Headlines
February 4, 2010
Oil Prices Plunge on Economic Pessimism; Spot Gasoline Down
8-10cts/gal
Enthusiasm for an economic recovery has given way to extraordinary worries about another huge leg down in world stock markets in less than 36 hours.
Accordingly, futures and cash markets for crude oil, gasoline, and distillate are down sharply at midday in one of the largest selloffs in months.
Three items are driving energy futures much lower. The U.S. stock market is down anywhere from 2% to 2.5% this morning, and if the weakness persists, there are thoughts that more troubling drops are in store during the first quarter.
Economic pessimism has increased on an unexpected rise in jobless claims and worries about the financial stability of some European countries. And finally, the shaky economic data has sent traders scrambling to buy the U.S. Dollar, putting the greenback at a seven month high against key currencies.
All of this contributed to a retreat in crude where March futures were down by more than $4 bbl just before lunchtime on extremely heavy volume. Higher volumes on down days have reinforced the notion that it would not take much to topple equities or commodities further. All other resource commodities, such as metals, are also down sharply.
At presstime, crude was off $4.11 bbl at $72.87 bbl with the brisk losses spread across the calendar. March heating oil was down 9.54cts gal at $1.924 gal and March RBOB was down 8.84cts gal to $1.9478 gal.
The bipolar nature of the week is apparent in the cash prices for unleaded regular at the Gulf Coast. Monday saw a 2cts gal increase from Friday's close of $1.87 gal. By Wednesday, $2.00 gal was the more common Gulf Coast number, but at presstime, the prompt quote for unleaded regular was about $1.9025 gal.
A load of fuel lifted based on spot economics this morning cost nearly $1,000 more than a Monday morning dispatch. The hypothetical price for tomorrow's product is about $750 below quotes seen today.
With downstream marketers aware of the sell-off, terminals are eerily empty in many markets this afternoon.
Spot markets are generally following futures' moves with East of the Rockies markets at a discount to the March contract. That discount runs around a penny in New York; 4.35cts gal at the Gulf Coast; and 8.25-8.5cts gal in the Midwest.
California gasoline remains around 8cts gal above futures in L.A., but at parity with the NYMEX screen in San Francisco, and 3.5cts gal under the NYMEX in the Pacific Northwest.
With about 140 minutes left in the formal trading day, some technicians are already looking at critical support levels. If crude closes below say $72.80 bbl, there could be a cascade of technical selling that pushes prices to numbers not witnessed so far in 2010.
February 2, 2010
Seacor Energy Expands Physical Renewable Fuel Trading Team
Houston-based SEACOR Energy Inc., a renewable fuels and blendstock trader in the U.S., has expanded its physical trading desk after hiring two feedstock traders from Citgo, industry sources told OPIS on Tuesday.
A company official was unable to comment on the expansion plan when contacted by OPIS.
SEACOR Energy is a division of SEACOR Holdings, which owns and operates marine and aviation assets primarily servicing the oil and gas industry worldwide.
The energy trading group is focused on barge trading of biodiesel and ethanol along the U.S. inland waterways, especially delivering products up and down the Mississippi River, they said.
Barging sources said that SEACOR is the only Jones Act brown water transportation company in the U.S. to trade products along the Mississippi River.
The Jones Act stipulates that all coastal and inland waterway transportation in the U.S. must be served by U.S.-made ships and U.S. crews.
According to the company's website, SEACOR said that the energy trading group seeks to leverage its logistics/shipping experience, knowledge of the energy industry and financial expertise.
Joey Perry and Michael Barrett from Citgo will join SEACOR Energy's trading group, which has one or two physical traders in Houston.
Sources said that the two new traders are expected to trade renewable fuels
or blendstocks.
The hiring coincides with the expected resumption of operations at SEACOR's joint-venture ethanol plant in Pekin, Ill., in early 2010.
According to a joint-venture agreement signed last November, SEACOR Energy will market the plant's fuel-grade ethanol production, and MGP Ingredients will market the beverage and food-grade industrial alcohol produced at the plant.
Apart from trading in the U.S., SEACOR says that it has moved products to countries in the European Union.
SEACOR is also one of the barge operators used by Citgo to transport fuel along the Mississippi River.
