Morning Petrospective – April 6, 2011

hina raised interest rates on Tuesday … yet again … and this helped bring selling into oil markets from two fronts. The first was the potential loss of locomotive power from China, as it effectively slams the brakes on growth in an attempt to cool overheating property markets and inflationary pressures (5.2% most recent estimate) in a fast-growing economy. India has also raised rates and the US dollar was higher in early morning trading on Tuesday as traders looked ahead to the day when the Fed will be forced to join in the global rate-tightening that is being seen throughout much of the rest of the world.

The stronger dollar, which was the result of anticipated tightening by the Fed – when such a policy is not even a gleam in Bernanke’s eyes – pushed commodities prices lower for a while. But, then traders realized that the current policy is designed to support or cushion the negative economic results of a housing bubble in the US that has already been burst. Financial policies that make sense in China or India simply don’t make sense in the US. As traders drifted back to that realization, oil prices rallied as the dollar came back to unchanged against the euro.

The Institute for Supply Management (ISM) that reported its non-manufacturing index (services) index had fallen from 59.7 to 57.3. A Bloomberg survey had given an expectation for the index to remain essentially unchanged, down 0.2% to 59.5. This index averaged 56.1 in the five years ended in December 2007, when the recession is thought to have started. Capital Economics (CE) wrote that this decline was not that dramatic and said that, “Taken together, the two ISM surveys [manufacturing and non-manufacturing] are still touting GDP growth of 4%.” CE still expects first quarter GDP growth of roughly half that pace.

The Federal Reserve’s FMOC minutes were released yesterday, and CE said on Tuesday that they “provide further evidence that the Fed will complete QE2 in full by the end of June. The pace of the purchases will not even be tapered.” Some members wanted to taper purchases, but the majority was committed to pursuing the program of mortgage securities purchases without modification. We are not sure if the timing of the release of these minutes coincided with the US dollar’s loss of strength on Tuesday, but it would make perfect sense if it did. It confirmed that the Fed will follow its own beating drum rather the gathering orchestra of foreign instruments calling for higher interest rates.

This week’s API report showed a crude oil draw of 2.797 million barrels, a distillate draw of 1.031 million barrels and gasoline build of 0.568 million barrels. Refineries operated at 84.0%, up 0.7%, the API reported. Implied demand reached 5.326 million bpd in distillate and 9.650 million bpd in gasoline, which is the lowest figure we have seen in a while.

Libyan opposition forces pressed to fresh gains against Khadafi loyalists in the central part of Libya on Tuesday, and they scored new gains along the coast, regaining control of most of the oil port city of Brega, according to Al-Jazeera. The rebels are getting nearer to their objective to renew oil exports, and they have chartered “The Equator,” an oil tanker, to pick up oil to take to China.

FMX Newswire

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Bentek Energy

• Supply/Demand Balance Analytic Report – Taperinig Demand Helps Storage Injection Season Gain Momentum.
• Industrial End Users Analytic Report – Demand From Refineries Continues to Climb.
• Northeast Observer – DTI-S Summer Forwards Trade Upward.
• Power Burn Analytic Report – Gulf Burn Expected to Rise as Northeast Declines.

Platts Oil

• The expected launch date for Iraq's giant West Qurna 2 field has been slightly delayed to early 2013 from late 2012, Lukoil said Weds.
• OPEC countries have increased production to compensate for virtually all of the drop in Libyan oil output, the UAE oil minister said Weds.
• Total will not buy Libyan oil sold by the rebel National Transitional Council for the time being, CEO Christophe de Margerie said Wednesday.
• Japan imported 1.223 mil barrels of fuel oil over Mar 27-Apr 2, up from 610,136 barrels over pre-quake period Feb 27-Mar 5, the PAJ said.

Bloomberg

• Crude Oil Trades Near 30-Month High Before ECB Meeting, U.S. Supply Report.
• Tepco Stops Leak From No. 2 Reactor at Stricken Fukushima Nuclear Station.
• Vedanta Unit Offer for Cairn India Shares to Start April 11, End April 30.
• KKR Barbarians Go Green as Buyout Firms Profit Cutting Energy.

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