We’re Still Feeling This Accident in the Energy Sector

At 4:01 a.m., a 10-foot-high vapor cloud started drifting across the floor…

It was roughly 95% propane, 2.5% hydrofluoric acid, and 2.5% other hydrocarbons. It came from a busted pipe joint in the Philadelphia Energy Solutions refinery’s alkylation unit.

And a minute later, it caught fire.

You don’t need a chemistry degree to know that’s bad. Even worse, the fire was just the beginning…

A control-room operator rushed to turn on “water cannons” in the alkylation unit. They were specifically designed for this type of emergency. They should’ve stopped the fire’s spread.

But the water cannons didn’t work…

Their communications system failed in the fire. And so did the backup system.

Then, at 4:15 a.m., an explosion occurred in the alkylation unit. Within seven minutes, two more explosions rocked the facility.

The last explosion sent a roughly 38,000-pound fragment flying 2,000 feet over the nearby Schuylkill River. The explosion was so big that weather satellites picked it up.

Due to the dangerous chemicals, officials ordered local residents to shelter in place. And the massive fire burned for more than 28 hours.

Miraculously, no one died in the June 2019 disaster. But it caused a ton of destruction…

Experts estimated the total loss at roughly $750 million. They said it was the third-largest refinery loss in the world since 1974.

That’s mind-blowing. In a matter of minutes, one corroded elbow joint caused three-quarters of a billion dollars in damage. It’s likely the most expensive elbow joint in history.

And more than three years later, this catastrophe is still hurting us…

You see, the Philadelphia Energy Solutions facility was the largest refinery on the East Coast at the time. But fixing all the damage proved too costly. So the refinery closed for good.

Meanwhile, here in the U.S., we’re facing a harsh reality. We need more oil.

Gasoline prices remain higher than they’ve been for much of the past eight years. And the “green energy” revolution can’t close the gap quick enough for us.

The loss of the Philadelphia Energy Solutions refinery wasn’t just a random blip in the overall energy industry, either. Several other facilities have closed in the past few years.

That’s a huge deal. The U.S. Energy Information Administration cites these closures as one of the main reasons why our country’s refining capacity has declined in recent years.

In fact, East Coast refineries are running at full capacity today. And they still can’t keep up with demand.

Distillate inventories in the Northeast region are currently a staggering 35% below their five-year average. And the U.S. as a whole is lagging more than 10% behind the average.

Folks, I don’t pretend to be a geologist or an energy-industry expert. But by now, you know I’ve dedicated my five-decade career to analyzing data. And the data is clear in this case.

Refining capacity is down. Production is down. And demand is up.

That’s a recipe for higher prices.

So it’s no surprise that the Power Gauge keeps pointing us toward the energy industry. It has done that all year. And broadly speaking, the energy industry is the big winner in 2022.

The Energy Select Sector SPDR Fund (XLE) is up roughly 62% since the start of the year. And the Power Gauge has assigned it a “bullish” or better rating for most of the year, too.

Today, XLE maintains a “very bullish” rating.

So if you feel like you’ve missed the opportunity or if you feel like energy’s latest move higher has run its course… I recommend you take another look at it today.

Good investing,

Marc Chaikin

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