Stay warm, because the cold is playing havoc on markets

Another Blast!

Record cold and record demand are playing havoc in certain spot markets, driving markets crazy. Natural gas prices (NYMEX:NGG14) are rising and big swings in heating oil futures as the market tries to balance strong demand with supply being delivered to New York Harbor. Fears of propane and natural gas shortages have sprung up throughout the first real winter in decades. Spot shortages and tight supply of home heating oil and propane have caused as many as 25 states to declare energy emergency. To try to meet demand, Ohio Governor John declared an energy emergency so more shippers with commercial licenses can drive more hours and more consecutive days to deliver propane where prices have already hit the highest levels since 1990. Other states have flowed suit allowing drivers to do whatever it takes to deliver heating oil and propane.

Heating oil (NYMEX:HOG14) spiked and broke. Bloomberg News reported that Ultra low sulfur diesel futures fell for the first time in a week, sliding from a three-week intraday high on speculation that imports will replenish supplies being drawn down during winter storms. ULSD settled 0.3% lower as U.S. East Coast distillate imports rose in the week ended Jan. 10 and more cargoes are anticipated from Europe and Canada. Futures jumped as much as 2% earlier as winter storm warnings stretched from North Carolina to New Hampshire, indicating higher demand for heating fuel. Natural gas futures jumped to the highest price in almost four weeks.

More oil (NYMEX:CLG14) moving by rail is raising concerns. The Washington Post reports more crude oil was spilled in U.S. rail incidents last year than was spilled in the nearly four decades since the federal government began collecting data on such spills, an analysis of the data shows.

Including major derailments in Alabama and North Dakota, more than 1.15 million gallons of crude oil was spilled from rail cars in 2013, according to data from the Pipeline and Hazardous Materials Safety Administration. By comparison, from 1975 to 2012, U.S. railroads spilled a combined 800,000 gallons of crude oil. The spike underscores new concerns about the safety of such shipments as rail has become the preferred mode for oil producers amid a North American energy boom.

The federal data do not include incidents in Canada in which oil spilled from trains. Canadian authorities estimate that more than 1.5 million gallons of crude oil spilled in Lac-Mégantic, Quebec, on July 6, when a runaway train derailed and exploded, killing 47 people. The cargo originated in North Dakota.

Nearly 750,000 gallons of crude oil spilled from a train on Nov. 8 near Aliceville, Ala. The train originated in North Dakota and caught fire after it derailed in a swampy area. No one was injured or killed. The Pipeline and Hazardous Materials Safety Administration doesn't yet have spill data from a Dec. 30 derailment near Casselton, N.D. But the National Transportation Safety Board, which is the lead investigator in that incident, estimates that more than 400,000 gallons of crude oil were spilled there. Though no one was injured or killed, the intense fire forced most of Casselton's 2,400 residents to evacuate in subzero temperatures.

The Association of American Railroads, an industry group, estimates that railroads shipped 400,000 carloads of crude oil last year. That's more than 11.5 billion gallons, with one tank car holding roughly 28,800 gallons. Last year's total spills of 1.15 million gallons means that 99.99% of shipments arrived without incident, close to the safety record the industry and its regulators claim about hazardous materials shipments by rail.

Until a few years ago, railroads weren't carrying crude oil in 80- to 100-car trains. In eight of the years between 1975 and 2009, railroads reported no spills of crude oil. In five of those years, they reported spills of one gallon or less.

In 2010, railroads reported spilling about 5,000 gallons of crude oil, according to federal data. They spilled fewer than 4,000 gallons each year in 2011 and 2012. Excluding the Alabama and North Dakota derailments, more than 11,000 gallons of crude oil spilled from trains last year.

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.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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