Morning Petrospective – September 29, 2011

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his market has officially entered the “Twilight Zone.” The world’s entire investment community seems to be waiting for a resolution of an extremely knotty sovereign debt crisis, primarily in Greece, but in a number of European countries. So far this week, prices have soared and plunged on the latest temperature of voters in Germany and Finland, although any country that now requests collateral will become as important as Finland has become. Germany, as Europe’s economic powerhouse, is most important, but …

Any number of countries can throw a spanner in the works at any time here. We listen to analysts on television and one day, the European picture is improving. The next day, not so much. Then, someone else will give a bottom line. These usually come down to: ‘Europe needs to face that it has two ways out – default or printing money. And Germany will not accept the latter.’ But, it has been almost impossible to get analysts to agree that there will or even is likely to be a default.

On a number of days, it looks to us like everyone owing tons of money is going to be forced to default. The Roman emperors defaulted. The kings of Spain, as its Golden Age was ending, defaulted a number of times. And Spain had treasure ships loaded with gold and silver making annual (or more frequent) voyages from the New World for 150 years and more. An eighty-year rebellion in the Netherlands bled it dry long before the pirates seized any of the annual treasure fleets. Its kings put copper in the middle of silver coins (like we did in 1965), and racked up huge debts paying mercenaries and building armadas. The truth is that just about every empire defaulted at some point.

That does not mean that the US should or will. Nor does it mean that Greece should or will. It just means that this wouldn’t or possibly will not be the first time. There are a number of days when we honestly believe it might be better for either the US or Greece to default, get it over and done with and then build on a fresh tomorrow – preferably without debts. Of course, there are plenty of days when we break a sweat worrying that we might do exactly that … or that the Greeks might.

It looked last week like the markets had decided that we were going into a recession (second leg or a double-dip). Assets were strictly off the menu late last week. But, when we returned on Monday, assets were suddenly de rigeur again. No one’s life was complete without them. At the end of last week, only the downward trend mattered in oil markets. Early this week, oversold pressures and support levels ruled. Now? We are not sure what we have now. It is difficult to tell if we have the renewal of a bearish trend after a two-day rally (a very powerful rally) or if this is just a correction after two days of starting a new advance.

We have to lean towards prices trying to continue their recent rally, just because of the risk-to-reward. If we break last week’s lows, though, we should expect major legs lower in a number of assets.

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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 – Switching Continues to Increase Power Burn as Limitations Degrade.
  • Industrial End Users Analytic Report – Demand Mixed in Sample; Southeast Shows Drop, Southwest Shows Gain.
  • Supply/Demand Balance Analytic Report – Storage Projected at 106 Bcf; Demand Forecasts Slip Lower.
  • Nuclear Plant Status Analytic Report – Browns Ferry Trips offline in Unplanned Maintenance Event.

Platts

  • Importance of recent lease sales in Permian Basin, plus benefits of drilling in a mature field.   
  • Accommodating Libya and world economic worries weigh on OPEC.
  • Prompt bunker deliveries in Greece resume as customs strike ends.  
  • Kogas says gas pipeline from Russia via N. Korea to cost $2.5 billion. 

Bloomberg

  • Crude Oil Rises on Speculation Europe Rescue Plan Will Temper Debt Crisis.
  • Commodities May Advance, Paring Quarterly Decline After German Approval.
  • Gazprom Gas Supply Contracts Are Focus of EU’s Antitrust Probe.

  • Carter: Energy Department Is No Venture Capitalist.

Technical Recap

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