Morning Petrospective – May 9, 2011

il prices have been all over the lot recently, and refined products were down more than nine cents a gallon at 4:30 AM, but had rallied to minor losses before the opening. The Labor Department’s monthly employment report showed more people finding work – at the same time that it showed more people looking for work. An estimated 244,000 found new jobs in April, which was substantially more than the 185,000 expected by analysts. March job gains were revised up 221,000 (from 216,000) and February was revised higher to 235,000 (against 184,000). These figures gave the bulls in oil new hope.

But they were not enough to overcome other doubts. Perhaps, if the employment figures had been really bearish, analysts might have had fresh reasons to expect another round of quantitative easing. Without that, the outlook for inflation can be reduced substantially. Right away, it removes an element of the carry trade that made inflation look so inevitable.

At the same time, though, this month’s employment report was not enough to paper over other weaknesses uncovered in the economy over the week. And it did nothing to weaken a very strong dollar. As we ended the week, we were left with the strong dollar as the most enduring influence on oil prices. It was the main reason that oil prices were lower again on Friday, even as gold prices and equities were higher. Quantitative easing – or the lack thereof – may have been the biggest reason behind the asset liquidation over the week. But, as we ended it, the strong dollar was the biggest influence on oil.

Having said that, though, we are not really sure how much quantitative easing helped the economy. We know that, in concert with low headline interest rates, it helped give us three employment reports that turn out to have been better than we knew or expected. And, we know that QE helped give us soaring commodities prices. We do not know which end of the interest rate spectrum – QE or fed funds rates – was responsible for how much of what we have seen.

In several respects, we are likely to find out, potentially the hard way. The three strong employment numbers we saw on Friday (a strong April and better February and March numbers than initially reported) are likely to cut off any possibility of resuming quantitative easing until it may be close to too late. There is a major political wind blowing against its resumption. It will only be at the threshold of a double-dip recession that the Fed will be able to resume quantitative easing.

Of course, right now, we do not know how good or bad that might really be. Ideally, the growth in jobs has come from low fed funds rates while inflation would have been the creature of quantitative easing. Based on last week, that seems very possible. But, if QE was what was behind the employment gains as well as the inflation, we could be in a pickle. We are not likely to find that out until a couple of poor employment reports might already have us knocking at the door of another recession.

Traders returning next week will need to factor in the closing of the Mississippi River in Missouri because of flooding.

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

• Notheast Observer – Northeast Demand Expected to Remain 0.5 Bcf/d Above Normal This Week.
• Supply Demand Balance Analytic Report – Cool Spring Weather Pushes Weekend Demand Increase Into Today.
• Industrial End Users Analytic Report – Demand Continues to Climb Over the Weekend.
• Power Burn Analytic Report – Power Burn Gains 2.3 Bcf/d Over the Weekend.

Platts

• Apache, the large independent US oil and natgas producer, to step up unconventional gas output in Argentina.
• Persian Gulf-East VLCC rates from the Persian Gulf to North Asia remain at w48-49s on excess tonnage.
• Japanese utilities, including Chubu Electric, Tokyo Gas & Osaka Gas, buy into Mitsubishi Canadian shalegas project .
• Saudi Aramco has notified term buyers they will receive full contractual volumes of crude in June.

Bloomberg

• Crude in New York Rebounds to $100 After Biggest Weekly Decline Since 2008.
• Chubu Electric to Shut Hamaoka Nuclear Plant to Boost Its Tsunami Defenses.
• NRG’s $7 Billion Plan Relies on Lenders Loosening Grip: Corporate Finance.
• Pinera Betting on Chile Mine Rescue Leader to Sell Patagonia Hydro Project.

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