Morning Petrospective – June 14, 2011
il prices were mostly lower yesterday, with crude oil prices dropping by more than two dollars in New York, although they were unchanged in Brent futures. Traders were looking at differing factors in Brent and WTI, although we sometimes think people have missed the whole purpose of fungible commodities when they start talking about different sets of facts pushing Brent higher and WTI lower. Theoretically, other than the storage problems in Cushing, the fundamentals for both should be the same. Both should be suffering from weak economic factors or dollar strength.
A force majeure at Shell’s Nigerian facilities was cited as being bullish for Brent. An announcement by Shell that it had declared force majeure on Nigerian crude, because of sabotage, helped keep Brent firm, but traders were selling US crude based on inventories being at 21-year highs – with Cushing levels continuing to depress the spread between Brent and Nymex Light Sweet crude. Still, the spread between the two seems to have hit record levels – absurd levels – despite having the same major motivators, things like the economy or the dollar, Opec or inflation. Yesterday, traders were focusing on the small differences.
The US dollar was stronger on Friday and was steady in trading on Sunday night. It weakened just around dawn in New York and was lower into the afternoon. At the same time, though, it did not really jeopardize the double bottom formation the dollar seems to be working on.
There was a good deal of discussion about Greece on Monday, after Standard & Poor’s downgraded that nation’s sovereign debt to the lowest rating held by any country. European leaders are holding revolving meetings to try to address the problem, but Greece continues to be a dark hole into which hopes for economic recovery get lost.
At the heart of Monday’s weakness was the continuing fear that the global recovery may be losing steam and traction. Almost every day, there is some fresh economic data that seems to fit better in an anemic recovery than in one that is robust or dynamic. Oil fundamentals have been played against those figures, but high pump prices and poor relative demand have prevented gasoline demand – and prices – from leading oil prices higher into Independence Day.
Traders will start looking ahead to this week’s DOE report on Tuesday afternoon, when the API report will give us an early look at what the industry expects to see this week. We are also going to be looking carefully at the SpendingPulse figures to see if gasoline demand at the pump has improved at all.
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