A new kind of crude oil

Oil (NYMEX:CLM14) prices rebounded after supply fell in defiance of expectations yet refiners continue to refine above the five year average as they learn to deal with a new kind of oil. Yet what also added support was a warning from the Department of Transportation. The bounty of shale oil is one of the most pure forms of oil on the face of the earth and refiners are only beginning to take advantage of this high quality high yielding crude. In fact we may have to retool some refineries or even build new ones to maximize the potential from this pristine and volatile oil. In fact we may not even refine it so much but only enhance it. At the same time we will need to build more pipelines as it is becoming apparent that moving this high quality crude by rail may be more dangerous and at the very least we will need new type of rail cars to safely move this production bounty.

Yesterday the Department Of Transportation issued a safety warning that will require companies shipping Bakken crude oil by train to provide communities along their routes with more information about the dangers of spills and explosions, DOT said in an emergency order yesterday. They issued a "safety advisory" asking — but not requiring — shippers of Bakken crude to discontinue using the older models of railroad tank cars commonly used for transporting the fuel and instead use cars built with enhanced safety features. This of course added to shipping costs for crude that were already rising due to competition for space and the lack of available cars.

In Canada regulators are giving railroads and shippers a mandatory three-year deadline for the older-model tank cars to be either retrofitted or retired.

This is adding to the coast of shipping which has already been rising. The New York Times reported last week that "Transporting crude oil by pipeline is generally cheaper than by rail, at a cost of about $5 a barrel compared with $10 to $15 a barrel, according to a February report by the Congressional Research Service. Yet rail offers its own advantages, including speed. Transporting oil from North Dakota's Bakken shale fields to the Gulf Coast can take five to seven days by rail, compared with about 40 days by pipeline." Learning how to handle this crude will be critical and in the meantime there will be growing pains. Those pains of course will be felt in the overall costs.

On the Border? Today the risk play in oil may be on whether or not Russia pulls back from the border. Russian President Vladimir Putin said he wanted to restore civility and said he would pull back Russian troops from the Ukrainian border, they Urged Ukraine to put off a Presidential vote. Yet The US sees no sign of that.

In fact Dow Jones is reporting this morning that "Ukraine has sent 15,000 troops to its border with Russia ahead of the upcoming secession vote in Ukraine, Russian Deputy Defense Minister Anatoly Antonov told Interfax Thursday. Separatists in eastern Ukraine confirmed that the vote will happen on Sunday as planned. Russian President Vladimir Putin said on Wednesday that Russia has pulled its troops away from the border to avoid any confrontations, which caused Russian markets to rally.

On Thursday, Putin praised the Russian defense ministry for successful military exercises Russia had performed in regions close to Ukraine for months. He said that the exercises showed a high level of readiness of the Russian troops and smooth execution of those exercises by the Russian military."

Obviously this is a dangerous difference of option. Stay tuned.

If Natural Gas (NYMEX:HPM14) producers are going to get storage back to adequate levels by next winter they better get going. Yet according to the average expectation it is not going to start to happen in today's EIA report. Average guesses are for and injection near 73 bcf below the *0 plus five year average.

Gold (COMEX:GCM14) pulled back on assurances from Putin and Fed Chairperson Janet Yellen. Her upbeat assessment on growth issues to speculate that the Fed might be sooner to a normal rate policy that originally thought. Another worry to watch, Dow Jones is reporting that The U.S. is "very concerned" about heightened tensions between China and Vietnam, a senior U.S. State Department official said here on Thursday, as ships from the Asian neighbors continued to square off over an oil rig in disputed South China Sea waters.  "The United States does not take a position on the relative merits of any country's claim in the South China Sea....The U.S. is very concerned about any dangers...and we oppose any act intimidation by vessels, particularly in disputed areas," said Daniel R. Russel, the assistant U.S. secretary of state for East Asian and Pacific Affairs.

Nickel climbed as much as 6.1 percent to $19,786 a metric ton, the highest since March 2012. Copper and Iron rose as Chinese imports exceeded expectations. The Aussie is popping on a good jobs number as well as Chinese Imports. Grain Report Tomorrow! Get Ready!

 

Watch Phil Flynn interview Futures' new editor-in-chief Dan Collins about how the magazine is covering topics in a way that no other news organization can, and how the magazine is the premier resource for today's modern trader.

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.


Comments
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome