Headlines
July 1, 2009
Enterprise-TEPPCO Deal May Open up Opportunity to Trade Oil Products, Crude
The $3.3-billion takeover of TEPPCO by Enterprise Products Partners LP could
possibly lead to an expansion of the products trading team of the new
partnership in the future, judging by the synergy between both companies,
industry sources in the storage and oil trading segments told OPIS on Wednesday.
The Enterprise-TEPPCO merger would create the largest publicly traded energy
limited partnership in the United States with a value of $26 billion.
Enterprise agreed to buy TEPPCO, including TEPPCO's assets of 4,700 miles of
products pipeline systems that carries refined fuels, such as gasoline and
diesel, from the Gulf Coast to New York.
TEPPCO's crude segment deals with transportation and storage of crude in
Oklahoma, Texas and the Rockies, and it also generates revenues from trade
documentation and pumpover services, primarily at Cushing, Okla., and
Midland.
TEPPCO's assets in products and crude transportation and storage would give Enterprise incentives and a leg up on trading products and crude within those
systems.
Enterprise's strength is on the natural gas side of the industry, including
pipeline, processing plants, and a Gulf of Mexico production platform called
the Independence Hub.
Enterprise is a major trader in the physical natural gas liquid and
petrochemical markets in the U.S.
However, TEPPCO does not have any trading presence in oil products
or crude.
"If TEPPCO were to be taking over Enterprise, things would be different," a
source said. "However, Enterprise is likely to have their say as they are
taking over TEPPCO."
The deal is about cost savings and eliminating the bureaucracy, but it makes
sense for the new company to expand the trading team, based on the takeover scenario.
However, one obstacle to the trading expansion could be a difference in
company philosophies, and both companies have different partners, which may not
share the same vision to expand trading.
Another source pointed out that the TEPPCO deal provides resources such as
pipeline, terminals and storage for Enterprise to enter oil products and crude
trading.
If Enterprise-TEPPCO decides to initiate products trading, it would have to
deal with potential potholes that come with owning a pipeline system and
trading products at the same time.
"It is not uncommon for a company to own and operate a pipeline as well as
trade products and crude," a third source said. There are other companies such
as Flying J, Williams and Sempra which were in the similar position in the past.
He pointed out that it would be challenging to own a common carrier pipeline
system, and trade and ship products on it at the same time.
Potential problems as allegations about improper allocations and denial of
pipeline access could creep up as seen with a complaint filed with the Federal
Energy Regulatory Commission by Valero against Longhorn Pipeline and Flying J
last year.
Flying J owns and operates Longhorn pipeline, and it is also a major shipper
on that common-carrier pipeline.
June 22, 2009
Retail Gas Streak Broken; Wholesale Suggests More Downdrafts
Just maybe, Fathers Day 2009, could prove out to be the peak moment for
this year's gasoline price rally on the street. Yesterday, nationwide prices
hit $2.693 gal -- -the highest level since October 26, 2008.
Today, however, produced a small decrease - - gasoline prices average $2.69
gal - - and that is the first increase in OPIS database of 125,000 gasoline
sites since April 28, an uninterrupted streak of 54 consecutive days with
increases. The 54 day streak easily surpasses the previous record interval for
daily price hikes which occurred in the first quarter of 2007.
Wholesale prices point to further drops ahead. In the last ten days, spot
markets for unleaded gasoline are down some 19cts gal in the northeast; 21cts
gal in areas supplied by the U.S. Gulf Coast; off 33cts gal in certain
California markets; and are off 21cts gal in the upper Midwest.
Compared to a year ago, gasoline prices are quite cheap. The $2.69 gal
average today compares with $4.073 gal one year ago. The 2008 retail market
peaked in the second week of July and began a precipitous freefall that lasted
through the next five months.
Two states still have retail prices above $3.00 gal, but those numbers could
disappear shortly. California has an average retail price for regular of $3.027
gal and Hawaiian gas averages $3.057 gal. The cheapest fuel shows up in South
Carolina, where regular averages $2.506 gal.
