Ethanol To Increase in Price? Most Likely

Updates

August 13, 2012:  data point regarding 2012 corn/ethanol following news of worse corn crop in 17 years:

About 42 percent of the much diminished corn crop this year is expected to go to ethanol, according to the U.S. Department of Agriculture. The USDA Friday said it now sees U.S. ethanol use at 4.5 billion bushels, of the total expected 10.8 billion bushel crop this year. Ethanol is the biggest user of corn, followed by livestock, which is expected to consumer 4.1 billion bushels.

Andrew Lipow, president of Lipow Oil Associates, said ethanol probably added about six cents a gallon to gas prices since the middle of June. In that time, ethanol futures have gone from about $2 a gallon to around $2.60. Ten percent of gasoline is ethanol, and the rise in corn prices has stirred speculation that the Environmental Protection Agency might be encouraged to temporarily drop the mandate.

My hunch: the EPA will make a major announcement to temporarily drop the mandate, but they will do it at the most politically opportune moment. It's a tricky situation: it could cause Iowa to vote for someone other than the incumbent (or not vote at all).

Original Post

Ya gotta love central planning.

And it gets increasingly difficult for me to keep up with data points.

First, this one. I was not aware that back in January they were talking about the price of ethanol increasing due to the end of subsidies; the price increase will contribute slightly to the price of gasoline.

Now this news: China is going to be buying more American corn this year. And it won't be a trivial amount. Well, the article doesn't say that directly but it's not hard to figure this one out. The article was posted just after midnight EST, Thursday, March 8, 2012. It will be interesting to see what corn futures do later today.

Beijing and the influential U.S. agriculture department may have overstated China's corn crop by as much as 14 percent, pointing to higher imports from the world's second-largest consumer of the grain that could squeeze already tightening global supplies.

If China plugs the gap between projected and actual domestic supply with additional corn imports, it would drive up international prices already near four-month highs. Wheat markets could feel the impact too if Beijing snaps up the grain as a substitute to corn for animal feed.

Interestingly, this was posted "yesterday," March 7, 2012:

Corn also slumped on speculation that China, the world’s biggest consumer of the commodity, will reduce imports of the grain and boost planting to feed expanding hog herds and chicken flocks, said Rich Nelson, the director of research for Allendale Inc. in McHenry, Illinois.

So, the perfect storm continues. Not only is crude oil increasing in price, but now ethanol, due to the loss of subsidies, will increase in price. Yup, ya gotta love central planning. BusinessWeek from 2007:

Corn is caught in a tug-of-war between ethanol plants and food, one fo the first signs of a coming agricultural transformation and a global economic shift. Ever since our ancestors in the Fertile Crescent first figured out how to grow grains, crops have been been used mainly to feed people and livestock. But now that's changing in response to the high price of oil (remember, this was written in 2007), the cost in lives and dollars of ensuring a supply of petroleum imports, and limits on climate-warming emissions of fossil fuels.

Quick: Does the US Ban the Export of Crude Oil?

I remember some months ago stating that the US was exporting crude oil. "Anonymous" said the federal government bans the export of crude oil.

Hmmmm.

Not according to the EIA.

The small print/footnote:

Notes: Crude oil exports are restricted to: (1) crude oil derived from fields under the State waters of Alaska's Cook Inlet; (2) Alaskan North Slope crude oil; (3) certain domestically produced crude oil destined for Canada; (4) shipments to U.S. territories; and (5) California crude oil to Pacific Rim countries. 

Enough exceptions to drive a semi truck through loaded with crude oil.

By the way, "California crude oil to Pacific Rim countries." Can that dot be connected to the fact that OXY USA (big in California) plans to re-deploy some of its rigs to California and out of North Dakota? WTI and North Dakota Light Sweet significantly less than Brent oil? Hmmmm?

By the way, for Bakken and Spearfish fans, you have to love the phrase "certain domestically produced crude oil destined for Canada."

Killing The Keystone --> More Diesel Trains and Semi's Hauling Oil; Now More Trains Hauling Coal

Updates

Later: See first comment below. This information about "40 more unit trains daily through Billings" is coming from an environmental group. I was spoofed. I thought 40 unit trains/day was a bit much. Maybe there is enough coal and enough demand to warrant 40 unit trains but now that I know a bit more about the source, I have to question the validity of the story. A huge thank you to "anonymous" for alerting me to a bit of hyperbole and its source.

