Phil Flynn Energy Report

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Chicao - The Energy Report for Tuesday, April 8, 2008

Oh, Porvoo! Will winter ever end and will we be able to replenish tight distillate supply? Worldwide concerns about tight supplies of distillate drove energies and commodities higher yet again. Oil prices that stayed steady on Sunday night started to drive higher early Monday when concerns were raised about a major diesel refinery. Add on to that a little cold weather, OPEC indifference and fog in the Houston shipping channel and you have what you might call a bullish blow off day.

The start of the rally can be traced directly to concerns about Porvoo Refinery that is owned by Neste Oil. The refinery is located in Finland about 20 kilometers outside of Helsinki. The plant is producer of low sulfur diesel and gasoil and has a production capacity of 11,000.00 tons of oil per year. A fire had broken out at the refinery on Friday and the company said the damage to its production lines may cost the company about 40 million euros in lost production and repairs.

Yet more of a concern to a tight diesel market is that Neste Oil says the diesel production line will remain shut through April and May. At the about the same time that the company made the announcement and the news hit the wire, heating oil started to make its move. Even when Neste tried to assure the market that planned deliveries would not be affected the loss of any production for the diesel hungry world was not convinced.

Or as todays Wall Street Journal reported, "Finnish refiner Neste Oil said a Finnish refinery that is a major producer of gasoil will remain shut longer than anticipated after a fire that broke out two weeks ago. Gasoil is predominantly used as a heating fuel and as a fuel for certain forms of transport, such as trains and ships. European gasoil prices on the ICE climbed to over $1000 a metric ton on the news"

Some refineries that normally focus on gasoline are focusing on maxing out distillates. World-wide, due to the cold winter and strong demand, distillate fuels are tight. This seems to be the most fundamentally bullish part of the entire energy complex. So talk of another blast of cold to the Northeast didnt help calm the market.