June 17, 2009
Energy Bill Paves Way Fore More Oil Market Oversight, Transparency
A clean energy bill passed by the Senate Energy and Natural Resources
Committee Wednesday will pave the way for more transparency and federal
oversight in the U.S. energy markets.
The legislation seeks to improve energy market information and increase
transparency. The Commodity Futures Trading Commission has already begun to
exert its new oversight authority by picking ICE natural gas futures contracts
as its first target for price discovery determination.
The Energy Information Agency (EIA) is directed to collect new data
identifying all physical petroleum holdings of the fifty largest oil traders,
as determined by the CFTC.
Also, a new Financial Market Analysis Office is created within EIA.
This analysis office is to be the independent, policy neutral research arm
of the Energy department.
It will develop a plan to collect information identifying the ownership of
U.S. commercially held oil and natural gas inventories. This includes company-
specific data involving product volumes and storage and transportation capacity.
The legislation seeks to bridge the gap in understanding the connection
between these derivatives, or "paper," markets and the physical oil market.
This is because of a recent trend of many investors participating only in
the financial oil futures and derivatives markets, and not in the physical oil
markets.
This bill, among other actions, would require EIA to dedicate resources to
understanding the financial side of the oil market, and ensure that this
analysis informed the agency's oil market forecasts and other publications.
Each of these measures is designed to help shed some light on the elusive
connection between the financial and physical oil markets.
The legislation will create a working group on energy markets, and requires
that group to report to Congress both its assessment of the factors influencing
oil prices as well as its recommendations for regulatory changes that might
make markets function more smoothly in the future.
June 16, 2009
New York Harbor Cash Market Unfazed by Limited Indian Gasoline Import in July
Hess is expected to deliver the first gasoline cargo from India's new 580,000-b/d Jamnagar refinery to the U.S. at the end of July, but the general market consensus in New York is that the impact on spot prices and demand/supply balance would be limited.
Hess Corporation will be the first oil company to bring Indian gasoline to the U.S. in recent memory.
It is very rare for market players to deliver Indian gasoline to the U.S.
because of the long voyage and relatively better economics to sell to the Middle East or West Africa.
Hess will load a 500,000-bbl or 60,000-metric ton capacity Large-Range vessel, King Douglas, at Sikka port in Jamnagar on June 26 for delivery to the New York Harbor. The ship was booked at a lump sum of $1.75 million.
The voyage from the west coast of India to the U.S. Northeast is expected to take between 27-30 days due to potential weather delays and transit at the Suez Canal. The cargo will arrive late July.
Hess is expected to lift one LR cargo every quarter at Sikka port, based on its one-year term purchase contract with Reliance Petroleum.
"One cargo will not make a difference in the market," a gasoline trader said. "When they (Reliance) are on full steam and make 15 LR cargoes a month, it will then make a difference."
That one 500,000-bbl Indian cargo volume in July is only 1.8% of the 27.292 million bbl imported on the average in May.
Production from that new refinery is supposedly to be for export-only, and the plant could churn out one 500,000-bbl gasoline cargo every two days at full capacity.
CONVENTIONAL GASOLINE
The exact gasoline cargo specs for Indian cargo are not known, but some traders expect the cargo to be the conventional regular M2 grade.
Although RBOB is the flavor of the summer season, conventional regular gasoline is easier to produce than RBOB as it does not need alkylate for blending.
"It is very likely to be conventional gasoline, but it does not mean that that refinery will not make RBOB in the future," the trader said, explaining that the new refinery is still in the process of stabilizing its gasoline operations.
The refinery is said to be equipped to make even CARB gasoline for the Californian market.
However, a shipment of M grade from India to the U.S. makes a lot less
sense than RBOB, based on the current arbitrage economics and prices for both
grades.
The gasoline arbitrage window from Europe to the U.S. is slammed shut, and the regrade between RBOB and conventional is wide at about 5.5cts/gal.
Also, the robust Middle East and West African markets should be more attractive for Indian gasoline cargoes. It takes only two days to sail from the west coast of India to the Middle East.
