Morning Petrospective – June 30, 2011
reak open the reserve bottles of ouzo as the Greece austerity bill passed by a narrow margin this morning… right? Just don’t tell that to the Greek people as the scene outside of the parliament building was anything but a celebration… unless anarchy is your cup of tea. With the passing of the bill, many believe the path of additional bailouts will be had by the Mediterranean nation. The reaction from the market was positive as equities rallied while the Euro again traded higher. The reaction from energy was jaw dropping. Besides for the positive news from Greece (I think it is positive news), traders also saw a bullish set of stats from the
weekly DOE report and rumors that Japan is increasing their intake of imported fuel as the nation gets set to rebuild following the trio of disasters in March. All of these factors caused the energy market to simply explode – particularly RBOB, Brent and heating oil. From a percentage basis, RBOB was the crème de la crème as its spot contract surged a whopping 12 cents while Brent (up $3.60) and heating oil (up nearly 10 cents) came in at a tie for second place. The “laggard” of the complex was again WTI crude as it near-month contract increased “only” $2 or 2.25%.
Early in the session, the petroleum market was all about the Greece austerity vote and the volatility in energy futures reflected that. Once the vote passed, the trade turned its attention to the weekly DOE report that showed a much larger than expected drawdown in crude oil supplies (down 4.375 million bbls) and a somewhat greater decrease in gasoline inventories (down 1.428 million bbls). We also saw a very modest decrease in gasoline consumption (current usage is still above 9 million bpd at 9.261 million bpd) while diesel demand jumped 0.133 million bpd to 3.552 million bpd. These stats were definitely more bullish than bearish and the market reacted as such by piling onto the early morning gains and really pressing values higher as day progressed.
Lastly, the other bit of news that seems to be more of a rumor than anything else is on Japan being an active buyer of spot product (and crude) as the nation sets to rebuild from the disasters seen last spring. This would explain the surge in crack spreads of late (and the recent buying seen in Brent over WTI) but I have not seen any solid reports on this just yet. This would explain quite a bit in regards to the IEA and the release of the some 60 million bbls of oil this month considering Japan’s factory output increased 5.7% from April to May (the largest monthly jump in more than 50 years). A rebounding in industrial production in Japan coupled with
fresh recovery projects in the areas most affected by the earthquake and tsunami would make world consumers nervous and potentially react in a dramatic fashion. Conspiracy theory time: what if world leaders had a good hint that economic conditions would dramatically improve in Japan and subsequently pressure global oil supplies as result of Libya’s oil production still being offline? Of course this is a wild thought but the bullish reaction from energy today does deserve some explanation other than my previous days’ banter of “end of quarter profit-taking… zzzzzzzzzz … position squaring ahead of 4th of July holiday weekend…zzzzzzzzz… imminent passing of Greece austerity bill…zzzzzzzzzzz.” Please note the “zzzzzzzz” are supposed to reflect sleeping or snoring.
I must say that I will never forget the images on CNBC this morning that had their onsite, Greece reporter up on a hotel balcony wearing a gas mask discussing the odds of the austerity bill passing in the Greek Parliament. Of course what was going on below her was nothing less than hell. Rioters (an upgrade over the recent protestors)
and police were battling it out a few hundred feet in front of the parliament building that housed those voting on the austerity measures needed to receive additional bailout funds. Tear gas, rock tossing, fires, Molotov Cocktails, clubbing, marching, and plain ol’ fist fighting describes the images that I saw in Greece this morning. I have to say that I was a bit relieved when the bill passed as I really did not want to see another TARP moment that had the first vote on the bill fail in Congress in 2008 and subsequently cause the bottom to fall out of the market-place. It passed and now the stage is set for Greece to receive more bailouts… OOOOOOPPPAAAAA!!!
Lastly, the one headline I almost left out centers on the first named storm of the 2011 Hurricane Season. “LADIES AND GENTLEMEN, HAILING FROM THE EASTERN ATLANTIC, LET’S PUT YOUR HANDS TOGETHER FOR TROPICAL STORM, AAARRRRLLLLLLEEEEENNNEEEEEEE!!!!” The storm is now making its way through the southern Gulf of Mexico and figures to shut in Mexican crude production and oil shipping ports over the next 24 hours before making landfall in Northern Mexico later on tomorrow. The first storm of the season always seems to get the market all fired up… as if it did not have enough ammunition already. For now, the market is running away as we have nearly erased all the losses seen since the end of June… all in a blink of an eye.
Source: Afternoon Recap (June 29, 2011) by Jack Hunter of FCStone
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Peter Beutel is on a holiday break. The Daily Energy Hedger will resume publication on July 5, 2011.
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