Oil prices rise as geopolitical risks and weather risks come back into play. This comes as the man that wrote the history of oil, Daniel Yergin, says that oil is near a historical bottom and the Obama Administration continues to play cruel games with TransCanada Corporation (TO:TRP) and the approval of the Keystone Pipeline. On top of that we get oil inventories that will add to this jam-packed oil day.
Despite the global oil glut, it seems that oil supply disruptions still matter. Perhaps because the market is sensing that the glut may be near a peak. Libyan exports were halted in Libya’s Zueitina Port do to conflict between rival government factions. Bloomberg reported that Zueitina will be closed until further notice so tankers seeking to load crude there must register with the National Oil Corp and they are loyal to the internationally recognized government in eastern Libya, according to a Petroleum Guard spokesman Ali al-Hasy. Vessels registered with a rival NOC administration in Tripoli, seat of an Islamist-backed government in western Libya, are “illegitimate” and won’t be permitted to load at the eastern port, he said.
There is an oil workers’ strike in Brazil and that gave oil more support. The Wall Street Journal reported that Petrobras, Brazil's state owned oil company, said the strike affected 13% of the company’s daily oil production and 14% of the company’s daily natural gas production on Monday. The strike affected 273,000 barrels of oil production and 7.3 million cubic meters of natural gas production, the company said.
Product prices like gasoline and diesel soared when the Colonial pipeline shut down its facility in Cedar Bayou, Texas, due to flooding. The area received 12 inches of rain that began on Friday according to Tulsa World. They report that Colonial pipeline runs from the Gulf Coast to markets in southern and eastern United States. Altogether the pipeline stretches for 5,500 miles, carrying gasoline, diesel and other refined products. Colonial indicates it will work with shippers to find supply at other locations until the flood waters recede and repairs can be made.
Making History
Oil is near a bottom and global supplies look poised to close the gap with demand as investments in new production decline and consumption grows, according to Pulitzer Prize-winning author Daniel Yergin. He wrote the book that many believe is the greatest history book ever written on the subject of oil. As reported by Bloomberg, Yergin says, “We are in the bottom part of the cycle and a year from now the market will be looking different. These prices are having such a big impact on investment.” Lower prices will lead to consolidation in the U.S. shale businesses as weaker companies get bought or are forced to sell assets, according to Yergin. “There will be a lot of intense M&A activity because there is so much available. There is a lot of money in private equity firms and others waiting on the sidelines, waiting to come in.”
Don’t Be Cruel
The Obama Administration is saying it will still make a decision on the Keystone Pipeline despite the fact that TransCanada asked for a pause. After keeping TransCanada waiting around for 7 years and study after study that showed that the pipeline would have no impact on greenhouse gasses, now they won’t even let them pause their bid. The White House said the request reeked of politics. What reeks is that the Obama Administrations has kept this company in limbo for 7 years due to nothing put politics. The Administration wanted to kill the pipeline right before Obama leaves office, The Administration has lacked the courage to kill the deal earlier due to fears of a labor union backlash over lost jobs. Now the President doesn’t need the steelworkers anymore because he is not running for anything so he can please his environmental base. Killing the pipeline won’t help the environment, in fact it may endanger the environment because of transportation issues, but at least the President will make a political point.