Morning Petrospective – August 9, 2011

tandard & Poor’s downgrade of the US capability to repay debt (from Triple A to double A) sent shock waves through global markets. Although the US avoided defaulting on its obligations with last week’s 11^th hour agreement between Republicans and Democrats in Washington, S&P held it against the US that its legislators were unable to agree on deeper cuts in spending. It told Washington it wanted $4 trillion in cuts last week and it lowered the US rating when the US did not agree to cut spending by the amount S&P thought would be best.

This means the US will need to pay higher interest rates on the national debt and that means even less discretionary money in each year’s budget at a time when the government is looking to cut deeply into services and programs. In a word, the downgrade means deeper austerity. Markets reacted by declining steeply. The US dollar started off moving lower Sunday night, but it turned around a little after 3 AM and kept advancing through Monday morning. The euro lost close to 180 points on Monday once everything was said and done.

Equities markets were clobbered with the DJIA falling 634.76 to 10,809.85. It was the biggest decline since December 1^st, 2008 and volume was extremely heavy as 2.3 billion shares – just on the NYSE.

Oil prices fell to their lowest level in almost nine months in the selloff. The last time oil prices were this low was November 23^rd, 2010. Brent bland dropped $5.63 to $103.74 a barrel. We expect that the differential will need to return to more normal levels at some point soon, because the absurd differential between WTI and Brent is causing disparities and anomalies in refining margins. Cushing inventories have also fallen significantly recently.

Oil prices have lost more than 15% since the beginning of this month and they are down 28.8% since the end of April. Heating oil prices are down 15.96% and gasoline prices are down 22.65% from its April highs.

The Fed will be continuing meetings on Tuesday and Wall Street is hoping the Fed will pull some rabbit from its hat. Of course, another round of quantitative easing just kicks the can down the road, inflating the problem away for another day. An announcement that the Fed is instituting QE3 or some similar program would be bullish for oil prices. The lack of anything new would lead to more selling.

The Fed will ultimately see itself painted into a corner here. The way prices are falling, especially on stock exchanges, they are likely to keep falling until the Fed unveils some new program. There are very few options available, but this is threatening to be a complete meltdown.

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 – Coal to Gas Switching Increases as Fuel Spread Widens in Favor of Gas.
• Supply Demand Balance Analytic Report – Production Drops 0.8 Bcf/d.
• Industrial End Users Analytic Report – Webinar Available Today for Industrial Demand Report.
• Canadian Observer – Low Storage and Winter Basis Signal Strength at Dawn.

Platts

• Charterers seeking lower clean freight rates on falling bunker costs.
• OPEC has cut its 2011 oil demand growth forecast by 150,000 b/d due to signs of economic slowdown in OECD economies.
• Medium- and heavy-duty trucks in the US must cut fuel use and emissions by up to 23% by 2018 under new fuel-efficiency standards.
• The North Sea Valhall oil and gas platform is unlikely to restart before end-August after an accidental fire July 13, operator BP says.

Bloomberg

• Crude Falls to 10-Month Low in New York; Brent Dips Below $100 in London.
• Wilbur Ross Buys Assets on View World Market Slump Lost Touch With Reality.
• Tepco Reports $7.4 Billion Quarterly Loss, Says No Chance of Insolvency.
• Syria Pressed as Arab States Join Criticism.

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