Look Out

With Brent in the 120 range and WTI at 103-104, a glut in cushing and out of Bakken, and Iran making ever more noise,  watch for midwest refinery crack spreads to leap to match refined prices of those using Brent.

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Crude Ceiling?

All indicators are up, yet crude seems unwilling to break much above the 100 mark…and certainly north of the 101 mark. Barring some political influence, I’m not sure I see this changing for the next several weeks. The world is reasonably well supplied, and February is not when the residents of the northern hemisphere unleash pent up demand for oil intensive activities. Add to that the extremely mild winter we’ve had in North America, and the crazy goings on in the natgas world, and I see crude trading in the 96.5 to 100.5 range for the next 4 to 6 weeks. Now that that’s all been said, watch for Iran, Syria, Israel, or Greece and its EU frenemies to change all that in a second.

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Terminal Velocity

Iraq has opened a long awaited oil export terminal in the Persian Gulf. This should ease the substantial infrastructure problems in that country. Of course, stability is the infrastructure they need more. An export terminal is nice for getting oil to market, but constant turmoil and partisan pipeline attacks are not so nice for getting oil to the export terminal. Still, it is a step to bringing the Iraq capacity back on line and into the global oil market — which could, in a sane world, go a long way toward stabilizing that country…so…I wish them well.

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While Athens burns…

Word on the street is that the Greek government has secured the necessary votes to pass the austerity measures necessary to get the next round of EU bailout funding. Futures markets have gapped up slightly on the news. Euro also up. I still expect the energy markets to shrug, as austerity is highly suspect as a means of getting an economy on its feet. Still,the prospect of a gentle letdown of Greece’s creditors is perhaps better overall than the results of a ground shaking default.

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Outlook for week of 2/13/12

I’ll be watching COP and XOM…for different reasons. I remain interested in the COP repositioning, which looks to yield a number of benefits to investors. XOM is looking to stay strong, but I don’t see anything super exciting there, so I may look to move off that position in favor of something with a little more kick. Like everyone else, I will be watching the Greece situation, and like many other folks, I believe that a near term resolution is imminent — though I don’t place a lot of long term faith in the Euro. Near term optimism aside, I see a lot of hand wringing and much ado made about the Greek (and Eurozone at large) situation and a lot of breathless coverage on how things are going this way and that. This will mean continued volatility in crude and refined products markets. Add to this the latest nuclear saber rattling from Iran, and it looks like more opportunities on oil swings. For that reason I will likely be paying close attention to OIL, USO, and USL. I’ll also be watching some short oil ETFs, but thus far I haven;t found one that meets my criteria for accurate tracking, volume, and lack of leverage. More on that will surely follow.

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COP

Added to my COP holding first thing this morning on the expectation that a dividend would be announced before next Wednesday (A look back shows 1Q announcements come between Feb 8 and Feb 13). Given BP’s recent announcements, I set my expectation at someplace between 65 and 75 cents — hopefully toward the higher end. The 66 cent/share announcement (same level as the past year) came before noon and, while it was not what I had hoped, still yields a solid return. More important was the other side of the equation. I had been planning to ease up on XOM, which had been flat since the ex div date earlier this week. Instead everything but COP decided to dump today…with the DIA off 0.69%, and ^xoi off 1.21%. Adding to my own portfolio’s(relatively attenuated woes) was the fact that DNO did not balance out OIL and USL as intended…both sides of that equation lost. So I ended up being pretty thrilled about the early morning COP purchase, which was one of the few bright spots in a pretty dreary day. More next week.

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Solar Calculations

So yeah, I’m a big fan of free market principles, but I hope I’m not the only person who is a bit baffled by the new history our current batch of ardent free marketeers has concocted to support the reality challenged claims they make as they press for policies that seem sure to get this country nowhere fast. The idea that private investment in a market that was completely free of government spending and intervention until the New Deal, and solely private investment in a market that was completely free of government spending and intervention until the New Deal, is what is responsible for America’s greatness seems irreconcilable with plainly observable fact.

A massive interstate highway system (now, of course, crumbling) that spans our vast country and provides transportation infrastructure critical to our economy; a space program that put man on the moon and put the country at the vanguard of scientific and technological innovation; a defense infrastructure that secures our nation and employs a huge number of people in a wide range of jobs — all government-funded endeavors.

As for government intervention, we need not look far beyond the petroleum industry, where a system of tax preferences, windfall taxes, infrastructure support, and subsidization of an entire huge, resource rich state has a whole lot to do with the shape of our current energy economy.

These achievements stand in stark contrast with the currently faddish rhetoric that government spending is inherently poisonous to the economy. Combine government spending (in the form of an SBA loan guarantee) with alternative energy tech, which is also an economic undesirable for some reason, and you’ve got a recipe for one hell of a whipping boy. Enter Solyndra and its short, strange saga that seems tailor-made for a second life as a political talking point. True this one didn’t work out…and maybe it wasn’t the right company…but it was the right idea. We’re going to need this technology…and someone is going to dominate the market. Why shouldn’t that be us? If you really don’t think it’s a concern, I know someone who can promise you $2/gallon gas in January 2013.

-JR

 

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