Morning Petrospective – September 24, 2010
e had a major rally in the oil complex on Thursday, as traders reacted to news that there had been a large refinery closure. The ConocoPhillips refinery (238,000 bpd) in Linden, New Jersey, ceased crude oil processing so that it could install new equipment. The plant is expected to resume crude throughput on November 4th. We expect that this was well known among those who watch scheduled maintenance announcements, but it seems to have caught some market participants by surprise. It comes at a time when refinery utilization is 2.22% higher than a year ago and 2.59% above the five-year average, so it should not be a major blow to the market. If we were running all-out in market with tight supplies, it would be a different story completely.
The downtime helped gasoline in the Northeast, although we have plenty of gasoline in storage and demand has already started down the long decline that sees consumption drop from Labor Day to New Year’s Eve. It then typically falls off a cliff in January and rarely recovers until some time after Presidents’ Day or even in March. And, then it tends to recover slowly although steadily from there.
We are surprised at the reaction, given the fact that new equipment installation would not be a sudden development but would have been planned for months. And we are surprised at the reaction given higher refinery utilization rates and abundane inventories of almost all refined products. Anything that is not available in New York Harbor will be available by pipeline from the US Gulf. Since the Enbridge outage, though, market participants have been reacting more keenly to the loss of supplies and then to their return.
Early on Thursday morning, the Labor Department reported jobless claims had increased by 12,000, which was a larger increase than analysts had predicted. On the other end of the equation, market observers were encouraged by a 7.6% increase in the sales of previously-owned homes in August, after record lows in July. Dow Jones also noted renewed fears over the course of economic recovery in Europe after Ireland reported economic contraction in the second quarter. This raised concerns over the Irish government’s ability to repay loans. Economists are expecting further contraction in the fourth quarter, DJN noted.
The DJIA dropped 76.89 points to finish the day at 10,662.42 on Thursday afternoon. The stock market had been chugging along nicely, and had recently been at its highest levels since just after the “Flash Crash,” but it was oversold and overextended and seemed ripe for a pullback. The question is whether it will give us a bigger decline once we get into October, which is sometimes a very bad month for equities. Fundamentally, with so many key national economies in anemic states of recovery, there are reasons to be looking at put protection on long positions in equities.
The US dollar rallied well against the euro yesterday, partly on the Irish news, and partly also on the normal letup in selling one sees after sell-stops have been triggered on the break below an important low point. The euro has not been the go-to signal for oil traders lately, but it is possible that its weakness combined with weakness in equities to prevent oil prices from advancing further on the refinery news. Of course, record high inventories could have done that on their own.
FMX Newswire
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Platts oil
- Sweden's Lundin Petroleum has begun drilling an exploration well targeting up to 130 mil boe in the Apollo prospect offshore Norway.
- As five Total refineries remain on strike Friday, French trade unions called for another national protest day on Oct 12 over pension reforms.
- S Korea's KNOC has succeeded in its hostile takeover bid for UK's Dana after snapping up 64% of its shares.
- Asia-Pacific air traffic rose 12.4% on year in August, reflecting robustness of economic recovery across the region.
Bentek Energy
- Power Burn Analytic Report - Midwest Power Burn Declines 30%
- Gulf Coast Production Analytic Report - Gulf Coast Production Up 0.5 Bcf/d in the Past Week
- Industrial End Users Analytic Report - September Remains Lower than Expected
- Supply/Demand Balance Analytic Report - U.S. Marketed Production Nearing 62 Bcf/d
Bloomberg
- Crude Advances as German Confidence Report Tempers U.S. Inventory Concerns
- Korea National Wins Control of Dana in $2.9 Billion Hostile Bid
- West Texas Crude Losing Status as Global Benchmark for Oi
- Petrobras Raises $70 Billion in World's Largest Share Sale
- Oil May Fall to $71.50 in Short-Term Consolidation
- BHP Approves $1.5 Billion Macedon Gas Project to Supply Western Australia
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