Morning Petrospective – October 11, 2010       

he oil complex started out moving lower in trading overnight and into Friday morning, on Globex and in Asia and then Europe. There was follow-through selling from Thursday’s session, and investors were booking profits, producers and refiners were locking in selling levels and technical traders were selling against overbought pressures. In early trading on Friday, the dollar was steady and equities were lower.

As trading wore on through the day, though, buying returned to equities and selling returned to the dollar. And the monthly unemployment figures for September were poor enough that everyone turned their attention to the Federal Reserve and to the imminent decision on Quantitative Easing – or the assumption it is coming.

The Labor Department released its monthly figure for September jobs and showed a decline in overall non-farm payrolls of 95,000. The private sector was able to add 64,000 new jobs, but the government laid off 77,000 temporary, seasonal jobs connected with the ten-year census. But, in this rather disappointing set of numbers, investors found hope that the Federal Reserve will ride to the rescue with quantitative easing, or “QE,” as everyone is calling it.

As we have noted here, already, the Fed has been playing an awfully coy game to begin with. It may actually intend to introduce QE soon. But, it has gotten almost all of the ‘benefits’ of QE by keeping it suspended overhead, like a carrot in front of a donkey. Once it actually gives the donkey the carrot, we are pretty sure it will stop carrying the load on its back.

Nowhere has this been more apparent than in currencies, where the dollar has dropped for four weeks straight, all on the expectation of quantitative easing. Now, in the past, the Fed has protested that it does not want to push the dollar lower. But, and here is where the coy part comes in, for the last three years plus, every time it talks about a position it is getting ready to adopt, whether it might be lower interest rates (like was the case in late summer 2007) or QE, it has left the decision out there like a big, ripe carrot. And, in every instance, the soon-to-be-adopted position is likely to be negative for the dollar … so all we see for weeks leading up to the actual implementation is selling in greenbacks. The Fed is making dollar shorts rich.

Theoretically, QE will help equities as well. That comes as a result of lower interest rates, which we have been seeing regularly as well, recently, as traders expect QE to affect them, too. It may well be that higher equities or lower interest rates are what this is all about, and making currency traders rich is just an added ‘bonus.’ Once investors started seeing the jobs data in terms of quantitative easing rather than as a sign that the economy has really run out of all its forward thrust, oil prices advanced.

Capital Economics (CE) noted that private employment was up 64,000 in September, 93,000 in August and 117,000 in July, which it sees as unfriendly trend. It also pointed out that more than half the new jobs in September were in restaurants and bars, which “are not exactly known for the good pay and benefits.” Average weekly hours worked were steady at 34.2, and “adding to the disappointment, hourly earnings were unchanged in September.”

The DJIA gained 57.90 to break the psychologically important 11,000 figure to end the week at 11,006.48. The Us dollar finished in negative territory against the euro. The economy is so anemic, investors are taking heart that the Fed will help. And the funny thing is that any announcement of quantitative easing is now likely to become its own disappointment. It may actually be better all around to keep the donkeys running in circles, trying to catch the Fed’s QE carrot.

     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

• Continuing strike at French Med oil terminals, as port staff extend it 24 hours, will meet refinery strike Tuesday as part of mass walk out.
• Iran hikes oil reserves estimate to 150 bil barrels, leapfrogging recently revised Iraqi numbers and setting stage for potential quota clash.
• The Federal Court of Australia on Monday approved the A$130 mil takeover of oil/gas producer Mosaic Oil by electricity retailer AGL Energy.

Bentek Energy

• Northeast Observer - Northeast Demand Falls to 9.5 Bcf/d Due to 65 Degree Weather
• Supply/Demand Balance Analytic Report - Cash Prices Sink Due Weak Demand; Storage Inventories Continue to Climb
• Texas Observer - Implied Injections Jump on Declining Outflows From NE Texas
• Power Burn Analytic Report - U.S. Power Burn to Drop 3 Bcf/d by the End of the Week

Bloomberg 

• Crude Oil Futures Slip on Concern That Demand Recovery Is Not Fast Enough
• OPEC May Maintain Oil Output in Vienna on Uneven Economic Growth
• Hedge Funds Raise Bullish Bets on Oil to Five-Month High: Energy Markets
• Cnooc to Pay $1.08 Billion for Stake in Texas Shale Gas Project

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