Morning Petrospective – October 8, 2010       

il prices finally sold off on Thursday, as traders and investors took profits on long holdings in equities, currencies and commodities. It was probably always just a matter of time before profit-taking combined with producer hedger-selling and technical liquidation and short-selling. It seems that we had all of those in Thursday’s trading session. The question, now, is how they fit into a bigger picture.

A rally in the US dollar seems to have been the catalyst for the profit-taking and selling. And, once the selling got under way, analysts started talking about how high oil inventories are in the broader, absolute sense. Recent declines have shown relative improvement, but there is still plenty of oil available out there.

The US dollar has dropped more than seven euro cents, or nearly 9%, over the last four weeks, in an almost vertical decline. For most of that period, international currency traders have been talking about the imminent round of quantitative easing, or “Q.E.” as so many have affectionately started to call it. Of course, if the Fed were to announce its application, currency traders would not have it hanging over the market like Damocles’ Sword, and they might not feel so secure about selling greenbacks. And, if there is one unifying ‘quality’ of the Bernanke Fed since 2007, it is its desire to bend over backwards to tip off currency traders.

When it unveiled this very special quality, Mr Bernanke called it his “new transparency.” We are not sure what he calls it now, but it is abundantly evident that the Fed wants the US dollar lower. By keeping QE in play, without actually announcing it, it has succeeded in that desire.

The problem, from our perspective, is that a telegraphed intention to pursue a weaker dollar is tantamount to pursuing higher oil prices. And those are neither good for the US economy nor individual consumers. At these higher levels, they start to defeat even Saudi objectives – although not those of Iran or Venezuela. Higher oil prices buttress a number of oil-supported regimes that are hostile to US interests. And they buttress new sources of energy that make the Saudis nervous over the long term sanctity of oil.

The DJIA was down 19.07 points to 10,948.58. While that was hardly a major decline, oil prices had gotten used to higher equities levels recently. Without them, oil prices tend to work lower, and that is what happened yesterday. Oil prices need a steady diet of higher equities and/or a higher euro or solid economic news to move higher. We have had four weeks of almost vertical movement higher in the euro AND in equities, and if we are entering a more balanced period, it may be hard for traders to see the bullishness in stock levels that remain high in absolute terms.

The weekly Labor Department read on unemployment dropped last week to its lowest level in three months, with 11,000 fewer first-time claims, at 445,000. Analysts had been looking for a decline of just 1,000. Friday’s look at the September monthly numbers will set the tone for a number of sessions to come, we would expect. It will be the definitive employment figure.

     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

• Strike at French oil terminals Fos and Lavera extended for another 24 hours into 12th day, likely to be extended until next Tuesday
• China National Offshore Oil Corporation has issued a tender to buy two spot LNG cargoes for December delivery

Bentek Energy

• Midcon Observer - NNG Declares a System Under-run Limitation
• California SW Observer - San Juan Production Expected to Rebound
• Outflows Drop and Implied Injections Increase on Falling Downstream Demand
• Power Burn Analytic Report - U.S. Power Burn Up 2.1 Bcf/d Over the Past 5 Days

Bloomberg 

• Crude Futures Fall, Head for Weekly Decline, Before U.S. Payroll Report
• U.K. Gas to Fall From Double U.S. Price on Qatari Exports: Energy Markets
• Petrobras to Raise $60 Billion in Debt Markets Following Record Share Sale
• Oil May Fall as U.S. Inventories Climb, Consumption Drops, Survey Shows

Technical Recap

Crude Options Report / Straddle Runs

NG Options Report

Premium Subscriber  (click here to register):

Volumes & Open Interest

End Of Day Straddles

Settlements