Morning Petrospective – May 4, 2011

 

he oil complex returned to watching the US dollar and equities in order to get a handle on the direction of energy prices. Gold and silver prices seem to have been following the same script, and they were lower on Tuesday, starting in overnight trading and following through into the morning part of trading. There still was a good deal of talk about Osama bin Laden, but people were admiring the operation that caught up with him rather than talking about the impact on commodities, equities or currencies prices. The impact on these was limited. Silver was the bigger factor for commodities.

Refinery problems were helping gasoline prices buck the trend of the rest of the complex, and market participants were preparing for Tuesday afternoon's API report and Wednesday's DOE statistics.  Most analysts expect to see builds in gasoline stocks this week, which would break a chain of drawdowns seen over the last several reports.

Silver prices were the commodities complex leader on Tuesday, and they dropped dramatically, possibly spurred by recent margin increases (three increases in recent days). At the end of open-outcry trading, silver prices had fallen by $4.94 – almost five full dollars. The decline in silver echoed in other trading rings and helped push crude oil from losses of a little more than a dollar a barrel Tuesday morning to a loss of $2.63 a barrel by the end of normal trading. The DJIA was down 25-30 points and gold was off $25 an ounce at 3 PM, as asset liquidation seems to have taken a cue from the weakness in silver prices. There were rumors of planned margin increases in a number of other commodities contracts as we ended the session.

The US dollar was weaker 4 AM until around noon. As the heaviest selling developed in commodities, the dollar rallied against the euro, into the afternoon. Yesterday’s activity was peculiar, but the unifying theme was the large-scale movement out of assets, especially those that have gained so much recently.

This week’s API report showed a larger-than-expected build in crude oil stocks in this week’s report. There was also a build in gasoline stocks, which ends a long run of draws, but was to be expected given recent increases in refinery utilization. We have had gasoline stock builds in nine out of the last ten years (in the DOE reports) for this same week. Distillate stocks, which are eight for 10 higher, showed an unexpected decline, while utilization, also eight for 10 higher, was up in this week’s figures. Implied demand came in at 4.733 million bpd in distillate and at 8.976 million bpd for gasoline. Crude oil imports were down a surprising 1.028 million bpd to 8.936 million bpd.

Traders will be looking for increases in all three major inventory categories and in utilization. It will be interesting to see if oil prices can hold up in the face of bearish fundamentals after weeks of gasoline stock draws.

Wednesday’s ADP employment figures will give us a glimpse into Friday’s Labor Department report.

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

• Rockies Observer – Rockies Production Drops in Green River and Piceance.
• Supply Demand Balance Analytic Report – Nuclear outages Tenaciously Stick to Above-Normal 30 GW Levels.
• Industrial End Users Analytic Report – Demand Continues to Climb.
• Power Burn Analytic Report – Power Burn Continues to Decline.

Platts

• Output from the UAE's Upper Zakum oil field has been cut by 200,000-300,000 b/d from 600,000 b/d because of storage limitations. 
• China's state-owned CNPC and Sinopec have asked Beijing to waive or reduce the consumption tax on oil products to alleviate refining losses..
• Levels of radioactive substances have jumped in the Pacific seabed off Japan near the nuclear plant crippled by the March 11 quake: Tepco.
• NWE refining margins slightly stronger on light and middle distillate crack strength, according to Platts sources.

Bloomberg

• Crude Oil Declines for a Third Day on Signs of Rising U.S. Crude Supplies.
• Glencore May Get $61 Billion Value in London, Hong Kong IPO.
• Bin Laden Death Means Most Sept. 11 Terror Conspirators Killed or Captured.
• Obama Won’t Hear Carter Echo as Gasoline Prices May Ease During Campaign.

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