Morning Petrospective – May 31, 2011
rude oil prices settled over $100 a barrel on each of the final three trading days last week. Gasoline prices, which had been lagging behind heating oil and crude oil prices early in the week, actually became stronger as the week ended, and Friday was the sixth session higher in a row for gasoline quotes. As we ended the week, there were worries about supplies after a second power outage in Texas City knocked refineries owned by Marathon and Valero offline. Dow Jones wrote that BP had reported that its refinery (437,000 bpd) had been only “minimally impacted” and was “operating normally.”
The US dollar was lower late last week and has continued to weaken in trading overnight. It broke 70 euro cents late last night. Oil prices rallied late last week and they are stronger this morning in early trading. It is difficult to tell what is driving the dollar lower, but that might be the most important thing we can learn this week: Is the dollar embarking on a new leg lower and if it is, why? A week ago, it looked like the dollar was trying to put in an important bottom. Equities seemed to be making an important top. And both of those could still happen. But, if we do make new highs in the DJIA and new lows in the dollar, one would have to expect there to be some factor suggesting lower interest rates. If the Fed were to launch a new round of quantitative easing, that would do the trick. But, we would expect there to be something.
Late last week, personal spending was reported up 0.4% in April, after having been 0.5% higher in March. And the economy grew at a rate of 1.8% for the first quarter, disappointing in comparison with the 3.1% growth seen in the fourth quarter. Estimates had been for a growth rate of 2.2%. And, unemployment claims were up 10,000 to 424,000 in the weekly report released Thursday morning. Estimates had been for a minor decline.
The economy seems to have hit an iceberg and the dollar is sinking, equities are holding firm and oil prices are rising. As we noted here late last week, four weeks ago, total four-week US average oil demand was 19.326 million bpd, up 3.30%. Now, four-week average total US oil demand is 18.482 million bpd, down 5.35%. It is not demand and it is not economic growth. To hear the Fed tell it, it is looking ahead to unwinding from its huge balance sheet of debt. But, the markets certainly do not reflect all of these. The markets either do not believe the economic numbers, the demand figures or the Fed’s assertions that quantitative easing or some similar gambit is not about to be launched anew.
Capital Economics has revised downward its estimate for growth this year and in 2012, to 2.0%. It wrote on Friday that corporate profits, which recently hit new highs, should increase at an annualized rate of 5% in the first quarter, after expanding at a 10% rate in the fourth quarter. It wrote on Friday that “the prospects for the US economy are increasingly bleak.” But, it added that “fiscal policy is being tightened, perhaps quite aggressively.”
To make a long story short, there is something wrong in the price reactions – unless there is a QE3 on the horizon. That is the only way one can square recent price moves. If there is nothing like that coming, a number of markets are overpriced, perhaps terribly.
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 – Heat Wave Boosts Power Prices to Over $100.
- Industrial End Users Analytic Report – Industrial Demand Not Show Significant Declines for the Holiday Weekend.
- Supply/Demand Balance Analytic Report – Power Begins to Climb; All Supply Sectors Respond.
- Power Burn Analytic Report – Power Burn Up 2.1Bcf.d Over the Weekend.
Platts
- European energy regulators' group CEER wants reverse-charge VAT on wholesale natgas and power trades.
- Chesapeake confident shale gas plays would support proposed US LNG export projects.
- Japan's April LNG imports fall 10% on month to 6 mil mt after March 11 earthquake and tsunami.
- It is unclear how OPEC will respond to rising oil prices and political events ahead of June 8 meeting.
Bloomberg
- Oil Gains for Second Day on Keystone Pipeline, U.S. Consumer Confidence.
- Merkel’s Atomic Overhaul May Aid Industry at Consumers’ Expense.
- Saudi-Iran Feud Draws Sectarian Line Across Mideast Oilfields.
- London, Portland Tap Efficiency to Beat UN to Climate Fix.
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