A bear making a bull call here, I have VLO as a buy now. I knew this would happen, it was inevitable. Texas is asking for a 50% reduction in the ethanol requirement on blending. This will be replicated for the whole US and will increase refining demand. VLO looks awfully cheap here anyway. Paid $3.10 on june 52.50 calls. http://www.cnbc.com/id/24314554
Make no mistake about it, this political push for corn-based ethanol production has nothing to do with alternative energy and everything to do with VOTES! The amount of energy that is needed ( and water ) to turn corn into ethanol is absurd. It makes no sense at all to put 29% MORE ENERGY into something that you get out of it. What a joke this is! http://www.oilintel.com/spothome.cfm?loc_id=7 Daily refining margins
I actually owned some May 52 1/2 calls, I sold em at 3ish shortly after the energy report this Wednesday. I was expecting a 4 - 5 million barrel drawdown in gasoline. We only had a 3 million barrel drawdown, partly due to the 4% increase in refinery utilization. The 4% increase in utilization is what really bothered me, and is why I immediately dumped my VLO calls. Next week's report will show oil inventories as flattish, and a very small, if any drawdown in gasoline, which is going to put more pressure on refining margins. I was betting on low refinery utilization and massive drawdowns in gasoline inventory to cause the price of gas to explode. I was also hoping for oil to ease a bit, with gasoline being propped up by lower inventories and refinery problems, and those reasons have pretty much disappeared on Wednesday.
You will implode with the non-integrated refiners until oil drops below $100, on a definitive bearish crude chart. You're going to buy refiners when they are closing facilities, and selling others off? When their margins are so battered they literally don't want to refine oil? It's a mathematical trade, and the calculus is a huge headwind.
I expect the dollar to continue strengthening some and crude prices to ease a little taking some pressure off of margins. We might even release some oil from the strategic reserve. We did that last time around to help get a Republican into the White House for a second term, along with a change in weighting for gasoline in the GSCI, causing gasoline futures to be dumped. Curiously, that happened about the time that Hank moved from GS to Treasury. (Must have been just a coincidence.) I too like refiners at the present prices, and hadn't anticipated that there might be a change in the ethanol blending requirement, but it may be awhile before the move pays off, so you might have to roll those June Calls. I prefer Frontier.
At last, it's about time, those who years-ago told, and wrote, the truth about Ethanol-from-corn's net energy production are finely being given their due. The broad scientific community has always realized it was an idiotic idea. (I suppose this explains why it was championed by the Bush administration.) We understand, of course, why the midwest Senators pushed it. They are not idiots, rather they were doing the best they could for their constituents. I don't blame them for that. At present this ethanol from corn thing seems to have a rather limited lifespan -- let's hope so. The idea of using Ethanol is not bad in itself, and from sugar cane it seems to make energy sense (at least in Brazil) and we have a huge cane producer just a few miles from Key West (hint,hint!). And also Louisanna is a significant producer in the US, and there is Puerto Rico and all the other hot-humid nations at that latitude. It would take some time to make the switch from corn to cane. Then i suppose sugar prices will go through the roof. In the meantime should we be going long refiners and shorting corn? P.S. A "great" idea to float by the Bush administration just occurred to me-- we'll get Dick to whisper it into Bush's ear -- Let's bring shock and awe style democracy to Cuba by bombing them and taking over their cane fields! We'd need a pretext of course. But that's easy -- Maybe either the aluminum tube thing, or African Uranium reports could be recycled. We've got the perfect prime contractor in ADM to move in after the smoke clears -- that is assuming Dick's family already has enough ADM stock to make it really worthwhile. What do you think guys? Is this a great idea, or what!
Your calls must have expired worthless. The stock tanked from $53 all the way to $30 this week. Nice call.
Landis, wtf, do you have to be so glib all the time? Anyways, I agree the refineries should run with oil under 120, and FTO and VLO will bust out with oil between 120 and 100.
Haha. You bookmarked this old post just to bring it up after all these months??? Were you waiting around for the call to go bust and just itching to rub this in this guy's face? If his calls expired worthless, then he was injured. Ouch. Now you want to insult him... what a guy you are landis...