Morning Petrospective – August 18, 2011

il prices were well higher in trading last night and into Wednesday morning, largely on a weaker US dollar from about 3 AM Wednesday morning. It was a quiet day, for the most part, and prices drifted without much thrust through the afternoon. Prices were bolstered by this week’s DOE report, which showed a larger-than-expected drawdown in gasoline inventories. Of course, it also showed a larger-than-expected build in crude oil stocks and in distillate stocks. The fact that the market chose to react to the gasoline figures was telling.

We have a number of confusing figures for gasoline demand. This week’s SpendingPulse report showed gasoline demand up 0.3% to 9.136 million bpd on the week, but it was down 437,000 bpd, or by a very severe 4.6% on the week, its biggest decline since the week ended August 28th, 2009. Four-week demand averaged 9.195 million bpd, which was 3.4% lower than a year ago. It was the biggest decline since August 7th, 2009 and it was the 21st consecutive decline in the four-week averages, year-on-year. The latest four-week average was the lowest since May 20th.

This week’s API demand came in at a very brisk 10.273 million bpd. The DOE reported it at 9.195 million bpd. We pretty much have to throw out the API implied demand figure and assume that demand is between 9.136 million bpd and 9.195 million bpd. The DOE four-week figure came in at 9.163 million bpd, down 3.05% on the year. So, we can go with average demand being between 9.163 million bpd (down 3.05%) and 9.195 million bpd (down 3.4%). Taken all together, demand is not particularly strong. We consider it weak, actually.

Traders seem to have been influenced by the year-on-year inventory deficits in both gasoline stocks (13.2 million barrels or 5.91% lower) and distillate stocks (20.2 million barrels or 11.60% lower). Distillate demand is a completely different story, coming in at 3.553 million bpd for the week and at 3.739 million bpd for the four-week average, which would be 5.80% higher than a year ago. The API had an implied distillate demand figure of 5.026 million bpd, but we tend to dismiss the API figures.

The oil complex seems to have been impressed by the year-on-year comparison in refined products inventories. It could have found distillate demand figures supportive, but gasoline’s demand figures are singularly unimpressive.

Wholesale prices, according to the Commerce Department’s Producer Price Index (PPI) were up 0.2%, after a decline of 0.4% in June. Analysts had been looking for an increase of 0.1%. The so-called “core index” was up 0.4% - its most since January. Despite these figures, companies paid 7.2% for goods in July than they had a year earlier and that followed a 7.0% increase, year-over-year, in June. And oil and gasoline prices were lower in this report. These numbers suggest more inflationary pressure than had previously been the case … which could keep the Fed from implementing QE3 or its equivalent.

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 – Texas Burn Drops 7% As Temperatures Remain Flat.
• Supply Demand Balance Analytic Report – Total Supply Flattens at 67.6 Bcf/d; 41 Bcf Storage Injection Predicted.
• Texas Observer – HSC Cash Basis Widens on Lower Eastern US Demand.
• Industrial End Users Analytic Report – Fertilizer Sector Demand Up 41% Month-To-Date from August 2010.

Platts

• Where are the permits for the deepwater being granted? We've got the BOEM map.
• A tropical wave near Jamaica has become more organized and could strengthen into a tropical depression later Thursday, NHC said.
• Consol Energy will sell half its Marcellus Shale assets in Pa. and W.Va. to Noble Energy in deal valued at $3.4 billion.
• Santos Vietnam started drilling oil and gas Block 123 offshore Vietnam on Aug 10 in the S China Sea where China among others stakes a claim.

Bloomberg

• Crude Oil Falls in New York on Signs Slowing Economy Will Curb Fuel Demand.
• Woodside’s Chief Coleman Says Considering Selling Stakes in Browse, Pluto.
• Iraq’s ‘Soft Line’ on Syrian Violence Snubs Obama Policy in Nod to Iran.
• Libyan Rebel Force Pushes South From Misrata to Cut Key Highway to Tripoli.

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