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FMX Oil Petrospectives – June 14, 2010

June 14 2010, 09:14

Oil Petrospectives – June 14, 2010

il 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.

The possibility that we could see higher gasoline prices at the same time that equities are declining, retail sales are dropping and employment remains flat, is our biggest concern moving forward. At that point, we might feel obliged to believe that the economy has turned lower again for another leg down. Consumer confidence is apparently a good deal more important than one might expect.

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.

New: In other news out on Friday, China reportedly refined a record amount of crude oil during May. It was up 15% to 8.5 million bpd, compared to levels seen a year ago. Refiners reportedly increased crude processing in response to higher refined products prices in April. Industrial output, which has been the bedrock of growth in energy demand, was up 17% in May, after rising 18% in April. This helped increase diesel demand in China by 12%, to 13.3 million tons. Gasoline production increased 2.6% to 6.52 million tons. Passenger car sales in China were up by their smallest amount in May for the last 14 months, as consumers there reacted to government efforts to cool economic growth.

Commentary by Cameron Hanover

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.

Platts oil

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.

Bentek Energy

Power Burn Report - Switching Falls as Prices and Temps Rise
Gulf Coast Production Report - Gulf Production Drops 99 MMcf/d over the Weekend
Daily Storage Range - Final Estimate For The Current Storage Week At A 80-Bcf Injection
Texas Observer (Daily) - Enterprise Returns Service To North Texas Pipeline
Daily Supply/Demand Balance - U.S. Supply Unchanged as Power Demand Rises; Atlantic Disturbance Emerges

Bloomberg