Oil reverses on China growth forecasts, shutdown turning point

Turning Point?

It looks like the markets are getting prepared for a turning point in the ongoing government shutdown as well as the impending debt ceiling. The VIX has spiked, the bonds are looking tired and the stock market seems to be facing up to reality. In other words the market is sensing that some kind of a deal may be in the works.

The Democrats are already getting ready for a plan B as the pressure from our bondholders in China and Japan start to show some concern. Both Republicans and the House might look for a temporary extension so they can continue to beat each other up in the hopes of trying to score some political points. In Washington, what goes around comes around and there will be backlash on both sides of the aisle. There is even a report that one Democrat wants to block oil and gas exploration on Federal lands to try to inflict more pain on Republicans.

In the meantime, while Tropical Storm Karen did not pack that big of a punch, the precautionary shutdowns still have taken their toll on supply in the Gulf Coast. The petroleum complex already has reversed course because of the World Bank's downward revision to its China and East Asia growth forecasts, and Reuters reported that Genscape saw indications that the Seaway Pipeline was shut down further rating concerns on the Gulf Coast and the speed at which we can get things back to normal. Also Bloomberg reported that Motiva Enterprises LLC’s Norco, Louisiana refinery, which is right in the path of the storm, is conducting planned repairs on a fluid catalytic cracker, a person familiar with operations said. The unit was shut in the third week of September for approximately 50 days of scheduled maintenance, said the person, who asked not to be identified because the information isn’t public. A community notice on Sept. 19 from St. Charles Parish, where the refinery is located, said that Motiva would begin planned maintenance on several units the week of Sept. 28. The 250,000-barrel-a-day Norco refinery is about 13 miles (21 kilometers) west of New Orleans. The report raised some concerns that the rain from Karen may slow things more than anticipated.   

Last week we told you about natural gas exports to Mexico making a big splash and are a subject of an article by Andrew Weismann in this month’s American Gas Journal. Yesterday Bloomberg’s Naureen S. Malik picked up on a significantly bullish development in the U.S. gas market. Naureen writes that “For all the investment in new projects to liquefy and ship U.S. natural gas overseas, the country is already benefiting from soaring exports of the fuel in its raw form via traditional pipelines to Mexico. The U.S. is piping about 2 billion cubic feet of gas across its southern border every day, or about 3% of the nation’s entire output, according to Kinder Morgan Energy Partners LP. That’s poised to double because new power plants and factories are adding to demand, said Anas Alhajji, chief economist at NGP Energy Capital Management LLC.  Mexico is consuming gas at the fastest pace ever while domestic output slows, BP Plc data show. Pipeline expansions may take daily capacity to 5.31 billion cubic feet by the end of 2014, compared with the 6.37 billion planned for LNG terminals that won’t start coming online until late 2015, U.S. government data show. The rising flows to Mexico raise the prospect of a rebound in U.S. prices after they tumbled 74% in the past five years amid unprecedented output from shale deposits in states from Texas to Pennsylvania. Natural gas futures have climbed 7.1% this year on the New York Mercantile Exchange. They rose 8.4 cents, or 2.4%, to $3.59 per million British thermal units at 9:05 a.m.

“Daily volumes to Mexico may double to 4 billion cubic feet by the end of 2014, while U.S. LNG exports may reach 3 billion to 4 billion a day by 2020, Alhajji said. Cross-border shipments to Mexico may reach 3.5 billion cubic feet a day by the end of next year because of the additional pipeline capacity, according to estimates by the U.S. Energy Information Administration, the Energy Department’s statistical arm.”

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