Original Post

The faux-environmentalists killed the Keystone XL so that "they" could put more semi's on the road, and more diesel trains on the track. And, of course, this works out well for the oil companies: they pass on the extra cost of transportation to the mineral owners and/or the consumer, but they now have the flexibility of moving their oil where they want and not constrained by pipeline. Also, any pipeline spill, no matter how small, shuts down the entire pipeline for an indefinite period of time. Not so with a derailment or a motor vehicular accident: within hours things are back to normal.

Now this story: how would an extra 40 coal trains per day through downtown Billings, MT, affect quality of life there?

This is not a joke. [Well, maybe it is. See first comment below, and update above.] Forty more unit trains/day. Not forty more railroad cars, but forty more unit trains -- a 100-cars in a unit train.

The expected shipping of coal from the Powder River Basin to Asia is likely to increase train traffic through Billings, according to a conference brochure.

For investors: find those manufacturers building rail cars. 

No Plan B

Updates

March 20, 2012: How very, very interesting. Earlier today I posted the note below. I purposely "hid" it here and posted it nowhere else, feeling that it was too speculative for the blog. Then this story that just popped up on Drudge Report: IMF says oil could spike 30%.

IMF chief Christine Lagarde warned Tuesday that crude oil prices may spike by up to 30 percent if Iranian supplies were disrupted, causing "serious consequences" for the global economy.

The standoff between Iran, the world's second-largest supplier of oil, and the West over the Islamic Republic's nuclear program is seen as a flashpoint that could sharply increase world crude prices.

March 20, 2012: it looks like April 1, 2012 is the day the countdown begins for Israel to launch against Iran. ICE will slow down trades beginning April 1, 2012, in an attempt to minimize large price swings. Gee, I wonder which way the price could go?

Original Post

I assume that most readers have heard of Mexico's Cantarell field. I think I've been reading about it for years: in addition to natural depletion, its annual production has taken a hit because the Mexican constitution forbids foreign drillers from operating in Mexican oil fields.

Bloomberg has an interesting story on the Cantarell field and how it plans to increase production from this aging field. [Update: CNNMoney posted a story about Mexico's "big oil" problem on August 17, 2012. It was fairly superficial, a throwaway article, but some folks might see something I missed.]

The article appears to be just another Bloomberg article but it is full of wonderful data points. Here are some of those data points and my comments:

It's hard to believe that Mexico is the world's third-largest oil producer and produces only 2.55 million bbls of oil/day. Iran is #2 and exports about 2.6 million bbls/day.

The Cantarell field is now down to less than 501,000 bopd: for newbies, the Bakken is solidly above 500,000 bopd and increasing about 5 percent each month. I think it's fair to say that the Bakken could hit 750,000 bopd by the end of the year, if the current rate continues.

On the other hand, the Mexicans say they hope to increase production by 6% over the next couple of years, going from 2.55 million bopd now to 2.7 million bopd.

“We plan to increase production to 2.7 million barrels in the next couple years,” Suarez Coppel said. Pemex will produce 3 million barrels a day “by 2017 or 2018, given that we invest enough.” 

"Given that we invest enough." Wow, Mexico even hedges on being able to increase production by less than 20 percent over the next five to six years. Remember, Mexico is the world's third largest producer.

Switching gears......

If Mexico is the world's third largest producer, producing about 2.55 million bopd, can you imagine what might happen with price of oil if we suddenly lost all that production? Well, that is the amount that Iran exports, about 2.6 million bopd.

I posted the other day that the Iranian embargo was to take effect July 1, 2012, but the insurers stopped insuring Iranian tankers effective January 23, 2012. Way back on February 24, 2012, I suggested that countries were already scrambling to find new sources for oil and suggested that was the reason we were already starting to see a spike in the price of oil.

