Energy Drilldown – June 14, 2010

FMX | Connect – www.fmxconnect.com - (Reported 6/14/2010)

Energy Drilldown provides a synopsis of overnight activity with brief market commentary from industry professionals.

Friday Market Recap

Oil prices were lower on Friday as traders continued all day to brood over retail sales figures. It showed an unexpected decline and Capital Economics said about it, “The sharp 1.2 m/m decline in US retail sales in May dramatically weakens the outlook for consumption growth in the second quarter … “ As is typically the case, Capital Economics (CE) got it right and the market responded accordingly. Traders also saw these figures as a sign that the consumer is in pain and that retail sales have suffered as employment has failed to gain any real traction. CE went on to note the potentially negative impact of lower retail sales on future GDP.

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It noted, “… real consumption in the second quarter as a whole may grow at an annualized rate of less than 2.0%, down from 3.5% in the first.” It suggested that a previous growth outlook of 4% now seems “very challenging.” And it added, “…these data suggest 3.0% now looks more plausible.” For a major economic think tank to reduce its GDP forecast by 1% is hardly usual, but that seems to have been their message. This report was unexpected and changes the picture rather significantly.

Equities, the euro and oil all tried to rally back above unchanged around 11 AM. The euro did claw its way back to even on the day and stocks did manage to pull themselves into positive territory, but oil prices could not get back to scratch, and they ended the day in negative territory. The combination of a disappointing retail sales figure and a technical failure on the charts, just a day after looking so promising, could not be overcome by the bulls.

The bottom line for Monday is that oil prices are under selling pressure and there does not seem to be any combination of factors bullish enough right now to help push quotes higher. For every rally in equities, there seems to be a negative economic statistic. For every increase in demand, we seem to have a rise in inventories. Prices need a strong economy, a strong equities market and a stronger euro to overcome existing fundamentals.

-Commentary by Cameron Hanover.

 FMX Newswire

• BP said it collected about 7,720 barrels of oil from its blown-out Macondo well in the US Gulf of Mexico during the first 12 hours of Sunday.
• Singapore's May bunker fuel sales up 1.4% on month to 3.47 mil mt -- setting a record high for the third consecutive month.
• BP says its cost of response to the Macondo well blow out in the Gulf of Mexico has risen to $1.6 billion.
• State-run Korea National Oil Corp has won final approval from Peru for oil exploration in two offshore blocks in the Andean nation.

• Crude Oil Rises on Forecasts That U.S. Recovery Is Under Way
• Oil Rises Above $74 on Bets Demand Will Gain on U.S. Economy
• BP May Lose U.S. Oil Leases, Contracts as Gulf Spill Punishment
• Hedge Funds Cutting Bullish Oil Futures Bets: Energy Markets
• Tanker Rates to Gain 43% as China Oil Buoys Frontline
• BP Crisis Wipes $19 Billion From Energy Bonds: Credit Markets
• Asia Naphtha Profit Rises on Growth Outlook; Gasoil Falls: Wrap

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