Morning Petrospective – May 18, 2011
il prices were lightly lower on Tuesday in a quiet and subdued session dominated by disappointing economic statistics. Curiously enough, the dollar was lower, but it did not have any bullish effect on oil prices. That has been an odd feature this week. A stronger dollar (which we have seen overnight) seems to be bearish for oil, but a weaker dollar (which we have seen during the trading day) just gets ignored. That is a very strong sign that we have a weak market. That has been helpful for the bears.
Industrial production was unchanged in April and manufacturing output was down 0.4% month-on-month. The decline in output was seen as being a residual result of the Japanese earthquake and tsunami, which made it more difficult to finish goods like automobiles. Capital Economics warned that the lingering effects of the disaster are likely to be with us over the next few months, and that they could be worse in May than they were in April.
Traders could be easily swayed by any big moves in this week’s DOE inventory statistics. At this stage, we seem to have a bearish market that is in no hurry to get anywhere right this moment. We still feel that prices should move lower before finding any longer-term bottom.
This time of year is never all that great fundamentally. If we have the Fed quiet and quantitative easing ending, that’s one strike against oil prices. If we also have an oil market that is capable (as we have seen these last two days) of dropping even when the dollar is weak, that has to be strike two. And we know that refineries typically bring units back up at this time of year after maintenance turnarounds. The end result is higher production of gasoline … well before the real driving demand shows up.
Memorial Day (always the last Monday in May, originally specified to honor Union war dead, but later expanded to those who died in any American war) will be on May 30th, roughly two weeks away. Theoretically, it is the start of this years’ Driving Season. But, those of us who have been in this business a long time know that gasoline demand never really shows up until after Independence Day.
The two main increments of demand seen in summer come from the youngest drivers (16-25 years old) and from vacationing families driving across country. While a number of college students get out of college in May, it is not until the end of June that all high schools are out. And families do not vacation in June – often for the very same reason; their children are in school until the later part of June. As a result, July and August have driving that no other months can claim.
From a demand perspective, traders have already bought and are waiting for demand to show up after Memorial Day. They wait through June and typically discover that the real demand is not going to arrive until after July 4th.
In that light, we had an API report that showed a crude oil stock build of 2.669 million bbls, a stock draw of 2.844 million barrels in distillate and a stock draw of 0.676 million bbls in gasoline. Utilization was down half a percentage point to 81.7%, and crude oil imports dropped 1.163 million bpd to 8.244 million bpd. The combination of lower imports and reduced runs suggest that refiners are in no hurry to increase output. Implied demand was 4.706 million bpd in distillate, well above seasonal norms, and it was 9.581 million bpd in gasoline.
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Bentek Energy
- Northeast Observer – LNG Hits New Lows; Canaport Sendout Could Resume This Week.
- Supply Demand Balance Analytic Report – US Production Falls 1.0 bcf As Demand Softens on Milder Temperatures.
- Industrial End Users Analytic Report – Ethanol Production and Natural Gas Demand Soars.
- Power Burn Analytic Report – Power Burn Flat At 14.8 Bcf/d, Gains Expected for Tomorrow.
Platts
- BP has made new cooperation proposals to Rosneft outside of the companies' agreement that lapsed on Tuesday.
- Libya's rebel National Transitional Council wants to represent the oil-rich country at June's OPEC meeting, according to reports.
- Iranian President Mahmoud Ahmadinejad will attend the June 8 OPEC meeting in Vienna as head of his country's delegation.
- Australia's Northern Territory has given its environmental approval for Japanese upstream company Inpex's plans to develop Ichthys LNG.
Bloomberg
- BP Defeat Puts Arctic Oil Trove Back in Play.
- JPMorgan Says Crude Oil, Gold to Drive Rebound in Commodities on Shortages.
- Mississippi River Approaches Crest in Historic Towns of Vicksburg, Natchez.
- Emerging Markets May Name Strauss-Kahn’s Heir: Simon Johnson.
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