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Morning Petrospective – July 8, 2011

July 8 2011, 08:21

Morning Petrospective – July 8, 2011

il prices advanced steeply on Thursday, with Brent up almost five dollars. Nymex crude was up close to two dollars and the most amazing part of it all was the lack of genuine news to push prices higher – proving yet again that this market is determined to put a bullish face on everything. The DOE report had bullish headline factors, but it was hardly as bullish as prices would suggest. The dollar was lower against the euro by the afternoon and the DJIA had another sparkling day, but these were just supporting factors. More than anything else, this market now has such powerful upward momentum behind it that everything is coming up bullish. These markets are rare, and it seems to have been seasonally inspired.

But, at the heart of this is a conclusion reached as QE2 ended: Low interest rates are enough of a reason to buy commodities. Oil is the market darling now, outperforming metals.

Traders had a weaker US dollar and a stronger stock market complex working for them. The DJIA was up 93.47 to 12,719.49, but there are more compelling stories in the Nasdaq and in the Dow Transportation Index. Those are making new highs. It looks like the DJIA is on a course to test its April highs.

This is one of the strangest bull markets we have ever seen and it reminds us of the move higher to $147 in 2008. Traders are talking about things “getting better in the second half,” without specifying particular improvements. People are not saying, for example, that new housing starts will jump by 100,000 units or unemployment should fall by two percentage points by Christmas. And, those who are seeing improving supply numbers in oil are not suggesting that heating oil stocks are so low that the squirrels are better prepared for next winter – before a single acorn has fallen. No one is citing specific improvements; they just say things will get better. That’s nice, but we do not think it is 13 or 14 cents a gallon better for products. And that is what we had on Thursday.

All three major inventory levels dropped in this week’s DOE report. But none of them fell by more than a million barrels. Total refined products demand is down 1.77% (four-week average) while four-week average gasoline demand is now down 0.62%. Four-week average distillate demand is down 5.34%.

Thursday’s biggest factor was the ADP estimate showing employment jumped by 157,000 jobs in June. Most estimates had been coming in just below 100,000. This week’s Thursday morning (weekly) unemployment report showed 14,000 fewer applications for first-time unemployment benefits, which was much better than the 3,000 drop predicted by a survey of analysts. Oil traders immediately translated those into drivers going to new jobs, and judging by the 13-cent jump in gasoline quotes, the market already has them choosing high-octane gasoline in low mpg vehicles.

The employment figures were encouraging. But, the price jumps seen in oil futures are way out of proportion to the improvement – which still needs to be verified on Friday. The oil markets simply want to advance here. The jobs numbers gave traders reason to picture new drivers on the road.

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

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