Morning Petrospective – June 15, 2011

he oil complex was higher on Tuesday as traders covered shorts and looked for bargains. There was decent short-covering in Tuesday’s trading, as prices rallied and relieved oversold pressures. The US dollar was mostly lower on Tuesday, and that helped push the oil complex higher. There was a small rally in the greenback late in the day, but it did not have much of an impact. More than anything else, it seems that the bears were eager not to get ahead of themselves while the bulls saw bargains at lower prices. These two forces worked together to push prices higher on Tuesday.

There are still reasons to believe that oil prices could have more downside potential left in them. Economic data released on Tuesday was not terribly persuasive that the economy is getting better, and the weakness in the US dollar did not seem to be longer-term; it looked like a temporary event. There was a rally in equities, but that also seemed based more on hope than on anything substantial or lasting. More and more signs are out there every day that businesses are bracing for difficult times ahead. That does not make for a strong forecast.

The differential between WTI and Brent reached a new intraday high on Tuesday before finishing at $20.79. It is too illogical to trade this differential.

Equities rallied on Tuesday as sellers lost interest and buyers searched for bargains. There were numbers of traders who thought that the decline in oil prices and in equities had been overdone, and they were looking for a bounce to the upside. Oil traders revisited Monday’s force majeure by Shell in Nigeria and saw in that a reason to buy.

In economic news, US retail sales dropped by 0.2% in May, ‘driven’ by a 3.2% decline in automobile sales. Those sales were lower because of a shortage of inventories because of the earthquake and tsunami in Japan. When one takes out automobiles, gasoline and building supplies, which were up 1.2% after the tornado and flood damage of earlier this quarter, retail sales would have been up 0.2%, which would be seen as slightly disappointing.

Producer prices increased 0.2% month-to-month in May, with a 2.7% jump in gasoline prices leading the way. Surprising people, though, was a decline of 1.4% in finished food prices. Excluding food and energy, producer prices were up 0.2%. Automobile sales incentives were discontinued last month, and the increase in prices there is expected in Wednesday’s CPI figures.

This week’s API report showed a draw of 0.426 million barrels in distillate stocks. Crude oil stocks dropped by 3.029 million bbls and gasoline stocks increased by 1.126 million bbls. Refinery utilization dropped by 0.2% to 84.5%. Crude oil imports were up 274,000 bpd higher. Implied demand was 4.605 million bpd in distillate and was 9.418 million bpd in gasoline.

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

• Industrial End Users Analytic Report – Industrial Demand Down 1%.
• Canadian Observer – Sable Island Production Goes Offline Today Through Next Week.
• Texas Observer – Gulf South Completes Maintenance, East Texas Outflows Resume.
• Power Burn Analytic Report – Power Burn Declines 1.7 Bcf/d on Cooler Weather.

Platts

• Norway's crude output in May fell to 1.54 mil b/d from 1.85 mil b/d a year earlier, hit by issues at several fields. Gas was also well down.
• Reports of 0.1% European gasoil death greatly exaggerated. 
• Indonesia will send 7 additional LNG cargoes to Japan this year to help the country meet its energy needs, according to an industry source. 
• Inter-dealer broker Tullett Prebon plans to start up on August 1 a Singapore-based coal desk to broker physical and financial coal products.  

Bloomberg

• Oil Declines as Concerns Over European Debt Counter U.S. Inventory Drop.
• Chevron Bets on Volcanoes in Indonesia.
• Libyan Rebels Seek $3.5 Billion in Financial Aid as Oil Production Stops.
• Gas Natural Climbs After $1.9 Billion Settlement With Algeria’s Sonatrach.

Technical Recap

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.