Monday, July 09, 2007
Freeway Ft. Jay-Z: Big Spender
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Anyway, from talking with a trader or two at BHP, and a few at BP in Chicago, I can tell you that Cameron Highway Pipeline will soon be having a lot more crude coming online quicker than expected, the average public does not know this. You see, In my day to day operations, I have seen the trading volume in Southern Green Canyon (SGC) go higer as well, not drastically, but it is going higher. It trades at about -$4.00 discount to WTI, meaning that heavy sour crude refiners buy the shit out of it (allowing a much larger increase in margins). What does this mean? It means that whomever owns this pipeline, will be making a ton of money (regardless of the price of crude) So who owns it? EPD and VLO. I suggest you own EPD. If you don't trust me, please check PAA and WMB for reference, they arent not drastically affected by fluctuations in crude prices.
Guess who's buying EPD tomorrow?
Also, it's worth noting the discounted price in crude we American's enjoy, over the rest of the world. Africa and Europe are paying much higher prices.
I read there is a glut of oil at some facility in OK, which will soon be making its way out of the country.
The lack of refinery capacity is causing the back up.
Any thoughts or clarifications?
ARKX: About to pop 2-3 points.
ACEL: Clinical trial results should be positive. Ready to Pop.
ACTU: Popped .
Life is good.
ONT is my second largest position and my basis is under $2. I think anything under $2.80 is a buy...just saying.
Regarding crude.....contango IS off, and you are exactly right about the refineries - they are shipping refined goods to ANYWHERE but the USA b/c their margins are much bigger.
Oil Contango Collapsing in the U.S. (What's It Mean?)
7/6/2007 3:40 PM EDT
The contango in oil futures has collapsed in the U.S. A contango is a term to describe higher prices in forward contracts vs. front-month.
As an example, the dollar spread between the current front-month oil future (August 2007) and one year out (August 2008) was almost $5 just 60 days ago, but it is now just a 10-cent differential.
The long wrong oil bears are cheering this as a sign that oil speculators are cashing in and will lead to additional collapse in long-dated oil futures, which will then lead inevitably to lower oil prices.
What they are missing is the simple fact that, due to our inability to refine oil domestically in any greater amounts, we now have a glut of oil in Cushing, Okla., off which oil futures are based. And since it takes years to build refineries and few are even in discussion, demand for crude in the U.S. looks flat going forward. Meanwhile, we are now beginning to export more and more gasoline, jet fuel, etc.
As a result, the U.S. now has the lowest oil prices in the world! Spot Brent is now $77.10 vs. $72.72 WTI crude. Bonny Light (Africa) is now $78.48 per barrel, and Tapis (Asia) is now $81.44. Keep in mind that Brent crude has historically traded $2 to $4 lower than WTI crude and is now trading almost $5 higher.
While CNBC drones on about $72 oil in the U.S. being the highest in 10 months and Congress insanely talks about suing OPEC, the reality is that we are enjoying cheapest oil in world due to unusual circumstances.
Give it time and the pipeline guys will figure out a way to send their Cushing glut to Gulf ports where it'll get loaded and sold abroad at far higher prices. That'll have them going nuts in Washington, D.C.
Bottom line? Nymex oil futures are losing relevance due to a domestic short-term supply imbalance, and thus, less folks want to be long crude oil for one, two or three years out in the U.S. given far better demand elsewhere around the globe.
Final note: Nymex oil futures are still 10% below previous records, and natural gas is almost 60% below Katrina highs, yet the Oil Services HOLDRs (OIH ) is at all-time highs today because these companies are getting more revenue abroad.
Looking ahead, less oil will get sent to the U.S. if we have lowest prices globally for crude, and imbalance will self-correct. Refined oil products -- such as gasoline, heating oil and jet fuel -- will hit new record high prices as we will increasingly import from abroad, where oil prices are far higher.
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