What’s Going On Below the Waterline…

Here are a couple of clues from some folks that are really bringing some serious cash to the poker table. Over the past nine months, Sudan’s crude exports to China have increased some 13% (during a global recession no less)! Now China National Petroleum Corp. (CNPC) – China’s 800 lb. Oil Gorilla – is looking to double its Sudanese refinery operation by acquiring capacity from Malaysia’s Petronas.

On the flip side (almost literally), the largest refiner in the U.S., Valero Energy (VLO), has announced the permanent closure of its Delaware City, Del., operation. Seems the plant has been costing Valero a neat $1 million bucks a day. The board figures it’s just easier to rip this bandage off, to the tune of one-time costs of some $1.8 billion.

Valero is not alone here. So far this month, Sunoco (SUN) announced that it was shutting down its Eagle Point refinery in New Jersey, and Western Refining (WNR) mentioned that it might close its Bloomfield, N.M., operation.

CNPC’s Sudanese expansion is slated to become operational in 2011. But here in the States, I seem to recall reading somewhere that we haven’t opened a new refinery in over 40 years. These are major long-term moves. As such, they offer an excellent view as to what is going on “below the economic waterline,” as it were.

… And What Will Happen When These “Icebergs” Hit Our Ship

But they also offer some intriguing clues as to what’s going on in a more immediate sense. The demand for, and price of, oil may drop a bit as demand cools here in the States. But that drop may not carry on for but so long. And I suspect that the price of gasoline – and the profits generated from same will actually rise quite a bit come the commencement of next spring’s “travel season.”

Keep in mind gas’ role as the vector of inflation, and one sees that Washington’s low dollar policy has a very narrow window left to achieve economic stimulation before we begin to see real inflation undercut GDP progress.

Indeed, one could easily say that the countdown has already begun.

Yours truly,

Adam Lass,
Editor, WaveStrength Options Weekly
TaipanPublishingGroup

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