Morning Petrospective – April 26, 2011

asoline prices advanced to their highest levels in almost three years on Monday, as the buying picked up where it had left off late last week. Traders are expecting fresh draws in this week’s DOE report, and they do not seem in any way fazed by poor demand or the likelihood of higher refinery utilization rates in the weeks immediately ahead of us. Utilization is trailing last year and the averages of previous years rather substantially, and that translates into lower production rates now. We expect that to change almost right away, but the market is not ready, yet.

The oil complex followed a weaker dollar in early morning trading, in the ‘overnight’ session. That gave prices a jump on the upside when they opened. But, it was another of those “Goldilocks & Three Bears” stories on Monday. Gasoline prices were “too hot” (higher), heating oil prices were “too cold” (lower), and crude oil prices were “just right” (unchanged), on the day. And, poor Goldilocks (a majority of well-intentioned traders) were confused as to which market might give them a proper insight into the direction of the whole complex.

The dollar rallied as the day progressed, and that emboldened sellers in oil futures. Expectations (see below) are calling for a decent drawdown in gasoline stocks, a build in distillate stocks and an increase in crude oil stocks. Most analysts are also looking ahead to higher refinery utilization rates. At some point, higher refining rates and draws in gasoline stocks will become mutually exclusive. For now, they remain a charming contradiction in waiting. And, at some point soon, refineries will jump in to take advantage of relatively benign refining margins.

New home sales climbed 11.1% to a 300,000 annualized rate, the Commerce Department reported Monday. Bloomberg’s survey had predicted a rise to a 280,000 rate, so this was good news for what has been the weakest part of the US economy. New homes are facing brisk competition from foreclosed properties and continuing concerns over this sector may well be the biggest reason for the Fed to continue with some kind of mortgage securities purchases. The National Association of Home Builders’ confidence rating fell to 16 in April, from 17 in March. Foreclosure filings are expected to increase by 20% this year, and that is expected to keep a lid on prices.

Violence continues in Libya and Syria, and those two countries are at the forefront of unrest in the Middle East right now. Yemen, Egypt, Tunisia and Bahrain all continue to contribute headlines. The bottom line is that there is still enough going on to keep traders nervous.

The dollar has been weak more regularly than strong recently, and that remains a bullish factor. On Wednesday, the DOE and the Fed will command traders’ full attention.

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 – April Demand Strong.
• Supply Demand Balance Analytic Report – Golden Pass Boosts LNG to 2.8 Bcf/d with 2.3 Bcf/d Nominiation.
• Storage Analytic Report – NEW – Preliminary Projection Up 82% From Previous Week.
• Power Burn Analytic Report – Power Burn Continues Decline, Led by the Gulf.

Platts

• UK's Heritage Oil launches $100 mil buyback of its shares, which have fallen 44% since late Jan after disappointing gas discovery in Iraq.
• Three bomb blasts hit #Nigerian city of Maiduguri as country prepares for governorship elections, no casualties, police reported as saying.
• WSI expects the May-to-July period to average cooler than normal across the northern US and warmer than normal in the southern US.
• Platts podcast on whether deepwater drilling is any safer a year after the Deepwater Horizon disaster.

Bloomberg

• Oil Drops From 31-Month High as Saudi Arabia Signals Discomfort With Price.
• Saudi Arabia Uncomfortable With Crude Oil Price, Aramco's Al-Falih Says.
• Sinopec Boosts Loan Agreement to Borrow $5 Billion for Overseas Expansion.
• Tepco Workers Agree to Up to 25% Pay Cut After Fukushima Nuclear Accident.

Technical Recap

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