190 comments on Hurricane Gustav, Landfall, Energy Infrastructure and Updated Damage Models -- Thread #5 (Updated 9/1 21:00 EDT)
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190 comments on Hurricane Gustav, Landfall, Energy Infrastructure and Updated Damage Models -- Thread #5 (Updated 9/1 21:00 EDT)
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One of the analysts on CNBC thinks that it is a very likely that the Continental Pipeline, which goes all the way to New York, will be forced to shut down, because of a lack of product supply, due to the number of refineries that are shut down.
You mean the Colonial Pipeline, not Continential.
So the NYMEX products delivery point is New York and NYMEX values are headed lower Thurs Fri & this morning. That sure is curious, itsn't it?
Research24 requested:
"I'd sure like to hear an explanation of how "the powers that be pound oil values down."
How, exactly, do they do that?
Kindly explain."
Here's a couple of links that explain how. They arent directly oil related but its the same game, different commodity. Gov groups that operate in secret are never self limiting. Ron Paul has made direct contentions along these lines.
http://www.gata.org/node/5074
http://www.financialsense.com/fsu/editorials/dorsch/2007/0809.html
The big change of late in all futures markets is much more of the activity operates from offshore accounts. There's no accountability?
How do they do it? Massive NYMEX sell orders. They're active in stock futures. Why is it a stretch to think they're also active in metals and energies.
The system is heavily gamed.
Notice last Wed morning I predicted Gustav would hit cat 4, severely disrupt oil production and distribution and NYMEX markets would sell off just like they did with Katrina. Quote and link here:
http://downstreamventures.yuku.com/topic/2133?page=1
Thanks--hadn't had my coffee yet.
Could be a conspiracy. Or, could be normal market action. Looks like a typical "buy the rumor, sell the news" situation to me. The oil contract rose early last week on decreasing open interest. This was probably just short covering because of Gustav. Now that "we dodged a bullet" mentality is operational this morning the market falls back to mid-August lows, where it's testing the bottom.
I still don't believe that, because in the end the facts would rule.
However, whether it is government, or large hedge fund or whatever, energy markets are illiquid today, which means some millions in margin can really push them around. And they are down sharply. RBOB and Heating oil are down well below where they were BEFORE we even knew we had a hurricane...(and low gasoline inventories going into today???)
Gustav weakened after Cuba and never regained its potential - we dodged a bullet, so it IS rational to have some energy sell-off short term, until actual damages are known. This is now 6th or 7th storm in a row when energy has sold off...It's lulling us into complacency....;-)
The DOE also announced this morning that they're ready to tap the SPR if needed, so that has a psychological effect. Before Gustav, we were in a bearish trend anyway. Gustav's storm surge is a lot less than Katrina's, so the selloff makes sense. It'll be interesting to see if the $110 price floor will be breached this week.
Louisiana Seeks Strategic Petroleum Reserve Release
Good afternoon, folks. Long time since I've posted, but like always, I remain obsessively addicted to TOD and always appreciate the perspective and insight this community is able to share. That being the case, I have a question for any who is up to aswer it: It is my understanding that the SPR contains crude oil only, not distilled products such as gasoline and diesel. That being the case, I don't quite understand how the release of that stock would be of any benefit in the next week or so, if indeed, it turns out that there has been significant refinery damage (not known at present). If the gasoline stations in southern Louisiana have to wait for shipments of refined products to arrive from other regions or countries, I would think they may be waiting a while. Am I wrong?
Dred
Nope, precisely right. :) See westexas' and memmel's comments in this thread.
But the mayor might not know that much. He may just think the SPR is there in case of shortages and there is a shortage in LA, therefore it is time to release it.
Actually he's the guvnur. My guess is he is ignorant of the facts. Of course I think it highly likely that some SPR oil will be released, assuming there is more working refinery capability than crude to supply them. I don't think anyone could argue that a short term release to cover a temprary weather related shortfall is a misuse of the SPR. But even if absolutely no physical damage happened, the shutdown, evacuate, evaluate, startup delays will mean product shortfalls are in the pipeline.
My read is a quid pro quo to GWB & Cheney.
LA Governor calls for SPR release just before election, (unlike evil, irresponsible Democrats who alos called for pre-election SPR releases). GWB wisely does so, in excess of any production shortfall.
