Oil risk reduced as floodgates are opened

The Floodgates are Open

The Morganza spillway has been partially opened, yet so far the impact only seems to be offering the petroleum markets modest support. The focus of the market seems to be on the dollar, the turmoil in the International Monetary Fund and the ongoing concerns surrounding Greece.

Two more gates were opened at the Morganza Spillway about 40 miles north of Baton Rouge for the first time since 1973. Reuters News reports, "That will take the floodwaters toward homes, farms, a wildlife refuge and a small oil refinery, but avoid inundating New Orleans and Louisiana's capital Baton Rouge. The opening of the Morganza Spillway on Saturday will inevitably impact Alon USA Energy's 80,000 barrel-per-day refinery in Krotz Springs, which expects to be surrounded by water within 14 days. Refinery workers scrambled over the weekend to bolster levees around the nearby Atchafalaya River. The spillway's opening brings relief to the eight large refineries that are nestled along the Mississippi River between Baton Rouge and Meraux, Louisiana, which collectively process 12 percent of U.S. refined products." So it appears that the market believes that the risk to the major refineries has been reduced dramatically.

The turmoil in Greece is also weighing on the market. Greece will make its case for a boost in bailout funds. The uncertainty surrounding the outcome is weighing on the Euro. A weak euro means weak oil playing into the topping scenario.

Still there are risks as the Middle East seems to be simmering. Oil broke on a report that Moammar Gadhafi was injured but denials brought the market back. The Oil and Gas Journal is reporting that, "Yemen's oil minister said his country is on the brink of an imminent economic collapse due to recurrent bomb attacks on oil pipelines and ongoing social unrest…Acts of sabotage on the oil pipeline in Wadi Ubaida in Marib province have hampered the flow of oil since mid-March and undermined the confidence of foreign investors in the country," said Amir Salim Al-Aydarus.

Yemen is among the Arab countries swept up in protests against longtime rulers since the January revolt that ousted Tunisia's ruler Zine El Abedine Ben Ali. Yemen has likewise been wracked by antigovernment protests and clashes between demonstrators and security forces for many weeks, but Yemen's long-serving President Ali Abdullah Saleh is determined to remain in office. "The opposition wants to destroy the Yemeni economy, but we will not allow them to do so," Saleh said over national television. "All Yemenis must unite to stand against the crises," he said. "

Opponents of the regime, including powerful tribes, appear to be attacking the country's oil facilities in an effort to disrupt the country's exports and force Saleh's resignation. Security officials have said the tribes, in addition to blowing up the country's main export pipeline, have also blocked tanker trucks from moving through their territory. "Several foreign oil companies have quit the country and the refineries in the southern province of Aden came to a standstill a week ago," Al-Aydarus told members of the Yemeni parliament. The minister also claimed that months-long street protests have adversely affected the distribution of oil products and added to the difficulties in repairing the damaged pipeline. "The sabotage and destruction by outlaws on oil and gas pipelines as well as electricity lines exacerbated the economic situation," Al-Aydarus said. "If the problem persists, the government will be unable to meet the minimum needs of the citizens. The situation will pose a catastrophe beyond imagination."

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.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


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