Morning Petrospective – July 14, 2011

il prices were stronger on Wednesday, along with most other assets and commodities. The buying was not spectacular, but it was steady. The euro was solidly higher, gold and silver were higher, equities were higher and it looked very much like the old days, before April. And there is a good reason for that; Ben Bernanke clarified the Fed’s position on QE3. It is available if needed. We all know why this is bullish if it is implemented. But, even if it is not officially implemented, it will be a bullish factor. Its mere availability means that any economic news now is bullish. If the data is bullish, it’s bullish. If it is bearish, it brings us one step closer to QE3.

We went through this last September. The majority expected QE2 to be announcedc at any time. But every bearish piece of data was seen as a spur in the flankof the horse that was certain to bring quantitative easing’s second round to official birth. And, on those days when we had positive data, oil prices advanced because the recovery was seen taking root and that would mean more driving. It was that kind of thinking that pushed refined products up 13 and 14 cents a gallon last week after the ADP jobs estimate. That sort of report will still be bullish. But, with QE3 in the wings, last Fridfay’s horrific monthly jobs figure would have been bullish because traders would have seen it as bringing us one steo closer to QE3. The bulls have a loaded deck, now.

The US dollar was lower on Wednesday and that certainly helped oil prices. But, the weaker dollar was seen as part and parcel of the same thinking that pushed oil and gold prices higher. It was the possibility of QE3 driving all three.

Wednesday’s most compelling was the news that Moody’s was reviewing US credit. In a statement, Moody’s wrote: “Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.” In other words, the long, drawn-out process of trying to reach a compromise between Democrats and Republicans, the government may have found a way to scuttle its rating. If the rating is lowered, it will cost billions more to borrow – or more specifically, to repay – money.

Traders saw this week’s DOE report as a bullish report, largely because of a larger-than-expected draw in crude oil stocks and a decent drawdown in gasoline stocks. These headline figures combined with a decline in refinery utilization to bring buyers into the market. Total four-week demand was down 1.45% - compared to being 1.77% lower a week ago. Four-week distillate demand went from down 5.34% to down 5.21%, Four-week gasoline demand went from 0.62% lower than a year ago to 0.88% lower than a year ago. These are not major changes. More than anything, they remind us that this is a supply-driven market.

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 – Power Burn is Down Five Bcf/d Since Tuesday.
• Midcon Observer – Canadian Inflows Well Below Last Year’s Average.
• Supply/Demand Balance Analytic Report – US Demand is Down 4.6 Bcf/d as Temperatures Cool.
• Industrial End Users Analytic Report – Industrial Demand Remains Under 2010.

Platts

• ConocoPhillips is separating its upstream and downstream arms with the refining and marketing unit to be spun off, completion likely H1 2012.
• Hungary's MOL in open letter to Croatian press defends controlling stake in oil & gas company INA as' heated' pre-election opposition grows.
• China's CNOOC Ltd. said that it has been gradually resuming production at its Suizhong 36-1 oil field in Bohai Bay.
• The Trans Alaska Pipeline System is preparing for a 2-day shutdown over July 16-17.

Bloomberg

• ConocoPhillips Plans to Split in Two.
• Brent Crude Falls in London on European Debt, U.S. Credit-Rating Review.
• Nuclear Village’ Protester Turns Hero as Fukushima Drives Atomic Backlash.
• North Sea Oil Drilling Falls to Nine-Year Low Amid Tax Rise, Deloitte Says.

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