Well, it turns out that may been very, very accurate. Bloomberg is reporting that Iranian shipments are already declining close to 500,000 bopd. My hunch is that the administration thought they had until July 1, 2012, for a diplomatic solution, and had not counted on insurers to bring this to a head much earlier. Although it's also possible, the administration was looking for maximum pain at the pump, only to come in as the shining knight in late June to say that a diplomatic solution had been reached, that Iranian oil was flowing again. The sudden drop in the price of oil/gasoline would occur just as the presidential election closing in on November.

The perfect storm......

Back on March 2, 2011, I wrote that once the global economy turns, the demand for oil will more closely match supply. Anything that disrupts supply, and threatens that demand/supply match (or appears to threaten that demand/supply), there will be a spike in the price of oil.

We now have something that threatens the supply of oil. This time it is not just Libya, it is the number 2 producer of oil in the world, Iran.

Whining.....

Obama cites bottlenecks and speculators as "possible" gasoline price factors.  I'm looking forward to the presidential debates: permitorium, moratorium, the Keystone, ....

It appears the administration has appointed Vermont's Bernie Sanders to be their point man to try to convince Americans that speculators are the cause of the recent rise in the price of oil. Because of the size of our economy, because of the size of our oil industry, it takes awhile to see how policies affect outcome. In the past three years: slow-rolling the domestic oil and gas industry; refusing to allow any drilling off-shore Alaska, or almost anywhere off-shore in the continental US; the moratorium and then then permitorium in the gulf (which caused much more economic damage than the original event); and the killing of Keystone XL.

Bernie whines about speculators, and overlooks everything else. I really don't know who the average American will believe: Bernie Sanders or someone else. It may not matter: at $6.00 gasoline, folks are not interested in casting blame; they are interested in seeing prices come down.

Speaking of the "average American" and the "average price" of oil.....

Yesterday, I wrote that AAA's "average" price of gasoline is not the same as the price that the "average" American is paying for gasoline. In today's news, the evidence. The Drudge headline reported today there is a gasoline station in Los Angeles charging $6.00/gallon. That may or may not be an outlier. But this is the real story: the cost of gasoline in California is now $5.00/gallon. The "average" price of gasoline in the country might be $3.79, but the "average" American is paying much more, and many "average" Americans may be paying as much as $5.00/gallon now.

Anyway, enough of this rambling. I think folks get the picture.

Three years of slow-rolling the domestic oil and gas industry, killing the Keystone XL, the permitorium, the continuing moratorium, .... Steven Chu did not have a Plan B if the Iranians embargoed their oil.

Oh, I haven't even mentioned the three refineries that closed down on the east coast for a variety of reasons, including the cost of environmental compliance.....and the EPA ready to shut down fracking.

Sorry For Delay in Posting: I've Been Out and About All Day

By midnight EST I will be caught up.

For newbies, I try to post four to ten new posts each day when I'm not traveling, but occasionally I get behind. This is one of those days. But I will get caught up.

Twelve (12) New Permits -- The Williston Basin, North Dakota, USA

Daily activity report, March 7, 2012 --

Operators: CLR (3), OXY USA (2), Hess (2), XTO, BEXP, Fidelity, G3 Operating, Whiting

Fields: Poe, Stanley, Cabernet, North Tioga, Sanish, Alkali Creek, Capa

G3 Operating has a permit for a wildcat in Williams County.

Two wells were released from "tight hole" status:

• 20531, 1.430, BEXP, Broderson 30-31 1H, McKenzie, Bakken,
• 20973, 1,138, CLR, Durham 1-2H, McKenzie, Bakken,

Seven wells on DRL status reported an IP, including:

• 20667, 1,664, Sinclair, Martens 2-5H, Mountrail, Bakken,
• 21126, 1,574, BEXP, KLT 24-11H, Williams, Bakken, this one is particularly interesting, coming as it does in the middle of food shortages; and, water, electric, and sewer shortages in Williston;  

Ten wells were reported to be producing or plugged

Earnings -- 1Q12

All 1Q12 earnings will be reported at this page; link will be on sidebar at the right, under "Earnings Central."

