RBOB gasoline rebounds on reports of refinery troubles

Retail Drops but Wholesale rocks.

Gasoline at the pump broke its streak of going higher week after week as the Lundberg survey reported that the average price for regular gasoline at U.S. pumps fell 5.56 cents a gallon in the past two weeks to $3.7394 a gallon. This is a sign that at last a top may be in, but if we look at RBOB futures they are telling a different story this morning. The story is to beware.

After a late spike on Friday afternoon and more follow through this morning, RBOB futures are rebounding like crazy. Refiners are drawing down winter blend inventories and supply is falling. This comes as Dow Jones reports about an equipment failure at Shells Deer Park Refinery in Deer Park, Texas, resulted in flaring Saturday, when a release of acid gas was routed to a flare stack during normal procedures, a report to the U.S. National Response Center said. The filing didn't specify which unit or units were involved in the incident, nor did it say whether the event had an impact on production. A Shell representative wasn't immediately available to comment. The 327,000-barrel-a-day Deer Park Refinery is operated by Shell Oil, a subsidiary of Royal Dutch Shell in partnership with PMI Norteamerica S.A. de C.V., a subsidiary of Petroleos Mexicanos, or Pemex.

Bloomberg Reported that Exxon Mobil Corp. reported flaring of gases including carbon monoxide and hydrogen sulfide at its Beaumont refinery, according to the Texas Commission on Environmental Quality.

Also PBF Energy Inc. reported flaring of sulfur dioxide at its Delaware City, Delaware, oil refinery, according to a state environmental report.  But instead of worrying about Gasoline let's focus on the future, which is natural gas. The long term bullish story became even more intriguing when FedEx signaled that they too are moving toward natural gas.

As reported by Dow Jones on the Fox business Network website, truck fleets are likely to make a major shift to natural-gas fuels and away from diesel over the next decade, with FedEx Corp. (FDX) a likely adopter, said Frederick W. Smith, chairman and chief executive of the giant shipping company. In an interview with The Wall Street Journal, Mr. Smith said that he expects between 5% and 30% of long-distance trucking to be fueled by compressed or liquefied natural gas over 10 years, as the cost of the trucks declines and fueling stations become more common. "If you'd asked me three years ago, I'd have said this is very tough, because the infrastructure wasn't there," he said.

But now, the company is testing four trucks — two using liquefied gas and two using compressed gas — and if those work well the company will look to moving more of its 90,000 motorized vehicles to the fuel, Mr. Smith said, adding, "We'd be remiss if we didn't." Whether the company will make "a big conversion or wait until the economics make sense," he said, will depend in large part on the cost of tractor-trailer trucks. Though FedEx, Memphis, is famous for its planes, the company's ground-delivery business has been growing rapidly, Mr. Smith said, as jet-fuel costs soared from 67 cents a gallon in 2001 to more than $3 a gallon today. Hundreds of FedEx's lighter vehicles are now electric or hybrids.

Exports of natural gas, which require federal approval, have become a contentious issue in Washington. Mr. Smith said he favored exporting liquefied natural gas and even oil, as they would give the U.S. a lever to get other countries to open their markets. "We have so much gas," he said, "it would be foolish and at the end of the day penny-wise and pound foolish not to export."

The company, which burns 1.5 billion gallons of diesel and jet fuel a year delivering freight and packages to 220 countries, is not seeing any effect on fuel prices from the U.S. energy boom. Mr. Smith said he doesn't expect to see a decline, as prices will remain set by global markets. The growth in the global economy is likely to remain slow, he said. But the energy boom is contributing to economic activity around the U.S., he said, especially in energy-heavy areas such as Texas' Permian Basin and North Dakota's Bakken Shale. "We are delivering a lot of stuff up there to the Bakken for sure," he said.

Oil prices are getting support on gas but demand is weak. Nat gas is strong as we get geared up for summer and the hurricane season.

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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