Morning Petrospective – November 2, 2010       

il prices were well higher on Monday on a trading day that had investors and traders grasping for direction. The DJIA had a wild day, posting large gains before selling off into negative territory before rallying at the end to finish with minor gains. It ended the day up 6.13 to 11,124.62, but had been up more than a hundred points earlier in the day. The oil complex also advanced without any help from the euro, as the dollar advanced throughout the session and managed to finish near the upper end of the day’s range. Oil prices managed to post decent gains without its favorite outside influences thanks to strong Chinese growth and after a Saudi comment that seemed to welcome higher prices.

The dollar-euro (below) was not a major factor on Monday for the first time in more than a week. Prior to this, it had been a regular influence every day, going back at least two weeks and maybe more without any discernible break. That is all that this probably is, though – a discernible break in the influence of the euro (or the inverse of the US dollar).

Saudi Arabian Oil Minister Ali Naimi was quoted at a conference in Singapore on Monday telling reporters that an oil price range of $70 to $90 worked for the kingdom. This was the first time that he had suggested a range that high, always alluding to a range between $70 and $80 in the past. And, because the Saudi ruling class is so totally unaccustomed to repeating itself (it does not need to), those listening carefully to the oil minister have always had to make do with rather laconic expressions of contentedness or discontent. In the past, he said $70 to $80 worked. Now, he is talking about $70 to $90 a barrel. Instantly, the upside range in crude oil seemed to have been lifted.

This came when oil prices were already on their way to higher levels. The China Federation of Logistics and Purchasing Managers’ Index was up almost a full point in October to 54.7, which was apparently a sign of strong growth. This was immediately latched onto as being a sign that global oil demand will grow and oil prices advanced as a result of this information.

We had this week earmarked as having the potential to be a watershed event week. Between the election on Tuesday, the Fed meeting Wednesday and October jobs data on Friday, we were far from alone in proclaiming this as a potentially significant week.

What we did not see was Monday’s humble substance. If oil prices can rise in the face of a stronger dollar and a plunging stock market (at one point), then the bears in this market are in trouble. We have been worried about the bearish side of the equation for the last month because it is so clear and obvious and yet is making so little progress (or regress in prices). The bears have been unable to sell the markets on the sell side.

We do not know which factors will end up being the most important or even the more important ones moving forward. But, at this stage, it is looking like the bulls have stocks (equities), currencies and China all on their side. If we get a technical breakout over major resistance levels soon, then we will be hard-pressed to find anywhere for the bears to hide.

We are not sure whether this week’s DOE numbers will be seen as something of an afterthought in the all the excitement currently scheduled, but we have every reason to believe that a bullish report will get more of a response than a bearish report will.

     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

• Russian oil output hit a post-Soviet high of 10.22 million b/d in October, although the rate of increase is now expected to slow.
• The shipping backlog outside Fos/Lavera in France has halved - down to 41 from last week's peak of 82 before the strike ended.
• BP Q3 profits slump as the expected cost of dealing with Macondo spill rises to $40 billion.
• IEA's Tanaka says current oil price of $70-$90/b needed for development of unconventional energy resources.

Bentek Energy

• Supply/Demand Balance Analytic Report - U.S. Production Hit New High of 63.1 Bcf/d Monday.
• Texas Observer - Production Drop and Demand Strength Push Texas Injections Lower.
• Industrial End Users Analytic Report - A Look Back at October Demand.
• Power Burn Analytic Report - Power Burn Declines in the West Region Expected Tomorrow.

Bloomberg 

• BP Profit Drops After Taking Further Charge on Gulf Spill.
• Oil Rises a Second Day on U.S. Stimulus Bets, Falling Fuel Supply Forecast.
• BG Quarterly Profit Rises 12 Percent on U.K. Gas Prices, Beats Estimates.
• Diesel, Heating Oil Supply Fall in Survey on Higher Demand: Energy Markets.

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