Oil Spill Prevention, Control, and Countermeasures (SPCC) Program:
Information For Farmers - 8/1/12
This fact sheet will assist you, as a farmer, in understanding your obligations under the SPCC Program.
Market Comments: Second quarter GDP revised to 1.5% from 1.9%. That revision seems
to be within a range that is priced into the market, but some participants feel that any bad economic
news just increase the odds that the Feds will intervene with more quantitative easing.
The Draghi Effect!
The President of the European Central Bank said on Thursday that he would do anything he could
to keep the euro currency intact. The influence was seen primarily in the equity and currency
markets; the response was muted in commodities. Market sentiment is vacillating between hope
and despair out of Europe, distrust out of Iran, and uncertainty from Syria. Threats out of Iran to
close the Strait of Hormuz seem increasingly empty since both Saudi Arabia and the United Arab
Emirates took concrete steps to secure crude delivery through alternate routes.
The U.S. Drought Monitor classifies drought in four stages- moderate, severe, extreme and
exceptional. The drought this year is affecting about two-thirds of the U.S., an amount of land
involvement not seen since the 1950’s. Extreme and exceptional areas are increasing
exponentially each week.
U.S. distillate stocks have come up from the bottom, but continue to remain sharply lower in comparison to the five-year average according to U.S. government statistics. Refinery activity increased, particularly in the Philadelphia region which has been a cause for concern this year. East Coast refinery runs had been running in the low 80’s, but jumped up to 87% on this week’s report. Total U.S. runs stand at 93%. Gas cracks (gasoline refining margin) have been subjected to a heavy correction this week. Even though the two lines have been moving in tandem, note that the refining margin for refiners who have access to the cheaper WTI crude have had a distinct advantage over users of imported crude.
NYMEX prices on Friday, June 15, 2012
RBOB Gas Jul 12 2.7017 +0.0253 Htg. Oil Jul 12 2.6465 +0.0187
Aug 12 2.6257 +0.0221 Aug 12 2.6499 +0.0183
Sep 12 2.5641 +0.0183 Sep 12 2.6566 +0.0175
Oct 12 2.3949 +0.0139 Oct 12 2.6650 +0.0160
Nov 12 2.3636 +0.0119 Nov 12 2.6751 +0.0142
Dec 12 2.3502 +0.0106 Dec 12 2.6845 +0.0126
Crude Jul 12 84.03 +0.12 Nat. Gas Jul 12 2.467 -0.028
Aug 12 84.33 +0.11 Aug 12 2.514 -0.027
Sep 12 84.63 +0.13 Sep 12 2.551 -0.028
Oct 12 84.90 +0.14 Oct 12 2.635 -0.032
Nov 12 85.24 +0.16 Nov 12 2.883 -0.035
Dec 12 85.58 +0.19 Dec 12 3.171 -0.027
Jul 12 2.0280 -0.0370 Aug 12 2.0280 -0.0350
MARKET COMMENTS: Oil ended the day higher ahead of Sunday’s Greek election. There is some fear that if Greece would leave the European Union, a panic would result and further slow oil demand. Higher prices on the oil complex and stock markets reflect hope that central banks are prepared to deal with unsettled markets on Sunday night/Monday morning. Gasoline was also supported from a supply deficit standpoint. European stock markets were higher today as was the euro.
The National Research Council today said that hydraulic fracturing has a low risk for causing earthquakes, although the underground injection of discarded wastewater that sometimes follows the fracking process has a higher risk of inducing earthquakes. Hydraulic fracturing or “fracking” injects water, sand and chemicals at high pressure into underground wells to crack shale rock formations. The newer technique in the process maintains a balance of fluid between injection and withdrawal and causes fewer seismic episodes.
Spain finally cried “uncle” on Saturday and requested a rescue from its European partners. Their banks will receive up to $125 billion euros to recapitalize and reassure investors. The money will function as a line of credit to the banks, will be underwritten by Spain and does not cede economic control to the European Union.
The announcement led to sharply higher oil prices on Sunday night’s market along with a boost for the euro and swift descent for the U.S. dollar.
Details on the deal are still sketchy, but the oil market has turned slightly negative since the 8 am open. Since Spain will backstop the bank loans, it will raise Spain’s debt to GDP ratio, and also causes some concern for Spain’s bondholders. The U.S. dollar is still lower versus the euro at this writing. At times the strength of the euro seems surprising, but remember that the European Union does not freely print currency like the U.S. does.
All world currencies are evaluated according to their purchasing power parity—or what basic items their currency can purchase compared to other currencies.
China imported 6 million barrels/day of crude oil in May which was about 10% more than normal for the month, and about 18% above last year at this time. Support from this is being shrugged off as just more strategic stockpiling.
OPEC meets on Thursday and it is expected that Saudi Arabia will be pressured to scale back production. Nearly all of the 6% excess production is coming from Saudi Arabia, the cartel’s swing producer. Iran’s crude oil production has fallen to 20-year lows, and their exports are down considerably as a result of economic sanctions. Sanctions from the European Union are set to take full effect on July 1.
Mexico, an important source of crude oil for the U.S., is now receiving much of their refined products and natural gas from the U.S. About 75% of total U.S. pipeline exports to Mexico come from Texas—last week 1,867 million cubic
feet per day. Natural gas exports to Mexico have been increasing over the last 18 months as Mexico increased its natural gas-fired powergeneration despite declining domestic production.
Approximately ½ of all the finished gasoline that the U.S. exports goes to Mexico. They also receive about 1/6th of our distillate product exports- the most of any single country. Electric power is now the largest natural gas-consuming sector in
the U.S. having surpassed the industrial sector early in 2009. A significant amount of natural gasfired generation capacity has been added in the last ten years,
although many plants still switch power generation between natural
gas-fueled generators and coalfired generators.