The Energy Report for Friday, December 14, 2012
By Phil Flynn 888.264.5665
Risng tensions in Syria and rising China producer prices has the oil complex rebounding. Talk of Chinese stimulus in the aftermath of the Fed perhaps means that the only thing holding back the entire commodity complex is the fiscal cliff.
Overnight we saw oil and copper get a boost on a better than expected HSBC flash purchasing managers' index which for December hit to 50.9, the highest level since October, 2011 and the fifth increase in row. Still with the cliff unsettled that number might not be enough to keep the commodities rocking. Market talk that China is getting ready to stimulate the heck out of its economy might reignite passions but until then, some traders are keeping all cards close to their chest.
In Syria reports that the US might be upping its involvement could put another geo-political risk premium back into the market. The day after Russia hinted that Assad was about to fall, the US upped the ante by sending US troops and missiles to protect Turkey. The Wall Street Journal reported that, “U.S. Defense Secretary Leon Panetta Friday ordered the deployment of two batteries of Patriot air-defense systems, along with some 400 American troops to man them, to Turkey as part of a North Atlantic Treaty Organization push to shore up Ankara's defenses against possible attacks from Syria. The deployment approved by Mr. Panetta would mark a sharp expansion of the Pentagon's role along Syria's borders and comes amid increasing U.S. concern that Syrian President Bashar al-Assad, under pressure from rebel forces, could resort to using chemical weapons. The U.S. says Mr. Assad recently used Scud missiles as part of his offensive against rebels, alarming countries in the region."
'Tis the season for natural gas withdrawals. While Frosty is melting away with warm winter temperatures, natural gas supplies are risng. Natural gas fell to the lowest level since September 28th on a very unseasonal storage injection leading gas to sell off six days in a row which the Wall Street Journal points out is longest since an eight-day January fall, when prices collapsed to a decade low.
The Energy Information Agency said that working gas in storage was 3,806 Bcf as of Friday, December 7, 2012, according to EIA estimates. This represents a net increase of 2 Bcf from the previous week. Stocks were 48 Bcf higher than last year at this time and 283 Bcf above the 5-year average of 3,523 Bcf. In the East Region, stocks were 42 Bcf above the 5-year average following net withdrawals of 12 Bcf. Stocks in the Producing Region were 171 Bcf above the 5-year average of 1,114 Bcf after a net injection of 12 Bcf. Stocks in the West Region were 70 Bcf above the 5-year average after a net addition of 2 Bcf. At 3,806 Bcf, total working gas is above the 5-year historical range.
Now while the gas storage came back up it is likely that gas price is headed much lower unless we see cold temperatures and soon. More production from shale and new pipelines are breaking the back of the bulls hope. As I told Dow Jones, "If this continues into January, the supplies are going to start to build and potentially push natural gas lower than $3," said Phil Flynn, an analyst with the Price Futures Group. Mr. Flynn, who is based in Chicago, pointed to forecasts in the coming days for temperatures in the 40-degree and 50-degree Fahrenheit area.
Retail gasoline prices seem to be going down everywhere except in my home town mainly because of continuing problems at the Whiting, Indiana refinery. Barbara Powell of Bloomberg reports BP Plc has delayed until at least June the conversion of the biggest crude unit at its Whiting, Indiana, refinery to process heavy crude oil, a person familiar with operations said. Work on the 225,000-barrel-a-day unit, known as Pipestill 12, has been extended because of unexpected issues, including faulty fireproof coating on structural steel and engineering difficulties, said the person, who asked not to be identified because the information isn’t public.
The new timeline is for the conversion to be completed between June 1 and Aug. 15, from the original estimate of March, the person said. BP has wanted to complete a multibillion-dollar project to raise the plant’s heavy-oil processing capability, including the pipestill change, in the first half of the 2013, the person said. The switch will increase the amount of heavy Canadian crude the refinery can process to about 85 percent of total capacity, from 20 percent, according to BP’s website. Western Canadian Select, a heavy oil, was $37 a barrel less expensive yesterday than West Texas Intermediate, the light oil that serves as the U.S. benchmark, according to data compiled by Bloomberg. Scott Dean, a BP spokesman in Warrenville, Illinois, said yesterday the issue of the fireproof coating degradation has not caused a delay in the timing of the project’s completion.
In other markets mimosa madness as OJ continues to soar as the crop is at risk to diseases. Dow Jones reported that, “investors continued to bet that orange-juice prices would rise after federal forecasters slashed their estimate for Florida's crop earlier in the week. Top-producing state Florida suffered dry weather earlier in the season that stressed trees, making them more vulnerable to diseases, which crimped output. "Dry weather hurts the size of the oranges," adds Techtron Trading's Robert Loughlin. He says any threat of freeze could send prices higher. ICE orange juice for January delivery settled 2.4% higher at $1.3725/lb, a fresh high since Sept 10.”So do we switch to vodka and cranberry juice?
Copper prices are having their best week in over a year. Copper advanced, set for the best weekly run in more than a year, after data showed China’s manufacturing may expand at a faster pace, adding to signs that demand in the world’s top metals buyer is recovering.
The bond auction was weak with traders standing by as they refused to fight the Fed. With QE 4 and printing galore many do not want to get ahead of the Fed.
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Thanks,
Phil Flynn
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