Morning Petrospective – June 7, 2011

il prices were slightly lower early today, as traders found a “default mode” of selling while the dollar was quiet. This now seems to be the new reality; prices seem to want to move lower. It is just a matter of what the dollar is doing. If it is steady or higher, oil prices can decline. If the dollar is weaker, the oil markets tend to advance. As long as the economic statistics remain on the weaker side, the default mode seems likely to point towards lower levels. And we have been getting a long sequence of negative or bearish economic statistics.

With the dollar stronger on Tuesday, oil prices were allowed to seek lower levels. Traders were also selling on expectations that Opec ministers will raise quotas on Wednesday. The IEA (international Energy Agency) is also begging the cartel to lift real production level, rather than just raise quotas to match existing output. Nobuo Tanaka, the executive director of the IEA said on Monday that there is a “clear, urgent need” for more oil, warning that high oil prices are at the heart of the global economy’s recent slowdown. The IEA believes that rising oil prices “risk derailing the global economic recovery.”

Iran is dead set against an increase in quotas to legitimize current output rates and is even more against increasing actual output. The Saudis, as always the biggest ‘vote’ in the cartel are saying it is too early to tell what will be decided on Wednesday. Iran believes, or says it believes, that prices are “fair” and that the market is adequately supplied. We are not really sure what the ‘tipping point’ is here, though. Saudi Arabia has said for quite a while, as it has on a number of occasions in the past when prices have been high, that it is willing to honor any requests for oil. Granted, that oil is hardly Saharan Blend, or Light Louisiana Sweet, but it is available to those who want additional barrels. If anyone asks, they can have the oil.

We do not get the impression anyone is asking. And, as much as we would love to see barrels competing with each other for homes, it makes as little sense to refineries to flood markets with refined products as it does for Opec to flood markets with crude oil. Both would help the global recovery gain major traction. But, who really expects big oil companies or producers to foot the bill for economic growth – even if it would help them both longer-term? No shareholder of any large integrated oil company wants to sacrifice profits this quarter for a stronger economy, better customer relations and goodwill four or five quarters down the road – not at oil companies or at any companies, really.

Traders also started to look ahead to this week’s DOE report, which comes in a week that has seen refinery utilization drop in five of the last six years.

FMX Newswire

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Bentek Energy

• Industrial End Users Analytic Report – Industrial Demand Down 1%.
• Storage Analytic Report – Preliminary Projection Is a 70-Bcf Injection as Record Heat Continues.
• Supply/Demand Balance Analytic Report – Power Burn Increases Lead Demand Higher Today.
• Power Burn Analytic Report – Power Burn Up 4.7 Bcf/d Since Sunday.

Platts

• A large low-pressure system in the northwest Caribbean has begun to weaken and has a low chance of become a tropical cyclone, the NHC said.
• Australian Penrice and GE to commercialize coalseam gas water process technology. 
• Tonnage-hungry tanker owners drawn to cheap assets in depressed market. .  
• Eagle Ford Shale expected to deliver up to 800,000 b/d oil; enthusiasm grows for focus on oil plays over natgas . 

Bloomberg

• Crude Near Three-Day Low; Delegate Says OPEC Will Raise Production Quotas.
• OPEC Seen Considering Raising Crude Output Up to 1.5 Million Barrels a Day.
• Vitol Chief Executive Says World Would ‘Welcome’ More OPEC Oil Production.
• Tepco’s State Support at Odds With Market.

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