Posted on 08/27/2015 5:37:14 AM PDT by thackney
With crude prices hovering around $40 a barrel, the broader market is on tenterhooks. West Texas Intermediate (WTI) crude futures fell almost 7% in the past week. The troubles grew as oil prices hovered close to its lowest level in almost seven years. The bearish mood is compounded by Venezuelan President Nicolas Maduro’s opinion that the commodity is slated to fall to $30 per barrel or less.
Whiting Refinery Unit Restarted
Amid the gloom, the news that BP Plc (BP - Analyst Report) has restarted the largest of three crude distillation units (CDUs) in its refinery in Whiting, IN., cast a ray of hope. Notably, this petroleum refinery is the largest in the Midwest. On Aug 8, the unit was shut down for unscheduled repair work.
As a result, the already weak crude prices came under more pressure as the unit produced around 413,000 barrels of refined petroleum products daily before its closure. With its reopening, we are now hopeful of a marginal recovery with the unit starting output at around 250,000 barrels of refined petroleum products daily and steadily moving toward full capacity.
The Timing
The time for reopening the unit could not have been better. This is because oil prices recently fell for the eighth straight week alongside a rising number of crude-directed rigs (Courtesy Baker Hughes Inc. [(BHI - Analyst Report)] rig count) However an increase in rig count has raised concerns about intensifying the commodity’s global supply glut. The recent turn of events in Greece, Iran and China added to the woes. In particular, the slowdown in Chinese economy has sparked fears about a drop in oil demand from the country.
Also, per the Energy Information Administration (EIA), total global liquids inventories are estimated to have grown by 2.3 million barrels per day through the first seven months of 2015. This is the highest level of inventory builds through July of any year since 1998.
The scenario is not favorable for the energy space as is evident from the performance of oil majors in the bourses. Most of the oil majors witnessed a plunge in their stock prices moving over the past week. Though energy firms like Newfield Exploration Co. (NFX - Analyst Report), Halliburton Company (HAL - Analyst Report), Marathon Petroleum Corporation (MPC - Analyst Report) and Devon Energy Corporation (DVN - Analyst Report) fell 22.13%, 18.72%, 17.99% and 17.95%, respectively, these stocks are worth considering.
Endnote
The demand and supply imbalance is striking and there is little hope of a significant rebound. Until China recovers and producers put a lid on volumes, crude is likely to keep sliding. Going by market predictions, there is hardly any reason for investors in this space to rejoice. This is because analysts, who were initially hopeful of oil picking up momentum in the second half, now do not expect any recovery before 2017 or may at least till the second half 2016, only if conditions favor.
Our best bet for the commodity would echo Nicolas Maduro’s opinion that a OPEC or the Organization of the Petroleum Exporting Countries (the international cartel of oil producers) – Russia alliance can stabilize the freefall.
In particular, Saudi Arabia’s stance is of utmost significance. Riyadh, by far OPEC’s major contributor, is relatively better insulated from the oil shock as compared to some other members. However, for countries like Venezuela, Nigeria and Iran, $30-a-barrel oil would be a real problem as these states are highly dependent on the commodity to fund government budgets.
‘Steep decline’ expected in Michigan gas prices after BP Whiting repairs
http://www.mlive.com/business/west-michigan/index.ssf/2015/08/steep_decline_expected_in_mich.html
Gas prices are expected to fall across Michigan and the Midwest region with the return of a key Indiana oil refinery to full operation.
According to Patrick DeHaan, a senior analyst at GasBuddy.com, a “steep decline” in gasoline prices is expected because BP Whiting has repaired its crude oil distillation unit in Indiana that unexpectedly went offline two weeks ago.
BP Whiting is the largest refinery in the Midwest. It’s sudden capacity issue sparked calls from Michigan legislators for price-gouging investigations.
“Gasoline prices in Illinois, Michigan, Ohio, Indiana, Wisconsin and neighboring states affected by the refinery could fall 20 to 50 cents a gallon over the next two weeks,” DeHaan wrote in an email release.
>> The bearish mood is compounded by Venezuelan President Nicolas Maduro’s opinion that the commodity is slated to fall to $30 per barrel or less.
Really? Market professionals take that guy seriously?
BP restarts part of Indiana oil refinery; analysts expected lower fuel prices
http://www.stltoday.com/business/local/bp-restarts-part-of-indiana-oil-refinery-analysts-expected-lower/article_c8c13a69-bab4-5312-a955-61456ebc0561.html
...BP’s refinery in Whiting, Ind., the largest in the Midwest, shut down the largest of its three crude distillation units for repairs on Aug. 8. As a result, the refinery, which can process 19 million gallons of refined fuel per day, operated at less than half of capacity.
The company continued to fulfill its contracts with gas stations and wholesalers, but it didn’t have additional gasoline to sell to the open market, which sent wholesalers without contracts into a bidding war. Those higher costs quickly made their way to retail prices, and gas stations passed along some, but not all, of those higher costs to motorists.
Last week, retail gasoline prices in the Midwest saw the largest weekly increase in the region since the aftermath of Hurricane Katrina in 2005, according to the U.S. Energy Information Administration.
“With the return of this BP refinery, so long as there are no new outages from it, I would expect it’s just a matter of a couple of weeks or a couple of months before we see the first (Midwestern) stations at under $2 a gallon,” said Patrick DeHaan, GasBuddy.com senior petroleum analyst. “The Whiting refinery was the only kink in the chain from delivering far-lower gasoline prices.”...
as the price at the pump gets down below $2 per gallon, the economy will soar with consumers having more money to spend and save, and the cost of goods dropping with the decrease in transportation costs.
I know you oil guys will rip me up but let it happen and you will see!!
So have you seen a growing economy from the drop of gasoline prices below the prices of last summer?
Or have we seen more impact for job loss, less spending direct and indirect from the oil business?
More of the same is going to have more of the same result.
On CNBC at this very moment. “Oil on track for biggest daily gain since June 2012.”
An over correction in one direction tends to be followed by a large movement in the other.
http://www.cnbc.com/2015/08/25/oil-is-the-biggest-investing-opportunity-strategist.html
Yes, it appears Monday was a buying opportunity.
I recall my old Merril Lynch broker’s advice on the eve of Gulf War One. He said everyone was on one side of the trade for oil. It was expected the oil prices would skyrocket once the war started, and most traders were long.
He told me when ALL the trades are one way, go the other. You’ll make a killing.
Recall that once the shooting started, and the war was progressing well, everyone realized there would be little supply disruptions.
The price of oil collapsed.
Everyone’s been shorting oil, expecting further declines. Well, if everyone has sold, then if there’s even a little bit of buying, the price will skyrocket.
Why? There’s no more sellers.
Market tops operate the same way. Once everyone has bought, and are in the market expecting further increases, then there are no more buyers to support the price.
http://www.cnbc.com/2015/08/26/oil-prices-rise-on-crude-stock-draw-us-economic-data.html
Oil soars 8% as deep shorts scramble for cover
19 Mins Ago
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