Earnings Calendar

AXAS: 

BEXP: N/A

BHI: beats by 6 cents; profits dip, but beat expectations;

CHK: huge miss; transcript; misses -- SeekingAlpha.com; 10 things we learned about CHK -- Minyanville;

CLR: link here; transcript here;

COP: Misses forecast, $2.02 vs $2.08;

CVX: profits up 4%;  April 10, 2012 -- advises that 1Q12 will beat 4Q11; bullish case for CVX -- SeekingAlpha; Chevron plans to release its quarterly results on Friday, April 27, 2012, before the start of trading. The Zacks Consensus Estimate for Chevron’s first quarter is $3.23 per share, higher than the earnings of $3.17 in the year-ago period and $2.61 earned in the previous quarter (both excluding adjustments for foreign-currency effects).

DBLE:

DNR: link here; transcript;

ENB: 

EOG: $1.20 vs $0.52 1Q11; post; Reuters -- profits sharply higher; Business Journal -- up sharply; highlights of the SeekingAlpha transcript; Filloon;

EPD: link here;

ERF: link here;

GEOI:

GMXR: link here;

HAL:  earnings up 46%; 89 cents; will increase fracking market share this year; expects deepwater services to grow 20% a year through 2015; expects to add more rigs in Iraq;

HES:

HP:

KOG: link here; earns one cent vs 4-cent loss y-o-y; Filloon's analysis;

Legacy/Bowood: earnings, realignment; 

LINE:

MDU: 19 cents/share; ten rigs nationwide, up from 2 last year; transcript;


MPC (Marathon Petroleum): beats by 37 cents;

MRO (Marathon Oil): link here;

NBL:

NBR: huge quarter; beats street;

NFX: earnings here; transcript; highlights of the transcript; Filloon's analysis;

NOG: misses by a penny; press release; Filloon's take;

NOV:

OAS: press release; Filloon's take;

OKE: 91 cents; avg est: $1.38;

OXY: transcript;

QEP: missed on revs; missed by 4 cents; nice report, however;

RIG:

SD: link here; transcript here; Mississippi Limestone formation; presentation;

SLB: earnings surge 38%;

SM: link here;

SRE: link here;

SRGY: 2nd quarter ended Feb 29; results; focused on D-J Basin;

SSN:

STO: earnings here -- the press release does not mention the Bakken; transcript;

STR: report here; 

USEG:

VOG:

WFT:

WHX: Transcript.  Filloon.

WHZ:

WLL: April 25, after mkt closes; estimates: $1.05; transcript; data points from the earnings transcript; from Motley Fool:

Higher crude-oil prices have given these companies the impetus to increase production, and Denver-based Whiting Petroleum has done just that. The company's impressive first-quarter results should have investors salivating about its future prospects.
Impressive first quarter
Net income for the first quarter shot up an amazing 400% to $98 million from $19 million a year ago. While core revenue from oil and gas sales grew 31% in the comparative period, total costs and expenses were relatively flat. Whiting managed to cut back on commodity derivative losses by more than $105 million this time. Management correctly anticipated oil and natural-gas prices, which resulted in the exceptional boost to its bottom line.
Actually beat expectationsOn the operations front, Whiting delivered well beyond upper guidance levels, which again is impressive. Total first-quarter production went up 22% year over year and 14% from last year's fourth quarter.

WMB:

WPX: WPX 1Q12 operations update (slide presentation).

XOM: misses on income; revenues rise;

What Are Others Saying?

For newbies: if you are interested in what others are saying elsewhere, click on "Western Union" at the top of the blog. There you can click on folks who comment on the Bakken at other sites. There are a number of folks who post some very informative comments.

"David," for example, has a great post comparing Whiting and EOG in neighboring townships in the Bakken. I've noticed the same thing.

Remember there was something of a disagreement going on a couple years ago whereby Whiting was setting up for twin near N-S wells on stand up 1280s on nearly all of their leases in Van Hook R91 and 92 W whereas  EOG was insisting for the area they were drilling geologically the NW-SE shorter-lateral wells on 640 spacings in R90 were correct, I think Whiting won this argument. Hunt has always drilled wells that are more nearly straight N-S than EOG on the eastern edge of the Parshall field, with mostly good results. They started doing all 640s about the same time EOG was drilling 640s but in the last year or so have gone to twin wells on 1280 spacings.The townships to look at are 153 89 and 154 89 if you want to see exactly how these wells are going to be positioned relative to existing wells.