Morning Petrospective – July 12, 2011

il prices were lower on Monday, with traders selling futures in follow-through selling from late last week. Traders were talking about the recovery slowing in both the US and China. Global debts seem to be hanging over the market like the Sword of Damocles. As we start a new week, the focus has shifted from Greece to Italy and it seems that one of the southern European countries is going to pose a problem that cannot be solved by their more northern neighbors. The US employment figures from last week continued to weigh on prices and traders were looking at bearish figures from the US and China as we started the week.

The US dollar was also higher in trading Monday morning. It has not been the factor it was last year, or indeed in any of the last three or four years, over the last two or three weeks. We do see it as a continuing influence in this market, though. The chart of the dollar-euro shows the dollar stronger against the European currency since late last night. The dollar is now worth more than 71 euro cents, which is an improvement over the last two or three months. We think that the dollar may have made an important low on the charts and may be getting ready to rally over an extended period. The bigger question, though, is whether the oil complex will follow the euro, as it has done for most of the last four years or so.

Traders were also looking at the latest numbers from China, where “June crude imports fell 5.7% from a month ago to 4.81 million barrels a day.” That put them at “the lowest level in eight months due to planned refinery maintenance and a slowdown in the country's manufacturing growth following Beijing's monetary tightening measures,” Dow Jones wrote Monday morning. While the US was prodding inflation through quantitative easing, China experienced the inflationary fallout and has been tightening reserve requirements and ratcheting up interest rates to cool demand. And, now it seems to be working. On Monday, traders reacted by selling on the news.

The selling over the last two days has stopped the surging tide of buying that was driving prices higher … for two days. We would be surprised, maybe even shocked, though, if this continues. Usually, prices have a hard time moving more than two or three days against the trend, which is what they have been doing, rather unpersuasively.

It will only require a push Tuesday or Wednesday to get prices advancing again. As a result, we would buy into this weakness to hedge any near-term exposure. We do not think that the advance has too much left before another more major pullback, because prices are too near their upper Bollinger Bands and are overbought, but this would be a good place to pull the trigger on capped-price product or to buy with the hope of saving 10-15 cents a gallon or $4-$7 a barrel on the upside. We just can’t say that prices will keep going after that. But, the selloff seen over the last two sessions has all the earmarks of a correction rather than a reversal. Events in Europe are urging caution, but charts are clear.

Traders will switch gears to this week’s supply-demand statistics on Tuesday, we expect.

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

• Power Burn Analytic Report – Hydro Continues to Offset Power Burn in the West.
• Storage Analytic Report – Preliminary Storage Midpoint Estimate Is Down 16.0 Bcf Than Last Week.
• Supply/Demand Balance Analytic Report – Warmer Temperatures Drive Demand in the Northeast.
• Nuclear Plant Status Analytic Report – Comanche Peak Taken Offline For Unplanned Outage.

Platts

• Iraq's South Gas Co has initialed a $12-billion JV deal with Shell and Mitsubishi to capture, use flared gas at oil fields in Basra province.
• Egyptian gas deliveries to Israel were halted Tuesday morning after an explosion at a pipeline some 20 km south of El Arish in the Sinai.
• Beach Energy has had a "major and historic success" at Australia's first shale gas well, achieving a production rate of up to 200,000 Mcf/d.

Bloomberg

• Crude Oil Falls for a Third Day on European Debt Concern, U.S. Stockpiles.
• Where Have All the Special Envoys Gone? Obama Could Use Their Help: View.
• Militants Blow Up Egypt-Israel Gas Pipeline Terminal in a Predawn Attack.
• Murdoch Goes From Party Darling to Pariah in Watershed Moment.

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