Morning Petrospective – May 13, 2011

rude oil prices traded on both sides of unchanged on Thursday, and gasoline prices lost almost six more cents after the Nymex raised margins. Traders were trying to align contracts, one with the other, and they were trying to figure out which factors will matter most in this market, moving forward. Thursday’s information did not make it easier. Wholesale prices were up by more than had been forecast in April, led by prices of food and fuel. But, to see that as a reason to be bullish on oil would be to place the cart before the horse. It would be the equivalent of buying oil today because it was higher in April.

Retailers are now talking about a growing need to pass on higher costs to consumers, and that is inflationary. Oil prices have been rising as investors have used it to hedge against inflation, but the twin roles of cause and effect are too easily confused here to make it an easy association. And most observers can see that lower prices now could give us lower inflationary pressures next month. Companies paid 6.8% more for goods in April, which was the biggest increase since September, 2008. But, that was another month during which oil prices were retreating from higher levels. Core wholesale prices were up 2.1% in the 12 months ended in April, which was the largest increase since August, 2009.

Partially because of higher prices, retail sales were up by just 0.5% in April, which was less than the 0.6% increase projected and was the smallest increase since July. It comes after again of 0.9% in March. The Commerce Department figures were depressed because of higher food and fuel prices, according to a number of analysts, who said that higher costs for necessities were eating into income that could be spent elsewhere. It is actually at the heart of our “Caveman Economics” theory, which holds that three of the four main drivers for our species since leaving caves have been food, fuel and housing. When the economy messes with those three, it is not good for the humans.

From the “better” category, we learned on Thursday that fewer Americans lost their jobs in the latest reporting week than had been expected, and that is potentially bullish for oil – in the form of more people driving to work. Applications for unemployment insurance dropped by 44,000 in the latest week, to 434,000.

The US dollar rallied most of Wednesday into Thursday morning, but then sold off from about 6 AM Thursday. The net effect was little change.

The IEA reduced its estimate for world oil demand in 2011 for the first decline this year. It reduced its estimate by 190,000 bpd or by 0.2%. It still sees demand up 1.3 million bpd, or by 1.5%, to 89.18 million bpd. This lower demand estimate was slightly bearish. Lower output from Libya led to lower Opec output in April the IEA noted, and it expects Libyan oil to be “absent” for the remainder of 2011. The rest of the cartel pumped 28.75 million bpd in April, it noted, which would be 235,000 bpd less than it pumped in March and 1.3 million bpd less than it was producing in February. The IEA says Opec will need to increase output to 30.1 million bpd in the third quarter to maintain the global supply balance. It pegs current Saudi output at 8.8 million bpd.

“High oil prices have finally begun to dent demand,” the IEA wrote in its latest monthly outlook, noting that “Four dollar a gallon is likely to yield an anemic US driving season.” It is weaker US driving demand that the IEA holds responsible for its reduction in global consumption this year.

Thursday’s response was mixed and subdued compared to what we had earlier this week. We still see the Fed and the dollar’s response to its moves as the biggest factors influencing oil prices moving forward. Right now, we see those as net bearish influences.

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

• Texas Observer – Mississippi River Flood May Disrupt Demand More than Production.
• Supply Demand Balance Analytic Report – Marcellus and Powder River Output Gains Unable to Stem SE Gulf Losses.
• Nuclear Plant Status Analytic Report – Outages Currently 9 GW Above 2010 Levels.
• Power Burn Analytic Report – Power Burn Sheds 2.1 Bcf/d today due to Sharp Declines in Temperature.

Platts

• Norway details expected 2011 boost from high oil prices: revenues of NOK311 bil--or $56.6 bil--NOK23 billion more than originally budgeted.
• Global oil prices seen peaking at $120/barrel in mid-2011, according to CGES' Drollas.
• Japan decides on Tepco's compensation scheme for Fukushima nuclear crisis.
• Facing massive debt due to non-payment of bills to oil & gas companies Pakistan eyes $2 bil bonds issue in 4 months

Bloomberg

• Oil Rises a Second Day, Climbs Above $100, as European Growth Accelerates.
• Petronas to Build $20 Billion Malaysia Oil, Chemical Hub Next to Singapore.
• Japan to Help Tepco Pay Nuclear Claims; Banks May Have to Write Off Debt.
• Uranium May Rise to $75 a Pound in 2012 After Fukushima, Uranium One Says.

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