press:

“The price of oil moved higher above $97 a barrel Friday, buoyed by stronger economic growth and falling unemployment in the world’s largest economy.

By early afternoon in Europe, benchmark U.S. crude for January delivery was up 27 cents at $97.33 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, oil rose to near $98 for the first time in five weeks before closing at $97.38, up 18 cents.

U.S. data showed the outlook for hiring is improving and the economy is growing at its fastest pace in more than a year.”

 

  • On the international stage, Iran’s reintroduction to OPEC holds a number of implications for prices at the pump. Experts warn this move could precipitate a global increase in prices. Euro News reports:

“Iran has already tried to get OPEC quotas changed in its favor, restoring market share taken by Iraq, and an increasing number of OPEC members are wondering if their low production costs means they could sell more if the price was lower.”

 

Pricing

December prices have risen to the highest level since earlier in the fall. While the front month price is still lower than it was in September, the futures market still reflects overall higher prices for the time being. We expect that this will adjust to the typical seasonal trends later on in the winter.

To download a more detailed version of this report CLICK HERE.

Filed under:Eyes on Energy | by Fuel Expert @ 4:57 pm |