The Energy Report - China Delusion

 
on August 10 2012 5:16 PM

The steep slowdown in Chins has investors wondering ... Now What?  China's slowdown now looks more and more like a crash landing raising fears that the worlds growth engine is getting bogged down by Europe and its own internal economic problems. Soaring domestic wages and real estate makes China's trade data even more disturbing.

If China is supposed to carry the world on their manufacturing data they are not going to be able to do it if their eexports' can increase only 1 percent over a year earlier.  That wasn't even close to the market expectations of 5 percent.

Import growth also fell to 4.7 percent from the previous month's 6.3 percent raising concerns that domestic growth in China is hurting as well and the expectations that the new wealth Chinese consumer will buy goods from the rest of the world are diminishing as well.

Is it any wonder that even the IEA lowed its global oil demand forecast for 2012 and 2013 by 300,000 to 400,000 barrels a day.  The IEA says 2013 oil demand growth at 0.8 million barrels a day down from 1 million barrels a day previously. The agency also said that there would be less need for oil from their nemesis OPEC. The IEA says that the demand for OPEC oil in 2013 will increase by 0.4 million barrels a day to 30.1 million barrels a day well within what OPEC is already pumping at 31.4 million barrels a day last month according to IEA so unless they cut production that should be more than enough.

If you are hoping for QE or European bond buying than you should be pleaded with the fact that the PPI in the UK rose at the slowest rate in two and a half years in July.  The Office for National Statistics said at producer prices rose 1.7% in July from the same month a year earlier, the weakest year-to-year rate since October 2009. Prices in month-to-month terms were flat.

Natural Gas popped then fell on confusion surrounding the Energy Information Agency report. The EIA said that working gas in storage was 3,241 Bcf as of Friday, August 3, 2012, according to EIA estimates. This represents a net increase of 24 Bcf from the previous week. Stocks were 465 Bcf higher than last year at this time and 386 Bcf above the 5-year average of 2,855 Bcf. In the East Region, stocks were 134 Bcf above the 5-year average following net injections of 30 Bcf. Stocks in the Producing Region were 171 Bcf above the 5-year average of 937 Bcf after a net withdrawal of 5 Bcf. Stocks in the West Region were 81 Bcf above the 5-year average after a net drawdown of 1 Bcf. At 3,241 Bcf, total working gas is above the 5-year historical range. But the surprise was that the Producing Region, for the week ending August 03, 2012, totaled 1,108 Bcf, with 226 Bcf in salt cavern facilities and 881 Bcf in non-salt cavern facilities. Working gas stocks decreased 8 Bcf in the salt cavern facilities and increased 1 Bcf in the non-salt cavern facilities since July 27.  We did have some hot weather in the producing regions which slowed production but CITI Bank reported that  a problem caused a forced gas withdrawal from Chevron's salt dome storage field in Napoleonville, LA, could add a total of 3 to 4-Bcf of gas supply to market in the coming days, affecting the short term balance. A sinkhole discovered at the storage field led the storage operator to ask customers for a reduction in inventories to 40% of their contracted  mount. At a withdrawal rate of 0.4-Bcf/d, the draw should be completed in just over a week, assuming no other problems are found.  That should bring the market back down.

California gas woes and steps to help correct the problems are happening now both long and short term. Bloomberg News Phillips 66 delayed work on a unit at the Rodeo refinery in California to take advantage of a gasoline-price surge after a fire at Chevron Corp.'s Richmond plant, a person with direct knowledge of the schedule said.      The 76,000-barrel-a-day Rodeo refinery put off maintenance for at least a month at hydrocracking Unit 246, which makes gasoline and jet fuel, said the person, who asked not to be identified because the information isn't public. Spot gasoline in San Francisco climbed as much as 41 cents a gallon after the Aug. 6 fire at Chevron's 240,000-barrel-a-day Richmond plant.  Chevron shut the refinery's crude unit after the fire and is making transportation fuels at a reduced capacity, the company said in a statement distributed yesterday at a briefing outside the refinery. It's impossible to tell how long the crude unit will be out of service, Mark Ayers, chief of emergency services at the plant, said yesterday at the briefing.   Phillips 66 had planned to begin the six-week turnaround at Rodeo at the end of this month, the person said. Bloomberg reports that Alon USA Energy Inc. is in "advanced discussions" to transport light crude oil by rail from the Midwest to the Bakersfield refinery in Central California as early as the third quarter of 2013.   "This will provide additional crude oil flexibility for our California refining system to allow us to take advantage of changing crude oil markets," Chief Executive Officer Paul Eisman said during the company's second-quarter earnings call. "The location of Bakersfield refinery is uniquely suited as a rail hub to receive Midcontinent crudes."      Eisman said a rail line already runs through the Bakersfield refinery, Alon has storage tanks and land for the project and access to third-party pipelines. Alon expects to submit an environmental permit application within several days. Alon could use third-party pipelines to transport the Midcontinent crude from Bakersfield to its refinery in Paramount, California, Eisman said. The refiner would be able to bring in crude from anywhere in the Midcontinent although it will likely begin with Bakken crude from North Dakota, he said.

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Phil Flynn

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