Morning Petrospective – May 3, 2011
il prices were hammered in trading Sunday night into Monday morning, and it looked like we were in the middle of the long-awaited selloff, correction or reversal that has been giving us glimpses of what it is going to look like for the last two weeks. We are seeing steep declines, based on tangential issues, but they are not following through … yet. The big event was the death of Osama bin Laden, but what it really means to the supply and demand of oil, or for oil prices, remains to be agreed upon. It is difficult to find a consensus.
In several respects, this was a return to another generation’s market. It has been almost 10 years since Osama bin Laden was central to the oil markets. And, 10 years ago – really a little more than nine years ago, his death would have been the start of an enduring decline. At this time and place, though, other leaders, other places, other concerns seem bigger in the eyes of traders. And, because of that fact, prices rallied during the morning part of Monday’s trading. Traders asked the question, “How central is Osama bin Laden to oil trading,” and the answer came back, “Not very.” But, as the day wound down and a different question was asked, “Are oil supplies safer with bin Laden gone,” the answer came back as, “Yes.”
The oil markets are giving us a taste of what is almost certainly coming, because prices seem overdue for a correction or reversal. It is just too early now. We are still in the spring seasonal for higher prices. But, the fact that a large selloff is coming, though, and that we are seeing corrections with increased frequency, tells us that the larger decline is coming at some point, soon.
In a number of respects, Ben Bernanke is much more central to the future of oil prices than Osama bin Laden. And that may be taken as a paradigm as readily as a clash of personalities. Events in the Middle East are still critical to oil prices. We have seen that repeatedly over the last few months. But, just as apparently, we have seen the impact a weaker US dollar has had on oil prices, even on days when the violence and unrest have been minimal. We are reluctant to say that the Fed is a bigger factor than any event in the Middle East. As far as oil prices go. That probably is just not true. But, as days pile upon days, the Fed almost certainly has its arms around more of them, with Bernanke’s words ringing in the ears of more traders than the ramblings of Moammar Khadafi. Khadafi is the better quote. Bernanke almost certainly gets more traders to reach for their wallets (even when he is not in the same room).
It will be a few days before the full impact of bin Laden’s death is calculated. But, long after memorials are read and effigies burned, the Fed’s words will be the ones that move oil prices the farthest.
This week’s DOE report will be important, and Friday’s April unemployment figure will be crucial. Traders will be keeping some powder dry for both of these events as the week moves along.
FMX Newswire
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Bentek Energy
- Texas Observer – Texas Demand Expected to Reach Normal Levels By End of Week.
- Supply Demand Balance Analytic Report – Power Burn Revises Higher, Total Demand Expected to Slide.
- Industrial End Users Analytic Report – Ethanol Regression Updated and Released.
- Power Burn Analytic Report – Power Burn Expected to be Down 1.4 Bcf/d by Friday.
Platts
- Russian crude oil production rose to 10.2 million b/d in April, up 1.3% year on year, according to preliminary energy ministry data .
- EU power TSOs plan 3-year study, starting 2012, to develop a secure, integrated, near zero carbon power grid by 2050.
- With the drilling industry set to hire more engineers, where does BOEM fit in?
- Uganda will seek bids to revamp a railway line to the oil region in preparation for the start of commercial crude production this year.
Bloomberg
- Oil Drops on Economic Growth Concern as Bin Laden Death Boosts Volatility.
- U.K. Arrests Five Terror Suspects Near Sellafield Nuclear Site.
- Morgan Aligned With Commodity Bulls as Goldman Says Sell.
- Bin Laden’s Death ‘Defining Moment’ as U.S. Says Risk Remains.
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