Morning Petrospective – May 2, 2011
il prices are dramatically lower this morning after President Obama announced over the weekend that US forces had killed Osama Bin Laden. Traders speculated that oil supplies from central Asia and the Middle East might now be more secure after the demise of the al Qaida leader, and all three major oil contracts were lower in trading overnight. Most observers agree that this does little to change any immediate pictures, but it may well make the world’s energy supplies more secure in years to come. Prices were looking for a reason to sell off.
Prices were higher on Friday as traders bought gasoline futures, especially for the expiring May contract. May contracts of gasoline and heating oil expired on Friday afternoon, and traders were buying those contracts right into the expiration. Gasoline prices expired at their highest levels since mid-July, 2008, and the buying pressure in gasoline futures seems to have pulled crude oil prices higher as well. Crude for June delivery closed at the highest levels it has seen since coming down from its July 2008 highs of $147.27 a barrel.
Traders have been buying gasoline futures on the strength of lower gasoline inventories, even though these have been arriving without any especially strong demand for gasoline by the driving public. And, looking at the breakdown of future demand and where it comes from, it is difficult to suggest that we are going to see any dramatic increase in demand figures over the intermediate term.
Prices have been overbought for a while, now, and it is not all that surprising that we have seen as much selling as we have based on the death of Osama Bin Laden. He might not have ever been a direct reason for oil prices to have risen, but he certainly would have been an ongoing reason for higher prices.
Gasoline prices have been stronger than the rest of the complex because gasoline stocks have been dropping, while distillate and crude oil inventories have been rising as well as falling in recent weeks. The period between early March and the middle of May is as bullish as it is largely on the back on gasoline stock draws. These come primarily as the result of reduced production during the months of March and April, and supplies typically drop only as a response to the reduction in refinery utilization, which we tend to see throughout parts of the first and second quarters.
As recently as Friday, the chief economist for the Paris-based International Energy Agency (IEA) warned that prices were getting too high to be supported by the world economy. We have had a number of signs here in the United States that higher pump prices are having a very negative effect on the amount of driving being done by consumers, especially those most at risk from higher prices.
During the summer driving season, we typically see increased demand adding to the sources seen before, coming from those looking to take seasonal vacations and those who drive when school is out – notably those aged 16-25. They have a long historical tendency of buying by the dollar amount, so the higher the pump price, the less gasoline they actually use. They tend to spend five or 10 dollars on gasoline, putting in their tanks whatever they can get for that amount. Knowing this, we should expect to see reduced demand for this age group over the coming summer. Typically, their buying does not completely show up until after Independence Day, which is when we typically get to see vacation demand, which usually waits until then.
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
- Canadian Observer – Below Normal Demand To Cause Downward PRice Pressure.
- Supply Demand Balance Analytic Report – Production Levels Continue to Average Below April 23 High.
- Industrial End Users Analytic Report – Industrial Demand Down Slightly Over The Weekend.
- Power Burn Analytic Report – southeast Power Burn Slowly Beginning To Recover.
Platts
- More price plunge: near noon London time, ICE Brent back up toward the $123.25 level. NYMEX crude bottomed at $110.82, up about $1 since.
- Bin Laden fallout: Global crude benchmarks dn in highly volatile Europe trding, front month ICE losing more than $4/b to low of $121.67.
- Fighting over gas prices and tax policy in Washington.
- The long legal fight over Ecuador #oil, as seen by a journalist and walk-on actress.
Bloomberg
- Hedge Fund Gas Bets Climb to Three-Month High in Futures: Energy Markets.
- Crude Oil Drops Most in Two Weeks.
- Commodities Beat Financial Assets for Fifth Month in Best Streak Since ’97.
- Extract Confident Namibia Uranium Mine Will Continue After Policy Change.
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