Morning Petrospective – May 26, 2011

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n Wednesday, we saw crude oil prices finish above $101.00 a barrel for the first time in two weeks. This brought in technical buying, and it seemed to confirm what Wall Street leaders Goldman and Morgan had predicted earlier this week, that oil prices would move higher. Of course, these investment banks suggested that oil fundamentals would be the leading reason prices would advance. There are two different worlds of fundamentals. Chinese demand is still growing. US demand looks anemic, and this DOE report showed deterioration in the year-on-year comparison.

The US dollar was higher in trading overnight, but it weakened against the euro during the regular trading session. That brought fresh buying into the oil market. Our biggest concern here is that economic data is poor and the dollar seems to have made a temporary bottom. And we also know how well-connected a certain Wall Street investment bank is with policy-makers. One look at this week’s DOE report, in which four-week average demand aggregates dropped, tells us that fundamentals in the world’s largest oil-consuming market are not great. And that makes us wonder what else these large Wall Street investment banks might be looking at that makes them bullish. It strikes us as being possible that a fresh round of quantitative easing or some other gimmick is waiting in the on-deck circle, getting ready to take a swing at a weak economy. That makes us cautious here.

Heating oil prices were the strongest of the complex on Wednesday, supported by a draw of 2.040 million barrels in this week’s DOE statistics. June heating oil prices gained more than seven cents a gallon on Wednesday. Gasoline prices gained just a little more than two cents a gallon. Crude oil prices gained $1.73 a barrel. The major feature helping heating oil was this week’s drop in inventories.

But, in the hurry to react to instant headlines, we think traders got it wrong. A month ago, as April was ending, distillate four-week average demand was 3.830 million bpd, which was up 7.25% on the same four-week period a year ago. At that point, total four-week US average oil demand was 19.326 million bpd, up 3.30%. Now, four-week average distillate demand is 3.817 million bpd, down 3.92%. Total four-week US oil demand is 18.482 million bpd, which is down 5.35%. In these very few weeks (four), total four-week average demand has gone from being 618,000 more than a year ago to 1.044 million bpd less than a year ago. So, anyone who says that the demand picture is improving, when those are the numbers in the largest oil consuming nation in the world (by a large amount) has got it wrong, in our humble opinions.

Inventories were lower, and most analysts were calling for builds. That was bullish. We do not believe it was seven cents a gallon bullish. Chinese demand is growing, no doubt. But, we do not really believe there can be a bull market in oil without solid demand in the world’s largest market.

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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

  • Northeast Observer – Holiday Weekend Historically Brings Drop in Demand Prices.
  • Industrial End Users Analytic Report – Demand Down for Refineries.
  • Supply/Demand Balance Analytic Report – Power Burn Tumbles 2.5 Bcf/d, But Forecast shows Above Normal Temps.
  • Power Burn Analytic Report – Temperatures Drive Power Burn Down 2.5 Bcf/d..

Platts

  • UK investment bank Barclays Capital cuts H2 2011 EU carbon allowance price forecast to Eur18.50/mt. . 
  • ICE Clear Europe says cleared first freight forward agreement.
  • Turkmenistan and EU committed to future natgas supplies, says Turkmen president.
  • US & UK must build on achievements of Copenhagen & Cancun climate change talks, says Obama.

Bloomberg

  • Oil Falls From Two-Week High in New York on Bets That Recovery Is Too Slow.
  • India May Raise Diesel, Kerosene Prices in June to Narrow $44 Billion Loss.
  • Fukushima Nuclear Station Considered as Storage Site for Radioactive Waste.
  • Yemen Shortages Worsen as Street Violence Leaves Locals Searching for Food.

Technical Recap

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