The Energy Report - Top of The Tank

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By Phil Flynn | February 16, 2013 1:31 AM EST

Price Futures Group

RBOB gasoline futures exploded but it is possible that we could be seeing a blow-off top. A silly surge on talk of refining issues and talk of tight gasoline blending components sent prices flying. Yet the lack of follow through with the crude oil and heating oil may mean that this historic run on gas on the upside may soon be coming to an end.

We should also see more oil become available soon. Robert Campbell of Reuter's news wrote that "Shippers who want to use capacity on the Seaway oil pipeline to move oil from Cushing, Oklahoma, to the U.S. Gulf Coast must now apply for capacity by the 15th of the month, the pipeline said in a regulatory filing. The filing, dated Feb. 12, said the decision to move up the deadline for monthly capacity nominations was due to the high number of shippers seeking space on the line. Pipeline capacity nominations in the United States are traditionally due by the 25th of the month."

In other words there is going to be a lot of oil. Of course Barbara Powekll of Bloomberg says that some of those lower grades of oil are not exactly conducive to high quality gasoline blending components which is on reason traders are playing the spreads. Ms. Powell said that The March RBOB contract discount to April futures narrowed for the first time in four days. The March-delivery gasoline gained 2 percent. The March-April spread shrank 2.44 cents to 21.2 cents, after reaching the widest in seven years yesterday for the contracts nearest to expiration on speculation winter-grade supply is ample. April futures represent summer-grade fuel, which costs more to refine and blend. East Coast supplies rose last week while total U.S. inventories fell, Energy Information Administration data show.

Oil seemed to only get a slight bounce and the Brent/wti spread by the fact that UN officials said they didn't secure an agreement that would allow access to alleged atomic facilities and couldn't settle on a date for another meeting, signals that sanctions on the country's oil exports may remain. Bloomberg News reported The United Nations atomic watchdog failed to reach a deal with Iran that would give inspectors access to alleged nuclear facilities and couldn't agree on a date for a future meeting, the agency's top negotiator said. "We will work hard now to try and resolve the remaining differences, but time is needed to reflect on a way forward,"

The front end of the natural gas curve continues to get crushed yet the long end is staying strong. In the short end the number came in closer to my expectations as working gas in storage was 2,527 Bcf as of Friday, February 8, 2013, according to EIA estimates. This represents a net decline of 157 Bcf from the previous week. Stocks were 270 Bcf less than last year at this time and 348 Bcf above the 5-year average of 2,179 Bcf. In the East Region, stocks were 94 Bcf above the 5-year average following net withdrawals of 116 Bcf. Stocks in the Producing Region were 185 Bcf above the 5-year average of 775 Bcf after a net withdrawal of 33 Bcf. Stocks in the West Region were 69 Bcf above the 5-year average after a net drawdown of 8 Bcf. At 2,527 Bcf, total working gas is within the 5-year historical range.

Speaking of storage the Energy Information Administration reports that transportation fuels surpass the energy densities of gasoline and diesel based on the National Defense University. Energy density and the cost, weight, and size of onboard energy storage are important characteristics of fuels for transportation. Fuels that require large, heavy, or expensive storage can reduce the space available to convey people and freight, weigh down a vehicle (making it operate less efficiently), or make it too costly to operate, even after taking account of cheaper fuels. Compared to gasoline and diesel, other options may have more energy per unit weight, but none have more energy per unitvolume.

On an equivalent energy basis, motor gasoline (which contains up to 10% ethanol) was estimated to account for 99% of lightduty vehicle fuel consumption in 2012. Over half of the remaining 1% was from diesel; all other fuels combined for less than half of 1%. The widespread use of these fuels is largely explained by their energy density and ease of onboard storage, as no other fuels provide more energy within a given unit of volume. The chart compares energy densities (both per unit volume and per unit weight) for several transportation fuels that are

available throughout the United States. The data points represent the energy content per unit volume or weight of the fuels themselves, not including the storage tanks or other equipment that the fuels require. For instance, compressed fuels require heavy storage tanks, while cooled fuels require equipment to maintain low temperatures.

Beyond gasoline and diesel, other fuels like compressed propane, ethanol, and methanol offer energy densities per unit volume that are less than gasoline and diesel, and energy densities per unit weight that are less than or equal to that of gasoline. Natural gas, either in liquefied form (LNG) or compressed (CNG), are lighter than gasoline but again have lower densities per unit volume. The same is true for hydrogen fuels, which must be either cooled (down to -253 oC) or compressed(to 3,000 to 10,000 psi).However, considering only energy density leaves out the relative fuel economies associated with vehicles capable of using2/15/13 Few transportation fuels surpass the energydensities of gasoline and diesel other fuels.

The typical fuel economy of an internal combustion engine in a light-duty vehicle is around 25 miles per gallon. On an equivalent basis, electric vehicles with fuel cells powered by hydrogen can double the fuel economy of a similarly sized gasoline vehicle, while battery-powered electric vehicles can achieve a quadrupling of fuel economy, but the costs of fuel cells, hydrogen storage, and batteries are prohibitively expensive to most consumers and the availability of refueling and charging facilities is extremely limited. In addition, the improvement in fuel economy of these vehicles does not compensate for the lower fuel densities of hydrogen and various battery types like lithium.

In the meantime make sure you open your account and ask about how to get involved! is the link to apply online: https://newaccount.admis.com/?office=269. Here is the PDF version: http://www.pricegroup.com/ADMIS/ADMIS%20Account%20Application.pdf

Thanks,

Phil Flynn

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