RBOB futures soared and rocked to the highest level since last September as concern about tight supply in a New York harbor is causing a bit of panic. And as I expected, it seemed to get an extra shot of enthusiasm when Hess announced they were exiting the refining business and selling some terminals. If refining is such a great business, why does it seem like so many want to get out of it?
Mid-Atlantic stocks are 15% below the five year average and there has been a scramble. Still, after yesterday’s epic pop and considering the market has posted gains almost seven days in a row, beware of a pullback.
Reuters News reported that Hess Corp on Monday announced plans to sell its oil storage terminal network and exit the oil refining business, after activist hedge fund Elliott Associates said it was considering nominating directors to the Hess board. Hess' decision to become predominantly an exploration and production company is similar to the strategy employed by others such as ConocoPhillips and Marathon Oil, both spun off their refining operations in recent years. "Hess is now facing some activist shareholder interest. In order to deflect or preempt pressure from Elliot, Hess announced it will be becoming a pure E&P company," said Pavel Molchanov, an oil analyst for Raymond James. Molchanov said the move to simplify Hess' asset base should be appreciated by investors. Hess shares rose 6% in afternoon trading.
Hess has been shifting away from refining since early last year, when the HOVENSA refinery, a joint venture between Hess and Venezuela's PDVSA, was closed. Chief Executive John Hess has said the company's strategy is to focus on lower-risk, higher-return assets like its position in the Bakken oil shale in North Dakota.
Hess said in a statement on Monday that it received a letter from Elliott late last week saying the hedge fund might buy more than $800 million of Hess shares, or a roughly 4% stake. Such a purchase would make Elliott one of the top three shareholders in Hess, according to Thomson Reuter’s data.
The Wall Street Journal says that the oil storage terminals Hess has put on the block as it looks to exit the refining business could fetch between $1.5 billion and $2 billion by Barclay’s analysts estimate. The terminals' location has a lot to do with their value, the analysts say. More than half of Hess's storage space is located on high-priced real estate along New York Harbor, while the remainder of the facilities are spread along the East Coast. All told Hess is selling storage for 28 million barrels of oil, with room for 15 million barrels at New York Harbor. The New York space is worth between $65 to $85 per barrel, or as much as about $1.3 million, Barclays says. The rest will likely go for $40 to $60 per barrel, or up to about $780 million.
Oil today should be guided by the Fed statement. All of the people that complain that the price of oil is out of touch with the fundamentals really have to start paying attention to the Fed. The Fed has been the major reason oil is trading where it is because of the massive amounts of QE and bond buying that has supported the economy and made oil prices what they are. Today’s statement will be key as it is apparent that within the walls of the Fed there is a growing reluctance to promise QE forever. The Fed minutes brought the expectations of when the Fed will start raising rates by almost a year as some suggested that QE could end before this year is out. As for Fed Fund Futures, they are pricing in an interest rate rise at this point after the June 2014 meeting.
Natural gas fell on the big warm up but the seeds for the next bull market are starting to be placed. Oh sure, it could take years but long term traders want to start thinking long when prices are at historic lows.
Reuters News is reporting that Royal Dutch Shell Plc will tie up with Kinder Morgan Inc to export liquefied natural gas (LNG) from a terminal near Savannah, Georgia. El Paso Pipeline Partners LP, a Kinder Morgan unit, and Shell will form a limited liability company to develop a natural gas liquefaction plant at Southern LNG Co LLC's existing terminal. Recent drilling innovations have unlocked vast shale oil and gas reserves, placing the United States in a position to be a major exporter. A number of companies, including Exxon Mobil Corp, have lined up to get permission to sell the country's cheap abundant natural gas overseas, where it can fetch much higher prices. The Energy Department's authorization is needed to export natural gas to all but a handful of countries with free trade agreements.
Cattle soared after a friendly seven state cattle on feed report but also on the news that Japan will further ease restrictions on U.S. beef imports starting Feb. 1 to allow entry of beef and beef products from cattle less than 30 months of age. After the mad cow scare in 2003, Japan banned U.S. imports. In 2006 Japan loosened and allowed limited U.S. beef imports to products from cattle less than 20 months of age. Now Japan will to relax restrictions on U.S. beef imports on cattle up to 30 months old, effective Feb. 1.
The move in cattle also gave corn a boost. Increased demand for cattle means increased demand for corn.