Category Archives: Commodities

Hurricane Harvey Forces Closure of Largest US Oil Refinery

The devastation wrought by Hurricane Harvey and its unprecedented flooding has forced several oil refineries to partially or completely close, including America’s largest. Harvey’s ferocious winds and rain forced the Motiva refinery in Port Arthur to close. The plant has the capacity for 603,000 barrels/day. According to the Wall Street Journal the refinery began closing operations at about 5am central time on Wednesday “in response to increasing local flood conditions.” The giant Saudi Arabian oil company Saudi Aramco is the owner of Motiva. Production of oil had already slowed to 60% of capacity on Tuesday.

As of Wednesday morning, about 18 refineries were at least partly closed in Texas, including those located at Port Arthur in Houston.

“The largest impact to energy markets is severe flooding, which has resulted in the closure or part-closure of nearly 25% of the United States’ refinery capacity,” analysts wrote.
“As Harvey heads inland once again, we note a number of refineries in its current trajectory will be under threat,” they added. “This could close up to another 824,000 barrels per day (b/d) of capacity, giving an additional lift to fuel prices, while further depressing crude.”

The hurricane has had more of an impact on refining than on production, which has caused a strange fluctuation in oil prices compared to gasoline prices, which have gone up compared to oil.

Usually oil prices climb in response to extreme weather that hits areas with high concentrations of oil businesses. But prices of oil have fallen recently: West Texas Intermediate crude oil was down 1.1%, at $45.94/barrel. But US gasoline futures went up to their highest level since July 2015.

As refineries close due to damage, or workers are unable to reach their jobs; or it becomes difficult or impossible to move the gasoline out, a lack of demand for oil is created. This leads to more oil in storage, waiting to be refined, thereby forcing prices down. At the same time refiners can’t produce and distribute gasoline and other refined oil products, lowering supply and forcing prices up.

This explains why, when usually the price of oil and gas go up and down together, the unique circumstances caused by Hurricane Harvey has caused oil and gasoline prices to travel independently and in opposite directions.

Oil Prices Stay Steady with Pressure from Both Ends

Oil prices are performing a precarious balancing act as US oil production increases simultaneously with reduction in output from OPEC and other oil producers.

The price for Benchmark crude futures hardly budged from $55.86 a barrel at 6:57am. Yesterday’s price of $56.65 was the high for the month, just before it shrunk slightly today.

Only 6 cents separated today’s and yesterday’s price for US West Texas Intermediate crude futures, falling slightly. Yesterday’s price was the highest a barrel had been since March 7, at $53.76.

The weekly Energy Information Administration (EIA) report points to US oil output rising, while also showing that US stockpiles at the crude hub in Cushing, Oklahoma went up by 276,000 barrels during the week which ended on April 7.

Other data, however, showed a surprising fall in overall US crude inventories. Last week inventories fell by 2.2 million barrels while imports went down by 717,000 barrels per day.

“We saw a bit of a reversal in oil prices (on Wednesday) and it came despite some positive news,” chief market strategist at Sydney’s CMC Markets. “It does appear that there is bit of focus on the data that came alongside inventory numbers which showed further increase in U.S. production.”

Aronia Berry Brings Health Benefits and Profits

Chokeberries
Chokeberries

There is a new fruit on the market which makes other anti-oxidant fruit look like wimps: it’s called the aronia berry and, according to research, it has more antioxidant muscle than just about any other kind of fruit.

Also known as the chokeberry due to the way European settlers in North America reacted when they ate it; the new name bears no preconceived negative connotations, and comes from its Latin name Aronia melanocarpa.

Native to North America, aronia was introduced to eastern Europe and Russia in the beginning of the 20th century and is grown there for wines and juices. In the US the berry is grown in the upper Midwest, with thousands of bushes planted there each year for cultivation.

The main push for the rising popularity of aronia came from the Pittz family. In 1997 Andrew Pittz’s parents were looking for a crop they could grow on the hilly and silt-heavy soil close to the Missouri River. They discovered aronia, and planted 200 bushes that year. It was a good choice because the bush grows easily in that area and has few pests. The bushes do not need to be planted anew each year.

Almost 20 years later Andrew, who is 28, sells his berries to about half of all the 237 Hy-Vee stores, and to every Whole Foods market in their Midwest region of the US.  Not only have the Pittz family been successfully growing and selling aronia, but they have been spreading the gospel to just about anyone who will listen.

His farm sponsors a yearly field day in September that attracts thousands of participants. Last year Andrew planted aronia bushes in all of Iowa’s 99 counties. Iowa State is also helping to promote the berry. It offers grants to help people begin to grow aronia, and promotes the berry as a value-added crop and a great way to diversify farm income.

“We want the aronia berry to be to Iowa’s Heartland what the peach is to Georgia.” Pittz said.

