Oil sees world of haves and have-nots

Pipeline problems

RBOB is rocking and Russia is running out of palladium, two features that will grab attention as many traders pull in their horns ahead of the Federal Reserve meeting this week. Refinery glitches and tight supply in the New York Harbor has sent RBOB on an earlier than normal rally. While WTI and heating oil look toppy, RBOB on the other-hand looks poised to drive higher. RBOB looks to target more than $3.00 a gallon basis the March future.

On the retail side, CNN reported that U.S. gasoline prices crept up by about 2 cents per gallon over the past two weeks, but higher crude oil prices are likely to mean more small increases on the horizon, the latest Lundberg Survey concluded Sunday. Friday's national average price was $3.44 for a gallon of regular, survey publisher Trilby Lundberg said. That's up from $3.42 in the previous survey, conducted Jan. 11, but down about a nickel from a year ago.

Mid-January's modest increase can be blamed on a rise in crude oil prices over the last two weeks, Lundberg said. The benchmark West Texas Intermediate crude rose $2.32 a barrel over that period, and that's going to push prices up again in the coming weeks, she said. "We can see wholesale price increases by refiners, who are now paying higher prices for crude, hitting the wholesale gasoline markets," Lundberg said. "I think we can expect another few more pennies at the pump within a few days' time."

The hostage crisis at a natural gas plant in Algeria likely contributed to the increase in crude prices, she said. Algerian oil is similar to the European benchmark Brent crude, and the seizure of Western hostages at the In Amenas facility "did make some kind of unquantifiable contribution in geopolitical concerns within the oil market," she said. The Lundberg Survey canvasses about 2,500 U.S. filling stations to calculate its national average. The latest survey found the highest average fuel prices in Los Angeles, at $3.71 per gallon; the cheapest were in Albuquerque, New Mexico, at $2.88.

On Friday I wrote an article called from “Glut To Glut” about the importance of the Seaway Pipeline and its major impact that it will have on crude prices in the foreseeable future. Today the Wall Street Journal wrote that” oil-transit problems for an important pipeline to the Gulf Coast have forced traders to rethink bets on rising U.S. crude prices. The Seaway Pipeline, which runs from the transit hub of Cushing, Okla., to refineries on the Texas coast, was expanded on Jan. 11 in response to bulging stockpiles in Cushing that have depressed the price of U.S.-traded crude compared with oil imported from overseas. But last week Seaway's operators said they reduced capacity on the line to 175,000 barrels a day from 400,000 barrels a day. This prompted U.S. crude-oil futures to retreat from four-month highs.

“Many investors had expected that the flow of oil through Seaway would quickly lower U.S. oil stockpiles as more refineries gained access to the oil at Cushing, the delivery point for the benchmark U.S. crude futures, allowing prices to rise. Initially, those investors were right. In early January, just before Seaway was expanded, stockpiles in Cushing rose to a record of 51.9 million barrels, according to weekly data from the U.S. Energy Information Administration. In the week following the expansion, stockpiles fell for the first time in seven weeks. Nymex crude futures have rallied 4.8% since the beginning of the year. This is due in part to anticipation of the Seaway expansion, which more than doubled the flow of oil through the pipeline. But those price gains came to a screeching halt on Wednesday, when Seaway's operators cut deliveries due to rising inventories at the end of line. Nymex crude settled 1% lower that day as investors unwound their bullish bets. Still, many investors expect that as Texas refineries emerge from seasonal maintenance over the next few months, oil demand will rise and prompt additional deliveries through the pipeline, raising U.S. prices.”

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