Morning Petrospective – September 16, 2010       

il prices were mixed to lower on Wednesday, with crude oil and gasoline prices lower and with heating oil prices higher. The main factor in Wednesday’s weakness was a stronger US dollar, which came primarily as the result of a Japanese central bank decision overnight (Tuesday to Wednesday morning) to buy the greenback. This caught a large number of traders and investors leaning the wrong way because it came on the heels of a Japanese ruling party election that returned the party leader to his position at the head of the party – and therefore of the government. And he had been reportedly dead set against using the central bank to buy dollars.

The dollar gained dramatically against the Japanese yen (shown below on left) on the intervention, and that helped push oil prices lower on Wednesday. Curiously, the dollar did not gain as convincingly against the euro, which has been a much bigger factor in oil trading this year. The dollar gained against the euro very early Wednesday morning, but it sold off as the day progressed. Nevertheless, only heating oil prices ended the day in positive territory.

Traders were also less enthusiastic about the potential for US economic growth, after the most recent figures on US manufacturing. Capital Economics wrote: “The more modest 0.2% m/m rise in US industrial production in August adds to the evidence that the recovery in manufacturing has lost a lot of momentum from earlier in the year. The average monthly gains in manufacturing output that we are seeing now are healthy enough, but they are less than half of the size of the gains we were seeing in the spring. The big difference is that inventory rebuilding has slowed, with the output of business supplies unchanged last month. Consumers have failed to take up the baton. Overall, there is nothing here to change the now widely held view that economic growth will be substantially weaker in the second half of the year than it was in the first.” CE does not feel that the economy will head into recession, again, though.

The Empire State manufacturing Index also fell to 4.14 in September, from 7.10 in August. Analysts had been expecting a reading of 7.0 for the month, so this also represented a setback for any economic recovery.

This week’s DOE report showed the drawdown in crude oil stocks that had been expected but was not seen in this week’s API report. There were draws in both distillate and gasoline stocks, and the wire-house surveys had expected a build in distillate stocks and two out of three surveys were almost right there in predicting the size of the gasoline draw.

Despite what looks like a bullish report, based on three draws and a decline in refinery utilization, the surpluses in the three main inventory categories increased by a combined 7.0 million barrels against two years ago. This follows last week’s increase in those surpluses (against two years ago) of more than 11 million barrels. Two weeks ago, the two-year surplus in distillate stocks was 43.5 million barrels (33.03%); now, it is 44.9 million barrels (34.65%). Gasoline had a surplus (against two years ago) two weeks ago of 31.0 million barrels (15.95%); now, it is 39.9 million barrels (21.61%). The same surplus went from 57.8 million barrels (19.02%) two weeks ago in crude oil stocks to 65.7 million barrels (22.52%) now. In two weeks, the combined surplus in these three has increased by 18.2 million barrels (against two years ago).

We believe that the increases in those surpluses cannot just be dismissed, regardless of the week-on-week improvements, and there is still more oil than there has been for nearly three decades.

     FMX Newswire       

FMX Newswire is an overnight news summary designed to meet the needs of professional energy traders. The content is to-the point, professional grade and not widely reported in the mainstream media. All sources are professional respected firms and newspapers.

Platts oil

• Germany's RWE Dea makes gas discovery in the Norwegian sector of the North Sea holding up to 18 Bcm of recoverable gas.
• Brazil's Petrobras sold a record 2.74 Bcf/d of gas in September as low hydropower reservoirs boosted gas-fired power generation there.
• Tropical Storm Karl is expected to become a hurricane by Friday, as it moves towards the southern part of the Gulf of Mexico.
• Chevron and CNPC have signed an MOU to pursue joint gas field development and offtake Australian LNG.

Bentek Energy

• Power Burn Analytic Report - Little Change in U.S. Power Burn
• Gulf Coast Production Analytic Report - Offshore Production Bounces On Destin Pipeline

Bloomberg 

• Crude Oil Falls As Pipeline Startup Adds to Concern U.S. Is Oversupplied
• Enbridge Prepares to Start Illinois Crude Oil Pipeline After Leak Repaired
• Drilling-Ban Job Losses Smaller Than Estimated, Obama Administration Says
• Oil's Advance Stalls at $84 on Point and Figure Chart: Technical Analysis
• Abu Dhabi Paymasters Fund Fujairah Oil Hub to Bypass Hormuz
• Shell, BP May Reap `Serious Profit' by Using CO2 in Oil Fields
• Natural Gas Erodes Coal's Share of U.S. Power Production

Technical Recap

Crude Options Report / Straddle Runs

NG Options Report

Premium Subscriber  (click here to register):

Volumes & Open Interest

End Of Day Straddles

Settlements