Morning Petrospective – September 20, 2010       

he oil complex ended the week with crude oil prices under selling pressure again – for a fourth consecutive trading session. For the week, crude oil prices lost $2.79 a barrel, heating oil lost 0.52 cents, gasoline coughed back 5.39 cents a gallon and natural gas was up 14.1 cents per million Btu. The Enbridge Pipeline dominated trading last week, starting with a week ago on Thursday, when the problem began. There was a leak, and that brought in buying. As the week progressed, traders seemed to have been hanging on each fresh development and, with it, each changing forecast for available supplies. Last week’s DOE report showed drawdowns across the board, and there was a normal seasonal drop in the refinery utilization rate.

Right off the bat, we know that this week’s inventory figures will be missing a week’s worth of movement from the Canadian supply source. We cannot say that traders were looking ahead to this next week’s API or DOE reports on Friday, and it seems to us that the opposite may have been the case. After discounting the loss of that oil a week ago on Friday and then again on Monday, September 13^th, the market very quickly changed gears to look ahead to the return to service of the Enbridge line. This week’s inventory figures are likely to reflect the problems with the pipeline, but it is likely to end up as a one-time deal.

After spending most of the day in negative territory, the US dollar rallied later on in the day against the euro. Still, as the chart at the left so clearly shows, the dollar has declined steadily starting at the end of last week, and oil traders have more or less ignored that as a factor in determining whether to buy oil or not. This latest week may have had the least correlation between moves in oil markets and the euro this year.

The US dollar was down fairly sharply against the euro, printing its lowest level against the European currency in a month. And the DJIA was up 22.10 to 10,594.83. Last week, investors seemed less interested in following equities than at any time in weeks, maybe months. The DJIA was up 145.08 points to 10,607.85, over the course of trading last week. But, here, as well, traders seem to have had other fish to fry. Neither of these factors was able to push oil prices into positive territory, though. While that is unusual this year, it is not unheard of, and we have seen the fundamentals exert a more powerful influence upon prices over the latest week or so. We have had more days in September following fundamentals than either the euro of the DJIA, it seems.

So far, it has only been over the course of a few days. But, if it continues, the bulls could be in for a genuinely rude awakening. The only reason oil prices are above $70 a barrel is because investors have been using the oil complex as a surrogate for the economy, equities or currencies. The bulls had the perfect excuses to advance last week, but they kept selling off, as traders returned home to the fundamentals. Even though we think there were times this past week when they got the supply-demand equation wrong, at least traders seem to have been looking at those factors.

The University of Michigan index of US consumer confidence in September dropped from 68.9 in August to 66.6, and it “more than reversed the previous month's rise to take confidence to the lowest level in a year,” according to Capital Economics, which further noted that the “high unemployment rate and widespread negative equity appear to be offsetting” the positive aspects of “the recent bounce in equity prices, the dip in jobless claims and receding fears that the economy is heading for another recession.” It finished, “Normally, confidence is one of the first indicators to recover,” but this time around, “This index has been stuck in a range of between 65 and 75.” Like many economic observers, Capital Economics does not see the economy slipping back into a recession, but neither does it see a robust rebound.

     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

• New Zealand's largest oil field Maari, located in the Taranaki Basin, has reached a total production of 10 million barrels.
• ConocoPhillips has put its 60% stake in the Caldita and Barossa gas fields in the Timor Sea up for sale.
• OPEC comfortable with $70-$80/b oil says Secretary General Baldri.
• Nigerian oil minister Alison-Madueke names Musa Sheikh as new OPEC governor, in her latest move after appointing new heads for NNPC and DPR.
• Anglo-Russian TNK-BP Monday agreed a deal to supply 100,000 mt of Russia's ESPO crude blend to Vietnam with first shipment due in November.

Bentek Energy

• Power Burn Analytic Report - Power Burn Declines Over Weekend
• Gulf Coast Production Analytic Report - ANR and Destin Connected Offshore Production Inches Up Over the Weekend
• Canadian Observer - Production Increases as Some Maintenances End

Bloomberg 

• Crude Oil Pares Gains in New York on Concern Economic Recovery Will Stall
• Hedge Funds Cut Bullish Natural Gas Bets to Lowest This Year
• Igor Passing Bermuda as Category 1 Hurricane, Julia Dissipates in Atlantic
• Dudley Faces Fight to Drill in Gulf as BP Says Goodbye Macondo
• Pakistan's Biggest Refinery Restarts After Six-Week Shutdown From Flooding

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