Morning Petrospective – April 7, 2011

rices started the day under selling pressure as traders in Asia took time to digest this week’s Chinese interest rate hike. That brought in selling, but it did not last long in the oil complex. A weaker US dollar, stronger equities prices, first in Asia and then later in the US, helped to bring buying back to oil. Prices swung back and forth, as traders wrestled with contradictory influences, symbolized by a rise early in the day in Brent, which storytellers wove a tale about being more affected by events in Libya, while Nymex crude dropped, because of higher stocks at Cushing, Oklahoma.

By the final bell, Nymex crude was up 49 cents to $108.83 a barrel and Brent ended with a gain of 8 cents to $122.30 a barrel. For our money, the final numbers show up the well-woven stories as nothing more than fabrications. The spread between Brent and Nymex crude is determined by a tiny crowd of huge-money traders in their almost private poker game. The headlines about fungible commodities being in better demand in Europe or about worries over Cushing stocks, when the crude can only ever be used in a final sense after it has been refined make no sense at all to us. And they never have. Trying to apply logical reasons to the Brent-WTI spread at these absurd levels is like trying to ascribe deeper political messages to the sequence of cards drawn at the $100,000 chip Baccarat table in Monaco.

Of infinitely greater significance could be new contract specifications currently being considered for Nymex delivery at Cushing. These could have a genuine impact.

This week’s DOE report showed a small build in distillate stocks, a moderate build in crude oil stocks and a small draw in gasoline inventories. Taken as a whole, this report would have to be considered bearish. Total products supplied, averaged over the last four weeks, were up just 28,000 bpd, or 0.15%. The four-week average was down 122,000 bpd against a week ago. Four-week gasoline demand was down 85,000 against a week ago and is now down 1.24% against a year ago. Four-week distillate demand was down 133,000 bpd and is now just 0.91% higher than last year’s average.

In Libya, Khadafi loyalists scored gains as one of the rebel leaders accused Nato of being slow “in responding to our instructions.” Rebel forces were shelled from positions in Brega, and they apparently called for Nato air support against Khadafi-aligned artillery positions. When these were not immediately forthcoming, the rebels felt betrayed as artillery shells continued to come crashing down amongst them. Abdel Fattah Younes, a rebel leader speaking to Al Jazeera in Benghazi said that Nato has failed to “give us what we need” in terms of military and logistical support. He was especially unhappy with the ongoing siege of Misrata, where pro-opposition civilians have been killed by Khadafi-aligned snipers during a week-long siege.

French Foreign Minister Alain Juppe called the situation on the ground “confused” and he said that Nato pilots sometimes have difficulty telling the two sides in the civil war apart, noting that both sides have mounted weapons on similar pickup trucks. He also said that the coalition has not yet warmed to the idea of arming rebel forces. Brigadier General Mark van Uhm said that Nato had destroyed a third of Khadafi’s heavy weapons in recent weeks. He noted that 14 sorties flown by Nato pilots on Monday had targeted air-defense systems, tanks and a rocket launcher in Brega.

Yesterday’s crude trading range was relatively tight and volume was on the lighter side, suggesting that new buying may be slowing.

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.

Bentek Energy

• Supply/Demand Balance Analytic Report – Production Recovers With Maintenance concluding and Strong Northeast Output.
• Industrial End Users Analytic Report – April Demand Starts Strong.
• Texas Observer – Regional Demand Moves HSC Cash Basis $0.02 Higher.
• Power Burn Analytic Report – Power Burn Remains Flat and Steady as US Temperatures are at Normal.

Platts Oil

• Queensland Energy Resources is in the final stages of constructing its oil shale technology demonstration plant at Yarwun.
• Cairn Energy and Vedanta Resources have extended to May 20 the deadline for a deal by which Vedanta would buy up to 60% stake in Cairn India.
• Tepco said injection of nitrogen into the containment vessel of No. 1 reactor at Fukushima-1 power plant has been "progressing smoothly.
• CFTC commitments of traders analysis - Managed money ramps up crude futures length.

Bloomberg

• Brent Crude Oil Futures Halt Five-Day Advance in London on Demand Concern.
• China Will Increase Gasoline, Diesel, Jet Fuel Prices on Rise in Crude Oil.
• Japan Workers Pump Nitrogen Into Damaged Reactor to Reduce Risk of Blast.
• Japan's Reactor Crisis May Help Inpex, Total Win Customers for Gas Project.

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