Morning Petrospective – October 6, 2010       

very time we think we have a clear signal, this market makes a mash of it for us. We have now conclusively removed the key reversal day high in the DJIA that we saw last Thursday, and that pattern is now dead as a possible influence. The DJIA was up more than 200 points at one stage on Tuesday and it finished up 193.45 at 10,944.72. At the same time, the euro was up 1.59 to 1.3835 at 5:30 PM EDT, which was the its highest level against the US dollar since February. And the rise in the euro and the stock market came about because of a genuinely squirrely interpretation or possibility that seems to have driven risk assets across the board from early Tuesday morning right through the close. Gold made new all-time highs, cotton made 15-year highs and oil ended at five-month highs.

Tuesday’s strength in assets came on the back of a rare decision by the Bank of Japan to cut interest rates and launch into an asset-purchase program (largely to bring the yen down for exports). And, on the surface that sounds bullish for the Japanese economy and it sounds like Japan is getting ready to embark on its own QE voyage, as people are now becoming fond of talking about quantitative easing. Once one gets into the numbers, though, things get a little odd. Japanese rates were at a tenth of one percentage point and have been lowered to between zero and one-tenth of a percent. And, the BOJ (Bank of Japan – Tokyo’s Fed) is planning on buying ETF’s (exchange-traded funds) and REIT’s (real estate investment trusts). Investors decided that the Fed is now likely to follow the BOJ example and buy those same kinds of investment vehicles, rather than bonds or mortgage-backed securities. And, the assumption went further on Tuesday, the Fed will need to print money to pay for those - and that would mean that the dollar would be worth less and that assets that move higher in relation to inflation would be worthwhile investments.

There was also an ISM index report that showed the US services sector stronger than believed. The ISM non-manufacturing index went from 51.5 to 53.2 in September. Capital Economics noted that this “shows the service sector is not hurtling back into recession.” But, it added, “September’s rebound only partially reversed the decline in August and the index is still at a level consistent with GDP growth of only 1% annualized.” As a final thought, CE found the details of the report “broadly consistent with our forecast that overall private payrolls increased by 60,000 in September.” The monthly employment figures are due on Friday.

Market observers noted that we are now caught in a “race to the bottom” where countries are consciously trying to devalue their currencies to make goods and services produced at home more attractive to buyers abroad. This has a number of potentially ruinous ramifications and it helps explain the allure of gold – and now oil.

The Houston Ship Channel was closed to tanker traffic on Tuesday, while repairs were conducted on a tower that supports power cables over the channel. It is expected to be repaired by tonight or by early Wednesday morning. This week’s American Petroleum Institute (API) report showed a build of 4.442 million barrels in crude oil stocks, a draw of 4.059 million barrels in gasoline stocks and a draw of 0.777 million barrels in distillate stocks. Crude oil imports dropped 753,000 bpd to 8.540 million bpd, and refinery utilization was down 2.0% to 81.6%. Implied demand in gasoline came in this week at a blistering 9.799 million bpd, after two very disappointing weeks. Implied distillate demand registered 4.506 million bpd. After last week’s DOE report, traders may see the build in crude oil stocks as a disappointment. The API gasoline demand was better than SpendingPulse’s.

Wednesday morning’s DOE report and then Friday morning’s monthly unemployment numbers could really make or break the course of this market. We seem to have a bull market, although crude still needs to break and settle (preferably twice) above $83.00. Opec really doesn’t want to encourage competition from other countries or energy sources, and that could be a problem. So, too, could a national average pump price of more than $3.00 a gallon. Still, yesterday’s advance was very broad-based and investors are back on the buy side in a very big way. Technically, prices are overbought and could not yet break resistance.

     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's DNO says London Court of International Arbitration ruling on Iraq Kurdistan Tawke field in, to pay $55-75 million in damages.
• Australian Sino Gas & Energy Holdings signs MOU with China United Coal Bed Methane to market gas from Linxing pilot project, Shanxi province.

Bentek Energy

• Northeast Observer - Lower Southeast Demand Widens Premium Northeast Cash Basis by $0.08.
• Supply/Demand Balance Analytic Report - Declining Demand Drives Cash Prices Lower
• Texas Observer - Gas Shifts West As Maintenance Impacts San Juan/Permian Production
• Power Burn Analytic Report - October Coal to Gas Switching Expected to be Below 2009 Levels

Bloomberg 

• Crude Declines From Five-Month High Before U.S. Government Supply Report
• Shipping Naphtha to Asia Dries Up as German Demand Rises
• TNK-BP Set to Buy BP Algerian Assets in Foreign Expansion
• Indian Oil Plans $2.5 Billion January Share Sale to Cut Debt, Fund Growth
• Houston Ship Channel Opens to Outbound Vessel Traffic

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