The En-Pro Blog

The Monday newspaper headline said it all; “Pure fear grips global markets” and a recession may be just around the bend. The media is compounding the hysteria. In over 30 years of watching the energy markets, I have not seen this magnitude of blind fear and irrational thinking turbo charging volatility in the markets. In one hour the markets are up and the next hours they cascade down. This volatility has been exacerbated by investors using computer programs (algorithms) to monitor markets and automatically buy and sell without human intervention. This volatility may become the new norm.

The end of last week and the beginning of this week was reminiscent of the preliminary flash crash bash and temporary market rebound we all endured at the beginning of the great recession of 2008. On Monday panic and nauseating fear consumed the psyche of investors when Standard & Poor’s announced they were downgrading the U.S. government’s credit rating to AA. Investors sold equities and most commodities including oil, based on expectations for significantly lower demands and bought into the safe haven of gold elevating its price to new record highs. This was an extremely exaggerated reaction by investors because taxes and revenues flowing into the U.S. Treasury for August will cover debt obligations six times over.

By: Roger McKnight, Senior Petroleum Advisor

What does it all mean for Canada? And what else is driving all this fear and doubt? Find out in this week’s Energy Report. For subscription rates, email us at info@en-pro.com.

We normally start these reports off with a clever analogy to get your attention. As any analogy on the financial mess that has happened this week would only make you more depressed than you probably already are, so I have decided to disanalogeous, which is my new word number seven.

Avoiding the economic data that I am sure you are all familiar with there are a few aspects of the petroleum side of things worth taking note of. The U.S. inventories have been somewhat ignored by the speculators for some time now, with the focus being on the ebb and flow of the global financial markets and the U.S. economy, which has been in long term ebb.

With two weeks left in the driving season the 3.5 million bbl decrease in gasoline inventories is of no concern especially when the inventories are in the upper range of the 5-year average. It is interesting to note that gasoline production and import levels both dropped as well as the refinery runs, which indicates that the oil companies are making every effort to maintain the exceptionally high refining margins they are currently enjoying.

How high are these margins?

By: Roger McKnight, Senior Petroleum Advisor

Find out more in this week’s Energy Report. For subscription rates, email us at info@en-pro.com.

Let’s start with the easy and obvious pairing, that being the fact that the Greek government maintains its existence. This has been interpreted as meaning that Greece and Europe in general, will not, for the time being, be sucked into the economic abyss.

Coincidentally, the price of crude, especially the rebellious Brent, rose and the U.S. dollar fell. This shadow boxing of the Euro and the dollar will continue on for some time resulting in daily swings that have no bearing on inventory or refinery run levels.

Personally, we believe that Greece will be saved, but the supply problems in North Africa will persist thereby keeping Brent crude prices significantly higher than WTI, placing upward pressure on WTI to justify it as a bench mark crude.

Recently, the U.S. Federal Trade Commission (FTC) announced that they would be initiating yet another investigation into possible price manipulation by the oil industry citing statements by eager-to-be-re-elected politicians saying that profit margins had nearly doubled since the start of this year yet refinery runs were 7% lower than those of a year ago. Coincidentally, two days before this announcement, we had prepared a report that showed that the crack spreads in Canada had increased by the following amounts versus a year ago, not since the start of the year:

For more information on this and the natural gas and electricity markets, or to find out about our subscription rates, send your email to info@en-pro.com.

By: Roger McKnight, Senior Petroleum Analyst

The knock-out blow came on June 15 during the hypnotic full moon, the world seemed to be coming apart at the seams. The Greek austerity riots overflowed into Vancouver with disgruntled hockey fans torching their own town after their beloved Canucks lost the coveted Stanley Cup to the big bad Boston Bruins. Speaking of Greece, mid-week the energy markets followed the broad based equity asset sell off with no short term solution in sight to Greece’s sovereign debt dilemma. Their PM is struggling to implement the necessary austerity measures and maintain power. The European Central Bank is reluctant to provide another bailout to this sinking ship. Moody’s credit rating service put three of France’s largest banks on their credit watch status because of their significant exposure to Greece's debt. If Greece defaults on their loans, this could start a global financial catastrophic chain reaction. Uncertainty and gut wrenching fear is driving the markets this week.

By: John Voros, Senior Petroleum Analyst

For more on the U.S. manufacturing data and what’s rattling investors and what it all means for Canada, check out this week’s Energy Report. To find out about subscription rates email us at: info@en-pro.com.