Industry Cautiously Watches Oil Prices Inch Higher
By Alex Mills
AUSTIN Texas (Texas Insider Report) President Obamas Clean Power Plan is
headed to the U.S. Supreme Court in an unusual move that will bypass the U.S. Court of Appeals for the D.C. Circuit. The courts move is
another twist in a case that has defied the traditional legal track.
The issue has to be of extreme importance for the Supreme Court to take this unusual step.
With emergency requests streaming in from a swarm of states utilities and other stakeholders the Supreme Court made an unprecedented decision in February to step in and freeze the Clean Power Plan during D.C. Circuit review.
Opponents of the plan to cut carbon emissions from the power sector say the courts decision is evidence of judicial skepticism toward the rule. While EPA has said that the Clean Power Plan is just another Clean Air Act the Courts actions seem to indicate that is not the case.
The Clean Power Plan was adopted by the Environmental Protection Agency on Aug. 3 2015. It will implement more stringent regulations on the emissions that are believed to contribute to global warming.
The final version of the plan aims to reduce carbon dioxide emissions from electrical power generation by 32 percent within 15 years relative to 2005 levels.
The plan will require individual states to meet specific standards with respect to reduction of carbon emissions. States are free to reduce emissions by various means and must submit emissions reductions plans by September 2016 or with an extension approval by September 2018. If a state has not submitted a plan by then the EPA will impose its own plan on that state.
The EPA divided the country into three regions based on connected regional electricity grids to determine a states goal. States are to implement their plans by focusing on three building blocks: increasing the generation efficiency of existing fossil fuel plants substituting lower carbon dioxide emitting natural gas generation for coal powered generation and substituting generation from new zero carbon dioxide emitting renewable sources for fossil fuel powered generation.
States may use regionally available low carbon generation sources when substituting for in-state coal generation and coordinate with other states to develop multi-state plans.
The EPA decided in 2014 that the Clean Air Act is ambiguous and it decided to develop new air emission regulations for power plants that are more restrictive on fossil fuels that generate electricity.
Twenty-seven states asked the D.C. Court of Appeals for an emergency stay to prevent implementation. They argued that EPA overstepped its legal authority. The Supreme Court on Feb. 9 ordered EPA to stop enforcement until the lower court rules.
Last week the Supreme Court decided to hear the case on Sept. 27.
Crude Oil Prices Rebound: Some feelings of optimism within the industry that prices have hit bottom.
Futures for June delivery on the NYMEX settled at $46.23 per barrel on March 11 after the Energy Information Administration surprisingly announced crude oil inventories fell for the first time since March adding to concerns over supply outages in Canada and Nigeria. The EIA said crude inventories fell 3.4 million barrels last week compared with analysts expectations for an increase of 714000 barrels.
The EIA said it expected Brent to trade at $76 per barrel next year on continued increase in demand.
The rally in crude crossed over to refined oil products with gasoline settling up 6 percent and ultra-low-sulfur diesel or heating oil up 4 percent. The refining margin or crack for gasoline had its biggest daily gain in 3 months rising more than 14 percent to above $20 per barrel.
Crude prices had risen earlier after Shell announced a Nigerian pipeline closure while Canadian energy companies tried to restart closed facilities that halted more than 1 million barrels per day in supply after a huge wildfire in Albertas oil sands region.
In Nigeria a refinery official said crude flows were halted to the Kaduna and Warri refineries after a pipeline attack. Nigerias state petroleum company says the Kaduna refinery produces 112600 barrels of fuel per day while the one in Warri had a capacity for 125000 barrels per day.
In London the Brent contract for July delivery on ICE settled at $47.60 per barrel just $1.37 higher than WTI.
The EIA also noted that during the first three months of 2016 crude oil prices were relatively more volatile than in recent history. This elevated volatility occurred when overall oil prices were low and volatility was driven by high uncertainty related to supply
demand and inventories" EIA said in a report.
Volatility often reflects market uncertainty about both the current and future value of a commodity EIA said. Daily volatility is often driven by the release of new economic or supply information changes in market expectations or unanticipated events that can cause large price adjustments.
Some reasons for volatility in crude oil prices include uncertainty about:
- Future production levels in key oil-producing nations
- Global economic growth particularly in China and other emerging market economies
- Growth in U.S. gasoline demand following higher consumption levels in 2015
- Crude oil inventories and storage capacity constraints
Volatility also increased during unexpected interruptions in oil supply such as the disruptions that occurred during the first Gulf War in 1990 in the aftermath of hurricanes in the U.S. Gulf of Mexico and in Libya in the first half of 2011.
Measuring the difference between the high and low closing oil prices in a given month is another way of measuring volatility. In January 2016 Brent crude oil spot prices closed at a low of $26 per barrel and a high of $36. This $10 trading range was higher than the range of any month in 2015.
The magnitude of the trading range compared with the average monthly price was 33 in January the highest since 2008. But with
the recent stabilization of oil prices the trading range for April dropped to 13.
Alex Mills is President of the Texas Alliance of Energy Producers. The Texas Alliance of Energy Producers is an oil & gas trade association that represents some 3000 members. It has offices in Austin Houston Fort Worth & Wichita Falls. The opinions expressed are solely those of the author.
