Distillate supply tightness supporting complex

Distillate Dilemma

Heating oil, the proxy for diesel, jet fuel, etc., continues to outperform as global supply tightness for distillate is supporting the petroleum complex. Dow Jones says that, "robust fuel oil cracks and a strong gasoil (European diesel) market support demand for Middle Eastern heavy, sour grades as trade for January loading barrels gathers pace. A wide differential between light and heavy crudes also boosts sentiment for Dubai-linked grades." The Distillate Squeeze is global and heating oil will continue to drive the complex.

The Obama administration continues to create energy jobs...for other countries that is. Friday I wrote about the Obama Administration's decision to delay the decision to make a decision on the fate of the Keystone Pipeline and that delay may kill the project and all the jobs that went with it. The Wall Street Journal writes today, "Just a few days after the U.S. said it would delay approval of an oil pipeline that would boost Canadian exports to the U.S., Canadian Prime Minister Stephen Harper said Sunday the country would push to sell its crude to Asian markets instead. " Obama, for the sake of politics, cost the country 20,000 good paying jobs. But don't worry he is spending a lot of money on high risk, low return energy sources.

The New York Times says the Obama administration has created, "A Gold Rush of Subsidies in Clean Energy Search." Halfway between Los Angeles and San Francisco, on a former cattle ranch and gypsum mine, NRG Energy is building an engineering marvel: a compound of nearly a million solar panels that will produce enough electricity to power about 100,000 homes. The project is also a marvel in another, less obvious way: Taxpayers and ratepayers are providing subsidies worth almost as much as the entire $1.6 billion cost of the project. Similar subsidy packages have been given to 15 other solar- and wind-power electric plants since 2009.

The government support, which includes loan guarantees, cash grants and contracts that require electric customers to pay higher rates, largely eliminated the risk to the private investors and almost guaranteed them large profits for years to come. The beneficiaries include financial firms like Goldman Sachs and Morgan Stanley, conglomerates like General Electric, utilities like Exelon and NRG, even Google.

A great deal of attention has been focused on Solyndra, a start-up that received $528 million in federal loans to develop cutting-edge solar technology before it went bankrupt, but nearly 90 percent of the $16 billion in clean-energy loans guaranteed by the federal government since 2009 went to subsidize these lower-risk power plants, which in many cases were backed by big companies with vast resources.

When the Obama administration and Congress expanded the clean-energy incentives in 2009, a gold-rush mentality took over. As NRG’s chief executive, David W. Crane, put it to Wall Street analysts early this year, the government’s largess was a once-in-a-generation opportunity, and “we intend to do as much of this business as we can get our hands on.” NRG, along with partners, ultimately The Times goes on, "I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects,” he said in a recent interview. “It is just filling the desert with panels.” From 2007 to 2010, federal subsidies jumped to $14.7 billion from $5.1 billion, according to a recent study. Most of the surge came from the economic stimulus bill, which was passed in 2009 and financed an Energy Department loan guarantee program and a separate Treasury Department grant program that were promoted as important in creating green jobs. States like California sweetened the pot by offering their own tax breaks and by approving long-term power-purchase contracts that, while promoting clean energy, will also require ratepayers to pay billions of dollars more for electricity for as long as two decades. The federal loan guarantee program expired on Sept. 30. The treasury grant program is scheduled to expire at the end of December, although the energy industry is lobbying Congress to extend it. But other subsidies will remain. The windfall for the industry over the last three years raises questions of whether the Obama administration and state governments went too far in their support of solar and wind power projects, some of which would have been built anyway, according to the companies involved. Obama administration officials argue that the incentives, which began on a large scale late in the Bush administration but were expanded by the stimulus legislation, make economic and environmental sense. Beyond the short-term increase in construction hiring, they say, the cleaner air and lower carbon emissions will benefit the country for decades. ‘Subsidies and government support have been part of many key industries in U.S. history — railroads, oil, gas and coal, aviation.’”

A must read in the New York Times! We will be looking to trade ranges!

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.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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