Besides SEACOR Energy, the U.S. oil products market is also seeing an increase in interest from pipeline and terminal owners to trade physical barrels. However, most of this is focused on trading around the existing pipeline and terminal assets.
January 26, 2010
Gasoil Contango Players Continue to Take Profits, Delivering Cargos in the U.S.
The number of ocean-going vessels used for storing distillates has fallen significantly in the past month in tandem with the weaker contango price trend for European gasoil, traders and shipping sources told OPIS on Tuesday.
Since December, several contango players have opted to take profits on their floating gasoil cargos, destocking or delivering these cargos to the spot markets in the U.S.
The market talk in the shipping circle was as much as a 50% drop in the number of ships used for floating storage in the past month, but some shipping sources said that the drop was less dramatic, based on an estimated ship count.
As of Tuesday, the number of floating storages is estimated at 90, including 11 Very Large Crude Carriers, nine Suezmax ships, 56 Large Range 2 ships and 14 Large Range 1 ships. Most of these ships are located in Europe.
Based on the latest ship count of 90 ships, the estimated volume of gasoil onboard is pegged at about 65.65 million bbl versus 85.35 million bbl in November.
This is a drop from 112 seen in early December.
However, the current ship count is unexpectedly higher than 83 seen in
early January.
The increase is attributed to an ongoing destocking process, ships in transit and a jump in fresh ship fixtures in the past two weeks to secure cheaper freight rates.
"The increase in ship count for January is an artificial number," a shipping source said. "The number should be a lot lower in February."
Some traders are still delivering their cargos to buyers, which artificially and temporarily boost the latest ship count. The bulk of the deliveries is heading to
the U.S.
This should help boost the already high distillates inventories in the U.S.
In the past two weeks, there were about seven to eight fresh ship fixtures for 675,000-bbl capacity ships by BP, Vitol and Sempra in Europe.
Traders said that the current contango price curve for European gasoil does not encourage players to load fresh cargos on ships.
Many new ship fixtures in the past two weeks were "repositioning of barrels" or securing cheaper freight for existing gasoil storage cargos.
Also, some players are breaking the bulk of 2 million bbl cargo each on board VLCCs, dividing and transferring the huge cargo into smaller parcels for storage in smaller ships.
A second trader noted that there are no fresh ship fixtures for VLCC to store
clean products in the past few months, reflecting the lack of incentives to store gasoil recently.
Meanwhile, the intermonth gasoil contango price spread in Europe remains
stable at around $6-$7 per metric ton, significantly lower than more than $10
last summer.
Traders had said that the current spread does not encourage fresh storage of gasoil onboard ships. Most players with floating cargos have already hedged their long positions last year.
January 20, 2010
JP Morgan to Get Big Boost in Energy Market Presence from Proposed Sempra Deal
Investment bank JP Morgan Chase & Co., one of the largest banks in the U.S., is expected to have an instant dominant presence in the oil, gas and power market if the deal to purchase Sempra Energy goes through.
JP Morgan Chase emerged as the front-runner from a short list of three bidders, including Macquarie Bank and Deutsche Bank, to buy the profitable Sempra Energy for about $4 billion.
Sempra Energy was put up for sale late last year after the imminent pullout of Royal Bank of Scotland.
Early last year, RBS announced its intention to divest several of its assets, including its 51% stake in the RBS Sempra Commodities joint venture in order to qualify for state financial aid.
Of all three bidders, JP Morgan Chase is seen as the bank with the most synergy with Sempra in terms of market share for various oil, gas and power products around the world.
Deutsche Bank might not have been a good fit with Sempra as both companies have large natural gas and power trading groups, which would overlap and bring
up redundancy.
The aim to buy Sempra reflects the bank's ambition to compete with other banks such as Goldman Sachs and Morgan Stanley in both the paper and physical oil and gas markets.
The proposed marriage would give JP Morgan an instant trading presence and market share in the power and liquefied natural gas arenas, which has been absent in the bank's commodity portfolio.
An organic growth within the company to build up a trading presence may take several years.
JP Morgan used to be in energy trading 10 to 12 years ago, but it shut down that operation. The energy trading operation was restarted a few years ago.
The bank jumpstarted its energy trading operation late last year when it hired Andy Kelleher, a veteran products trader with 30 years' experience in trading and supply roles, to build its global energy trading team from the ground up.