The conventional market in New York is also witnessing a steeper price backwardation, with forward barrels fetching less than prompt due to the tight prompt supplies.
More conventional gasoline from India in July could have a limited impact on possibly widening the RBOB F2 and conventional M2 regrade.
Some refiners use the F-M regrade to tweak their gasoline production, depending on plant configuration.
"The one Indian cargo will be easily absorbed in a market that is not seeing much imports from Europe," a trader in Europe said.
This is sort of a relief for some traders as the market had expected an onslaught of Indian gasoline starting from July.
The bearish expectations were spurred by Reliance's storage tank lease in New York and the Caribbean.
Reliance will take over on Jul. 1 clean storage tanks in the Bahamas and New York Harbor, totaling about 2.25 million bbl.
However, Hess' import from India is expected to be the only Indian gasoline cargo to hit the U.S. shores in July.
It is not a big surprise to see a lack of gasoline imports by Reliance into the U.S. in July even though the company is prepared to take over of tanks in a few weeks.
Reliance has always maintained that the U.S. market would be viewed a "back- stop" for its production, meaning its production will go to the highest-priced market and the U.S. market is used a "last-resort" outlet.
Reliance in the U.S. has the options to bring cargoes directly from India as well as to engage in third-party trading.
June 10, 2009
Gasoline Hedging Programs Aim to Relaunch Amid Rising Retail Prices
With retail prices climbing higher each day, new and untested gasoline
hedging programs are getting ready for another shot at a public launch after
failing to take off last year.
A gasoline hedging program is supposed to allow customers to make future
fuel purchases at today's price. It involves a membership fee and prepaying for
future fuel purchases at current prices.
It is noted that this does not guarantee a customer to buy cheaper fuel
because a customer could end up with more expensive fuel if prices drop later. However, a customer could wait until prices rise again to redeem the purchase.
The relaunch plan seems timely amid rising summer gasoline prices.
The national average retail price rose to $2.627/gal on Wednesday from
$2.226 a month ago and less than $2 in January, and prices are expected to
go higher due to the higher summer demand.
A few upstart companies are planning a relaunch of their gasoline hedging
products soon. One has a new name, and one is working on beta testing.
It remains to be seen if these hedging products would take off as planned.
The launch last year was hampered by tightening credit, a sharp oil price fall
and difficulty on securing a payment processor.
Florida-based Gas Bank USA is working on a beta test for its product, and
aims to launch the hedging program soon, a company official told OPIS on
Wednesday.
"There is definitely a lot of interest out there," he said. "We have 55,000
subscribers to our newsletters."
Gas Bank had originally hoped to launch the gasoline hedging program during
the fourth quarter of last year. The delay was attributed to a sharp fuel price
plunge in the second half of last year.
Gas Bank USA plans to offer the hedging service not only to drivers, but to
businesses, over-the-road truckers and fleet owners. It will cover both
gasoline and diesel.
The company said last year that it had secured a payment processor in
understanding, which means that it could launch the program quickly when the time is right. Gas Bank did not reveal which payment system it was.
Another upstart company, MyGallons.com, is relaunching and rebranding itself as MoreGallons.com.
It is offering a 90-day trial. MoreGallons is charging a 6ct per gallon
service fee when a customer makes pre-purchases. Additional fees may apply if a
buyer prefers to use wire transfers instead of checks or e-checks.
MoreGallons explained that it is a high volume program designed for fleets,
boats and RVs which is based on the same technology utilized by the MyGallons
consumer program.
After a widely publicized launch, MyGallons was forced to put operations on
hold when the company that had agreed to provide the services to process the
MyGallons debit card suddenly backed out of its contract, according to its
website.
Because MoreGallons operates with an entirely different payment model, it is
completely unaffected by the processing issues of MyGallons, the company said.
It is unclear if MoreGallons requires a credit card payment processor based
on its new payment model.
The company's chief executive was not immediately available for comment.
A third company with plans for a similar product is San Francisco-based
Petrofix. The company officials were not available for comment.
