Oil coming to grips with its bearish destiny

The Next Big Move

Oil broke below $100 a barrel (NYMEX:CLX13) for the first time since July; only a weak dollar seems to be stopping oil from its bearish destiny. With a lot of data back up and the focus on oil disconnecting from the risk-on and risk-off mentality, the next big move should be to the downside. Product is bursting at the seams as RBOB is 12%, or about 25 million barrels, above year ago levels. The average U.S. price of a gallon of gasoline has dropped 2 cents over the past two weeks according to the Lundberg Survey. The price of a gallon of regular is $3.36. Midgrade costs an average of $3.56 a gallon, and premium is $3.71. Even diesel was down a penny at $3.91 gallon. Yes, diesel is more expensive than gas because of the new ultra-low sulfur regulations. Yet even a weak dollar may not save a market that is so fundamentally bearish.

Oil is decoupling at least in part from the commodities and should become more independent. Oil is seeing a historic shift in geo-political risk premium with Iran talking and Syria removing their chemical weapons capability. Oil should become less correlated with some of the outside markets. It seems that in the aftermath of the government shutdown and the surging U.S. production, the fundamentals favor the bears.  The world powers talking to Iran and no war in Syria have reduced the geopolitical risk premium to the lowest level in decades. Can anyone remember a time where the possibility of a potential future attack on Iran did not figure into the equation of the price of oil?

Natural gas has been performing well. A blast of cold and rising demand is changing many peoples outlook on the market. The historic shifts in the energy mix mean that this market is still near a long term bottom. Still in the short term it will be the weather that drives us.

The Florida Times Journal reports that Jacksonville’s port has long ranked as the nation’s busiest for exporting automobiles around the globe. Now, JaxPort wants to stake the same claim regarding the fuel that’s increasingly being used to fuel trucks, ships and trains — liquefied natural gas.  So far, no port has really taken the inside track on that export commodity. But with production of natural gas soaring in the United States, the country is moving to a point at which natural gas is liquefied and can be sold for use abroad, which means putting it into ships. “We’re not always first, but maybe this is one time we can be first,” said George Gabel, who heads the North Florida Logistics Advisory Group.

Jacksonville already will be at the cutting edge of using liquefied natural gas to power ships when Sea Star Line deploys LNG-powered cargo container ships. Those ships are under construction and will be delivered by the end of 2015 for voyages between Jacksonville and Puerto Rico. JaxPort CEO Brian Taylor said using alternative fuels usually is the classic chicken-and-egg question of whether supplying the fuel first will result in people using it, or whether the users should come first followed by the ability to provide it. “For us, the egg is already incubating,” Taylor said of Sea Star’s cargo container vessels.

At a meeting convened last week by the North Florida Logistics Advisory Group, Taylor said JaxPort is committed to ensuring Sea Star Line, which is a tenant at the Blount Island terminal, can refuel its ships with liquefied natural gas in Jacksonville. He said he expects other shipping lines will likewise be moving to natural gas in the future. The next step would be construction of a terminal for storage of liquefied natural gas. Matt Jackson, vice president of liquefied natural gas development for Crowley Petroleum Services, said Jacksonville is “one of the hottest markets” being eyed as a hub for shipping natural gas.

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