Morning Petrospective – September 20, 2011

ere we go again … it almost can’t be a Monday without traders coming back to fresh Greek debt worries. And this week fit in that mold. European finance ministers huddled with bankers over the weekend, and they did not come up with enough to change the mood or to alleviate the fears that have gripped global financial leaders and investors. And, as long as they were busy worrying about Greek debt woes, they decided that it would be worthwhile to review all of the negative factors that exist with the US economy … so oil prices dropped.

This was a full-blooded decline with all three major oil contracts getting hit equally hard. Refined products were down significantly as crude oil dropped more than two dollars. Heating oil fell more than six cents and gasoline gave back more than eight cents – closer to nine, really.

The dollar opened higher on Sunday night and it worked higher until around 10:30 or 11:00 AM on Monday morning. It sold off steeply from there, but it found a bottom around 3:30 PM and ended on a positive note that was picked up again around 6:30 Pm, when trading reconvened. The stronger dollar was a bearish factor for oil throughout trading on Monday.

The DJIA was down 250 points at its worst on Monday, and it finished the day down 108.08 to 11,401.01. Oil traders have been using the equities markets as economic surrogates for the US economy. Weaker equities quotes have been translated into forecasts for weak US economic growth, which – in turn – has been seen as a harbinger of weaker oil prices.

The economic signals have been mostly mixed or negative in recent weeks, and these have given prices reasons to move lower. The major reason that prices are not already significantly lower is that investors continue to harbor this strange belief that the Fed will do something, anything to turn the economy around. That did seem to be the case for a while, but we are not sure anymore. Comments like the ones made by Governor Parry of Texas, which equated printing money to treason, could make the independent Federal Reserve nervous and even reluctant to act.

Prices are likely to react to economic developments as we move through the week, and we expect the US dollar and the DJIA to provide cues for oil prices. On Wednesday, traders may get more direct cues from the weekly DOE numbers. Expectations seem to be for a draw in crude oil stocks and builds in refined products stocks.

FMX Newswire

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Bentek Energy

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Platts

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Bloomberg

• Oil Trades Near Three-Week Low in New York on Signs Global Demand Slowing.
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