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Morning Petrospective – November 17, 2010

November 17 2010, 08:12

Morning Petrospective – November 17, 2010

il prices were significantly lower on Tuesday as a tidal wave of asset liquidation hit the markets. It started with a stronger US dollar, which poured cold water on commodities, and it spread into equities, which were down substantially on Tuesday. The DJIA ended the day down 178.47 to 11,023.50.

The two “back” stories were the possibility of a eurozone bailout of Ireland, which was in ongoing negotiations, and the very real likelihood of Chinese monetary tightening. The first feature, the concerns over an Irish bailout, helped boost the US dollar. The fear of Chinese tightening helped raise worries over the world’s economic locomotive.

The US dollar has been rising, on and off, since a week ago Friday. On Tuesday morning, the dollar took off to the upside, after having traded sideways through the overnight part of Tuesday morning. From about 8 AM Tuesday morning, the dollar embarked on an advance that took prices higher into Tuesday afternoon. At that stage, it slowed and consolidated.

The stronger dollar led to heavy selling in a number of commodities, from gold to grains to cotton. Oil prices were included in that group.

In Tuesday’s news, there was a producer price index (PPI) increase of 0.4%, which was significantly less than the 0.8% forecast. But, Capital Economics explained that the figures were “badly distorted by the new quality adjustments applied by the statisticians to the prices of cars and light trucks.” These adjustments helped explain the increase and the 0.6% decline in the so-called “core rate.” Raw foodstuffs were up 4.2% while intermediate food prices increased by 1.3%. The numbers are difficult to use, now.

And, industrial production was unchanged in October, but CE says that “the manufacturing recovery may be gathering momentum again, driven by demand for business equipment.” Manufacturing output was up 0.5% with vehicle production up 1.6%. Business equipment output was up 1.1%.

The biggest problem in the economy right now is the increase in 10-year treasury yields, which have increased from less than 2.5% on November 3^rd to nearly 2.9% now. This is what is driving the dollar and hurting equities. The Fed has only just recently started its QE2 round of buying treasuries. The increase in yields is being attributed to traders buying treasuries once they knew QE2 was coming and then selling them once it was announced. The Fed has $600 billion to buy, though.

The API report showed a drawdown of 7.652 million barrels in crude oil stocks, a build of 0.222 million barrels in distillate stocks and a drawdown of 1.653 million barrels in gasoline stocks. Utilization rates dropped by 2.8% to 81.5%, which should cut into futures supplies of refined products. Crude oil imports dropped by 389,000 bpd to 8.199 million bpd. Implied demand came in at 9.352 million bpd in gasoline and at 4.379 million bpd in distillate, two weeks after posting a figure of more than 5 million bpd.

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.

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