Morning Petrospective – August 22, 2011

he oil complex ended Friday’s session mixed, with crude oil prices down fractionally and refined products prices up a few cents a gallon. For the week, crude oil prices dropped $3.12 a barrel, heating oil prices were up 0.08 cents a gallon and gasoline prices were actually up 1.90 cents a gallon. Given the huge losses seen in equities, one has to be impressed – if unhappy for the economy – that gasoline prices actually gained almost two cents a gallon last week. During the first round of asset liquidation three weeks ago, lower gasoline quotes were the silver lining in the overall weakness.

Volatility late last week in the euro helped give us volatile oil prices. In trading overnight on Thursday into Friday morning, crude oil prices were lower while refined products prices were higher. The dollar was stronger Thursday night, but it weakened for most of Friday, and that meant that the lower oil prices were seen earlier in the session. But, a good part of the dichotomy in oil prices came from the long shadows cast by last week’s DOE report. It had shown a large build in crude oil stocks of 4.233 million barrels and a larger-than-expected drawdown in gasoline stocks.

Heating oil prices had a larger than expected build last week, but distillate stocks are 20.2 million barrels (11.6%) lower than a year ago and 7.6 million barrels (4.7%) lower than two years ago. Heating oil stocks are 11.2 million barrels (22.13%) lower than a year ago and 8.0 million barrels (16.88%) lower than they were two years ago. We can see distillate builds for the next several weeks without them being bearish because we need to rebuild heating oil inventories before November 1^st.

The combination of the larger draw in gasoline and the need to continue rebuilding distillate/heating oil stocks was behind the relative strength of refined products late last week. It is why crude oil prices were down $3.12 and refined products were up 1.90 (gasoline) and 0.08 cents (heating oil) last week.

It is also why we are looking for a build in distillate stocks this week - because we need one - and that also is partially behind our expectation for an increase in refinery utilization. We expect to see distillate yields increase from here, as well. Crude oil stocks are likely to increase because they did last week and have in four of the last six years this week. Plus, we expect refineries to use recently lower crude oil prices to build crude oil inventories with the expectation of running refineries at higher levels than is normal for this time of year. Strong refinery margins are also at the root of our expectation for an increase in refining rates - along with the need to add to heating oil stocks. Gasoline stocks typically decline at this time of year, and we expect they will again this year as resellers pull product from primary storage ahead of the Labor Day Weekend and as refineries look to cut back on gasoline yields as the driving season winds down.

The Federal Reserve’s meeting at Jackson Hole on Friday is shaping up as a critical event for markets this week. It was there, a year ago, that QE2 was launched, at least as a theoretical construct that was going to be implemented later. And, for all its other failings, no one can say that this Fed blind-sides traders or investors. It telegraphed QE2 for a solid eight or nine weeks before launching it. We expect that this meeting could provide similar insights to the Fed’s thinking this year.

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 – Hurricane Irene to Reach Florida by Friday, Suppress Power Burn.
• Supply Demand Balance Analytic Report – Tropical Storm Irene Off Puerto Rico, Could Impact East Coast Demand.
• Nuclear Plant Status Analytic Report – ERCOT, SERC, and RFC Units Return to Service Over the Weekend.
• Industrial End Users Analytic Report – Industrial Demand Up from the Weekend.

Platts

• European oil companies are watching developments in Libya closely to gauge when they can return and restart oil and gas operations.
• The falling price of oil and its impact on Africa: Platts' European oil news director on CNBC Africa..
• China oil demand seen rising after maintenance period.
• Japan LNG demand could rise 800,000 mt/month on nuclear shutdowns, says Deutsche Bank report.

Bloomberg

• Brent Crude Slides as Libyan Rebels Enter Tripoli; Premium to U.S. Narrows.
• Shell, PetroChina’s Arrow Energy Offers $540 Million to Acquire Bow Energy.
• Hedge Funds Buying Corn to Silver to Soy After Commodities Futures Decline.
• Qaddafi Sons Taken as Rebels Sweep Into Tripoli.

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