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WTI crude caps worst month in years on refinery shutdown in Kansas

08.01.2014  | 

WTI crude fell to a four-month low amid global declines in stocks and commodities and after CVR Refining said a Kansas refinery will be shut longer than expected, reducing oil demand.

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By MOMING ZHOU
Bloomberg

West Texas Intermediate crude fell to a four-month low amid global declines in stocks and commodities and after CVR Refining LP said a Kansas refinery will be shut longer than expected, reducing oil demand.

The seventh decline in eight days capped a monthly loss of 6.8%, the biggest in two years. CVR’s plant in Coffeyville may be shut for four weeks after a July 29 fire, CEO Jack Lipinski said on July 31 an earnings call. The plant uses crude from Cushing, Oklahoma, the delivery point for WTI futures. The Bloomberg Commodity Index slid to a five-month low and the Standard & Poor’s 500 Index headed for the first monthly drop since January.

“Coffeyville is bringing the market down,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “You are going to be using less crude from Cushing. There is also broad concern about global stock markets.”

WTI for September delivery decreased $2.10, or 2.1%, to $98.17/bbl on the New York Mercantile Exchange, the lowest settlement since March 17. The volume of all futures traded was about 35% above the 100-day average. Prices were down 6.8% in July, the most since May 2012. The premium of September contracts over October slumped to 85 cents from $1.23 on July 30.

Brent for September settlement slipped 49 cents, or 0.5%, to $106.02/bbl on the London-based ICE Futures Europe exchange. Volume was 13% above the 100-day average. The European benchmark crude was at a premium of $7.85 to WTI on ICE, the biggest since June 24.

Control System

The fire at the 115,000 bpd Coffeyville refinery damaged fiber optics in the control system, forcing valve closings on units and preventing crews from operating equipment, according to a person familiar with operations.

CVR, which owns 1 million bbl of storage at Cushing and leases 3 million bbl of tanks, says Cushing supplies go to Coffeyville and the Wynnewood refinery in Oklahoma.

Inventories at Cushing started declining in January after the southern leg of TransCanada Corp.’s Keystone XL pipeline began moving oil from the hub to Gulf refineries. Supplies dropped to 17.9 million bbl in the week ended July 25, the lowest level since 2008, according to the Energy Information Administration.

“Coffeyville is connected directly to Cushing, and that’s why it’s a big deal,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “We are probably going to see a build at Cushing.”

Argentina Debt

WTI also slipped with other commodities and equities as Argentina missed a payment on $13 billion of its debt. The Bloomberg Commodity Index of 22 raw materials fell to 127.88, the lowest level since February. The S&P 500 declined as much as 2% on July 31, down 1.4% for the month.

Argentina missed a deadline on July 30 to pay $539 million in interest after two days of negotiations in New York failed to produce a settlement with Elliott Management Corp. and other hedge funds that won a court order for full repayment on the securities they own. The ruling prevents Argentina from servicing its debt until the holdouts settle or are paid the $1.5 billion judgment.

“We have the Argentina debt crisis and we have Coffeyville,” Larry said. “Everything is piling on.”



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