Debt Crisis Bingo
What country are they going to call out today! While everyone thought the US would dominate traders’ minds, it was Greece, Spain and Italy that caught the market by surprise. If you have them in that order then yell Bingo. Who thought that it would be Europe that would raise its ugly head and drive the Euro and oil lower? In fact we may have overcome yesterday's bearish EIA report but the weakness in the Euro kept oil on its back. The question is can oil stay weak as the US debt saga drags on and tropical storm Don emerges in the Gulf of Mexico and is pointed towards Galveston. Another Greek downgrade and warnings from the ratings agencies about Italy and Spain took the focus of the US debt ceiling charade. Greece’s credit rating was cut to CC from CCC at Standard & Poor’s and has a negative outlook while other worries surrounding not only the US but Ireland, Italy and Spain. BINGO!
A bad 5 year note auction in the US had the market fearing the Italy auction. The Wall Street Journal reports, “Italian funding costs soared Thursday when the country sold EUR7.966 billion in bonds, near the maximum amount targeted, as bond investors kept up the pressure on the highly indebted country. The yield on the closely-watched 2021 Italian government bond, or BTP surged to 5.77% from 4.94% at the previous auction June 28." A close to 80 basis points jump on what they paid last time is huge. Italian debt weakened in the secondary markets after the auction and the 10-year BTP-bund spread, up 16.6 basis points on the day at 327 basis points, is near euro area highs. The higher yields came despite euro-zone leaders agreeing to a deal on Greece last Thursday, along with additional measures to prevent further contagion within the single currency area. Market participants are anxious that details of these measures are still to be worked out. Bond investors also seem to be shrugging off Italy's recently approved EUR48 billion austerity package. US 7 year is big today!
The Energy Information Agency reported that in January refining capacity in the United States was the highest it was in 29 years yet a drop in refining runs helped lead to a bearish build in supply. Weak demand that reflect what we saw in the US durable goods market sunk us. The EIA reported that refinery runs fell back much more than expected to a disappointing 88.3%, still high but not as high as hoped for. Crude oil refinery inputs averaged only 15.4 million barrels per day. That set the stage for a 2.3 million barrel build in crude as gasoline pr0ductiuon dropped to 9.2 million barrels per day. U.S. crude oil imports averaged 9.8 million barrels per day last week, up by 497 thousand barrels per day from the previous week. Gasoline inventories increased by 1.0 million barrels last week and distillate fuel inventories jumped by a gigantic 3.4 million barrels signaling weak manufacturing demand.
Refiners to worry about. Valero Texas City, Marathon Texas City, BP Texas City, KIOR , Lyondell Basil, Allied Chemical, etc…. Get the Picture? Galveston, oh Galveston, before I watch your sea birds flying in the sun at Galveston, at Galveston.
Galveston, oh Galveston, I still hear your sea winds blowing. Tropical storm Don looks like it is headed towards Galveston right in the heart of refinery row not to mention the home to hundreds of offshore oil platforms and rigs. At least 10 refineries are in the storm path and some of the largest ones in the country. The storm is already causing oil companies to take precautions. Reuters News reported, “Tropical Storm Don, the fourth named storm of the U.S. Atlantic hurricane season…should move through the southern and central Gulf of Mexico through Thursday …Interests in the northwestern Gulf of Mexico should monitor the progress of Don as watches and warnings may be required for portions of the Texas Coast tonight or Thursday….. While Don currently holds no hazards to land, it poses a threat to the region that is home to thousands of oil and gas production platforms, producing about 29 percent of U.S. oil output and more than 10 percent of domestically produced natural gas….. Several offshore energy operators, including Shell Oil Co, and Apache Corp have been forced to evacuate support workers on Wednesday, but have not undertaken measures to shut production yet…… Refiners along the Gulf Coast, home to 40 percent of the nation's refining capacity, were also watching the system….. An Air Force reserve hurricane hunter aircraft is investigating the storm the NHC report said.
Dow Jones says that “The Gulf accounted for about 30% of all U.S. oil production last year, with more than 606 million barrels. Gulf wells also account for about 7.2% of U.S. natural gas production. Shell, one of the largest producers in the Gulf of Mexico, said it has evacuated some non-essential personnel from its southwest operations due to the threat of a possible storm. The company said it evacuated about 70 people and that production isn't affected. Evacuation started Tuesday and continued Wednesday, the company said."These personnel are not essential to core producing," the company said.
Shell said it began securing operations on the Perdido platform, which it operates in partnership with Chevron and BP. About 200 miles south of Galveston, Texas, in about 8,000 feet of water, the Perdido platform is the world's deepest drilling and production platform. Its peak production is the equivalent of about 100,000 barrels of oil per day. …….Shell also said it is securing operations on the Noble Danny Adkins, a deep-water drill ship it is leasing from Noble which is working in the vicinity of the Perdido platform. Noble spokesman John Breed said the company isn't evacuating workers from the rig but is "securing operations" aboard the ship. Other major Gulf of Mexico producers BP, Chevron and Conoco Phillips said Wednesday said they are monitoring the weather and developing plans should it “threaten their operations.”……..Galveston, oh Galveston, I still hear your sea waves crashing, While I watch the cannons flashing, I clean my gun and dream of Galveston.
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 email@example.com.