You’ve got to love it. Or hate it.
Especially if you’re an auto dealer or a US refiner at the moment.
Both currently find themselves in a similarly challenging period. Call it the curse of being a middleman in a world moving to direct everything.
Over in the auto world, for example, a stealth revolution is currently being waged on car dealers by manufacturers. Thanks to the internet, there’s simply no reason why car manufacturers can’t deal directly with customers. Orders can be gathered online, and customers — rather than being targeted by pushy salesmen — can take full control of the decisions they make. Prices, extras and specs can be decided upon with the helpful advice of independent experts, fans, enthusiasts, and journalists on auto forums. Read more
A tale of Reliance. Or of cracks. Or of regulation. Take your pick but this is simply pointing out that global refining margins are still in the doldrums (with recent GRMs low even by post-2008 standards) and that Europe’s refiners are likely to take the biggest kicking. Read more
Robert Campbell at Reuters is worried about refining margins. He thinks too many countries are becoming net exporters of refined oil products or intend to become exporters. That leaves few takers for surplus refined products in the world.
All of which leaves a lot of refining capacity vulnerable to closure in the next year or so. Read more
This rather nice chart is from Goldman Sachs:
The IEA’ September Oil Market report paints an interesting picture of developments in the global refining industry. In short, having restructured intensively over the past few years — by closing off a lot of unprofitable capacity — the industry is now in a position to respond to the product tightness it itself created (as a result of its restructuring).
Which is important because product tightness persists despite an overhang of crude in many regions. Read more
Coryton refinery, one of the largest in the UK and a key source of petrol for London and the south-east, stopped fuel supplies on Monday as trading in the shares of its owner Petroplus was suspended, the FT reports, citing an email sent by the company to customers. The email, from a marketing manager at Coryton, said sales from the refinery had been suspended “with immediate effect”. It said management was “unsure when supplies will be recommenced.” A Petroplus spokesman could not be reached for comment. Earlier, the company that operates the Swiss stock market, SIX Swiss Exchange, said it had received a request by Petroplus to suspend trading in its shares. It gave no reason for the request. BP, which used to own Coryton and sold it to Petroplus in 2007 for $1.4bn, had earlier been in talks to throw the plant a lifeline by supplying it with crude and receiving refined products as payment. A BP spokesman said the company was “seeking clarification” from Petroplus about the status of Coryton. “We are monitoring the situation very closely,” he said, adding that there were “no immediate supply issues across our retail network.”
The International Energy Agency could repeat its decision to release strategic oil reserves when the present 30-day draw down concludes, according to the organisation’s chief. Nobuo Tanaka, director of the IEA, told an FT energy conference on Tuesday that the oil market would be reassessed at the end of the agreed period for the current release of 2m barrels a day. Seperately, the FT reports that a number of traders and hedge funds are nursing losses after the IEA’s move induced a whiplash reversal in one of the biggest commodity trading trends of the year – a bet on a widening spread between different types of crude oil. Reuters adds that the reserve release has also wounded European refiners.
The long-rumoured partnering up of privately-owned refiner Ineos and Petrochina — China’s largest listed oil firm by capacity– is finally out of the bag.
On Monday, Ineos publicly announced that it would be entering a formal trading venture with the Chinese company, which is ultimately owned by China National Petroleum Corp: Read more
Over the last two trading sessions the two largest oil companies in the United States, Exxon and Chevron announced that in Q4 2009 they lost a combined $6.9 million day on turning crude oil into refined products. Wall Street traders reacted to this news yesterday by making NYMEX crude oil even more expensive than gasoline. To explain this seeming incongruity, an unidentified financial trader from Camp Mohawk Trading was quoted as saying. . . IT JUST DOESN’T MATTER, IT JUST DOESN’T MATTER!
That’s Stephen Schork of the widely-read Schork Report, reflecting upon the current illogical investment pattern gripping energy markets. Read more
That, for the record, is what happens when analysts don’t mysteriously “mind-meld” a couple of weeks ahead of your results. Read more
Wow. We knew things were bad for Chevron’s refining business but we didn’t quite expect this.
From Reuters on Tuesday: Read more
Shares in Royal Dutch Shell took a bit of a walloping on Wednesday as reports circled the city the company was guiding analysts lower on fourth-quarter numbers:
That is, Dubai EFS crude — rather than the emirate itself — is worth more than you think.
As Morgan Stanley highlighted in its commodity outlook for 2010, Dubai crude, which historically traded at a discount to Brent crude due to its heavier and sour quality, has managed to trade at a premium to Brent on several occasions in 2009. Read more
Last Friday, what many in the energy market had long suspected might happen, happened.
Valero, the largest independent refiner in the US, was forced to close another 200,000-plus barrel-per-day refinery — this time, its Delaware City unit — due to a lack of demand. The closure comes just three months after Valero shuttered its 235,000 barrel-per-day Aruba refinery in the Caribbean. Rival Sunoco, meanwhile, shut down a 150,000 barrel per day facility at Eagle Point in New Jersey in October.
These closures reflect just how badly the sector is doing, a fact which has also shown through in share prices: Read more
Michael Shedlock of Mish’s Global Trend Analysis flags up a rather worrisome review by some concerned retired auditor folk on the situation facing the City of Houston in Texas, USA.
Indeed, according to Bob Lemer, CPA, Retired Partner at Ernst & Young; Aubrey M. Farb, CPA, Retired Partner at Grant Thornton and Tom Roberts, CPA, Retired Partner at Fitts Roberts, Houston may be bankrupt. Read more
Europe’s largest independent refiner, Swiss-based Petroplus, announced a capital raising on Wednesday consisting of a $400m from a senior-note issue, a $150m convertible bond issue and a CHF290m new share issue to boost the firm’s capital and support its acquisition campaign.
Although, judging by the CFO Karyn Ovelmen’s statement, it might have more to do with the former than the latter. As Ovelmen stated on Wednesday:
In addition, the rights issue will increase our short term liquidity and provide balance sheet flexibility to support our business strategy, including value-enhancing acquisitions.
Stephen Schork of the Schork Report sets out the case very succinctly on Friday:
Thus, while we were led to believe that demand for oil was rising in the second quarter, hence the justification for that 40 percent surge on the NYMEX, we now have the balance sheets from Exxon, Shell et al. that prove it was a lie. Read more
First there was Flying J which filed for Chapter 11 bankruptcy in December, 2008, then there was Lyondell Basell, which filed for Chapter 11 bankruptcy in January, 2009.
And now, the pressure of challenging distillate margins and low demand appears ready to take a toll on some other very prominent independent refiners. Read more
Retail gasoline prices may be going up, but overall refining margins are still in the doldrums.
And this time round it’s the weak distillate component that is really dragging down returns — quite the reverse of last year when gasoline was the predominant demand destruction casualty. That has much to do with diesel’s role in the transport industry, which has now taken a serious knock on business/trade cut backs ( just as consumer demand for gasoline is returning thanks to lower prices). Read more