January of this year, Philadelphia Energy Solutions, LLC (PES), the owner of the largest U.S. East Coast oil-refining complex, announced to its employees plans to file for chapter 11 bankruptcy. This comes six years after private equity firm Carlyle Group LP (CG. O) and Energy Transfer Partners LP’s Sunoco Inc, rescued the company by supplying tax breaks and grants. PES’s refineries combined have approximately 335,000 b/d of crude oil processing capacity and employ about 1,100 people. They have stated that the bankruptcy will have no immediate impact on their employees or the 110 million barrels of refined products that are produced annually.
As the drones of the woodwind instrument that has been used for over a millennium fades into thin air from the most recent Feast of Saint Patrick, we await, arguably, the most anticipated FOMC meeting in recent years for indications on the Fed’s interest rate policy going forward. The Federal Reserve’s first meeting under Jerome Powell’s leadership is over the next couple of days and will hopefully provide in plain understandable terms, the Fed’s actions on whether there will be 3 or 4 interest rate hikes this year. If the Fed is leaning towards the 4 or maybe even 5 interest rate hikes, the higher borrowing costs which may trigger less spending by businesses and consumers, will most certainly keep global equity markets on edge. As financial markets turn cautious because of continuing concerns about the threat of a global trade war and inflation fears continue to be a hot topic, the energy sector may continue its grind in a tight range until fundamentals give it a nudge one direction or another. As of 1:00pm EST, WTI for April delivery is down $0.29 at $62.05, HO is unchanged at $1.9118 and RBOB is down $0.0100 at $1.9359.
The Dow Jones Industrial Average is down 396 at 24,569 and S&P 500 Index is down 46.5 at 2,709.5.
Starting in 1977 the United States has acquired 62 enormous salt caverns along the coastlines of Louisiana and Texas to store crude. The salt caverns were developed by drilling wells into the huge salt domes and injecting them with freshwater to dissolve the salts. The dissolved salt solution is then transported by pipes to disposal wells. By enacting this process of “solution mining” precise dimensions are created which can hold anywhere from 6-35 million barrels of oil, as stated in the diagram. These reserves are used in the event of national disasters, major storms, or outages in oil producing countries. Last year when Hurricane Harvey hit Texas, 5.3 million barrels of oil were sold from the government to four refiners to help aid in the fuel shortage. Currently, we have 260.1 million bbls of sweet crude (petroleum with less than 0.42% sulfur) and 405.4 million bbls of sour crude (petroleum containing high levels of sulfur) totaling 665.5 million bbls since March 9th 2018. This week the U.S. Department of Energy said it would sell 7 million barrels of sweet crude oil to comply with a law enacted in 2015 to help fund the government. The DOE will be accepting offers on this oil until March 21st and deliveries will hail from the SPR West Hackberry site from May 1st – 14th and from May 1st – 31st from the Bryan Mound site.
Today the EIA (Energy Information Administration) reported, that crude oil exports from the U.S. have nearly doubled since 2016. In 2017, the U.S. exported 1.1 million barrels of crude per day on average. How did this occur, the EIA states that, “U.S. crude oil exports were supported by increasing U.S. crude oil production and expanded infrastructure.”
On March 13th 2018, President Donald Trump relieved Rex Tillerson of his Secretary of State duties. In a speech on Tuesday, President Trump cited differing opinions between himself and the former Exxon executive as the reason for the firing. CIA Director Mike Pompeo is slated to replace Tillerson, of whom the President said, “With Mike Pompeo, we have a similar thought process.”