Refinery Margins Widen

Crude markets ended last week little changed from Thursday’s settlements, while gasoline and heating oil markets pushed higher. In the US, the United Steelworkers union rejected a further proposal from Shell, thus allowing the oil workers’ contract to expire over the weekend. Apparently this effects about 30,000 refinery workers potentially affecting 50% of product production in US energy companies. Valero, Exxon and Shell have all stated that they will try to continue operations in lieu of idling. Similarly, walkouts in Britain continue to affect ConocoPhillips’ UK refineries. The current abnormally low refinery utilization data, increasing refinery shutdowns due to maintenance and unseasonably cold weather in the US Northeast have created strong momentum for product prices vs crude feedstock.

Opec continues to appear disappointed at the lack of bounce in energy prices. While at Davos, Abdalla El-Badri, Opec’s Secretary General, was quick to point out that the organization would announce further cuts in March if not satisfied with market prices. The consolidation we’ve seen across much of the energy sector in the last few weeks is a result of Opec’s follow-through on announced cuts. Further cuts, despite continued economic turmoil and weak demand may push prices further back along the futures curve significantly higher. Consumer hedgers looking to protect their upside can purchase the WTI Q409 $70/90 call spread strip for an average price of about $3,000 per 1000 barrels, or for zero premium by selling the $41 put in the same tenor.

Singapore 09:00