Morning Petrospective – May 20, 2011

O

 

il prices were lower on Thursday in a generally uninspired session. Traders were responding to a series of mostly negative economic indicators, which seem to suggest a slower recovery or even a slip back into recession (for some observers). The bad news started overnight with the news that Japan had had two consecutive quarters of contraction, the textbook definition of a recession. The dollar was extremely volatile and did not really make a case for either side. Crude oil led the oil complex lower on Thursday in light trading.

The Index of leading US economic indicators dropped 0.3% in April, which was unexpected. There had been a gain of 0.7% in March. It was the first decline since June, 2010 and a potential sign that the economy is in worse condition than many had believed it to be. The Federal Reserve Bank of Philadelphia also reported Mid-Atlantic manufacturing activity up only slightly in May with a reading of 3.9, down from 18.5 in April. On the positive side, weekly unemployment filings dropped by 29,000 to 409,000 in the latest week. Expectations had called for a decline of 18,000 to 420,000. And sales of existing US homes unexpectedly declined in April, falling by 0.8% to a 5.05 million annualized pace. Projections had been for a rate of 5.20 million units.

There was a time when all of this bad news would have solidified expectations that the Fed would ride to the rescue. That is not the case right now. Bearish economic news is bearish news for oil prices. One does have to wonder, though, what it might take to get the Fed re-engaged to the point that it feels a third round of quantitative easing might be needed.

One of the leading indicators in that regard could come from the equities markets. The DJIA was up 45.14 on Thursday to 12,605.32. But, it is in a consolidation range at a dangerous place – near its recent highs. If it makes new highs, then we should be in the clear. If it breaks to new recent lows (below the consolidation range) we would be frightened. That could pull the wind from the economy’s sails.

There is not a lot of wind at economic ship’s back right now. Housing and unemployment continue to be anchors weighing on the neck of the US economy. And manufacturing, which had been such a bright spot, has lately slowed. As a result, we are torn here. We now feel it may be as close in the odds as a coin toss whether this economic recovery has the lift necessary to achieve escape velocity and make it into a stable, self-sustaining orbit. It needs something here to give it that final boost.

Gasoline prices had that potential. They still do. But, it now looks like the supply chain may be dragging its feet to delay the price decline (already seen at the wholesale level) until after Memorial Day. A swifter price drop at the pump before the holiday weekend would go a long way towards giving consumers something to cheer about. A delayed price drop might not receive the same positive coverage.

Technically, crude oil prices still have a potential triple bottom pattern with lows at $94.60, $95.00 and $95.25 (see next page). As long as prices hold above $94.60, the bulls seem to have the initiative here. The bears now need to break prices down below $94.60 to resume the bearish move. But, the broader picture – the economy – is starting to stall at the worst time. Unless it gets a shot in the arm from lower gasoline prices, the Fed will almost certainly have to reconsider the politically sensitive issue of redeploying quantitative easing.
image

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

  • Midcon Observer – Canadian Imports Return on Alliance.
  • Supply Demand Balance Analytic Report – NYMEX Falls As EIA Storage Figures Confirm Stronger Injections.
  • Nuclear Plant Status Analytic Report – Comanche Peak 02 Goes Offline, Browns Ferry 01 Begins to Generate.
  • Power Burn Analytic Report – Power Burn Up 0.6 Bcf/d, Still 1 Bcf/d Below May of 2010.

Platts

  • Gasunie may face Eur1 billion tariff refund to Dutch natgas users for period 2006-2011 following NMa ruling . 
  • S&P assigns 'BB' rating to UK-listed metals and mining group Vedanta Resources' proposed new bonds . 
  • Matrix adds three barges to Sohar and Oman bunkerfuel delivery capabilities .
  • Nigeria likely to pass oil reform bill next week, says oil minister .

Bloomberg

  • Oil Climbs in New York on Signs of Fuel Demand, Heads for Weekly Decline.
  • Shimizu Resigns as Tepco President After Japan’s Biggest Corporate Loss.
  • Ambani Debt Risk Rises Most in Asia on Gas, Profit Slump: India Credit.
  • Indonesia May Use Giant Floating Dock From Japan to Boost Coal Shipments.

Technical Recap

image

 

Crude Options Report / Straddle Runs

NG Options Report

Market Prices


Premium Subscriber (click here to register):

Volumes & Open Interest

End Of Day Straddles

Settlements

To view our energy news and articles on your PDA or mobile device, click here.