In the U.S., the bank had been active mostly on paper trading for oil prior to
last year.
However, in the past few months, JP Morgan has already started to increase its trading activity in the physical oil market.
The bank has dabbled in pipeline barrels from the Gulf Coast to the Northeast, distillates and crude storage, and arbitrage plays.
JP Morgan is also in the market to hire at least two physical products traders to trade in the New York Harbor, Gulf Coast and Mid-Continent cash markets.
With a solid footing already in the clean products and crude markets, JP Morgan would benefit from Sempra's expertise in LNG, natural gas, crude oil, fuel oil
and electricity.
Sempra has only one gasoline trader, Greg Hebring, who trades the Colonial pipeline barrels in Houston.
In terms of assets, both companies lease storage tanks around the world.
Sempra has crude oil tanks on the Gulf Coast.
Sempra Energy is a Fortune 500 company with revenues of more than $11 billion in 2007, and employs about 13,500 employees worldwide. Its wholly owned subsidiaries include San Diego Gas & Electric, Southern California Gas Co., Sempra Generation, Sempra LNG and Sempra Pipeline and Storage.
POTENTIAL CHALLENGES
As JP Morgan continues to expand its trading operations, the bank is expected to hire more trading and operational staff in the future.
There could be a possible challenge in attracting top-tiered trading personnel to JP Morgan due to a perception of the scrutiny and competitiveness of bank salaries.
Congress is scrutinizing bank salaries, following the bailout last year.
Also, bank bonuses could be more conservative following the bank fallouts last year. Many banks now have claw-back clauses for bonuses if the employees fail to perform well the following year.
However, some bank sources insisted that top-ranking banks are still competitive in terms of salaries and bonuses with the major commodity trading houses.
Besides pay, Sempra may have an issue with hiring suitable traders due to a stigma associated with the departure of several key and top traders last year.
The head of Sempra Energy, David Messer, resigned last March.
Messer held the title of chief executive of RBS Sempra, and was also the head of oil trading.
Sempra has been in the market looking to hire a suitable gasoline trader in the past several months, without much success, sources said.
Another issue that may emerge is the location of the energy trading hub in
the U.S.
JP Morgan's energy trading is located in downtown Wall Street area in Manhattan, whereas Sempra Energy's main trading headquarter is in Stamford, Conn.
to Manhattan.
January 20, 2010
NYMEX to Launch Sour Crude Futures Contract on Globex Jan. 24
The CME Group said on Tuesday that the New York Mercantile Exchange (NYMEX) will launch the new Argus Sour Crude Index (ASCI) financial futures contract for trading on CME Globex, the NYMEX trading floor and CME Clearport next week.
The new futures contract will be launched on Jan. 24 for trade date of Jan.
25. The Globex commodity code for this contract is A0X, and the Clearport and floor trade code is A0.
It will be in addition to the ASCI over-the-counter swaps or crude settlement contract launched last December.
Anu Ahluwalia, a CME spokeswoman, said that all ASCI contracts will
run concurrently.
"We offer them on multiple platforms so customers can choose how to trade and clear them," she said.
Bob Levin, CME Group managing director of energy and metals research, told OPIS that the ASCI swap daily traded volume had picked up since its sluggish launch late last year.
The OTC volume for that product averaged about 50 lots a day. NYMEX expects a reasonable traded volume for ASIC in the near future, based on the huge volume of Saudi crude purchase in the U.S.
The U.S. imports an average of about 1 million b/d of crude from Saudi Arabia, which is among the top four crude sellers on the U.S. import list.
Industry sources said that the launch of ASCI futures contract is in line with the past trends for previous new NYMEX products.
NYMEX typically launches a new product in other trading platforms, hoping to gain more visibility and volume.
The possibilities of increasing the traded volume would be multiplied several-fold as ASCI contracts could be traded against WTI or other crude grades. Alternatively, ASCI contracts could also be traded against the crack spreads and other contracts on the screen.
The launch of ASCI index contracts on NYMEX was prompted by Saudi Aramco's decision last year to switch to the Argus Sour Crude Index instead of Platts'
WTI crude prices for all its crude sales to the U.S. from January 2010 onward.
