Morning Petrospective – October 5, 2010       

raders stopped to catch their breath on Monday, after three days of sharply higher price quotes in the oil complex. The US dollar rallied on Monday, and the DJIA fell 78.41 points 10,751.27, and those two factors worked together to help pull oil prices lower. Oil prices had jumped higher over the final three days of last week’s trading based to a large extent on a strengthening euro and advancing stock market. So, the weakening in those seems to have taken support out from under oil prices. The other factor that pushed prices higher last week was the possibility that oil inventories may have peaked with last week’s triple decline in inventories. There may have been a sense that traders had gotten ahead of falling inventories – rather substantially – here.

One of the best correlations with oil – recently – has come from the dollar-euro. For a solid three weeks, the dollar dropped against the euro. On Monday, investors were talking again about their worries about European sovereign debt, and that seems to have brought in heavy bargain-hunting and short-covering – the buying we see in markets that have fallen for a number of consecutive sessions without any relief. No one was talking about the greenback as a sound or wise investment. Investors just tend to return to it when they have doubts about other instruments or currencies. That has been very much the case over the last several weeks. The only time the dollar has rallies has been during periods of doubt in the euro or other currencies or investments.

Technical factors also slowed the rush to buy oil futures, which has been as spectacular as it was unexpected. Last week’s DOE report showed drawdowns in all three major inventory categories (crude, distillate and gasoline) and there was an immediate leap of faith that the inventory peaks had just been seen. In years gone by, that might have been a wise or even safe assumption at this time of year, as we are entering the peak-demand periods of the fourth and first quarters. This year, though, there are a number of wild cards that might short-circuit any normal declines in inventories. But, that doesn’t necessarily make those who think we have peaked wrong. Time will tell. Investors effectively ignored a positive housing report out on Monday, in which the National Association of Realtors’ index of pending home resales was reported 4.3% higher in August. This was larger-than-forecast and follows a 4.5% increase in the index for July. Economists saw in these figures further evidence that real estate markets are stabilizing, although they are doing so at lower figures than those seen historically. The figure was 18.4% lower than a year ago.

Oil traders will look at the gasoline demand figures in the SpendingPulse report out Tuesday afternoon, and they may or may not take the API report to heart, depending upon what iot shows Tuesday afternoon. Estimates for Wednesday’s DOE report are still all over the place right now, but a bullish set of statistics promises to generate more interest than a bearish set of numbers, we believe. Despite Monday’s selloff, oil prices still seem to want to advance.

     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

• Norway expects its oil and gas output to fall again in 2011, continuing the recent downward trend.
• New BP CEO Robert Dudley is in India and on Monday met with the country's oil minister and the heads of Tata Group and RIL: reports.
• Chevron Monday declared force majeure on the loadings of Indonesian Duri and Minas crude oils from the Dumai terminal: sources.
• Japan's JX Nippon Oil & Gas Exploration has sold its stakes in 19 of 32 projects in the US Gulf of Mexico.

Bentek Energy

• Northeast Observer - Northeast Cash Prices Tighten as Fall Storage Shut-ins Begin
• Supply/Demand Balance Analytic Report - Cooler Temperatures Drive Demand Lower
• Southeast/Gulf Observer - SE/Gulf Demand Expected To Bounce Back Over Next Week
• Power Burn Analytic Report - U.S. Power Burn Expected to Recover Losses Over Next Week

Bloomberg 

• Crude Oil Rises on Port Closures, Speculation of Growth in U.S.
• Oil Supplies Climb in Survey as Refinery Processing Drops: Energy Markets
• Oil May Be `Overbought' After Rally, Petromatrix Says: Technical Analysis
• Reliance Plans Record $1 Billion Bonds Amid Surge in Demand: India Credit

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