Morning Petrospective – July 5, 2011
il prices rallied rather spectacularly last week, without much more than mild to moderate draws in inventories and the passage of a Greek austerity bill. Gasoline prices rallied more than a quarter (25.67 cents) for the week, which was an especially undesirable slap in the face to consumers and to the White House. The previous week, the SPR and IEA strategic reserve releases had seemed uncharacteristically wise. After last week’s rally, they look less sage. The advantages won from the announcement were negated last week.
The US dollar dropped in response to buying in the euro as it became clear that Europe would not leave Greece up a creek without a paddle. And, despite noisy demonstrations, Greece’s legislators realized the gravity of their situation enough to squeak through a vote of confidence and an austerity program that allowed the Germans to stamp the loans with a sense of vindication that Greeks would feel the pain of their un-Teutonic approach to spending. The biggest surprise, in the final analysis, was that so many currency traders had expected events to turn out differently.
It was as big a surprise that oil prices advanced as dramatically as they did. Traders were covering shorts in crude, but they added 17,000 new heating oil contracts and 12,000 new gasoline contracts from Thursday to Thursday last week. That would argue in favor of traders seeing something bullish in the downstream sector, and one would presume that they saw something more than the draw of 1.4 million barrels of gasoline. Distillate stocks were higher. The most bullish factor was the decline in gasoline production of 444,000 bpd on the week. At the same time, though, four-week gasoline demand fell from an average of 0.91% higher to a decline of 0.33%.
Total four-week product demand had been down 2.71% and is now down 1.71%, while four-week average distillate use was down 5.73% and is now off 4.69%. Those are improvements, but they are hardly enough to turn the entire complex bullish after it has just broken down on the charts in the wake of the strategic releases.
It seems to us that last week’s strong showing was the result of oversold pressures, technical support and the seasonal for prices to make bottoms near Independence Day. Nothing else really holds much water. The fundamental oil picture is improving, but the biggest and best reason for investors to buy oil futures (QE2) has just ended. Unless there is something inflationary out there that we do not see – something new, that is – we have to believe that signals have been crossed. The stock market is not making new highs each week the way it once was. The dollar is not making new lows every week - the way it once was. The unrest in the Middle East is not spreading to a new country every week - the way it once was. And the US and global economies are no longer getting at least one piece of supportive data every week – the way they were for weeks in the first quarter. Investors were the biggest buyers and that buying was why oil prices advanced as far as they did from September 1st until the end of April.
As we start the second half of 2011, we have a lot of questions. Are oil prices reflecting a stronger economy than is apparent or a deep-down conviction that the Fed will resort to a QE3 because the economy is much weaker than is apparent? Or, is the recent strength really all about oil supplies? And, most pressing, have prices turned back up again or was last week a light-volume, pre-holiday fakeout? We are trying hard to find answers, but honestly do not have them this morning.
FMX Newswire
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Bentek Energy
- Power Burn Analytic Report – Power Burn to Increase Over 5 Bcf/d by Next Week.
- Industrial End Users Analytic Report – Update to Estimate Set for Release on June 12.
- Nuclear Plant Status Analytic Report – Outages Return to Normal Levels.
- Supply/Demand Balance Analytic Report – Latest Draft EIS by New York DEC Would Render 15% of Marcellus Off Limits.
Platts
- China to hike LNG and pipeline #gas imports to 90 billion cu m by 2015, according to analysts..
- Prompt European naphtha market back into backwardation despite Asia outages, say sources.
- China said Tuesday that ConocoPhillips should bear responsibility as the operator for the oil spill at the Penglai 19-3 field in Bohai Bay.
- Idemitsu Kosan began restarting its 160,000 b/d Aichi CDU in central Japan Tuesday afternoon, after an unplanned shutdown from June 29.
Bloomberg
- Oil Halts Two-Day Drop in London; Barclays Raises 2012 Brent, WTI Forecast.
- Energy Transfer Raises Takeover Offer for Southern Union to $5.1 Billion.
- Thai Calm May Rely on Delaying Thaksin Return to Please Army.
- Fukushima May Worsen Global Nuclear Skills Shortage, U.K. Watchdog Says.
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