Huge Alaskan Gold Mine Abandoned by Anglo American

Pebble Mine Protestors
Pebble Mine Protestors

After six years and a $541 million investment, Anglo American, one of the world’s largest mining companies, pulled out its stake in the Pebble Mine project, a gold mine estimated to be valued at about $300 billion, or even more.

Left behind with 100 percent ownership of the project, which is in the Alaskan Peninsula, is Northern Dynasty, a much smaller mining company. What is not fully understood are the reasons for Anglo American’s withdrawal after so much investment of time and money?
According to Anglo’s chief executive officer Mark Cutifani, the abandonment of the project is for strictly business reasons concerned with the company’s efforts to “prioritize capital to projects with the highest value and lowest risks.”

Whether that is the whole truth or not, environmentalists and Native American communities in the area would be happy to see a complete shut-down of the development of the Pebble Mine. The mine is located upstream from the salmon fisheries in Alaska’s Bristol Bay, where about half of the planet’s sockeye salmon spawn. Perhaps Anglo American is afraid that the Environmental Protection Agency will one day block the mine. (The Clean Water Act gives the EPA the power to close down the mine for environmental reasons.)

It is also possible that the No Dirty Gold campaign also swayed Anglo away from the mine. This effort by 50 prominent gold buyers and retailers, who signed a promise not to buy gold from Pebble Mine, could have dimmed Anglo’s enthusiasm for the project.

“I do not know whether the No Dirty Gold campaign contributed to Anglo American’s decision. I do believe that the campaign was a meaningful part of very broad-based opposition,” says Michael Kowalski, the CEO of Tiffany, one of the most prominent signatories of the preemptive boycott.

Kowalski added that opposition to the mine is broad-based, including most Bristol Bay residents, commercial and sport fishermen, jewelers, and “all those concerned with protecting the Bristol Bay ecosystem. … I assume that this diverse, robust opposition was reflected in a risk/return assessment of this project.”

Anglo continues to deny that the opposing forces had anything to do with the company’s decision to exit the mine. Spokesman for Anglo, James Wyatt-Tilby said no, opposition from environmentalists and fear of being denied permits from the EPA were not a factor.

“Our views on Pebble as a mining project are unchanged. … We wish the project well, and express our thanks to those who have supported Pebble.” Asked directly about the No Dirty Gold campaign, he declined to bite, reiterating that “our decision to withdraw from the project is the result of an internal prioritization of the many projects that we have in our portfolio.”

Commodity Futures Trading Commission Issues Temporary No-Action Relief for CPOs

Last month, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight issued a temporary no-action relief for commodity pool operators of securitization vehicles.

Lexology.com explains: “The March No-Action Letter is one in a series of no-action letters issued by the Division providing relief for securitization vehicles from the requirement that their operator register as a CPO.”

Last year, the Division issued CFTC Letter No. 12-14 which excluded several securitization vehicles in its definition of “commodity pool.” March’s letter states that CPOs must comply with the following provisions during the no-action period:

  • The CPO of a securitization vehicle comprising a static pool of assets that does not have either an equity tranche or debt issuances rated lower than BB will not be required to comply with the performance disclosures required under Regulation 4.25 with respect to that securitization vehicle

  •  With respect to the calculation of net asset value with respect to the securitization vehicle, fixed income securities rated BB and higher should be treated as debt and all other fixed income securities and equity tranches should be treated as equity

  • With respect to the “de minimis” exemption under Regulation 4.13(a) (3), the commodity pool operator of a securitization vehicle that did not or does not pay any initial margin with respect to the vehicle’s swaps positions must use the alternative net notional test under Regulation 4.13(a)(3)(ii)(B) to determine eligibility for exemption from registration under that section

  • In lieu of the financial statement requirements under Regulation 4.22 for the operated securitization vehicle, the commodity pool operator of that securitization vehicle provides basic, material information concerning the structure of the securities and distributions thereon; the nature, performance, and servicing of the assets supporting the securities; and any swaps held in that securitization vehicle’s portfolio, including a discussion of that vehicle’s counterparties

  • The CPO of a securitization vehicle need not comply with the specific requirements of the reporting obligations under Regulation 4.21(b), the disclosure obligations under Regulations 4.24(a) and (s), or the requirement under Regulation 4.23 that books and records be maintained at the main business office with respect to the operated securitization vehicle

  • The CPO of a securitization vehicle with an amortizing pool of assets need not comply with the performance disclosures required under Regulations 4.25(a)(1)(F) and (G) with respect to the operated securitization vehicle

  • With respect to the requirement under Regulation 4.24(h) that the CPO of a securitization vehicle disclose the percentage of that securitization vehicle’s assets used to trade commodity interests, the commodity pool operator of that securitization vehicle that holds static swap positions must provide full and complete disclosure regarding the swaps positions and their functions within that securitization vehicle in addition to a percentage.