Alan
The US will have to import more gasoline and diesel also of course because of high diesel prices world wide we where exporting a significant amount of diesel so our customers will also have to find alternative sources.
Now despite the current price situation for crude oil this new demand for imports of finished products is not provided by the Tooth Fairy, Santa Clause or the Easter Bunny. In fact no mythical characters are generally involved in oil production and refining operations.
However SPR releases to refineries that are not in operation is as close to mythical as one can get.
Its not pleasant to look behind the curtain and realize how the world really works.
Care to speculate on what sort of dislocation this will case in shipping resources? Will there be enough tankers in Europe (or elsewhere) ready to re-deloy to the US market? What is the cost to send an empty tanker overseas to return to the US with refined products?
I've got no idea its going to be a rush to the spot market obviously.
In my opinion the big deal is the US diesel exports that are lost this is going to throw a serious money wrench in the works.
Given it looks like we probably will have more hurricanes in the gulf unless we get really lucky this event may be enough to cause a serious global diesel shortage. Given that diesel is critical for agriculture movement of goods and services etc etc we may be in for some short and long term blow back from this one hurricane. Further out it puts a lot of pressure on heating oil production just in time for winter.
In particular this could well be the event that sends Pakistan into serious turmoil. Attempts to subsidize diesel will have no effect since we now simply don't have enough diesel in the world right at harvest time.
Of course the US is myopic and only cares about gasoline prices.
Home heating oil is of course also distillate, like diesel. The evidence seems to be that people have been waiting to get their tanks filled. (In June, US distillate consumption was down 9.7% from a year ago, according to EIA data). It seems like this disruption is going to make it more difficult to find enough home heating oil to fill all of the tanks.
Is it clear that people are "waiting" rather than just not needing it due to a warm winter (07-08) or more frugal use due to hgher prices last winter? It seems that both our winter and our summer have been milder this year than most (so. cal.), although we don't have a lot to do with heating oil in this part of the world..
-d
How the world works and how the markets work can be completely different ;).
That being said, I went long today after the selloff.
Your argument for manipulation holds up only if one accepts the notion that futures controls real oil price. That notion has been disproven time and time again, including in the latest inter-agency task force investigation which concluded that they do not.
You may note that there is a $4.50 spread today between futures and WTI.
$9 billion of oil is traded every day and that makes the market a wee bit too large and costly for any entity to manipulate. And since many people assert that evil governments manipulate all markets, that would suggest a massive gov't slush fund for the sole purpose of manipulating so many markets.
It is almost amusing to suggest that paper speculators can control the price that Saudi and Russia sell their oil for. If they thought there was downward manipulation they merely have to hold to their asking price and the market would turn within a day or two. If anyone CAN manipulate the price, those two producers can, and they certainly wouldn't want to do it downward.
No it is not too large.
The large banks set the price for just about everything. That is why there is now a reported shortage of precious metals and the price keeps falling. Of course sooner or later it is going to backfire, but I think the large banks will profit from that as well. They will just go long at the right moment.
http://silveraxis.com/todayinsilver/
"Total Commodity and Equity Futures & Forwards Notional Amount: $308.1 billion (from FDIC Statistics report — this is the closest breakdown for commodities)
COMMODITIES (including off-exchange forward contracts):
(1) JP Morgan Chase Bank, National Association: $126.3 billion (futures only: $74.5 billion)
(2) HSBC Bank USA, National Association: $36.2 billion (futures only: $4.5 billion)
(3) Citibank, N.A.: $16.8 billion (futures only: $15.1 billion)
(4) Bank of America, National Association: $12.6 billion (futures only: $12.2 billion)
(5) Wachovia Bank, National Association: $12.2 billion (futures only: $12.2 billion)
(6) Bank of Oklahoma, National Association: $0.3 billion (futures only: $0.3 billion)
(7) Other: $0.1 billion
TOTAL COMMODITIES: $204.5 billion (futures only: $118.8 billion)"
RE precious metals market manipulation.
I find Mish Shedlock's take on this pretty convincing. I've been reading various gold & silver bugs bloviate for years about this. I think they are full of it.
Besides, the gold and silver markets are tiny compared to the crude oil markets. Apple to Oranges.
Almost correct but actually only one is needed to manipulate prices.
Iran