The Energy Report - Crude is Cruising

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By Phil Flynn | January 31, 2013 1:27 AM EST

Price Futures Group

Oil prices are on the rise as the Euro soars in a sign that traders believe the worst may be over in Europe and the Fed will continue to be accommodative. WTI soared on economic optimism and the expectations on a return to higher run rates on the all important Seaway pipeline. The Dollar is showing a bit of weakness as the market does not expect to upset the QE applecart in today's statement. In Egypt things are falling apart for the Muslim brotherhood and the geopolitical risk is high. Still let's face it we already have priced in a significant amount of risk.

Bloomberg is reporting that one of Egypt's main opposition leaders called for talks with the government and military aimed at ending a wave of deadly clashes, after President Mohamed Mursi signaled a softening of emergency measures. "Ending the violence is a priority," Mohamed ElBaradei said on his Twitter account. He said Mursi, his defense and interior ministers and Islamist and opposition parties should attend the meeting to discuss "urgent measures" after at least50 people were killed in the past week and the defense minister warned the state's authority was in danger of collapsing.

Bloomberg reports that -- United Nations special envoy Lakhdar Brahimi offered the grimmest picture yet of Syria's descent into chaos, leaving little doubt that diplomatic paths have been exhausted as the conflict drags on indefinitely. Syria is unraveling before the eyes of the world, Brahimi told the UN Security Council yesterday, according to an account provided by two UN officials who asked to not be named because the meeting was closed to the public. The regime of President Bashar al-Assad has defied forecasts of imminent collapse and is surviving with no end in sight, even though its legitimacy has been irrevocably lost, said the two officials.

Seaway caused a big rally then drop and a rally again. Bloomberg news quoting a Morgan Stanley reported that a last week transformer outage shut the pipeline draining crude from Jones Creek storage tanks, partly because this coincided with maintenance at Phillips 66's Sweeny, Texas, refinery that could have otherwise acted as a safety valve. This meant less crude was drained southwards Enterprise's Seaway pipeline from congested storage tanks at Cushing, Okla., the delivery point for Nymex WTI crude. The Sweeny refinery usually uses heavier crudes, so congestion at Cushing will linger through 1H13, MS says. Maintenance of crude units at Wood River, Ill., refinery in Feb. to also keep congestion at Cushing, MS says.

RBOB Gasoline is on its best run since 2009 as refining issues and the Sale by Hess of terminals and its getting out of the refining business continues to drive this market higher. Bloomberg news reports that Philadelphia Energy Solutions will shut the Girard Point section of its plant, the largest near the harbor, this month for sixty days of work. A fluid catalytic cracker at Delta Airlines Inc.'s Trainer, Pennsylvania, refinery has been shut for repairs since December.

Valero Energy Corp. plans five weeks of work on a crude unit at its McKee refinery in Sunray, Texas, in April and a refinery-wide turnaround at its Quebec plant the same month, the company said in an e-mailed statement. The company said previously it planned a four-week turnaround at McKee to start in March. The 170,000-barrel-a-day McKee plant can process oil from fields in Texas and the U.S. Midwest, as well as receive crude from the Cushing, Oklahoma, storage hub. The plant-wide work at the 235,000-barrel-a-day Quebec City facility will last for nine weeks. It was originally scheduled for the first quarter, according to Valero's second-quarter earnings call. The Corpus Christi refinery's West plant shut a 90,000- barrel-a-day heavy oil cracker this month for eight weeks. Valero's Texas City, Texas, plant shut its 83,500-barrel-a-day fluid catalytic cracker earlier this month for six weeks of work. The San Antonio company has 16 refineries in North America and Europe with a total processing capacity of about 3 million barrels a day, according to Valero's website.

The March gasoline crack spread increased 35 cents to $27.43 a barrel. The February contract's discount to March narrowed to 0.29 cent, the smallest since Jan. 3.

Dow Jones is reporting that China 2013 Oil Demand is expected to rise by 4.8%. China's oil demand in 2013 is expected to rise to 514 million metric tons, up 4.8%, a research institute affiliated with China National Petroleum Corp., the country's biggest energy producer, said. Bui that is nothing compared to coal! According to the Energy Information Administration, China consumes nearly as much coal as the rest of the world combined. The EIA says coal consumption in China grew more than 9% in 2011, continuing its upward trend for the 12th consecutive year, according to newly released international data. China's coal use grew by 325 million tons in 2011, accounting for 87% of the 374 million ton global increase in coal use.

The biggest play for oil and natural gas is getting it to where it needs to be. Getting the infrastructure in place to transport our sudden abundance of energy is all the rage! Pipelines and rail and export terminals are going to get hotter and hotter. Some Highlights!

Reuter's news reports that U.S. power company NextEra Energy Inc is seeking proposals to build a natural gas pipeline to serve the growing demand for the fuel in Florida, its chief financial officer said . "As customer demand grows and fleets across the state shift to more natural gas-fired generation, Florida's natural gas needs will increase significantly," NextEra CFO Moray Dewhurst told analysts on a conference call following the release of fourth-quarter earnings. In December, NextEra's Florida Power and Light (FPL) unit issued a request for proposals (RFP) for a third major gas pipeline to serve Florida. The proposed "Southeast Pipeline" will provide 400,000 million British thermal units (mmBtu) per day of gas capacity for Florida beginning in 2017, and an additional 200,000 mmBtu per day beginning in May 2020, Dewhurst said. He said the pipeline will consist of two segments and run about 700 miles in total.

Bloomberg reported that Valero Energy Corp. is considering using barges and rail to move Canadian oil to the Gulf Coast as the government weighs approval of the Keystone XL pipeline, the most economic option, Valero President Joe Gorder said. Valero could increase the amount of Canadian crude it moves by barge to its St. Charles refinery in Louisiana from Hartford, Illinois, a delivery point on an existing TransCanada Corp.line, Gorder said. Valero also owns heated rail cars and could use them to send Canadian bitumen to Louisiana and Texas. Crude production in Canada is outpacing takeaway capacity, creating a glut in Alberta that depressed prices to a record low last month against Mexico's Maya crude, the heavy oil benchmark used on the Gulf Coast. TransCanada's Keystone XL construction requires State Department authorization because it would cross the U.S.-Canada border.

A reason to be long nat gas years out in the future! Reuter's reports the average price of liquefied natural gas (LNG) in Asia this year is likely to reach all-time highs near $16.90 per million British thermal units (mmBtu) as demand growth outstrips supply, Goldman Sachs said in a note. "The global LNG market tightness created by the surge in Japanese natural gas imports following the Fukushima nuclear crisis in 2011 has extended and intensified in the recent period, with increased demand from South Korea and South America," Goldman Sachs said this week. Drought-hit Brazil is ramping up LNG imports in an effort to replace depleted hydroelectric power reserves but faces stiff competition for cargoes from neighboring Argentina, which is also experiencing record demand for seaborne gas.

We called the lows in oil in December and despite the recent run up a correction is getting closer. If you are buying here for the last buck or 2 make sure you protect your downside with some puts.

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Phil Flynn

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