Morning Petrospective – September 30, 2010       

il prices were dramatically higher on Wednesday, as traders reacted to a DOE report that showed draws in all three major inventory categories, as well as a drop in refinery utilization rates. In that respect, it was a clean sweep for the bulls, and some observers saw in this week’s statistics signs that the huge surplus in oil inventories may have reached a peak.

The US dollar also lost ground against the recently resurgent euro again, although equities ended the day slightly lower, losing 22.86 points to finish at 10,835.28. So, one of the two major outside influences helped the market’s rally, while the other was not pronounced enough to really hurt.

Perhaps the most telling aspect of this week’s DOE report, above and beyond the three inventory declines, was the decline in the year-on-year surpluses in all three major inventory categories. Last week, crude oil stocks were 22.7 million barrels (6.76%) higher than a year ago. Now, they are 19.5 million barrels (5.76%) higher. Distillate stocks were 4.1 million barrels (2.40%) higher than a year ago last week; now, they are 2.5 million barrels (1.46%) more than a year ago. And, gasoline stocks were 13.0 million barrels (6.10%) higher than a year ago, but are now 11.1 million barrels (5.25%) higher. So, all three surpluses declined.

We also saw two out of three surpluses cut against levels seen two years ago, after three consecutive weeks of seeing those surpluses increase. Of course, inventories are declining from some pretty high levels, but the arrival of declines in the surpluses seems to have triggered a sense among some market participants that the huge overhang of supply is about to disappear. At this stage, it is too early to say that we have seen the high water mark, and it seems premature to talk about surpluses disappearing.

It was, nevertheless, the first report bullish enough in weeks for anyone to think it even likely that inventory levels may have peaked. And the most interesting feature of this week’s figures was the order in which stock draws were ranked in the latest statistics.

Wire services had been looking for a small draw in crude oil stocks, and they were right. However, it turned out to be a little bit larger than predicted. The majority of analysts had been looking for a build in distillate stocks and a bigger one in gasoline stocks, and the figures gave them the opposite of that. Distillate stocks had a decent drawdown, while gasoline stocks had a bigger drawdown. This was especially unexpected after the SpendingPulse figures, the latest economic data and the time of year. Gasoline demand on the week rebounded by more than half a million bpd to 9.383 million bpd, and four-week demand rebounded from last week’s dip into negative territory to 0.86% higher than the level seen a year ago.

Of course, this is just one week, and we still have plenty of oil in storage. We must say, though, that we were surprised by the immensity of Wednesday’s rise in prices, and it did sound odd to hear that prices were advancing because of fundamentals. It is already clear from this response that where prices failed to decline because of excessive inventories, they seem more than willing to rise dramatically as those same surpluses are unwound. And that brings us back to another conclusion we have had repeatedly. This market would prefer to move higher. It is clear that it gets more mileage on the upside than on the downside for news and its “reverse news.” We need to be aware of that moving forward.

     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

• State-owned PetroVietnam has made a second oil discovery at an offshore block in Vietnam, according to partner Total
• Operations at all French ports to halt on October 1 for 72 hours in protests at port and pension reforms: union source
• Indonesia is to impose a 2% biodiesel export tax from October.
• PetroChina will expand capacity of its Rudong LNG import terminal to 6.5 million mt/year.

Bentek Energy

• Northeast Observer - Pennsylvania Severance Tax Nears Deadline With First Vote
• California SW Observer - California/SW Inflows Rise, Despite Declining Demand
• Supply/Demand Balance Analytic Report - U.S. Production Dips to 61.3 Bcf/d on Maintenance in the SE/Gulf
• Power Burn Analytic Report - Tropical Storm Nicole Dissipates Near Florida

Bloomberg 

• Oil Heads for Biggest Monthly Gain Since May 2009 as U.S. Supplies Shrink
• Natural-Gas Spread Narrows to Record Low as Risk Shrinks
• Deep-Water Drill Ban Was Necessary as Industry Response Lacking, U.S. Says
• Goldman Sachs Recommends Energy Options Before U.S. Manufacturing Report
• OPEC Oil Production Declined to Eight-Month Low in September, Survey Shows
• Slim Doubles Down on Losing Energy Bet Anticipating Pemex Spending to Rise

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