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With the refining industry world wide grinding down under the weight of terrible margins and financial strains, it is not too difficult to imagine a byproduct crisis. 700,000 gallons has been idled on the East Coast, which is resorting to importing European gasoline. Meanwhile three European refiners are shut down. Globally Brazil short of biofuel, as a poor sugar crop is having an impact. Squeezed by refining margin Asians are cutting output, even as power shortages expected in China. Diesel and heating oil inventories in the US are now the lowest in three years. The weather is getting stranger and stranger and the Gulf of Mexico energy complex can ill afford a big hurricane next summer. Does this look like a bullish brew to anybody not totally comatose?
The expiration of a 30-year federal subsidy for ethanol could impact pump prices to the tune of 4.5 cents this week as most gasoline contains 10% ethanol; without the $0.45/gallon subsidy, 4.5 cents have to be eaten somewhere.
source: EIA
The markets are oblivious to all this, seemingly convinced that all one has to do is put on a cross the board risk on trade to play more central bank interventions. As for me I am not so sure it is going to be possible as long as oil is spiking and the refinery complex is being shut down. Regardless I see it a negative either way, but especially it is negative if the central banks act. I think their hands are completely tied either way.
Adding to the woes, grains have had a 10% spike in less than a month, sparked by poor South American growing conditions. Unfortunately rumors of dovish Fed actions, merely works as an accelerate to all this. I play ags until the specs get back in, which is probably underway.
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