The En-Pro Blog

Last week was St. Patrick’s Day… a day for all our Irish friends to celebrate their culture and heritage by holding parades around the world and having an excuse to quaff Guinness and green beer! This emerald hued holiday was also enjoyed by the OPEC fraternity that met in Vienna to discuss production quotas. From the markets’ point of view, this was a non-event on oil prices with no changes announced in their production quotas. The recent crude market rally has rubbed some Irish luck on OPEC with crude prices now trading over $82 U.S. per barrel. When crude prices are high the incentive to work together crumbles and it is too tempting to cheat and profit.

As of last month, OPEC was exceeding their questionable production quotas by the equivalent of a supertanker of crude a day (2.0 Million barrels). The artificially high $80 plus barrel of oil is equivalent to them finding a pot of gold under the rainbow to boost their fleet of BMW’s and Mercedes. If prices remain above $80 U.S./barrel, this dysfunctional monopoly will continue their cheating ways that could help lower crude prices. Presently there is about 4.5 million barrels of spare global crude supply. As the economy improves spurring demand and eventually reducing spare crude capacity below 2.0 million barrels per day, energy prices will rise. Their next meeting is schedule in October in Vienna and the irrelevant production quotas of 24.5 million barrels per day will probably remain the same and the production throttle will be fully engaged.

The oil markets are battling between momentum and resistance and this will continue at least through the rest of 2010. But there’s good news on the horizon.

So what exactly is the good news? And what is happening in the natural gas and electricity markets? Find out in this week’s Energy Report. Send your email to info@en-pro.com.

We are talking about the refining/supply line infrastructure throughout North America, a system we as consumers have tolerated in the form of radical price swings which seemed directly proportional to the inexplicable childish pricing tantrums of the oil industry. We have been predicting for some time now that the weakest link in the integrated oil industry supply chain was that of refining and marketing… recent and future developments support this opinion.

Here’s what we mean.

We all know about Shell closing its Montreal refinery and we commented on the possible closure of the Chevron facility in Burnaby, citing it as only one of three of the Chevron family outside the U.S. We suggested that the future for Burnaby was bleak and so far we are pleased to say that we are wrong. However, beware the Ides of March. Such is not the case for the 210,000 bpd refinery in the UK as Chevron announced this week that they will seek out “likely buyers”. Hmmm just the same thing Shell said about Montreal.

The existence of a large number of refineries in the eastern part of the U.S. and to a certain extent in Eastern Canada may be in jeopardy due to the growing popularity of storage of not crude oil, but what are termed finished products those being gasoline, diesel, heating oil and jet fuel. An extremely large storage terminal located off the coast of Florida in the Bahamas with a current capacity of 21.5 million barrels is undergoing an expansion to increase this to 27.5 million barrels by 2011.

By: Roger McKnight, Senior Petroleum Advisor

How exactly do we put all of this into perspective? Find out in this week’s Energy Report. Sign up by sending your email to info@en-pro.com.

After the euphoria of the Canadian gold medals and hockey success at the Vancouver Olympics, it appears that last week’s positive momentum has cascaded into the booming commodity markets. Yes, there seems to be no logic to support the ballooning energy prices. Maybe the champagne corks are popping because politicians and economists continue to make grand announcements the good times are back luring investors and speculators into the markets?

Last Thursday, crude closed at $80.21U.S./barrel with market expectations for rising demand. There are predications the markets will test the high of $85 reached last November. At these price levels we don’t expect OPEC will announce any production output changes at their meeting on St. Patrick’s Day. The supply/demand fundamentals are being completely ignored. We believe oil prices are drastically over inflated and should be trading in around $70/barrel. The current market exuberance is being supported by exaggerated CONFIDENCE that the global economy is now in full recovery mode at an inflation free pace thanks to central bank interventions.

There is concern that continuing demand in China and India will reduce global oil inventories. Supporting this sentiment may be the recent data on a shallow contraction in U.S. job losses in February, which is influencing investors into thinking the economy, is bottoming out of the unemployment situation and possibly beginning a cycle of adding jobs.

The traders and investors are turning a blind eye to the excess supply and fragile demand fundamentals and only seem to be focusing on the positive indicators to support their irrational bull market logic. With the sluggish economies in North America and Europe, in reality we expect China will be the future driving force to higher energy prices.

By: Roger McKnight, Senior Petroleum Advisor

Find out why in this week’s Energy Report. Also, what’s in store for natural gas and electricity as we head into spring? Sign up by sending your email to: info@en-pro.com.

There was a heft withdrawal of 190 bc on natural gas inventories over the last week or so. The trend in February of falling natural gas forward term prices is now picking up momentum. The fall is more pronounced for Canadian natural gas prices and the dollar is gaining ground on the U.S. dollar over the February stretch.

What has trumped the influence of the aforementioned significant withdrawal to last week’s inventory? You guessed it, weather forecasts. U.S. forecasters have released updated forecasts for March temperature expectations with the most important forecast, for the major northeast U.S. natural gas consuming region, reporting milder than previously anticipated temperature ranges.

How should we put the last three weeks into perspective? Check out the Weekly Energy Report. Sign up by sending you’re mail to info@en-pro.com.

On the Ontario electricity front – 2010 seems to be the dawn of a Brave New World. Although economic analysts seem to agree that there is a light at the end of the tunnel, the general consensus is that the staples of Ontario’s manufacturing economy will not rebound to the heights reached in the previous decade. Going forward, Ontario’s contribution to the North American auto market will undoubtedly shrink and expectations are that Ontario production will drop to represent 12% of North American production. The impact of the recession has southern Ontario’s electricity load more than 15% below pre-recession levels, the drop is closely related to the automotive industry’s sharp loss in production over this period.

What does this mean to Ontario’s economy and more importantly the outlook for business? And how will demand levels in Alberta impact the country? Read En-Pro’s Weekly Energy Report to find out more.

By: Roger McKnight, Senior Petroleum Advisor