Ol' Man River keeps commodities rolling along
Rising flood fears from the great Mississippi continues to drive gas and oil, despite what might be bearish data out of China and some comments from Germany regarding the Greece bailout that could further spook investors. We are already seeing some reduced runs at some refineries as they try to conserve what crude they have left in case shipments get delayed. According to DTN, Valero Memphis is running at reduced rates and Exxon has shut some terminals. Traffic on the Mississippi is still moving yet restrictions by the Coast Guard such as evening movement of traffic is being denied. There are 20 barge terminals that are also shut, but the key for gasoline prices may be whether or not Louisiana has to open the Morganza Spillway.
According to WDSU News, Lafourche Parish Louisiana government officials declared a state of emergency early Tuesday in preparation for possible flooding should the Morganza Spillway open in response to the rising Mississippi River. Louisiana Bobby Jindal is warning, according to Bloomberg News, that operations at two major refineries could be at risk affecting at least 75% of the refining rates at those two refineries. DTN estimates that production in that area at risk is equivalent to about 2.5 million barrels a day would be significant especially as the refiners should be ramping up production.
On the down side, the floods could also create some demand destruction as vacationers, plagued by the flood, will stay home and flooded farm fields will not see any tractors and spring planting. Still the risk for price will be a sharp move to the upside if these major refineries are shut down.
China inflation is not slowing fast enough to please the Chinese government or the overall marketplace. China's inflation rate as judged by consumer prices rose 5.3% from a year earlier. That beat analyst expectations and may signal more aggressive moves by the Chinese to try to slow their economy. In the short-term, that signals energy demand in China, while still strong, may slow if more dramatic steps are taken by the Chinese.
Euro yo-yo. Is a Greece bailout around the corner? Not so fast. German Chancellor Angela Merkel wants the Greece government to prove that they will continue to cut spending to prove they are worthy of another extension. Merkel said that, "We can offer solidarity only if Greece's stability and eagerness to reform is proven. We can get out of this difficult situation only if we properly rebuild that foundation, not just help without Greece doing anything." Well Greece is doing something. They are protesting reforms. Hey, wasn't this how the "Flash Crash" happened last year?
The Energy Information Agency had to lower their oil price outlook responding to falling prices, yet their outlook on natural gas was fascinating. The EIA, "Energy Information Agency", said that despite the recent volatility, the EIA expects oil markets to continue to tighten through 2012 and projected WTI spot prices average $103 per barrel in 2011 and $107 per barrel in 2012, reductions of about $4 and $6 per barrel from last month report.
The EIA says that retail gasoline price will increase from $2.78 per gallon in 2010 to $3.63 per gallon 2011 and to $3.66 per gallon in 2012. They say that regular-grade motor gasoline retail price averages $3.81 per gallon during this summer's driving season, up from $2.76 per gallon last summer, but 5 cents per gallon lower than last month's report. They say that the average regular gasoline price during the summer peaks in June at $3.88 per gallon. Prices of futures and options contracts for wholesale gasoline over the 5 days ending May 5 suggest a 41-percent probability that the national monthly average retail price for regular gasoline could exceed $4.00 per gallon during July 2011.
As for natural gas, the EIA expects record storage! The EIA says that natural gas working inventories ended April 2011 at 1.8 trillion cubic feet (Tcf), about 11%, or 230 billion cubic feet (Bcf), below the 2010 end-of-April level. The EIA expects that working gas inventories will build strongly during the summer and approach record-high levels in the second half of 2011. The projected Henry Hub natural gas spot price averages $4.24 per million British thermal units (MMBtu) in 2011, $0.15 per MMBtu lower than the 2010 average. EIA expects the natural gas market to begin tightening in 2012, with the Henry Hub spot price increasing to an average of $4.65 per MMBtu.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.
