The En-Pro Blog

After the euphoria of the Canadian gold medals and hockey success at the Vancouver Olympics, it appears that last week’s positive momentum has cascaded into the booming commodity markets. Yes, there seems to be no logic to support the ballooning energy prices. Maybe the champagne corks are popping because politicians and economists continue to make grand announcements the good times are back luring investors and speculators into the markets?

Last Thursday, crude closed at $80.21U.S./barrel with market expectations for rising demand. There are predications the markets will test the high of $85 reached last November. At these price levels we don’t expect OPEC will announce any production output changes at their meeting on St. Patrick’s Day. The supply/demand fundamentals are being completely ignored. We believe oil prices are drastically over inflated and should be trading in around $70/barrel. The current market exuberance is being supported by exaggerated CONFIDENCE that the global economy is now in full recovery mode at an inflation free pace thanks to central bank interventions.

There is concern that continuing demand in China and India will reduce global oil inventories. Supporting this sentiment may be the recent data on a shallow contraction in U.S. job losses in February, which is influencing investors into thinking the economy, is bottoming out of the unemployment situation and possibly beginning a cycle of adding jobs.

The traders and investors are turning a blind eye to the excess supply and fragile demand fundamentals and only seem to be focusing on the positive indicators to support their irrational bull market logic. With the sluggish economies in North America and Europe, in reality we expect China will be the future driving force to higher energy prices.

By: Roger McKnight, Senior Petroleum Advisor

Find out why in this week’s Energy Report. Also, what’s in store for natural gas and electricity as we head into spring? Sign up by sending your email to: info@en-pro.com.

There was a heft withdrawal of 190 bc on natural gas inventories over the last week or so. The trend in February of falling natural gas forward term prices is now picking up momentum. The fall is more pronounced for Canadian natural gas prices and the dollar is gaining ground on the U.S. dollar over the February stretch.

What has trumped the influence of the aforementioned significant withdrawal to last week’s inventory? You guessed it, weather forecasts. U.S. forecasters have released updated forecasts for March temperature expectations with the most important forecast, for the major northeast U.S. natural gas consuming region, reporting milder than previously anticipated temperature ranges.

How should we put the last three weeks into perspective? Check out the Weekly Energy Report. Sign up by sending you’re mail to info@en-pro.com.

On the Ontario electricity front – 2010 seems to be the dawn of a Brave New World. Although economic analysts seem to agree that there is a light at the end of the tunnel, the general consensus is that the staples of Ontario’s manufacturing economy will not rebound to the heights reached in the previous decade. Going forward, Ontario’s contribution to the North American auto market will undoubtedly shrink and expectations are that Ontario production will drop to represent 12% of North American production. The impact of the recession has southern Ontario’s electricity load more than 15% below pre-recession levels, the drop is closely related to the automotive industry’s sharp loss in production over this period.

What does this mean to Ontario’s economy and more importantly the outlook for business? And how will demand levels in Alberta impact the country? Read En-Pro’s Weekly Energy Report to find out more.

By: Roger McKnight, Senior Petroleum Advisor

Let’s dispense with the latest U.S. inventory report which, as this recession drags on, is becoming as intriguing as the Olympic gold medal round in ice fishing.

Inventories of all three key commodities are above the five year average with demand negative for all but jet fuel. Refinery runs remain below 80% and this at a time when they will start their annual spring maintenance.

We could actually see runs at below 70% in the next six weeks which, will of course, as usual, jack up prices in April and May. Those tankers that have spent months bobbing off shore loaded with crude and distillates have finally said enough is enough and have started delivery, which somewhat explains the increase in crude inventories and a tripling of imports of distillates.

The recent jump in gasoline prices is a stretch in logic and a good example of how far the speculators will go to justify the situation we find ourselves in; whereby the futures prices of gasoline are higher than heating oil in the dead of winter.

What about imports of gasoline from Europe? And what has the latest shut down of Total, in France done to inventory levels?

By: Roger McKnight, Senior Petroleum Advisor

Find out in this week’s Energy Report. Sign up by sending your email to info@en-pro.com.

In order to navigate out of the recent global recession, most world governments increased spending and deficits, forcing some into unsustainable debt levels.

Last week, the currency, equity and commodity markets were fixated on the European debt crisis. Specifically, the epicenter – Greece, which has been living far beyond their means and there is major concern they will default on their issued bonds and global debt payments.

Greece’s financial books are a nightmare with deficit-to-GDP at four times more than most of the other euro-zone members. The government is dealing with a resistant public not receptive to their austerity measures. Being one of 16 countries using the euro currency, markets expected this would begin a chain reaction financial crisis similar to the Wall St. meltdown of Lehman Brothers in 2008. The other fiscal mischiefs include Portugal, Ireland and Spain. Spain is probably a greater concern because they represent 7% of the Euro-zone economy and Greece is small potatoes at less than 3%. A vague rescue plan was announced last Thursday by the European Union President restoring temporary confidence helping to boost the stock market and oil prices.

So what has this precedent sent to the other fiscal misfits? And how will this all affect North America oil prices? Check out the En-Pro Energy Report. Sign up by sending your email to: info@en-pro.com.

In July of last year, Shell announced they were considering the future of their Montreal refinery at which time we suggested that the word “bleak” would pretty well describe the probable outcome.

Unfortunately, we were correct. For those of you who thought that the recently confirmed decision to close this refinery was the end of the story and that probable pricing and supply problems will be isolated in the eastern part of the country, such is not the case, as another major oil company is in the process of realigning its focus on its downstream operations which is oil-guy-talk for let’s cut some refineries out of the picture.

By: Roger McKnight, Senior Petroleum Advisor

To find out the implications of the Montreal closure means, and what the future of refining in Canada holds, check out this week’s Energy Report. Subscribe by sending an email to: info@en-pro.com. For more on this story go to the En-Pro newsroom. www.en-pro.com/newsroom