Morning Petrospective – June 22, 2011

n Tuesday, oil prices started out moving higher, but they slipped back into negative territory. This was despite a higher DJIA and a stronger euro. Those had initially been factors that had helped oil prices move higher.

Crude oil ended Tuesday’s session in positive territory, while refined products both sold off fairly steeply. It was the second day that happened, and it tightened what has been a wide crack spread between WTI and US refined products. We are getting to the time of year when utilization typically peaks (around July 4^th).

The problem is that there is no natural buoyancy in the oil complex. Demand figures have not been strong and we still have more crude oil in storage than in previous years. Without a constant stream of fresh buying, oil prices have a difficult time staying in positive territory. When the buying dries up, prices sink.

The US dollar was weaker in trading overnight and it was on its back foot in trading on Tuesday morning, during the normal trading session. Traders assume that there will be a resolution of the Greek crisis and they have been buying the euro as a result. Much of that buying has been short-covering or “bargain-hunting,” but it has not been investment-grade fresh buying, as it was so often over the last two years. Those who see the euro as another asset to buy because of the carry trade over fears of inflation seem to have moved to the sidelines. The bottom line, though, is that traders seem to expect a resolution of the Greek situation relatively soon. In the meantime, it is a waiting game.

The Greek parliament voted through the critical vote of confidence this late afternoon, but oil prices dropped right afterwards in trading on Globex. It seems that a number of traders expected the vote to go through and had positioned themselves for it, only to be disappointed by the lack of new buying afterwards. It is uncertain what happens next, because the Greek government needs to pass a new raft of austerity measures that are unlikely to be popular with ordinary Greeks before any new aid will be approved. Presumably, the Greek government now has the votes needed to pass this austerity package.

This week’s API report showed draws across the board in inventories. Crude oil inventories were down 81,000 barrels, distillate stocks were down 541,000 barrels and gasoline stocks were down 1,516 million barrels. Refinery utilization jumped 2.0% to 86.5% as refineries increased operations heading into Independence Day. Crude oil imports were up 94,000 bpd to 9.273 million bpd. Implied demand came in at 4.668 million bpd in distillate and at 9.946 million bpd in gasoline.

FMX Newswire

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Bentek Energy

• Supply/Demand Balance Analytic Report – US Demand Falls as Nominations for Power Burn Decline.
• Northeast Observer – Supply Dynamics Shift on Lower Demand and Maintenance.
• Industrial End Users Analytic Report – Industrial Demand Jumps 7%.
• Power Burn Analytic Report – June Power Burn Drops Below 2010.

Platts

• BP expects to sell down equity stakes in its exploration portfolio in the US Gulf of Mexico over the coming years, BP CEO Bob Dudley said.
• Greenpeace has made a novel protest against deepwater drilling by hijacking the internet connection at a London hotel hosting a conference.
• China's apparent oil demand in May reached 39.4 mil mt, 8% higher on year, according to a Platts analysis based on government statistics.
• Bunker fuel loading at the Port of Hong Kong was suspended Wed after the Hong Kong Observatory issued a tropical cyclone warning level 3.  

Bloomberg

• Crude Oil Falls Before U.S. Supply Report; Goldman Sees ‘Choppy’ Prices.
• Goldman Sachs Says Libya Oil Exports May Rise, Near-Term Prices ‘Choppy’.
• PetroChina Walks Away From $5.5 Billion Encana Natural-Gas Deal in Canada.
• Norwegian Billionaire Roekke Seeks Takeovers.

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