Morning Petrospective – April 25, 2011

il prices rallied substantially on Wednesday and they were higher again on Thursday, with heavy short-covering going into the Easter weekend. The buying started with last week’s DOE report, which had all three headline inventory numbers lower on the week. The total withdrawals from all three came to less than 6.5 million barrels, which was less than the drawdown in gasoline stocks, alone, the week before. The draws came at both strategically and tactically important times. The combination of forces was too much for the markets to fight.

Strategically, the market was deciding whether it was oversupplied (with the Saudis cutting output) or in need of more oil (based on stock draws last week). It was technically important, but a number of fundamental traders were trying to figure out how Saudi Arabia could elect to cut output in the current environment. It had something to do with crude oil specifications and the timing – US refineries are just starting to come out of maintenance turnarounds. More than anything, though, it was a reflection on lost Japanese demand, in the wake of the earthquake and tsunami.

Tactically, oil and a number of key assets made new recent highs last week. Oil prices were up $2.07 a barrel last week. The Dow Jones Industrial Average (DJIA) finished at 12505.99, its highest close since June 5, 2008. And gold broke $1,500 an ounce for the first time ever. This is an especially “odd couple” – partly because the “couple” is actually three separate entities. In the past, the economy has typically had one or two leading elements. To have these three all making fresh recent or all-time highs is peculiar – not to mention unsustainable over any prolonged period. They are three very different markets currently sharing one commonly bullish factor … .

And that forces us to shift our concentration to this coming week. Federal Reserve Chairman Ben Bernanke has a critical first press conference this week (on Wednesday, at the conclusion of a two-day FOMC meeting) and it is expected to be the primary focus for a number of traders. Mr Bernanke has been particularly open, maybe even enthusiastically eager to share every waking thought, since taking over the reins of financial purview. It certainly does not seem to feel like his first press conference, and we are already struggling with the concept of a more open Fed. Short of a Facebook page with constant Twitter feeds on whom has a crush on whom over at Treasury or the Fed, we feel like we have been made abundantly aware of current Fed and Treasury thinking on a multitude of subjects. There is rarely any need for one to conjecture on the Fed’s thinking on interest rates.

Last week’s DOE report was ostensibly bullish for oil prices, because it showed inventory drawdowns in all three major categories. Demand for all oil supplied was up 1.19% (over the prior four weeks, on average), which was an improvement on the past week, which had shown an increase of 0.10%. Four-week average gasoline demand is most recently down 1.77%, compared to a decline of 1.56 the previous week and a decline of 1.24% two weeks earlier. Four-week distillate demand was up 6.20% in the latest report, compared to having been up 1.39% in the report before that.

Events in the Middle East continue to lend themselves easily to headlines. Fighting in Libya has settled into a pattern of counterstrokes around Misrata and Brega. The rebels will be getting French, British and Italian advisors soon, but it may not be enough to tip the balance there. Traders are talking about a long, drawn-out civil war in Libya. In Syria, events seem to be changing rapidly.

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

• Industrial End Users Analytic Report – Industrial Demand Back Up From the Weekend.
• Supply Demand Balance Analytic Report – Tame US Temperatures Expected to Moderate Demand Levels.
• California SW Observer – Returning Demand, price pressure on San Juan Expected to Soften.
• Power Burn Analytic Report – Power Burn Increases 0.6 Bcf/d Over the Weekend.

Platts

• Libyan rebels need 4 wks to assess damage to 2 key oil fields hit by Qadhafi, won't be able to export from big Mesla field: rebel oil chief.
• Russia's Transneft said it has lost more than $20 million a month since January due to the underpayment by China for ESPO crude oil.
• China's NEA has said the country's apparent oil consumption in the first half of 2011 will climb 9% from a year ago to 130 million mt.
• ExxonMobil has made a second oil find in the Cepu block in East Java, Indonesia, encountering 561 feet of oil column in the discovery well.

Bloomberg

• Crude Oil Climbs a Fourth Day as Middle East Violence Escalates.
• CNPC Plans to Sell 13 Percent More Fuel as Refineries Run at Full Capacity.
• Reliance Industries' Profit Growth May Slow as Refining Margins to Narrow.
• Tsunami Speeds ‘Terminal Decline’ of Japan’s Fishing Industry.

Technical Recap

Crude Options Report / Straddle Runs

NG Options Report

Market Prices

Premium Subscriber (click here to register):

Volumes & Open Interest

End Of Day Straddles

Settlements

To view our energy news and articles on your PDA or mobile device, click here.