Morning Petrospective – August 10, 2011

il prices were lower on Monday night and early Tuesday morning in overnight trading, but what started as selling turned into buying by the time the Nymex normal open outcry session began . By 12:40 PM, crude was up 77 points as traders covered shorts ahead of the Fed’s meeting on Tuesday afternoon. Refined products were up 131 points in heating oil and up more than three cents in gasoline. The euro was up 74 points and the DJIA was up 212 points. Gold was up $27.60 while silver was down $1.50. The message taken away was that markets had apparently returned to normal.

The Fed came out and promised to leave interest rates at “exceptionally low levels through 2013.” That did not seem like enough at first … and the DJIA sold off 150 points in the aftermath of the comments. But, that was hardly the full story on Tuesday. It took traders an hour to parse the Fed’s comments and, as traders mulled it over, they became more bullish over the Fed’s comments, which were designed to get traders out of bonds and into equities, according to CNBC. By the final bell, the DJIA was up 429.92 to 11,239.77.

Ten-year bonds reacted in such a way that traders thought the Fed had achieved QE3 without buying a single bond. Interest rates on the 10-year bond dropped dramatically and that hurt the US dollar and helped give us the rally in equities. The euro rallied against the dollar from 2:30 or 3:00 PM, and prices moved very rapidly. Oil prices finished in negative territory, but traders were buying it in afterhours trading and prices were back in positive numbers after the API report, which showed inventory drawdowns across the board.

The initial reaction was for oil prices to turn negative and it was down $2.00 at the close. The only asset that rose no matter what was gold, which was higher coming and going. Oil prices pared their losses as the DJIA rallied, but it was not terribly clear what to think by the time markets closed on Tuesday.

This week’s API report showed drawdowns across the board. Crude oil stocks were down 5.213 million barrels, distillate stocks were down 0.558 million barrels and gasoline stocks were down 1.005 million barrels. Refinery utilization was up 0.5% to 87.6%. Crude oil imports were down 143,000 bpd to 9.187 million bpd. Implied demand came in at 4.772 million bpd for distillate and at 9.756 million bpd for gasoline.

The smoke has still not cleared, but it looks right now like we need to be buying call options on Wednesday morning, based on the sharp turnaround we had in equities. Oil prices have been higher in early after hours trading. At this point in time, it looks like markets want to turn back up. As we ended Tuesday, equities were higher and the euro had rallied. If we see more of this overnight, we will need to buy calls this morning.

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 Dips Below 30 Bcf/d.
• Supply Demand Balance Analytic Report – Production Recovers Tuesday’s Losses While Demand Dwindles.
• Industrial End Users Analytic Report – Ethanol Production Flat for the Year.
• Canadian Observer – Canadian Gas Losing California Market But Gains Midcon Share.

Platts

• Clean Long Range 1 Northwest Europe to US Atlantic Coast freight rates hit 21-month low.
• Western Australia to retain 15% domestic gas reservation policy, says Premier Colin Barnett.
• ConocoPhillips to delay closure of Kenai, Alaska LNG plant until Oct.
• EIA expects 2012 US crude oil production to average 5.65 million b/d.

Bloomberg

• Crude Oil Rises From 10-Month Low on Fed Statement; IEA Sees Risks in 2012.
• Cheap Shale Gas Means Dow Leads Record Expansion in U.S. Chemical Industry.
• Apple Spars With Exxon Mobil for Title of World’s Most Valuable Company.
• EON Cuts 11,000 Workers, Slashes Dividend.

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