Morning Petrospective – July 13, 2011

il prices were lower in trading overnight, with Brent falling as much as $2.00 a barrel at one point in trading overnight. A stronger US dollar and continuing worries over US and Chinese growth combined with the latest fears over sovereign debt, which have now spread to Italy and Spain. Italy could be a deal-breaker with Europe’s fourth largest economy. If it has problems, they could be too big to solve. Traders were also talking about the possibility of six banks in Spain having failed their stress tests. In any event, oil prices were weaker in trading overnight.

Prices started to rally during the morning part of the normal New York session. There was no compelling news, but this market had very strong upward momentum last week, and it seems that it has reasserted itself in trading on Tuesday. It started with bargain-hunting and short-covering, but that very quickly turned into more general buying. This buying grew stronger as the day wore on and it seems to have been influenced by the buying in a number of other commodities, mostly in gold and precious metals. The bottom line seems to be mostly technical; the oil complex just wants to move higher and it will use almost any excuse to do exactly that.

The US dollar was higher to start the trading Monday morning. It got up over 72 euro cents, which it has not seen since February, but it then gave back almost a full euro cent. Nonetheless, it looks like it has built an important bottom longer term. It has been an influence on oil prices, but not necessarily a consistent one recently. Oil prices sold off on the dollar’s strength in overnight trading, but they started to rally well before the dollar sold off on Tuesday.

Equities were not a part of Tuesday’s rally, either. The DJIA was down 58.88 to 12,446.88. The DJIA is at a critical place on the charts right now. It needs to mount a full-blooded assault on its April highs or it runs the risk of leaving a longer-term double top formation. Over the past two years, equities have been a positive influence on oil prices, not least because traders see the country’s economic future reflected by its gyrations. In recent weeks, though, the correlation between oil and equities has become less adhesive.

This week’s API report showed a build of 4.754 million barrels in distillate stocks, a drawdown of 1.577 million barrels in gasoline stocks and a build of 2.341 million barrels in crude oil stocks. Crude oil imports dropped by 774,000 bpd to just 8.636 million bpd while refinery utilization fell 1.4% to 84.9%. Utilization often peaks on Independence Day, and it looks like it did this year as well. Implied demand came in at 4.029 million bpd in distillate and at 9.418 million bpd in gasoline.

Traders will get to compare these to the DOE numbers on Wednesday.

FMX Newswire

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Bentek Energy

• Power Burn Analytic Report – Power Burn Plummets 2.8 Bcf/d.
• Storage Analytic Report – Weekly Storage Projection Drops As Demand Recovers From Weekend Lows.
• Supply/Demand Balance Analytic Report – US Production Decreases0.5 Bcf/d, Driven by Decline in SE/Gulf.
• Industrial End Users Analytic Report – Chemical Producers, Refineries Lead 1% Demand Increase.

Platts

• World refining capacity could rise a "massive" 2.4 mil b/d next year with a major US expansion and new plants in China and India, IEA said.
• China has ordered ConocoPhillips to suspend operating activities at Penglai 19-3 oil field in Bohai Bay after a new oil sheen was observed.
• Japan's companies take lead in cutting power use during summer as the country faces a shortage in the aftermath of the March earthquake.
• Incoming Thai Prime Minister backs down from a proposal to drop retail prices on worries over how the government would subsidize some fuels.

Bloomberg

• Crude Retreats From Three-Day High in New York Before U.S. Supply Report.
• Heatstroke Deaths Quadruple as Japan Shuns Air Conditioners to Save Power.
• Kan Promises Less Nuclear Power, Debate on Atomic Plants.
• Oil Trades Near Highest in Three Days in New York on China Economic Growth.

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